|SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K
|-----------------------------------------------------------------------

|[X] |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED [FEE REQUIRED]
|--- |  | ---------------------------------------------------------------------------------------------------------------

|For the fiscal year ended December 31, 1999


OR
|------------------------------------------------

|[_] |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED [NO FEE REQUIRED]
|--- |  | ----------------------------------------------------------------------------------------------------------------------

| | For the transition period from __________ to __________
| | -------------------------------------------------------

|Commission File Number 000-21735


CREDIT MANAGEMENT SOLUTIONS, INC.(Exact Name of Registrant as Specified in Its Charter)
|--------------------------------------------------------------------------------------------------------------------------

|Delaware
(State or Other Jurisdiction of
Incorporation or Organization) | 52-1549401
(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------- | -----------------------------------------------

|135 National Business Parkway, Annapolis Junction, MD
(Address of Principal Executive Offices) | 20701
(Zip Code)
|---------------------------------------------------------------------------------------------- | ----------------

|(Registrants Telephone Number, Including Area
Code) (301) 362-6000


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT: None


SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Title of each class           | Name of each exchange on which registered
|----------------------------- | -----------------------------------------
|Common Stock, $0.01 par value |                                          

|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, as amended, during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]


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


At March 23, 2000, Credit Management Solutions, Inc. had
7,816,559 shares of Common Stock, par value $0.01, outstanding.


While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on March 23, 2000 (based upon the average bid and asked
prices of such Common Stock on the Nasdaq National Market on March 23, 2000)
held by non-affiliates was approximately $ 34.1 million. For this computation,
the registrant has excluded the market value of all shares of its Common Stock
reported as beneficially owned by officers, directors and certain significant
stockholders of the registrant. Such exclusion shall not be deemed to constitute
an admission that any such stockholder is an affiliate of the registrant.


Documents Incorporated by Reference


Items 10, 11, 12 and 13 of Part III of this Form 10-K are
incorporated by reference from the registrants definitive Proxy Statement
to be furnished to stockholders in connection with the 2000 Annual Meeting of
Stockholders. This Proxy Statement will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, not later than April 29, 2000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART I


Item 1. Business.


This report contains certain
statements of a forward-looking nature relating to future events or the future
financial performance of Credit Management Solutions, Inc. (CMSI or the
Company). Investors are cautioned that such statements are only predictors
and that actual events or results may differ materially. In evaluating such
statements, investors should specifically consider the various factors
identified in this Report which could cause actual results to differ materially
from those indicated by such forward-looking statements, including the matters
set forth in  Risk Factors.


The Company was incorporated
under the laws of the State of Maryland in 1987 and reincorporated under the
laws of the State of Delaware in November 1996. CMSI is a developer and
provider of software solutions and services for automating the consumer and
small business credit analysis, decisioning and funding process. The Companys
software products and services allow its customers to automate the entire credit
application process by enabling the rapid transmission of credit applications
to multiple funding sources, expediting credit application analysis and
decisioning and facilitating compliance with federal and state regulatory
requirements. The Companys  software product, CreditRevue, automates the entire credit
application process from the entry of the credit application to the credit
decision to the transfer of the funding information to the lenders servicing
system.


To further support the needs of
the lending industry, the Company developed the CreditConnection
service, which became commercially available in July 1996. The CreditConnection
service provides tools which link sources of credit origination through an
online network that transmits a credit application to multiple funding sources
and delivers credit decisions to the point of origin. In 1999, the Company
introduced the CreditOnline network, which expands the CreditConnection
service to link other sources of credit organization, such as Internet
financing web sites.


In February 2000, the Company
announced the formation of two new wholly-owned subsidiaries: Credit Online,
Inc. and CMSI Systems, Inc. Credit Online, Inc., focusing on the Companys
e-commerce strategy, will expand and enrich the Companys offerings in online
lending for the automotive industry. Credit Online, Inc. also  may leverage
investments made in infrastructure to expand into additional vertical markets
in the business-to-business Internet credit arena. CMSI Systems, Inc.
will continue to provide the Companys line of licensed credit management
software solutions, including CreditRevue.


Products and Services


CreditRevue


CreditRevue is a UNIX-based
software solution designed to automate the credit application process from the
entry of the credit application to the credit decision, through the transfer
of the funding information to the lenders servicing system. Using CreditRevue,
a lender can automate the analysis of a wide range of consumer lending
products, including vehicle loans and leases, home equity loans, student loans,
telecommunications services and credit cards. Before CreditRevue is installed,
the Company completes a review of the lenders credit application processing
environment. CreditRevue is then configured to address the lenders
specifications, including the lenders underwriting, approval and funding
processes. The Company designs interfaces from CreditRevue to the lenders
other related systems, such as its branch automation software, customer
information repository and loan servicing software.


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|The Company also markets the following supplemental CreditRevue
products:
|-------------------------------------------------------------------------

| | CreditRevue
Student Lending is a specialized version of CreditRevue which, in addition to
providing the full functionality of CreditRevue, is configured to support the
requirements of the student lending marketplace.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | eValuate,
which the Company referred to formerly as CreditRevue Maestro, is a product
designed to work in conjunction with a clients existing credit origination
application workflow system, providing complete background credit analysis,
decisioning and pricing capabilities based on client defined criteria. This
product is currently in development and currently is scheduled for delivery in Q2 2000.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | CreditRevue
Service Bureau is a product designed to allow lenders to connect multiple
terminals or personal computers to a service bureau system in order to make use
of the CreditRevue functionality. CreditRevue Service Bureau was designed to be
used by small and medium sized financial institutions seeking to minimize the
up-front hardware and software costs of an in-house system. The Companys
original strategy was to enter into marketing alliances with established
service bureau providers whereby such providers would re-market CreditRevue
Service Bureau to their clients on a transaction fee basis. While the
Company had entered into alliances with AnyTime Access, Inc., Outsource
Financial, Inc. and M&I Data Services, Inc., the Company is considering
changing its strategy to focus on an application service provider (ASP) or
other service bureau models built around its eValuate product and an enhanced CreditRevue
product offering. New licenses for the original CreditRevue Service Bureau would no longer be
offered.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In conjunction with Dun & Bradstreet (D&B) the Company
also provides the following credit processing products:
|--------------------------------------------------------------------------------------------------------------

| | OneScore
is a credit scoring product to assess small businesses. Using advanced
statistical techniques, D&B has developed a blended scoring
model that permits D&Bs comprehensive commercial information to be
intelligently combined with information on the principals of the business
concerned. The consumer information is provided by independent consumer bureaus
to help customers better assess credit risks in dealings with smaller
businesses. The Company uses its proprietary credit processing software to
implement the D&B model on behalf of OneScore customers enrolled by D&B. This
is a transaction fee oriented service for which the Company receives a fee for
each OneScore generated by a D&B client.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dun
& Bradstreet Portfolio Monitoring Service allows businesses to proactively
monitor individual small business credit relationships, automate various credit
analyses and reporting functions, and effectively seize cross-sales
opportunities. The service is based on Dun & Bradstreets standard and custom
credit scoring services and the Companys data integration and systems
capabilities. The service offers standard and custom management reports and can
forward processed portfolio accounts to a customers internal data warehouse.
The standard monitoring service uses OneScore. Customers can also use custom
scorecards to process their internal account performance data with external
commercial and/or consumer data. The advanced statistical scorecard provides a
business with a personalized view of the changing risk profiles in its small
business portfolio. This is a transaction fee oriented service for which the
Company receives fees based upon the number of small business accounts
monitored, the monitoring frequency and the amount of custom development work
selected.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2
|-

|CreditOnline Network andCreditConnection
Service


The CreditOnline network offers
connectivity between points of credit origination, such as automobile dealers,
and funding sources. The CreditOnline network originated as part of the
CreditConnection service, which was created to connect automobile dealers to
lenders. In 1999, the Company introduced the CreditOnline Network, which
expanded the CreditConnection network to link other sources of credit
applications, such as Internet financing Web sites, to funding sources. This
connectivity enables the Company to offer a comprehensive click-and-mortar
strategy for online financing designed to service three types of users -
lenders, credit originators such as dealers, and consumers. The CreditOnline
network offers this connectivity, plus value-added services like workflow
management and management reporting, for both dealers and lenders.


Today, the CreditOnline
network acts as a portal to the credit origination systems of many leading
lending institutions. It also serves as a gateway to all major consumer and
business credit bureaus and provides an interface to several dealer
management systems.


The CreditOnline network
supports several models of Internet financing as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. |  | In
the lender-centric model, the CreditOnline network can be used to connect a
lenders Web site to the lenders credit origination system. The CreditOnline network can also be used to transmit credit
applications from one lender to another  a service the Company calls CreditOnline
LenderLink.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | The
CreditOnline network also supports a dealer-centric model, in which an
automobile dealer uses the CreditConnection Service to submit credit
applications to funding sources and receive decisions from the funding sources.
A dealer also may enable its Web site to transmit credit applications entered
by consumers to funding sources and receive related credit decisions.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | A
third model of Internet financing, consumer-centric, allows a consumer to
apply for credit with multiple financial institutions through a loan
marketplace provided by a third party. For example, the Companys strategic
alliance with Lending Tree allows automobile credit applications completed on
Lending Trees Web site to be transmitted to multiple funding sources through
the CreditOnline network.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|There are two primary means for
gaining access to the CreditOnline network:
|---------------------------------------------------------------------------

| | 1. |  | CreditOnline
Gateway
| | -- |  | --------------------

| | The
CreditOnline Gateway provides a standard interface for
sending credit applications to lenders and for receiving credit decisions back
from lenders. It also offers a standard interface for requesting formatted and
analyzed credit bureau reports.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | CreditConnection Service
| | -- | ------------------------

| | Under
the current model, the CreditConnection service provides a set of tools for
subscribing dealers. The tools allow dealers to submit credit applications to
funding sources on the CreditOnline network and receive credit decisions
from those funding sources. The dealer also can request one or more credit
bureaus to be reviewed in several different formats. The dealer can select one
or more lending institutions to which the credit application should be sent, and
can specify criteria which determines how the application is to be sequenced
and forwarded to secondary sources. The dealer can then
view the lenders credit decisions online. The CreditConnection service
provides several other features to dealerships, including workflow management
tools, payment calculators and the ability to receive news bulletins from
participating funding sources.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Many of the Companys agreements
with subscribing lending institutions  have included a provision requiring that the Company and lending institution
implement a marketing plan describing how the lending institution
will utilize its sales force to increase dealership subscriptions



3
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|to the CreditConnection service. The Company also has been pursuing
remarketing arrangements for the CreditConnection
service with vendors that provide automated systems for dealer management and
operations. The Company has signed strategic alliance  agreements with
the Dealer Services Group of ADP (ADP), Universal Computer Systems (UCS), and Advent
Resources (Advent) to remarket the CreditConnection Service. The agreements with
these parties provide that such parties offer the CreditConnection
service as their standard approach to establishing electronic interfaces
between dealerships and financial institutions. Under certain limited
circumstances, these remarketers may provide an interface that is different
from the Companys. It is the Companys understanding that ADP, UCS, and Advent
do not currently remarket any third part products or services that compete with
the CreditConnection service. See Sales and Marketing.



Customers


The Companys customers are
categorized by product type. With respect to the CreditRevue product, the
Company has over 35 customers, including banks, savings and loan associations,
finance companies, sub-prime lenders, leasing companies, student lenders and
telecommunications companies. The Company intends to continue to focus on the
financial services industry and to target the student lending, insurance,
telecommunications, utilities and healthcare industries. With regards to its CreditConnection
service, at December 31, 1999 the Company had contractual relationships with 26
lenders. The Company has developed electronic connections linking 22 financial
institutions to the CreditConnection service.



See Managements Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of
those customers who have accounted for 10% or more of the Companys revenues in
any of the past three years.


4
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|Product Development


Since its inception, the Company
has made substantial investments in product development and has a dedicated
product development organization which periodically releases new products and
enhancements to existing products. The Company believes that its future
performance will depend in large part on the Companys ability to enhance its
current products and services and to develop new products on a timely and
cost-effective basis that will keep pace with technological developments and
evolving industry standards, as well as address the increasingly sophisticated
needs of the Companys customers. While the Company anticipates that certain
new products and services will be developed internally, the Company may, based
on timing and cost considerations, acquire or license technology or software
from third parties when appropriate. For a discussion of certain risks
associated with the Companys product development program, see - Risk Factors
- Rapid Technological Change; Risk Associated with New Products, Services or
Enhancements and - Risk Factors - Risk of Defects, Development Delays and
Lack of Market Acceptance.



As of December 31, 1999, the
Companys product development staff consisted of 23 employees. The Company
anticipates that it will continue to commit resources to product development in
the future.



Customer Service and Support



The Company believes that its
success is dependent in part upon its ability to provide customers with
responsive, prompt and efficient support and training. Each CreditRevue
customer has a maintenance agreement, which is typically co-terminous with the
license agreement, providing for service, support and product enhancements. The
Company offers its clients a wide range of support services to assist them in
deriving the most effective use of the Companys products and services,
including technical support, formalized training and a user hotline. The
Companys services also include implementation planning and assistance,
software installation, software operations training and software maintenance.


As of December 31, 1999, the
Companys dedicated customer service and support team included 20 employees.
The Companys support personnel are available to its customers 24 hours a day,
7 days a week through a hotline. The Company tracks each customers service
history to identify trends or problem areas and to recommend solution
strategies. Most customer support questions are answered during the initial
call. The Company can access a customers system through a modem to diagnose
the situation and implement corrective measures, if necessary. The Company also
makes on-site visits for emergency or serious problem situations.



The Company believes that its
customers typically base their decisions to purchase the Companys products and
services partly on the support and maintenance offered with such products and
services. The Company intends to continue to strengthen its support team and
reputation by adding professional personnel with significant experience in the
financial services and software industries.


Sales and Marketing



As of December 31, 1999, the
Companys sales and marketing organization consisted of 15 employees, 13 of
whom are based at the Companys corporate headquarters in Annapolis Junction,
Maryland. To support its sales force, the Company conducts comprehensive
marketing programs, which include direct mail, public relations, seminars,
trade shows and ongoing customer communications programs.



The Company sells its CreditRevue
products through a direct sales organization. The sales cycle begins with the
generation of a sales lead or the receipt of a request for proposals from prospective customers.
While the sales cycle varies substantially from customer
to customer, it typically requires 6 to 8 months.



The CreditOnline network
also is sold through direct sales efforts to financial institutions, automobile
superstores, independent dealerships, and finance and insurance systems
providers. Direct selling is supported by participation in both financial and
automotive trade shows and conferences, financial press relations,
telemarketing, advertising campaigns and targeted mailings.


The Company employs an indirect
sales strategy for the CreditConnection service by supporting the sales
efforts by certain financial institutions which have well-established
relationships with many of the automobile dealerships in the United States. The
Company supports these indirect sales channels through a variety of marketing



5
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|communications efforts including the development of brochures
and direct mail pieces, production of sales videos, participation in trade
shows and conferences, support for bank dealer focus groups, advertising, press
relations and seminar support.


In November 1996, the Company
entered into an agreement to form a strategic alliance with the Dealer Services
Group of ADP. The Company and ADP have integrated CreditConnection with
ADPs automated dealership management and operations systems so that ADP may
remarket and license CreditConnection to ADPs automobile dealer
customers. In exchange for its services, ADP is entitled to a percentage of the
net revenues from transactions generated by ADPs dealers. In addition,
pursuant to the agreement, ADP has the right to name one director to the
Companys Board of Directors. In August 1997, the Company entered into an
agreement to form a strategic alliance with UCS whereby UCS may remarket and license the CreditConnection service to UCSs
automobile dealer customers. In May 1999, the Company entered into an agreement
to form a strategic alliance with Advent whereby
Advent may remarket and license the CreditConnection service to Advents automobile
dealer customers. While the Company has also initiated discussions with other
dealer system vendors and intends to establish relationships with such vendors
to expand the market presence of CreditConnection, no such additional
relationships have been finalized.



Backlog



At December 31, 1999, the Company
had entered into contracts for its services for which $1.1 million of revenues
will be recognized in future periods. At December 31, 1998, the comparable
amount was $2.5 million.



Competition



The credit processing software
and services industry is intensely competitive and rapidly changing. The
Company believes its ability to compete depends upon many factors within and
outside its control, including the timing and market acceptance of new products
and services and enhancements developed by the Company and its competitors,
including (i) application software companies, (ii) management information
systems departments of potential customers, (iii) third-party professional
services organizations, and (iv) computer services outsourcing providers which
offer service bureau-based credit processing solutions. The Company believes that competitors for
CreditRevue include American Management Systems, Inc., Appro Systems, Inc.,
Alltel Corporation, Fair, Isaac and Company, Inc., CFI ProServices, Inc.,
Affinity Technology Group, Inc, HNC Software and Lightbridge, Inc.


The market for online
credit origination  also is intensely competitive and changes rapidly. The identities of competitors and the exact
nature of their offerings are subject to change and may not be known with
certainty at any given time. Currently, with respect to automobile lending, the
Company believes that the following entities have introduced or announced an
intent to introduce offerings competitive with the CreditConnection
service or CreditOnline network in the market for online automotive
lending: e-fin (in which The Reynolds & Reynolds Company has an interest);
American Management Systems, Inc.; and Chase Manhattan Corporation. Single
lender online lending solutions also may be competitors of the CreditConnection
service or the CreditOnline network. In addition, various entities have
introduced or announced offerings in the marketplaces for online lending other
than automotive finance, such as mortgage and business-to-business lending,
which also may compete with the CreditConnection service or the CreditOnline
network.



Many of the Companys competitors
are substantially larger than the Company and have significantly greater
financial, technical, and marketing resources and established, extensive direct
and indirect channels of distribution. As a result, they maybe able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion, and
sale of their products and services than the Company.


As is typical in both the
software and online credit origination industries, many actual or potential
customers of the Company may become competitors by developing competitive
technology internally. Due to the relatively low barriers to entry, the Company
expects additional competition from other established and emerging companies as
these markets continue to develop and expand. The Company also expects that
competition will increase as a result of industry consolidations. The Company
anticipates that its competitors may develop or acquire products or services
that provide functionality that is similar to that produced by the Companys
products and services, and that such products and services may be offered at a
significantly lower price or bundled with other



6
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|products and services. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Companys prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.



Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which would have a material adverse effect on the Companys business,
results of operations and financial condition. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Companys business, results of operations and financial condition.


Intellectual Property and Other Proprietary Rights



The Companys success is heavily
dependent upon its proprietary technology. The Company regards its software
products and services as proprietary, and relies primarily on a combination of
copyright protection, patent protection, trade secrets protection,
confidentiality agreements and contractual provisions to protect its
proprietary rights. The Company has no patents on its CreditRevue products
currently in commercial use, and existing trade secrets, copyright laws and
contractual provisions afford only limited protection. In March of 1999, the
U.S. Patent and Trademark Office issued the Company U.S. Patent 5,878,403 on
the technology supporting its CreditConnection service and CreditOnline
network. There can be no assurance this patent would survive a legal challenge
to its validity or provide adequate protection. Furthermore, there can be no
assurance that others will not design around any patents issued to the Company.



It is the Companys policy to
enter into confidentiality and assignment agreements with its employees.
Despite the Companys efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use the Companys products
or technology without authorization, to obtain and use information that the
Company regards as proprietary, or to develop similar or superior products or
technology independently. Policing unauthorized use of the Companys products
is difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem, particularly in international markets and as a result of
the growing use of the Internet. The source code for the Companys proprietary
software is protected both as a trade secret and as a copyrighted work. The
Company has in the past and may in the future make source code for one or more
of its products available to certain of its customers and strategic partners
which may increase the likelihood of misappropriation or other misuse of the
Companys software. In addition, the laws of some foreign countries do not
protect the Companys proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that the
Companys competitors will not independently develop technologies that are
substantially equivalent or superior to the Companys technologies.



CreditRevue, CreditRevue,CreditConnection,
CreditConnection, INCredit, CreditOnline,
CrossSell, CreditRevue Service Bureau, CreditRevue Student Lending,
CreditRevue Data Server, eValuate, CreditConnection Online, CreditOnline
LenderLink, the associated logos and designs, and the Company logos and designs are trademarks,
tradenames or registered trademarks of the Company. The Company is not aware
that any of its products, services, trademarks or other proprietary rights
infringes the proprietary rights of third parties. However, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products or services.
As the number of software and online credit products and services in the
industry increases and the functionality of these products and services further
overlaps, the Company believes that software developers and online credit product and service providers may become increasingly
subject to infringement claims. Furthermore, there can be no assurance that
former employers of the Companys present and future employees will not assert
claims that such employees have improperly disclosed confidential or
proprietary information to the Company. Any such claims, with or without merit,
can be time consuming and expensive to defend, cause product and service
delays, or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms acceptable to the Company, or at all, which could have a material adverse
effect on the Companys business, results of operations and financial condition.



Employees


As of December 31, 1999, the
Company had 177 full time employees, including 23 in product development,



7
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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|115 in technical operations, 15 in sales and marketing and 24
in finance and administration. The Companys employees are not covered by any
collective bargaining agreements. The Company has experienced no work stoppages
and believes that its relations with its employees are good.


Risk Factors


Uncertainty of Future Results
of Operations; Fluctuations in Quarterly Results of Operations



Prior growth rates in the
Companys revenue and net income should not be considered indicative of future
results of operations. Future results of operations will depend upon many
factors, including market acceptance of new services, such as the Companys
CreditConnection, CreditRevue Service Bureau, eValuate and CreditOnline
products and services, the demand for the Companys products and services, the
success of the Companys relationships with third party remarketers of the CreditConnection
service and CreditOnline network, the successful transition from
predominantly license fee-based revenue to predominantly transaction fee-based
revenue, the timing of new product and service introductions and software
enhancements by the Company or its competitors, the level of product, service
and price competition, the length of the Companys sales cycle, the size and
timing of individual transactions, the delay or deferral of customer
implementations, the Companys success in expanding its customer support
organization, direct sales force and indirect distribution channels, the nature
and timing of significant marketing programs, the mix of products and services
sold, the timing of new hires, the ability of the Company to develop and market
new products and services and control costs, competitive conditions in the
industry and general economic conditions. In addition, the decision to
implement the Companys products or services typically involves a significant
commitment of customer resources and is subject to the budget cycles of the
Companys customers. Licenses of CreditRevue generally reflect a relatively
high amount of revenue per order. The Company typically enters into an initial
contract with clients for the purposes of developing an analysis of the
customers credit operations and a functional specification for the customers
proposed CreditRevue system. Following this initial contract phase, customers
may elect to not proceed with the CreditRevue license and system
implementation. The loss, cancellation or delay of individual orders,
therefore, would have a significant impact on the Companys revenue and
quarterly results of operations. The timing of revenue is difficult to predict
because of the length and variability of the Companys sales cycle, which has
ranged to date from two to 18 months from initial customer contact to the
execution of a license agreement. In addition, since a substantial portion of
the Companys revenue is recognized on a percentage-of-completion basis, the
timing of revenue recognition for its licenses may be materially and adversely
affected by delays, deferrals or cancellation of customer implementations. Such
delays or deferrals may also increase expenses associated with such
implementations which would materially and adversely affect related operating
margins. The Companys operating expenses are based in part on planned product
and service introductions and anticipated revenue trends and, because a high
percentage of these expenses are relatively fixed, a delay in the recognition
of revenue from a limited number of transactions could cause significant
variations in operating results from quarter-to-quarter and could result in
operating losses. To the extent such expenses precede, or are not subsequently
followed by, increased revenues, the Companys results of operations would be
materially and adversely affected. As a result of these and other factors,
revenues for any quarter are subject to significant variation, and the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. There can be no assurance that the Company will be profitable in
any future quarter or that such fluctuations in results of operations will not
result in volatility in the price of the Companys Common Stock. Due to all of
the foregoing factors, it is likely that in some future quarter the Companys
results of operations will be below the expectations of public market analysts
and investors. In such event, the market price of the Companys Common Stock
will be materially and adversely affected. See  Market Acceptance of Credit
Connection; Transition to Transaction-Based Revenue and Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Quarterly Information.


Dependence on CreditRevue
Product Line



License fees, maintenance fees
and third-party computer hardware sales associated with licenses and
installations of CreditRevue accounted for substantially all of the Companys
revenues through December 31, 1999. Although the Company introduced its CreditConnection
service in the fourth quarter of 1996, its Dun & Bradstreet OneScore Service in
the fourth quarter of 1997, its CreditRevue Service Bureau in January 1998, and
its CreditOnline network in February 1999, the Company expects that
revenues generated from licenses and installations of CreditRevue will continue
to account for a significant portion of the Companys revenues for the
foreseeable future. The life cycles of the Companys products and services are
difficult to predict due to the effect of new product and service introductions
or software enhancements by the Company or its competitors, market acceptance
of new


8
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|and enhanced versions of the Companys products and services,
and competition in the Companys marketplace. A decline in the demand for
CreditRevue, whether as a result of competition, technological change, price
reductions or otherwise, would have a material adverse effect on the Companys
business, results of operations and financial condition. See Managements
Discussion and Analysis of Financial Condition and Results of Operations.



Lengthy Sales and
Implementation Cycle


The licensing of the Companys
software products and services is often an enterprise-wide decision by
prospective customers and generally requires the Company to provide a
significant level of education to prospective customers regarding the use and
benefits of the Companys products and services. In addition, the
implementation of the Companys software products involves a significant
commitment of resources by prospective customers and is commonly accompanied by
substantial reengineering efforts and a review of the customers credit
analysis, decisioning and funding processes. The cost to the customer of the
Companys products and services is typically only a portion of the related
hardware, software, development, training and integration costs associated with
implementing a large-scale automated credit origination information system. For
these and other reasons, the period between initial customer contact and the
implementation of the Companys products is often lengthy (ranging from between
two and 18 months) and is subject to a number of significant delays over which
the Company has little or no control. The Companys implementation cycle could
be lengthened by increases in the size and complexity of its license
transactions and by delays or deferrals in its customers implementation of
appropriate interfaces and networking capabilities. Delays in the sale or
implementation of a limited number of license transactions could have a
material adverse effect on the Companys business, results of operations and
financial condition and cause the Companys results of operations to vary
significantly from quarter to quarter. See Managements Discussion and
Analysis of Financial Condition and Results of Operations.


Market Acceptance of CreditOnline
and CreditConnection; Transition to Transaction-Based Revenue



The Companys CreditConnection
service was commercially introduced in 1996, the Companys CreditOnline
network was introduced in February, 1999, and the Companys CreditRevue Service
Bureau service was commercially introduced in January, 1998. The CreditConnection
service,  CreditOnline network and CreditRevue Service Bureau product
(which may be introduced in new ASP or other format, based on the
eValuate and CreditRevue software in development) are projected to account for
a significant portion of the Companys revenues in the future. As a result,
demand and market acceptance for these services are subject to a high level of
uncertainty, and the Company will be heavily dependent on their market
acceptance. There can be no assurance that these products and services will be commercially
successful. The failure of the Company to generate demand for the CreditConnection
service, CreditOnline network or CreditRevue Service Bureau product, or
the occurrence of any significant technological problems with such products or
services, would have a material adverse effect on the Companys business,
results of operations and financial condition. Historically, virtually all of
the Companys revenues have been derived from license fees, maintenance fees
and hardware sales associated with licenses and installations of CreditRevue.
Under the terms of its license agreements, a majority of the Companys revenues
are realized during the configuration and installation of CreditRevue. However,
the Company anticipates that a significant portion of the Companys future
revenues will be derived from per-usage transaction-based fees and subscription
fees charged to credit originators and financial institutions for transactions
originated through the CreditConnection service, CreditOnline
network and CreditRevue Service Bureau product. There can be no assurance that
the Company will successfully manage the transition of a significant portion of
its revenues from license-based revenue to transaction-based revenue. The
failure of the Company to successfully manage the transition to a
transaction-based revenue stream would have a material adverse effect on the
Companys business, results of operations and financial condition.



Reliance on Certain
Relationships


The Company has established
relationships with a number of companies that it believes are important to its
sales, marketing and support activities, as well as to its product, service and
software development efforts. The Company has relationships with automated
scorecard companies, hardware vendors and credit bureaus. There can be no
assurance that these relationships will be successful on an on-going basis.
Moreover, there can be no assurance that these companies, most of which have
significantly greater financial and marketing resources than the Company, will
not develop or market products and services which will compete with the
Companys products and services in the future. Furthermore, since many of these
relationships are informal in nature, they are terminable by either party at
will. Other relationships are terminable by either party after a relatively
short notice period. There can be no




9
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|assurance that these companies will not otherwise discontinue
their relationships with or support of the Company. The failure by the Company
to leverage and maintain its existing relationships or to establish new
relationships in the future, because of a divergence of interests, acquisition
of one or more of these third parties or other reasons could have a material
adverse effect on the Companys business, results of operations and financial
condition. See Sales and Marketing.



In addition, the Company has
formed strategic alliances with ADP, UCS and Advent for remarketing the CreditConnection
service and with D&B for the marketing of OneScore and Portfolio Monitoring.
There can be no assurance that these relationships will be
successful. Moreover, there can be no assurance that these companies will
actively remarket the CreditConnection service or OneScore or Portfolio
Monitoring. The failure by the Company to leverage and maintain its
existing relationships with ADP, UCS, Advent and D&B, or to establish new
relationships in the future, because of a divergence of interests, acquisition
of one or more of these third parties or other reasons, could have a material
adverse effect on the Companys business, results of operations and financial
condition. See  Sales and Marketing.





Dependence on Large License
Fee Contracts and Customer Concentration


A relatively small number of
customers have accounted for a significant percentage of the Companys
revenues. License fees for CreditRevue are based on a
percentage-of-completion method on a cost-incurred basis with the final
installment being paid in full upon acceptance of the Companys software.
The Company receives continuing revenues on CreditRevue from annual
maintenance agreements which commence upon acceptance of the software by the
customer. Maintenance agreements are renewable annually by the customer, and
the license agreements are co-terminous with the maintenance agreements.
Although the Company has experienced a high degree of customer loyalty, the
Company cannot predict how many maintenance agreements will be renewed or the
number of years of renewal. Revenues generated by the Companys 10 largest
customers accounted for 55.4% and 55.1% of total revenues in 1999 and 1998,
respectively. None of the Companys customers individually accounted for
10% or more of total revenues in 1999  and one customer accounted for 10% of revenues in 1998. The Company
expects that a limited number of customers will continue to account for a
significant percentage of revenue for the foreseeable future. The loss of any
major customer or any reduction or delay in orders by any such customer, delay
or deferral in configurations or enhancements by such customers, termination of
orders by any such customer, or the failure of the Company to successfully
market its products or services to new customers, could have a material adverse
effect on the Companys business, results of operations and financial
condition. See Managements Discussion and Analysis of Financial
Condition and Results of Operations.


Dependence on Consumer Retail
Lending Industry; Cyclical Nature of Consumer Lending


The Companys business is
currently concentrated in the consumer lending industry and is expected to be
so concentrated for the foreseeable future, thereby making the Company
susceptible to a downturn in the consumer lending industry. For example, a
decrease in consumer lending could result in a smaller overall market for the
Companys products and services. Furthermore, banks in the United States are
continuing to consolidate, decreasing the overall potential number of customers
for the Companys products and services. In addition, demand for consumer loans
has been historically cyclical, in large part based on general economic
conditions and cycles in overall consumer indebtedness levels. Changes in
general economic conditions that adversely affect the demand for consumer
loans, the willingness of financial institutions to provide funds for such
loans, changes in interest rates and the overall consumer indebtedness level,
as well as other factors affecting the consumer lending industry, could have a
material adverse effect on the Companys business, results of operations and
financial condition. See Managements Discussion and Analysis of Financial
Condition and Results of Operations.


Management of Changing
Business



The Company has experienced
significant changes in its business, including changes in the Companys staff
and customer base and the development of new products, services and
enhancements to its software, including the commercial release of CreditConnection
in 1996, CreditRevue Service Bureau in 1998 and CreditOnline network in
1999. Such changes have placed and may continue to place a significant strain
upon the Companys management, systems and resources. The Companys ability to
compete effectively and to manage future changes will require the Company to
continue to improve its financial and management controls, reporting systems
and procedures,



10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|budgeting and forecasting capabilities on a timely basis,
expand its sales and marketing work force and train and manage its employee
work force. There can be no assurance that the Company, or the Companys
current management, will be able to manage such changes successfully. The
Companys failure to do so could have a material adverse effect upon the
Companys business, results of operations and financial condition. See  Sales
and Marketing.



Dependence on Key Personnel



The Companys future performance
depends in significant part upon the continued service of its key technical,
sales and senior management personnel, particularly Scott L. Freiman, President
and Chief Executive Officer. The Company has obtained key-person life insurance
on the life of Mr. Freiman, although the Company does not believe that such
insurance is adequate to compensate for the loss of Mr. Freiman. The loss of
the services of one or more of the Companys executive officers could have a
material adverse effect on the Companys business, results of operations and
financial condition. The Company retains its key employees through the use of
equity incentive programs, including stock option plans, employee stock
purchase plans, and competitive compensation packages. The Company has no
employment agreements and does not intend to enter into any such agreements in
the foreseeable future. The Companys future success also depends on its
continuing ability to attract and retain highly qualified managerial, sales,
technical, and customer support personnel. In particular, the Company has
encountered difficulties in hiring sufficient numbers of programmers and
technical personnel. Competition for qualified personnel is intense, and there
can be no assurance that the Company will be able to retain its key technical,
sales and managerial employees or that it can attract, assimilate or retain
other highly qualified technical, sales and managerial personnel in the future.




Rapid Technological Change;
Risk Associated with New Products, Services or Enhancements


The credit processing software
products and services industry in which the Company competes is characterized
by rapid technological change, frequent introductions of new products and
services, changes in customer demands and evolving industry standards. The
introduction or announcement of new products, services or enhancements by the
Company or one or more of its competitors embodying new technologies or changes
in industry standards or customer requirements could render the Companys
existing products or services obsolete or unmarketable. Accordingly, the life
cycles of the Companys products are difficult to estimate. The Companys
future results of operations will depend, in part, upon its ability to enhance
its products and services and to develop and introduce new products and
services on a timely and cost-effective basis that will keep pace with
technological developments and evolving industry standards, as well as address
the increasingly sophisticated needs of the Companys customers. The Company
has in the past and may in the future experience significant delays in product
development. There can be no assurance that these new products and services, if
developed, will gain market acceptance or that the Company will be successful
in developing and marketing new products or services that respond to
technological change, evolving industry standards and changing customer
requirements, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of
these products or services, or that its new products or services will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. In addition, a majority of the Companys current
products operate in the UNIX operating system. Although the Companys software
is designed to work with other operating environments, a requirement to port to
a different operating system could be costly and time consuming and could have
a material adverse effect on the Companys business, results of operations and
financial condition. Failure of the Company to develop and introduce, for
technological or other reasons, new products and services in a timely and
cost-effective manner could have a material adverse effect on the Companys
business, results of operations and financial condition. Furthermore, the
introduction or announcement of new product or service offerings or
enhancements by the Company or the Companys competitors may cause customers to
defer or forgo purchases of the Companys products or services, which could
have a material adverse effect on the Companys business, results of operations
and financial condition. See  Product Development.


System Interruption and
Security Risks; Potential Liability; 
      Possible Lack of Adequate Insurance; and
System Inadequacy


The Companys operations are
dependent, in part, on its ability to protect its system from interruption by
damage from fire, earthquake, power loss, telecommunication failure,
unauthorized entry or other events beyond the Companys control. The Companys
computer equipment constituting its central computer system, including its


11
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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|processing operations, is currently located at a single site.
The Company is in the process of acquiring and implementing a back-up, off-site
processing system capable of supporting its operations in the event of system
failure. The Company relocated operations to new leased facilities in Annapolis
Junction, MD in late 1998. The new facilities, which include a state of the art
data center, has become the primary production center for the Companys data
processing needs. Prior to full implementation of the new facility and the back
up facility, the Companys operations are subject to substantial risks,
including temporary interruptions resulting from damage caused by any one or
more of the foregoing factors or due to other causes including computer
viruses, hackers or similar disruptive problems. While the Company maintains
$1.6 million of property insurance coverage, business interruption insurance
coverage, $2.0 million of errors and omissions insurance coverage and $10.0
million of umbrella insurance coverage, such insurance may not be adequate to
compensate the Company for all losses that may occur or to provide for costs
associated with system failure or business interruption. Any damage or failure
that causes interruptions in the Companys operations could have a material
adverse effect on the Companys business, results of operations and financial
condition.


Persistent problems continue to
affect public and private data networks. For example, in a number of networks,
hackers have bypassed firewalls and have appropriated confidential information.
Such computer break-ins and other disruptions may jeopardize the security of
information stored in and transmitted through the computer systems of the
parties utilizing the Companys services, which may result in significant
liability to the Company and also may deter potential customers from using the
Companys services. In addition, while the Company attempts to be careful with
respect to the employees it hires and maintain controls through software design
and security systems to prevent unauthorized employee access, it is possible
that, despite such safeguards, an employee of the Company could obtain access,
which would also expose the Company to a risk of loss or litigation and
possible liability to users. The Company attempts to limit its liability to
customers, including liability arising from the failure of the security
features contained in the Companys system and services, through contractual
provisions. However, there can be no assurance that such limitations will be
enforceable. There can be no guarantee that the growth of the Companys
customer base will not strain or exceed the capacity of its computer and
telecommunications systems and lead to degradations in performance or system
failure. Any damage, failure or delay that causes interruptions in the
Companys operations could have a material adverse effect on the Companys
business, results of operations and financial condition.


Risk of Defects, Development
Delays and Lack of Market Acceptance


Software products and services as
sophisticated as those offered by the Company often encounter development
delays and may contain defects or failures when introduced or when new versions
are released. The Company has in the past and may in the future experience
significant delays in the development of software and has discovered, and may
in the future discover, software defects in certain of its products. Such
delays and defects may result in lost revenues during the time corrective
measures are being taken and may result in additional development costs.
Although the Company has not experienced material adverse effects resulting
from any such defects to date, there can be no assurance that, despite testing
by the Company, errors will not be found in its existing software or in future
releases or enhancements. The Company may continue to experience development
delays, resulting in delays in the commercial release of new products and
services, the loss of market share or the failure to achieve market acceptance.
Any such occurrence could have a material adverse effect upon the Companys
business, results of operations and financial condition. See  Products and
Services and  Product Development.



Future Capital Needs;
Uncertainty of Additional Financing


The Company currently anticipates
that its available cash resources combined with anticipated funds from
operations and its bank line of credit will be sufficient to meet its presently
anticipated working capital and capital expenditure and debt repayment
requirements through 2000. Thereafter, the Company may need to raise additional
funds. The Company may need to raise additional funds sooner in order to fund
more rapid expansion, to develop new or enhanced products and services, to
respond to competitive pressures or to acquire complimentary businesses or
technologies. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the shareholders of the Company will be
reduced, shareholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Companys Common Stock. There can be no assurance that
additional financing will be available when needed on terms favorable to the
Company or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may be unable to develop or enhance its products
and services, take advantage of future opportunities or respond to



12
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----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|competitive pressures, which could have a material adverse
effect on the Companys business, results of operations and financial
condition. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources.


Government Regulation and
Uncertainties of Future Regulation


The Companys current and
prospective customers, which consist of state and federally chartered banks,
savings and loan associations, credit unions, consumer finance companies and
other consumer lenders, as well as customers in the industries that the Company
may target in the future, operate in markets that are subject to extensive and
complex federal and state regulations. While the Company may not itself be
directly subject to such regulations, the Companys products and services must
be designed to work within the extensive and evolving regulatory constraints in
which its customers operate. These constraints include federal and state
truth-in-lending disclosure rules, state usury laws, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act and the Community Reinvestment
Act. Furthermore, some consumer groups have expressed concern regarding the
privacy and security of automated credit processing, the use of automated
credit scoring tools in credit underwriting and whether electronic lending is a
desirable technological development in light of the current level of consumer
debt. The failure by the Companys products and services to support customers
compliance with current regulations and to address changes in customers
regulatory environment, or to adapt to such changes in an efficient and
cost-effective manner, could have a material adverse effect on the Companys
business, results of operations and financial condition.


Year 2000


The Year 2000 issue is a result
of computer programs which store or process date-related information using only
two digits to represent the year. These programs may not be able to properly
distinguish between a year in the 1900s and a year in the 2000's. Failure of
these programs to distinguish between the two centuries could cause the
programs to yield erroneous results or even to fail. See Managements
Discussion and Analysis of Financial Condition - Year 2000 Compliance.



Control by Existing
Shareholders


Assuming no exercise of
outstanding options, James R. DeFrancesco co-founder and Director of the
Company, and Scott L. Freiman, the Companys President and Chief Executive
Officer, collectively beneficially own approximately 52% of the outstanding
shares of Common Stock. As a result, these stockholders will be able to
exercise control over matters requiring shareholders approval, including the
election of directors, and the approval of mergers, consolidations and sales of
all or substantially all of the assets of the Company. This may prevent or
discourage tender offers for the Companys Common Stock unless the terms are
approved by such shareholders.


Possible Volatility of Stock
Price


The trading price of the
Companys Common Stock has in the past and may in the future be subject to
significant fluctuations in response to variations in quarterly operating
results, changes in earning estimates by analysts, the gain or loss of
significant orders, announcements of technological innovations or new products
by the Company or its competitors, general conditions in the consumer lending
and software industries, credit processing software and services, and other
events or factors. In addition, the stock market in general has experienced
extreme price and volume fluctuations which have affected the market price for
many companies in industries similar to or related to that of the Company and
which have been unrelated to the operating performance of these companies.
These market fluctuations may adversely affect the market price of the
Companys Common Stock.



Effect of Certain Charter
Provisions; Antitakeover Effects of Certificate of Incorporation, 
      Bylaws and Delaware Law


The Companys Board of Directors
has the authority to issue up to 1,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights of those shares, without any further vote or action by
the stockholders. The Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of the Companys Certificate
of



13
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|Incorporation, including provisions that create a classified
Board of Directors, and certain provisions of the Companys Bylaws and of
Delaware law could delay or make more difficult a merger, tender offer or proxy
contest involving the Company.


Item 2. Properties.


The Companys principal executive
offices are located in Annapolis Junction, Maryland in a leased facility
consisting of approximately 71,000 square feet of office space under lease that
expires in 2008. The Company additionally has the right to either one five-year
or one three-year renewal option. The Company has a right of first refusal on
additional office space in the same building. The Company previously occupied
approximately 55,000 square feet of office space in Columbia, Maryland under
several leases that expire in 2002. As of December 31, 1999, the Company
subleases to others but remains liable for approximately 10,000 square feet of
the previously occupied space. At year end 1998 the Company recorded a
liability of approximately $1.2 million representing the future minimum lease
payments under the leases. Throughout 1999, as the Company successfully sublet
the previously occupied space, the reserves were reversed and office space
expenses were reduced by approximately $1.0 million during 1999 as a result of
these reserve reversals.



During early 1999 the Company
planned to operate a back-up facility in approximately 4,000 square feet of
data center space at its former offices in Columbia, Maryland. Due to
difficulties in locating a backup electric generator at this site, the Company
exercised its rights under the lease to terminate the lease. The Company has in
early 2000 entered into a lease for approximately 4,000 square of office space
in the Hunt Valley, Maryland area. This new office location will serve as both
a satellite office and back-up data center which, when fully operational
(currently planned for mid 2000), will be capable of fully supporting
operations in the event of failure of the Companys primary production center
in Annapolis Junction, Maryland.



Item 3. Legal Proceedings.


No material legal proceedings.


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

| | (a) |  | Not
applicable.
| | --- |  | ---------------

| | (b) |  | Not
applicable.
| | --- |  | ---------------

| | (c) |  | Not
applicable.
| | --- |  | ---------------

| | (d) |  | Not
applicable.
| | --- |  | ---------------

|Item 5. Market for Registrants Common Equity and
Related Shareholder Matters


Not applicable



14
|---------------------------------------------------------------------------------------------------

|PART II


Market Information


The Companys Common Stock is
traded on the Nasdaq National Market under the symbol CMSS. The following
table sets forth, for the calendar periods indicated, the range of high and low
bid quotations as reported by the Nasdaq National Market. These quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not necessarily represent actual transactions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | Stock Price
|------------------- | -----------
|
|Calendar Year 1997: |            
|First Quarter       |            
|Second Quarter      |            
|Third Quarter       |            
|Fourth Quarter      |            
|Calendar Year 1998: |            
|First Quarter       |            
|Second Quarter      |            
|Third Quarter       |            
|Fourth Quarter      |            
|Calendar Year 1999: |            
|First Quarter       |            
|Second Quarter      |            
|Third Quarter       |            
|Fourth Quarter      |            

|On March 23, 2000, the last
reported sales price for the Companys Common Stock on the Nasdaq National
Market was $9.00 per share.


Holders


As of March 23, 2000, the
approximate number of registered shareholders of record of the Common Stock was
190.


Dividends


The Company does not anticipate
paying any cash dividends in the foreseeable future. The Company currently
intends to retain any future earnings for use in its business. In addition, the
Companys bank line of credit prohibits the payment of cash dividends without
the banks prior written consent.


Item 6. Selected Consolidated Financial Data.


The consolidated statement of
operations data set forth below for the fiscal years ended December 31, 1995,
1996, 1997, 1998 and 1999 and the consolidated balance sheet data at December
31, 1995, 1996, 1997, 1998 and 1999 have been derived from the audited
consolidated financial statements of the Company. The consolidated balance
sheets at December 31, 1998 and 1999, and the consolidated statement of
operations for each of the years in the three year period ended December 31,
1999, together with the notes thereto and the related



15
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|report of Ernst & Young LLP, are included elsewhere in this
Report. The selected financial data set forth below are qualified in their
entirety by, and should be read in conjunction with, the consolidated financial
statements, the related notes thereto and Managements Discussion and
Analysis of Financial Condition and Results of Operations included
elsewhere in this Report.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                     | Year Ended December 31,
|---------------------------------------------------------------------------------------------------- | -----------------------
|
|Statement of Operations Data:                                                                        |                        
|Revenues                                                                                             |                        
|License and software development fees                                                                |                        
|Maintenance fees                                                                                     |                        
|Computer hardware sales                                                                              |                        
|Service bureau revenues                                                                              |                        
|                                                                                                    
|                                                                                                     |                        
|Costs of revenues                                                                                    |                        
|Cost of license and software development fees                                                        |                        
|Cost of maintenance fees                                                                             |                        
|Cost of computer hardware sales                                                                      |                        
|Cost of service bureau                                                                               |                        
|Selling, general and administrative expenses                                                         |                        
|Research and development costs                                                                       |                        
|                                                                                                    
|                                                                                                     |                        
|                                                                                                    
|Income (loss) from operations                                                                        |                        
|Other income (expense)                                                                               |                        
|Interest income (expense) net                                                                        |                        
|Amortization of excess of assigned value  of identifiable assets over cost of   an acquired interest |                        
|                                                                                                    
|                                                                                                     |                        
|                                                                                                    
|Income (loss) before income taxes                                                                    |                        
|Income tax expense                                                                                   |                        
|                                                                                                    
|Net income (loss)                                                                                    |                        
|                                                                                                    
|Basic earnings (loss) per common share                                                               |                        
|Diluted earnings (loss) per common share                                                             |                        

|                                            | 1995 | 1996       | 1997 | 1998        | 1999
|------------------------------------------- | ---- | ---------- | ---- | ----------- | ----
|Balance Sheet Data:                        
|Cash and cash equivalents                   |      | $120,255   |      | $23,501,633 |     
|Investments available-for-sale              |      |           |      |            |     
|Working capital (deficit)                   |      | (1,362,539 | )    | 21,056,337  |     
|Total assets                                |      | 4,035,323  |      | 28,451,530  |     
|Long term debt and other lease obligations, |     
|less current portion                        |      | 408,806    |      | 220,341     |     
|Shareholders equity (deficit)              |      | (576,978   | )    | 22,587,896  |     

|16
|--

|Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations.


The following discussion and
analysis provides information which management believes is relevant to an
assessment and understanding of the Companys results of operations and
financial condition. The discussion should be read in conjunction with the
audited consolidated financial statements of the Company and notes thereto.
This report contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company. Investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, investors should
carefully consider the various factors identified in this Report which could
cause actual results to differ materially from those indicated by such
forward-looking statements, including the matters set forth in Business  Risk
Factors.


General


Overview



The Company was incorporated in
1987 to commercialize an automated credit processing system developed by James
R. DeFrancesco, the Companys co-founder, and Scott L. Freiman, the Companys
President, Chief Executive Officer and co-founder, while they were employed by
American Financial Corporation (AFC), an automobile finance servicing company
owned by Mr. DeFrancesco. AFC was acquired in October 1987 by Perpetual Savings
Bank, FSB. Mr. DeFrancesco and Mr. Freiman retained ownership of AFCs credit
processing software which formed the basis for CreditRevue. CreditRevue was
initially released in 1988. Since its initial release, the Company has
continually enhanced CreditRevue in response to the needs of its customers. CreditConnection,
the Companys online credit information and processing service, became
commercially available in July 1996. The Dun & Bradstreet OneScore product was
commercially released in October 1997, CreditRevue Service Bureau was
introduced in January 1998, Dun & Bradstreet Portfolio Monitoring was
introduced in June 1998 and the CreditOnline network, was announced in
February, 1999. In March 1999, the Company announced CreditRevue Maestro, an
automated analysis engine for evaluating and decisioning consumer and small
business credit applications. During 1999, the CreditRevue Maestro product was
renamed eValuate. The Company currently expects eValuate to be released in Q2 2000. Fees
from licenses of CreditRevue and related maintenance fees and resales of
third-party computer hardware and software associated with installations of
CreditRevue accounted for the majority of the Companys revenue through
December 31, 1999. See Business  Risk Factors  Dependence on CreditRevue Product Line.


License fees for CreditRevue are
recognized based on a percentage-of-completion method, measured generally on a
cost-incurred basis. The Company typically charges a nonrefundable fee of 25%
of the preliminary estimate of the total license fee to develop an analysis of
the customers credit operations and a plan for the configuration and
implementation of CreditRevue according to the customers requirements. At the
completion of this initial contract phase, clients decide to proceed with a
software license and system implementation or they may opt to terminate the
project. Historically, there have been very few projects terminated at the
completion of the commencement phase of the project. Costs consist primarily of
direct labor and temporary contract labor. Contracts in progress are reviewed
periodically, and revenues and earnings are adjusted based on revisions in
contract value and estimated costs to completion. For a description of certain
risks associated with the lengthy implementation time associated with
installations of CreditRevue, see Business  Risk Factors  Lengthy Sales and
Implementation Cycle. The Company recognizes revenue for maintenance fees pro
rata over the term of the related agreement, which is generally one year.
Maintenance fees received in advance of revenue recognition are included in
deferred revenue. In addition, as a convenience to its customers, the Company
offers third-party computer hardware through various reseller arrangements.
However, neither third-party hardware nor third-party software sales are a
focus of the Companys overall marketing strategy. For the year ended December
31, 1999, revenues from third-party hardware and software sales accounted for
5.5% and 4.7% of total revenues, respectively. Revenues from resales of
third-party computer hardware and software are recognized at the time of
shipment and installation, respectively.



Certain of the Companys products
and services, including the CreditConnection service, CreditRevue
Service Bureau and Dun & Bradstreets OneScore, and the CreditOnline
network are charged on a per transaction basis. As a result, the Company
anticipates that transaction-based revenue will represent an increasing
proportion of the Companys revenue. The Companys sales and marketing efforts
will no longer be exclusively targeted at generating license-based revenue but
will be increasingly focused on generating transaction-based revenue from
prospective customers. The Companys anticipated future growth is based, in
large part, on the success of these products and services and the transition to
a transaction-based revenue stream. Accordingly, the failure by the Company to
generate demand for the CreditConnection service, Dun & Bradstreets
OneScore, Dun &



17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Bradstreet Portfolio Monitoring, CreditOnline network,
eValuate, the occurrence of any significant technological problems, such as a
system failure incurred prior to the implementation of a fully functioning
back-up computer system, any inadequacy of the Companys business interruption
insurance to cover costs associated with system failure or business
interruptions, or the failure of the Company to successfully manage the
transition to a transaction-based revenue stream would have a material adverse
effect on the Companys business, results of operations and financial
condition. See Business  Risk Factors  Market Acceptance of CreditConnection;
Transition to Transaction-Based Revenue and  System Interruption and
Security Risks; Potential Liability; Possible Lack of Adequate Insurance; and
System Inadequacy.


Since 1987, the Company has
continually invested in the development and introduction of new products,
services and enhancements to its software. Research and development
expenditures are expensed as incurred. Certain software development costs are
capitalized subsequent to the establishment of technological feasibility in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Based on the Companys current research and development process, technological
feasibility is established upon completion of a detailed design. The Company
intends to continue to expend substantial resources on developing new products
and services and enhancements to its software to incorporate technological
developments and satisfy evolving customer needs.


Results of Operations


The following table sets forth
certain operating data as a percentage of total revenues for the periods
indicated (subtotals not adjusted for rounding):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|Percentages of Total Revenues    |                        
|Revenues                         |                        
|License and software development |                        
|fees                             |                        
|Maintenance fees                 |                        
|Computer hardware sales          |                        
|Service bureau fees              |                        
|                                
|                                 |                        
|                                
|Costs and Expenses               |                        
|Cost of license and software     |                        
|development fees                 |                        
|Cost of maintenance fees         |                        
|Cost of computer hardware sales  |                        
|Cost of service bureau fees      |                        
|Selling, general and             |                        
|administrative expenses          |                        
|Research and development costs . |                        
|                                
|                                 |                        
|                                
|Loss from operations             |                        
|Other income                     |                        
|Interest income,  net            |                        
|Amortization of excess of        |                        
|assigned value of identifiable   |                        
|assets over the cost of an       |                        
|acquired interest                |                        
|                                
|                                 |                        
|                                
|Net  loss                        |                        
|                                

|Total Revenues


Total revenues decreased 1.5%
from $17.2 million in 1997 to $16.9 million in 1998 and increased 34.7%

18
|--------------------------------------------------------------------------------------------------------------------------

|from $16.9 million in 1998 to $22.8 million from in 1999. The
Companys revenues are derived from four sources: license and software
development fees, maintenance fees, computer hardware sales, and service bureau
fees. The Companys 10 largest customers accounted for 55.4% and 55.1% of total
revenues in 1998 and 1999, respectively. None of the Companys customers
accounted for 10% or more of total revenues in 1998 or 1999. A large number of
new license contracts late in 1998 along with growth in the Companys
professional consulting and service bureau revenues contributed to the
significant year to year growth in total revenues from 1998 to 1999.


License and Software
Development Fees


CreditRevue accounted for
virtually all of the Companys license and software development fee revenue
through December 31, 1999. License and software development fees decreased
11.8% from $11.5 million in 1997 to $10.2 million in 1998, and increased 29.2%
from $10.2 million in 1998 to $13.2 million in 1999. The decrease in 1998
was the result of longer than expected sales cycles for the CreditRevue product
and certain contract disputes. By late 1998, sales performance improved as a
result of signing 9 new contracts for CreditRevue with an aggregate contract
value of approximately $7 million. Work on these new contracts began in late
1998 and early 1999 with the completion of many of these projects running into
late 1999. The year to year growth in license and software development fees was
the result of increases from license related work of approximately $2.0 and
increases in professional consulting services of approximately $1.0 million.


Maintenance Fees


Maintenance fees include fees
from software maintenance agreements. Maintenance fees increased 29.7% from
$3.3 million in 1997 to $4.3 million in 1998, and 17.8% from $4.3 million in
1998 to $5.1 million in 1999. The growth in these revenues during the periods
presented was the result of increased maintenance fees associated with the
increased number of licenses of CreditRevue outstanding during such periods.
Enhancements to previously installed CreditRevue systems performed by the
Companys professional consulting staff are also subject to maintenance and
contribute to growth in maintenance revenues.


Computer Hardware Sales


Computer hardware sales revenue
decreased 53.1% from $1.7 million in 1997 to $0.8 million in 1998, and
increased 60.7% from $0.8 million in 1998 to $1.2 million in 1999. Computer
hardware sales revenue consists of revenues received from resales of
third-party hardware in connection with the license and installation of the
Companys software. The fluctuation in such revenues during these periods is
the result of customer purchase preferences for computer hardware systems. In
certain instances, CreditRevue customers have volume discount arrangements with
hardware resellers making them eligible for discounts greater than those
offered by the Company.


Service Bureau Fees


Service bureau revenues originate
from the CreditConnection service transaction and interface fees, from Dun & Bradstreet
OneScore and Portfolio Monitoring transaction fees and CreditRevue Service
Bureau fees.



CreditConnection service related
revenues increased 99.0% from $0.6 million in 1997 to $1.3 million in 1998 and
increased 68.3% from $1.3 million in 1998 to $2.1 million in 1999. Revenue
increases are the result of increases in the number of dealers and lenders
enrolled in the CreditConnection service and the resulting growth in
transaction volume. At December 1999 there were approximately 250 dealers
enrolled in the service compared to approximately 150 dealers at December 1998
and approximately 40 dealers at December 1997. As of December 1999 there were
approximately 22 lenders connected to the CreditConnection service
compared to 21 at December 1998 and 14 at December 1997.



Dun & Bradstreet related revenues
increased to $385 thousand in 1999 up from the $203 thousand reported in 1998
which was up from $23 thousand in 1997. The Dun & Bradstreet OneScore service
was commercially released in the fourth quarter of 1997 and the Portfolio
Monitoring Service was released in June of 1998.


The CreditRevue Service Bureau
was released in January 1998, through a strategic alliance with Anytime Access,
but did not go into full production until January 1999. Accordingly, only
nominal revenues were recorded in 1998 from CreditRevue Service Bureau related
services. During 1999 CreditRevue Service Bureau was implemented at M&I Data
Services which contributed to the growth in CreditRevue Service Bureau revenues
to $772 thousand.



19
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cost of License and Software
Development Fees


Cost of license and software
development fees consist primarily of salaries and benefits for in-house
programmers and the cost of temporary contract labor. Cost of license and
software development fees decreased 4.6% from $7.3 million in 1997 to $7.0
million in 1998, and decreased 6.9% from $7.0 million in 1998 to $6.5 million
in 1999. As a percentage of license and software development fees, cost of
license and software development fees were 63.5%, 68.6% and 49.4% in 1997, 1998
and 1999, respectively. The cost of license and software fees as a percentage
of license and software development fees over these periods is related to the
fluctuation in the Companys quarterly revenues and hourly labor costs
associated with temporary contractors during periods in which the Company
experienced increased demand for its products. With respect to temporary
contractors, the Companys costs on a full-time equivalent basis for these
contractors is generally twice the amount incurred by the Company for its
in-house technical personnel. In 1997, the Company increased internal staffing
levels commensurate with the expected growth in revenues. These increased
staffing levels were expected to reduce the dependency on temporary contractors
resulting in a corresponding increase in the margins related to these revenues.
However, while license related revenues increased in 1997, the costs of
increased staffing and temporary contractors exceeded revenue growth. In 1998
efforts at staff reduction were curtailed by certain contract disputes and
prolonged sales cycles. The increase in contract sales in late 1998 created
demand for the internal resources and enabled the Company to better manage
staff utilization resulting in lower implementation costs per revenue dollar.
The sales cycle for license software is often difficult to predict accurately.
The skills and knowledge required to perform the licensed software
implementation requires the Company to maintain certain levels of specialized
staffing occasionally creating production capacity in excess of sales demand
which can result in higher costs and lower margins.


Costs of Maintenance Fees


Cost of maintenance fees consists
primarily of personnel and related costs for customer maintenance and support.
Cost of maintenance fees increased 25.9% from $0.9 million in 1997 to $1.1
million in 1998, and decreased 15.2% from $1.1 million in 1998 to $0.9 million
in 1999. As a percentage of maintenance fee revenue, cost of maintenance fees
was 26.6%, 25.8% and 18.6% in 1997, 1998 and 1999, respectively. The
fluctuation in the percentage of cost of maintenance fees to maintenance fee
revenues in 1997, 1998 and 1999 results from incremental increases in staffing
for maintenance personnel as maintenance revenues have increased and
improvements in staff utilization. Staffing utilization efficiencies will vary
based on the timing and training of additions to maintenance staff personnel.


Cost of Computer Hardware Sales


Cost of computer hardware sales
consists of (i) the Companys cost of computer hardware resold to the Companys
customers that are licensing CreditRevue and (ii) salaries and benefits for
systems integration employees. Cost of computer hardware sales decreased 36.7%
from $1.5 million in 1997 to $1.0 million in 1998, and increased 60.4% from
$1.0 million in 1998 to $1.5 million in 1999. As a percentage of computer
hardware sales revenue, cost of computer hardware sales was 90.8%, 122.6% and
122.4% in 1997, 1998 and 1999, respectively. The dollar fluctuation in the cost
of computer hardware sales reflects the fluctuation in computer hardware sales
during the periods presented. The Companys margin on computer hardware sales
fluctuates based on changes in product sales mix, volume discounts to
significant customers and negotiated mark-ups with customers. In many
instances, hardware revenues may not be large enough to offset both the direct
cost and the hardware being sold as well as certain fixed costs associated with
the salaries and benefits for systems integration employees thereby resulting
in negative margins.



Cost of Service Bureau Revenues


Cost of service bureau fees
consist primarily of personnel costs associated with the operation and support
of the service bureau. Other costs of service bureau revenues include equipment
rental expenses, communications network costs from third parties and hardware
and software pass through expenses. Service Bureau costs increased 63.0% from
$2.1 million in 1997 to $3.4 million in 1998 and decreased 10.6% from $3.4
million in 1998 to $3.0 million in 1999. As a percentage of service bureau
revenue, cost of service bureau sales was 325.5%, 206.6% and 92.0% in 1997,
1998 and 1999, respectively.



Of the three primary sources of
service bureau revenues, the CreditConnection service, Dun & Bradstreet related
services and CreditRevue Service Bureau, only the CreditConnection service was
operational for all of 1997, Dun & Bradstreet came on-line in 1998 as did the
CreditRevue Service Bureau. The increases in service bureau costs in 1998 are
related to increased staffing required for operations and support for these
services and increased communication expenses associated with the expanding CreditConnection
service. The decreases in service bureau costs in 1999 are



20
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|related to improved staffing utilization and efficiencies
related to the new data center operations which commenced production early in
1999 following the Companys relocation to Annapolis Junction from Columbia,
Maryland.



Selling, General and
Administrative Expenses


Selling, general and
administrative expenses increased 50.2% from $8.5 million in 1997 to $12.8
million in 1998, and decreased 5.5% from $12.8 million in 1998 to $12.1 million
in 1999. The $4.3 million increase during 1998 relates to one time expenses and
reserves associated with the Companys relocation to Annapolis Junction and
increases in payroll costs, communications expenses, depreciation and other
general sales and administrative expenses. Of the total 1998 increase,
approximately $2.8 million relate to facilities and equipment expenses. In
addition, due to the Companys relocation in 1998, a liability of approximately
$1.2 million was recorded to recognize future minimum lease payments due under
leases for the Companys former offices. Other one-time charges include the
write-off of certain leasehold improvements of approximately $0.3 million and
certain lease termination fees and moving expenses of approximately $0.2
million. Additionally, increases in communication and depreciation expenses
represent approximately $1.0 million of the 1998 increase. Payroll related
expenses increased approximately $0.8 million and the balance of the increase
was in the area of general, selling and administrative expenses including:
advertising, travel, legal and accounting fees. Increases in payroll relate
primarily to increases in sales and marketing staffing. The decrease in
selling, general and administrative expenses in 1999 was the of result of
reductions to office expense (approximately $1.0 million), the non-recurrence
of one-time expenses related to the Companys relocation in 1998 (approximately
$0.9 million) and the year-end write-off of certain impaired assets
(approximately $1.2 million). The reduction in office expense relates to
subleasing the Companys former offices which resulted in the recovery of
approximately $1.0 million of the reserve recorded in 1998.


Research and Development Costs



Research and development costs
consist primarily of salaries and benefits of in-house programmers. These costs
increased $0.2 million during the year ended December 31, 1998 as compared to
the year ended December 31, 1997, due primarily to the addition of four
programmers in 1998. The increased staffing was required to address a number of
strategic development efforts underway during 1998, including on-going efforts
for CreditConnection, Dun & Bradstreet Portfolio
Monitoring, CreditRevue Service Bureau and the eValuate projects. During 1997,
all development activities were expensed. During 1998, approximately $0.3
million of costs associated with the development of eValuate expenses were
capitalized. The capitalized expenses include the direct payroll costs of
certain programmers and certain third party development expenses. During 1999
approximately $1.7 million of eValuate expenses were capitalized up from the
$0.3 million capitalized in 1998 resulting in lower year to year research and
development expenses being recorded. See Note 1 of the Notes to Consolidated
Financial Statements.



Interest Income (Expense)


Interest expense was $0.1 million
in 1998 and 1999. Interest income was $0.8 million in 1998 and decreased to
$0.3 million in 1999 . The interest expense reported in 1998 and 1999 relates
to borrowings under the Companys line of credit and obligations under capital
lease. The interest income reported in 1998 and 1999 results from invested
proceeds from the Companys initial public offering.


Income Tax Expense



From its inception in 1987 until
its reincorporation in Delaware in November 1996, the Company had been treated
for income tax purposes as a corporation subject to federal and state taxation
under Subchapter S of the Internal Revenue Code of 1986, as amended (the
Code) and comparable state laws. As a result, for federal and state income
tax purposes, the Companys earnings had been taxed directly to the Companys
shareholders. Upon termination of the Companys Subchapter S status in November
1996, the Company determined the differences between the financial reporting
and income tax bases of its assets and liabilities, and recorded at that date
the resulting deferred tax liability and income tax expense. Income tax amounts
and balances are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. At December 31,
1999, the Company had net operating loss carryforwards of approximately $18.6
million which will begin to expire in 2011. See Note 2 to the Consolidated
Financial Statements for more information regarding the Companys income tax
status.



Liquidity and Capital Resources


The Company has funded its
working capital needs and investments in property and equipment from operating
cash flows and approximately $22.1 million of net proceeds from the Companys
initial public offering



21
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|completed in December 1996. During 1997, 1998 and 1999, the
Companys operations consumed cash of $4.1 million, $7.3 million and $3.5
million, respectively. This cash flow deficiency during 1997 and 1998 is
primarily caused by operating losses and an increase in accounts receivable. In
1999, operating losses, and reductions in accounts
payable are the elements having the greatest impact on net cash used in
operations.


The Companys cash used for
investing activities consists principally of investments in property and
equipment and capitalized software development costs. During the years ended
December 31, 1997, 1998 and 1999, the Company invested a total of $2.4 million,
$4.3 million and $2.2 million, respectively, in property and equipment and
capitalized software development costs. These investments were directly
attributable to the Companys growth in operations. The Company did not have
any material commitments for the purchase of property and equipment at December
31, 1999.


The Company has relied
principally on its bank line of credit and proceeds from its initial public
offering completed in December 1996 for its financing needs. The Company
received $22.1 million of net proceeds from its initial public offering. The
Company maintains a secured bank line of credit in the amount of $1.5 million.
At December 31, 1999 there was an outstanding balance of approximately $0.8
million on the line of credit. The bank line of credit requires the banks
written consent prior to, among other things, (i) the payment of cash
dividends, (ii) the Companys engagement in a substantially different business
activity, or (iii) the purchase by the Company of any interest in another
enterprise or entity.


The Company currently anticipates
that its available cash resources, expected cash flows from operations and its
bank line of credit will be sufficient to meet its presently anticipated
working capital, capital expenditure and debt repayment requirements through
2000. The Company will be exploring alternatives for additional capital to
further investments in expanding the CreditOnline network in the
business-to-business market.


Year 2000 Compliance



Year 2000 Issue


The Year 2000 issue is a result
of computer programs which store or process date-related information using only
two digits to represent the year. These programs may not be able to properly
distinguish between a year in the 1900's and a year in the 2000's. Failure of
these programs to distinguish between the two centuries could cause the
programs to yield erroneous results or even to fail.


State of Readiness


The Company recognizes the
significance of the Year 2000 issue and has implemented a formal Year 2000
program to minimize the impact of the Year 2000 on the Company and its
customers (Year 2000 Program). The Year 2000 Program addresses both
information technology (IT) and non-IT systems, for systems used by the
Company as well as those provided by the Company to its customers. Non-IT
systems are primarily used by the Company in the operation of its facilities.
The Year 2000 Program is implemented by a Year 2000 Team which includes members
from all levels of management and all functional areas of the Company, as
follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Executive
Sponsor  The Executive Sponsor works with the Senior Technology Executive on
budgeting and resources management and other major Year 2000 issues, and
reports on Year 2000 Program status to the Executive Management of the Company
as well as the Board of Directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Senior
Technology Executive  The Senior Technology Executive manages the Project
Managers-Company Wide. Issues relating to budgeting and resources are escalated
to the Senior Technology Executive. The Senior Technology Executive also has
the authority to prioritize Year 2000 tasks over other project tasks.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Project
Managers-Company Wide  The Project Managers-Company Wide share responsibility
for determining the Year 2000 tasks that need to be completed, and monitoring
the completion of the tasks on schedule. The Project Managers-Company Wide are
responsible for collecting, coordinating and disseminating information within
the Company about the Year 2000 Program and its status.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | System
Project Managers  A project manager is assigned to each of the primary areas
of the Company. Each System Project Manager is responsible for ensuring that
the Year 2000 tasks relating to his/her area are completed on schedule.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Product
Project Managers  A project manager is assigned to each specific product. Each
Product Project Manager is responsible for ensuring that the Year 2000 tasks
relating to that specific product are completed on schedule.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22
|--

|
|

| |  | System
Analysts  System Analysts review individual products to identify Year
2000 issues.
| | - | ------------------------------------------------------------------------------------------

| |  | Developers
 Developers perform coding modifications to address Year 2000 issues.
| | - | ---------------------------------------------------------------------------------

| |  | Testers
 Testing is performed under the guidance of the Quality Services
department to ensure that any Year 2000 issues have been properly addressed.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

|Individual members of the Year
2000 Team communicate frequently with respect to Year 2000 issues. During 1999,
the Year 2000 Team met as a group and reported status bi-weekly. During the
Year 2000 and beyond, the Year 2000 Team and subgroups of the Year 2000 Team
will meet as needed to address specific issues.


The Company has used employees of
the Company to identify and address Year 2000 issues. Through the end of 1999,
the Year 2000 Program involved six basic stages: (1) inventory of all
potentially affected software products and software-related services, (2)
analysis of such products and services to identify any areas that require
change or replacement, (3) change or replacement of the identified areas, (4)
testing, (5) implementation of the changes or replacements, and (6) contingency
plans. Because the Company is not only a user of software products and
software-related services, but also provides software products and
software-related services to its customers, the Companys Year 2000 Program
addresses both software products and software-related services used by the
Company and those provided by the Company to its customers.


The Company has established
written Year 2000 coding standards which have been distributed to the Companys
system analysts, developers and testers. The Company has also conducted
training for its system analysts, developers and testers to ensure that they
are familiar with the Companys Year 2000 coding standards.


For purposes of the Year 2000
Program, the Company has classified into the following three major categories
the software products and software-related services provided by the Company to
its customers: credit decisioning systems (existing systems and new systems),
e-commerce systems, and service bureau systems.


Credit Decisioning Systems
(Existing). For existing credit decisioning systems (i.e., systems which
customers were using in production at the time the Year 2000 Program was
applied to the system), the Company performed the following activities:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. |  | The
customers credit decisioning system was analyzed to identify any Year 2000
issues and to determine whether any modifications to the code were required.
The analysis was conducted in accordance with detailed procedures which were
developed internally by the Company for Year 2000 analysis of its credit
decisioning systems. 2. The Year 2000 modifications were made.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. |  | The
modifications were tested. The customer also had an opportunity to test the
modifications.
| | -- |  | ----------------------------------------------------------------------------------------------

| | 4. |  | Following
the testing, the modifications were installed in the customers system.
| | -- |  | ---------------------------------------------------------------------------------

| | 5. |  | Any
enhancements to the customers credit decisioning system since the completion
of the procedures described in items 1-4 above were developed and implemented
by the Company under its Year 2000 Coding Standards. As an extra safeguard,
however, the Company conducted a follow-up Year 2000 analysis of these
enhancements.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Credit Decisioning Systems (New).
For new credit decisioning systems (i.e., systems which were not used by
customers until after the Year 2000 Program was applied to the system), the
Company performed the following activities:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. |  | Each
new credit decisioning system started with a base system. The base system was
analyzed for Year 2000 issues.
| | -- |  | -------------------------------------------------------------------------------------------------------------------

| | 2. |  | Enhancements
were made to the base system based on the functional specifications agreed to
between the Company and the customer, and the enhanced system was delivered to
the customer for user acceptance testing.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. |  | Before
or concurrent with the user acceptance testing, the Company reviewed the code
enhancements for compliance with the Companys Year 2000 coding standards.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. |  | The
Company implemented required modifications on the test system at the Companys
site, and tested the modifications.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------

| | 5. |  | Upon
completion of testing of the changes by the Company, the software changes were
reported to the customer and installed in the customers system for further
testing by the customer.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. |  | With
respect to any enhancements to the credit decisioning system after acceptance
by the customer of
| | -- |  | -----------------------------------------------------------------------------------------------------

|23
|--

|
|

| | the
system, the Company performed the enhancements in a test environment. The
enhancements were then analyzed and tested for Year 2000 issues following the
above approach.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|E-commerce Systems. For e-commerce systems, the Company
performed the following activities:
|-------------------------------------------------------------------------------------------

|1. |  | The
Company analyzed the software programs supporting the e-commerce system to
identify any Year 2000 issues and determine whether any modifications were
required. The Company also coordinated with the vendor of any hardware and
other equipment supporting the e-commerce system to request Year 2000
information regarding the applicable product and to determine whether any
patches, upgrades or replacements were necessary. The Company also tested the
third party product where necessary, appropriate and feasible.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Any
necessary modifications were made to the software programs supporting the
e-commerce system. In addition, any necessary patches or upgrades to, or
replacements of, third party products were installed.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | The
Company analyzed and tested the modifications, patches, upgrades and
replacements. The Company made the Year 2000 version of the software programs
supporting the e-commerce system available to its customers in a Year 2000
environment for testing of the modifications. The customer scheduled the
testing with the Company.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The
modifications, patches, upgrades and replacements were placed into production.
|-- |  | ----------------------------------------------------------------------------------

|5. |  | With
respect to any subsequent enhancements to the e-commerce system, the
enhancements were performed in a test environment. The enhancements were then
analyzed and tested for Year 2000 issues following the above approach prior to
being placed into production.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Service Bureau Systems. For service bureau systems, the Company
performed the following activities:
|---------------------------------------------------------------------------------------------------

|1. |  | The
base service bureau system was analyzed for compliance with the Companys
Year 2000 coding standards.
|-- |  | -----------------------------------------------------------------------------------------------------------

|2. |  | The
Year 2000 modifications were made.
|-- |  | --------------------------------------

|3. |  | The
modifications were tested.
|-- |  | ------------------------------

|4. |  | For
any subsequent releases, the Company analyzed the changes for compliance with
the Companys Year 2000 coding standards. The Company made any required
modifications to the code.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The
Company tested the modifications.
|-- |  | -------------------------------------

|6. |  | Following
the testing, the release was ready to be delivered to the customer.
|-- |  | -----------------------------------------------------------------------------

|Infrastructure. For products and
systems used by the Company internally, the Company performed one or more of
the following activities:
|---------------------------------------------------------------------------------------------------------------------------------------

|1. |  | The
Company contacted the provider of the product or system in writing to request
information regarding the Year 2000 readiness of its product or system, and
evaluated the response for reasonableness and acceptability, based on CMSIs
knowledge of the product or system.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | The
Company obtained Year 2000 compliance information from the third partys web
site and evaluated the response for reasonableness and acceptability based on
the Companys knowledge of the product or system.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | The
Company tested the product or system where appropriate and possible.
|-- |  | ------------------------------------------------------------------------

|4. |  | For
any third party products or systems that required modifications, the Company
worked with the vendor to ensure that the modifications were completed in an
acceptable time frame.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As the Company does not have any
control over the third party providers of products and systems, the Company
cannot guarantee that such third party products and systems will not suffer any
adverse effects due to the Year 2000.


In most cases, the software
products and software-related services provided by the Company interface to
third party systems. In cases where a third party provided Year 2000 interface
specifications, the Company developed, tested and implemented new interface
code to comply with those specifications.


The Year 2000 activities
described above relating to credit decisioning systems, e-commerce systems,
service bureau systems and third party products and systems represent the
standard procedures applied to the applicable system. In certain circumstances,
the Company may have made changes to or deviated from these procedures.


24
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As of December 31, 1999, the
analysis, remediation, testing and implementation had been substantially
completed for (i) the Companys customers credit decisions systems, (ii) the
software and systems comprising the Companys e-commerce systems, (iii) the
Companys service bureau customers systems, and (iv) the Companys internal
products and systems. The Company has not experienced any material disruption
to its business associated with the Year 2000 issue. To the Companys
knowledge, none of the Companys customers has experienced any material
disruption to its business which has been associated with the Year 2000 issue
in connection with the Companys products.


For the Year 2000 and beyond, the
Company continues to code according to its Year 2000 coding standards. In
addition, because system clocks are now in the Year 2000, all testing
necessarily includes testing of dates in the Year 2000.

Costs

As of December 31, 1999, substantially all expenses were
associated with the opportunity cost of time spent by employees of the Company
on the Year 2000 Program, particularly on the analysis, development, testing and
implementation relating to software products and software-related services
provided to customers. The Company estimates that the opportunity cost incurred
as of December 31, 1999 is approximately $2.25 million. This cost can be
allocated as follows: $935,000 to credit decisioning systems, $290,000 to
e-commerce systems, $420,000 to service bureau systems, $65,000 to internal
products and systems, and $540,000 to Year 2000 Program management, project
oversight, and client and vendor communications. The Companys projected
costs of the entire Year 2000 Program was $2.4 million. The Company may continue
to incur costs in the Year 2000 and beyond to address specific Year 2000 issues
that may arise. The Company does not believe that any such costs shall be
material.

Risks


If a product or service provided by the Company is found to
cause damage or injury to a customer of the Company due to a failure of such
product or service to operate without any adverse effect due to date related
processing associated with the Year 2000, the Company could be liable to such
customer for a breach of warranty, depending on the specific contractual
arrangement between the Company and such customer. Although the Companys
contractual arrangement with each of its customers generally limits the Companys
liability to such customer, the Company cannot accurately predict whether or to
what extent any legal claims will be brought against the Company, or whether
the Company will otherwise be adversely affected by such claims.


In addition, a failure by the Company to make its products Year
2000 compliant could result in a decrease in sales of the Companys
products, delays in the development of other of the Companys products, an
increase in the costs associated with Year 2000 remediation, and an increase in
litigation costs. The Year 2000 issue may also have an indirect effect on the
Companys business and operations to the extent that potential customers of the
Company may be using significant resources to address Year 2000 issues, and
therefore may have fewer resources to evaluate and purchase other products and
services such as the products and services offered by the Company. If a
material third party product or system which the Company uses or interfaces to
fails to operate properly due to the Year 2000, such failure could have a
material adverse effect on the Companys business and results of
operations.

Contingency Plans

During the end of 1999 and the beginning of 2000, the
Companys contingency plans consisted primarily of a dedicated Year 2000
support staff with detailed escalation procedures to address Year 2000 issues
which could affect the Company or its customers. The Company has implemented
continuing procedures to ensure that in the event a problem is reported by a
customer which may be Year 2000-related, the problem will be escalated
appropriately and reported to members of the Year 2000 Team to determine whether
any other clients or systems may be affected by the same error and to take
appropriate action.




Item 7A. Quantitative and Qualitative Disclosures
About Market Risk


The Company is exposed to market
risk related to changes in interest rates. The Company invests its excess cash
balances in cash equivalents and municipal, commercial and government agency
obligations which are interest rate sensitive. However, the maturities of these
obligations is less than one year, mitigating their sensitivity to interest
rates. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Companys financial position,
results of operations and cash flows is not material.




Item 8. Financial Statements and Supplementary Data.


The information required by the
item is incorporated herein by reference to the consolidated financial
statements listed in Item 14 below.



Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.


None.


25
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART III


Item 10. Directors and Executive Officers of the
Registrant.


The Company incorporates herein
by reference the information concerning directors and executive officers in its
Notice of Annual Stockholders Meeting and Proxy Statement to be filed within
120 days after the end of the Companys fiscal year (the 2000 Proxy
Statement).



Item 11. Executive Compensation.


The Company incorporates herein
by reference the information concerning executive compensation contained in the
2000 Proxy Statement.



Item 12. Security Ownership of Certain Beneficial
Owners and Management.


The Company incorporates herein
by reference the information concerning security ownership of certain
beneficial owners and management contained in the 2000 Proxy Statement.



Item 13. Certain Relationships and Related
Transactions.


The Company incorporates herein by reference the information
concerning certain relationships and related transactions contained in the 2000
Proxy Statement.



26
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART IV


Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
|----------------------------------------------------------------------------------

| |  |  |  | Page Number
| |  |  |  | -----------

| | (a) |  | Index
to Consolidated Financial Statements | 
| | --- |  | ------------------------------------------ | 

| |  |  | Index | F-1
| |  |  | ----- | ---

| |  |  | Report of Independent Auditors | F-2
| |  |  | ------------------------------ | ---

| |  |  | Consolidated Balance Sheets as of December 31, 1999 and 1998 | F-3
| |  |  | ------------------------------------------------------------ | ---

| |  |  | Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997 | F-4
| |  |  | ------------------------------------------------------------------------------------------ | ---

| |  |  | Consolidated Statements of Shareholders Equity (Deficit) for the years ended
December 31, 1999, 1998 and 1997 | F-5
| |  |  | -------------------------------------------------------------------------------------------------------------- | ---

| |  |  | Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997 | F-6
| |  |  | ------------------------------------------------------------------------------------------ | ---

| |  |  | Notes to Consolidated Financial Statements | F-7
| |  |  | ------------------------------------------ | ---

| | (b) |  | Financial
Statement Schedules | 
| | --- |  | ----------------------------- | 

| |  |  | All schedules
for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under The related
instruction or are inapplicable and therefore have been omitted. | 
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | (c) |  | Reports
on Form 8-K | 
| | --- |  | ------------------- | 

| |  |  | None | 
| |  |  | ---- | 

| | (d) |  | Exhibits | 
| | --- |  | -------- | 

| |  |  | 3.1 | Certificate of Incorporation of the
Company*
| |  |  | --- | --------------------------------------------

| |  |  | 3.2 | Bylaws of the Company*
| |  |  | --- | ----------------------

| |  |  | 4.1 | Specimen certificate for Common Stock
of the Company*
| |  |  | --- | -----------------------------------------------------

| |  |  | 4.2 | See Exhibits 3.1 and 3.2 for provisions
of the Certificate of Incorporation and Bylaws of the Company defining rights
of holders of Common Stock of the Company
| |  |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 10.1 | Form of Project Commencement Agreement*
| |  |  | ---- | ---------------------------------------

| |  |  | 10.2 | Form of Software License Agreement*
| |  |  | ---- | -----------------------------------

| |  |  | 10.3 | Form of Software Maintenance Agreement*
| |  |  | ---- | ---------------------------------------

| |  |  | 10.4 | Form of Professional Services Agreement*
| |  |  | ---- | ----------------------------------------

| |  |  | 10.5 | Form of CreditConnection Lender
Agreement (for CreditRevue Licensees)*
| |  |  | ---- | ----------------------------------------------------------------------

| |  |  | 10.6 | Form of CreditConnection Lender
Agreement (for non-CreditRevue Licensees)*
| |  |  | ---- | --------------------------------------------------------------------------

| |  |  | 10.7 | Form of CreditConnection Dealer
Subscription Agreement*
| |  |  | ---- | -------------------------------------------------------

| |  |  | 10.8.1 | Office Building Lease between Symphony
Woods Limited Partnership and the Company dated October 29, 1993*
| |  |  | ------ | --------------------------------------------------------------------------------------------------------

| |  |  | 10.8.2 | Office Building Lease between Symphony
Woods Limited Partnership and the Company dated February 10, 1995*
| |  |  | ------ | ---------------------------------------------------------------------------------------------------------

|27
|--

|
|

| |  |  | 10.8.3 | First Amendment to Lease dated March
29, 1995*
| |  |  | ------ | ----------------------------------------------

| |  |  | 10.8.4 | Second Amendment to Lease dated August
12, 1996*
| |  |  | ------ | ------------------------------------------------

| |  |  | 10.8.5 | 135 National Business Parkway Lease between Antellation Real Esate, Inc. and the Company dated Aprill 27, 1998***
| |  |  | ------ | -----------------------------------------------------------------------------------------------------------------

| |  |  | 10.8.6 | First Amendment of 135 National Business Parkway Lease dated December 23, 1998***
| |  |  | ------ | ---------------------------------------------------------------------------------

| |  |  | 10.9 | Promissory Note dated December 31, 1995
given by the Company to James R. DeFrancesco*
| |  |  | ---- | -------------------------------------------------------------------------------------

| |  |  | 10.10 | Business Loan Agreement between The
Columbia Bank and the Company dated June 10, 1994*
| |  |  | ----- | --------------------------------------------------------------------------------------

| |  |  | 10.11 | 1996 Credit Management Solutions, Inc.
Non-Qualified Stock Option Plan*
| |  |  | ----- | -----------------------------------------------------------------------

| |  |  | 10.12 | 1996 Credit Management Solutions, Inc.
Employee Stock Purchase Plan*
| |  |  | ----- | --------------------------------------------------------------------

| |  |  | 10.13 | 1996 Credit Management Solutions, Inc.
Long-Term Incentive Plan*
| |  |  | ----- | ----------------------------------------------------------------

| |  |  | 10.14 | Form of Tax Indemnification Agreement*
| |  |  | ----- | --------------------------------------

| |  |  | 10.15 | 1996 Credit Management Solutions, Inc.
Non-Qualified Stock Option Plan
| |  |  | ----- | ----------------------------------------------------------------------

| |  |  | 10.16 | 1997 Credit Management Solutions, Inc.
Stock Incentive Plan**
| |  |  | ----- | -------------------------------------------------------------

| |  |  | 23 | Consent of Independent Auditors
| |  |  | -- | -------------------------------

| |  |  | 27 | Financial Data Schedule
| |  |  | -- | -----------------------

______________

|* |  | Incorporated
by reference to the Exhibits filed with the Companys Registration Statement on
Form S-1, File No. 333-14007.
|- |  | --------------------------------------------------------------------------------------------------------------------------

|** |  | Incorporated
by reference to the Companys 1997 Proxy Statement, file no. 000-21735
|-- |  | -----------------------------------------------------------------------------------

|*** |  | Filed in paper form on temporary basis pursuant to Rule 201.
|--- |  | ------------------------------------------------------------

|28
|--

|SIGNATURES


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


Credit Management Solutions, Inc.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|By: | /s/ Scott L. Freiman 
Scott L. Freiman
President and Chief Executive Officer
(Principal Executive Officer) | March 30, 2000 | 
|--- | -------------------------------------------------------------------------------------------------------------------- | -------------- | 

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

|By: | /s/ John J. McDonnell, Jr. 
John J. McDonnell, Jr.
Chairman of the Board of Directors | March 30, 2000 | 
|--- | ----------------------------------------------------------------------------------------------- | -------------- | 

|By: | /s/ Scott L. Freiman  
Scott L. Freiman
President,  Chief Executive Officer and
Director (Principal Executive Officer) | March 30, 2000 | 
|--- | -------------------------------------------------------------------------------------------------------------------------------- | -------------- | 

|By: | /s/ Miles H. Grody 
Miles H. Grody
Senior Vice President and Director | March 30, 2000 | 
|--- | ------------------------------------------------------------------------------- | -------------- | 

|By: | /s/ Robert P. Vollono 
Robert P. Vollono
Senior Vice President, Treasurer,
Chief Financial Officer and
Director (Principal Financial and Accounting
Officer) | March 30, 2000 | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | 

|By: | /s/ Stephen X. Graham 
Stephen X. Graham
Director | March 30, 2000 | 
|--- | ----------------------------------------------------------- | -------------- | 

|By: | /s/ James R. DeFrancesco 
James R. DeFrancesco
Director | March 30, 2000 | 
|--- | ----------------------------------------------------------------- | -------------- | 

|29
|--

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|---------------------------------------------------------------------------------------------

|                                                | 
|----------------------------------------------- | 
|Report of Independent Auditors                  | 
|                                               
|Consolidated Balance Sheets                     | 
|Consolidated Statements of Operations           | 
|Consolidated Statements of Shareholders Equity | 
|Consolidated Statements of Cash Flows           | 
|Notes to Consolidated Financial Statements      | 

|F-1
|---

|Report of Independent Auditors


The Board of Directors and Shareholders 
Credit Management Solutions, Inc.


We have audited the accompanying consolidated balance sheets of
Credit Management Solutions, Inc. and subsidiary as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.


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


In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Credit Management Solutions, Inc. and subsidiary atDecember 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ Ernst & Young LLP
| |  | ---------------------

|Baltimore, Maryland
February 25, 2000


F-2
|-------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS
|------------------------------------------------------------------------------

|                                                              | December 31,
|------------------------------------------------------------- | ------------
|
|ASSETS                                                        |             
|Current assets:                                               |             
|Cash and cash equivalents                                     |             
|Investments available-for-sale                                |             
|Accounts receivable, net of allowance of $311,583 and         |             
|$352,664 in 1999 and 1998, respectively                       |             
|Costs and estimated earnings in excess of                     |             
|billings on uncompleted contracts                             |             
|Prepaid expenses and other current assets                     |             
|                                                             
|Total current assets                                          |             
|                                                             
|Property and equipment:                                       |             
|Computer equipment and software                               |             
|Office furniture and equipment                                |             
|Leasehold improvements                                        |             
|                                                             
|Accumulated depreciation and amortization                     |             
|                                                              |             
|                                                             
|                                                              |             
|Software development costs, net of accumulated amortization   |             
|of $359,165 and $298,304 in 1999 and 1998, respectively       |             
|Other assets                                                  |             
|                                                             
|Total assets                                                  |             
|                                                             
|                                                             
|LIABILITIES AND SHAREHOLDERS EQUITY                          |             
|Current liabilities:                                          |             
|Accounts payable                                              |             
|Accrued payroll and related expenses                          |             
|Billings in excess of costs and estimated                     |             
|earnings on uncompleted contracts                             |             
|Deferred revenue                                              |             
|Current portion of deferred tenant allowance                  |             
|Short-term borrowings                                         |             
|Current portion of                                            |             
|capital lease obligations                                     |             
|                                                             
|Total current liabilities                                     |             
|                                                              |             
|Long-term debt:                                               |             
|Capital lease obligations, less current portion               |             
|Other lease obligations, less current portion                 |             
|Deferred tenant allowance, less current portion               |             
|                                                             
|Total liabilities                                             |             
|                                                              |             
|Shareholders equity:                                         |             
|Preferred stock, $.01 par value; 1,000,000 shares authorized; |             
|no shares issued or outstanding                               |             
|Common stock, $.01 par value; 40,000,000 shares authorized;   |             
|7,689,570 and 7,649,770 shares issued and outstanding at      |             
|December 31, 1999 and 1998, respectively                      |             
|Additional paid-in capital                                    |             
|Accumulated deficit                                           |             
|                                                             
|Total shareholders equity                                    |             
|                                                             
|Total liabilities and shareholders equity                    |             
|                                                             

|The accompanying notes are an integral part of
these financial statements.



F-3
|---------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF OPERATIONS
|---------------------------------------------------------------------------------------

|                                              | Year ended December 31,
|--------------------------------------------- | -----------------------
|
|Revenues:                                     |                        
|License and software development fees         |                        
|Maintenance fees                              |                        
|Computer hardware sales                       |                        
|Service bureau revenues                       |                        
|                                             
|                                              |                        
|Costs of revenues:                            |                        
|Cost of license and software development fees |                        
|Cost of maintenance fees                      |                        
|Cost of computer hardware sales               |                        
|Cost of service bureau                        |                        
|                                             
|                                              |                        
|                                             
|Gross profit                                  |                        
|Other operating expenses:                     |                        
|Selling, general and administrative expenses  |                        
|Research and development costs                |                        
|                                             
|                                              |                        
|                                             
|Loss from operations                          |                        
|Other income (expense):                       |                        
|Interest expense                              |                        
|Interest income                               |                        
|Amortization of excess of assigned value of   |                        
|identifiable assets over cost of an acquired  |                        
|interest                                      |                        
|                                             
|                                              |                        
|                                             
|Net loss                                      |                        
|                                             
|Basic and diluted loss per common share       |                        
|                                             
|Weighted average shares used in computation   |                        
|                                             

|The accompanying notes are an integral part of
these financial statements.

F-4
|-------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
|-------------------------------------------------------------------------------------

|                                 | Common Stock
|-------------------------------- | ------------
|
|Balance at January 1, 1997       |             
|Issuance of common stock, net of |             
|offering costs of $263,537       |             
|Issuance of common stock under   |             
|employee stock purchase program  |             
|Exercise of options to purchase  |             
|common stock                     |             
|Net loss for 1997                |             
|                                
|Balance at December 31, 1997     |             
|Issuance of common stock under   |             
|employee stock purchase program  |             
|Exercise of options to purchase  |             
|common stock                     |             
|Net loss for 1998                |             
|                                
|Balance at December 31, 1998     |             
|Issuance of common stock under   |             
|employee stock purchase program  |             
|Exercise of options to purchase  |             
|common stock                     |             
|Net loss for 1999                |             
|                                
|Balance at December 31, 1999     |             
|                                

|The accompanying notes are an integral part of
these financial statements.



F-5
|---------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
|-------------------------------------------------------------------------------------

|                                                         | Year ended December 31,
|-------------------------------------------------------- | -----------------------
|
|Operating activities:                                    |                        
|Net loss                                                 |                        
|Adjustments:                                             |                        
|Depreciation                                             |                        
|Amortization of excess of assigned value of              |                        
|identifiable assets over cost of an acquired             |                        
|interest                                                 |                        
|Amortization of software development costs               |                        
|Amortization of deferred tenant allowance                |                        
|Loss (gain) on disposal of property and                  |                        
|equipment                                                |                        
|Changes in operating assets and liabilities:             |                        
|Accounts receivable, net                                 |                        
|Prepaid expenses and other current assets                |                        
|Accounts payable                                         |                        
|Accrued payroll and related expenses                     |                        
|Net billings in excess of costs and                      |                        
|estimated earnings on uncompleted                        |                        
|contracts                                                |                        
|Deferred revenue                                         |                        
|Accrued interest on shareholder loans                    |                        
|Other lease obligations                                  |                        
|                                                        
|Net cash used in operating activities                    |                        
|Investing activities:                                    |                        
|Purchase of investments available-for-sale               |                        
|Sale of investments avalabile-for-sale                   |                        
|Proceeds from sale of property and equipment             |                        
|Purchases of property and equipment                      |                        
|Capitalized software development costs                   |                        
|Decrease (increase) in other assets                      |                        
|                                                        
|Net cash provided by (used in) investing activities      |                        
|Financing activities:                                    |                        
|Payments under capital lease obligations and short- term |                        
|borrowings                                               |                        
|Repayments of shareholder loans                          |                        
|Repayments of long-term debt                             |                        
|Proceeds from short-term borrowings                      |                        
|Proceeds from exercise of stock options                  |                        
|Proceeds from issuance of common stock                   |                        
|                                                        
|Net cash provided by financing activities                |                        
|                                                        
|Net change in cash and cash equivalents                  |                        
|Cash and cash equivalents at beginning of year           |                        
|                                                        
|Cash and cash equivalents at end of year                 |                        
|                                                        

|The accompanying notes are integral part of these
financial statements.

F-6
|----------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Basis of Presentation and Significant Accounting
Policies


Basis of Presentation of Financial Statements

Description of Business


Credit Management Solutions, Inc. (the Company)
develops and provides software solutions and services for automating the
consumer and small business credit analysis, decisioning and funding process.
The Companys customers are primarily banks and other financial
institutions located throughout the United States.

Principles of Consolidation


The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, CreditOnline, Inc. (f/k/a CreditConnection, Inc.).
The subsidiary operates an automated service bureau which
electronically assembles and transmits between merchants and credit grantors
credit applications of the merchants customers. All material intercompany
accounts and transactions have been eliminated upon consolidation.

Use of Estimates


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


Significant Accounting Policies

Cash Equivalents


The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. The cost
of these investments is equivalent to fair value.

Investments


Available-for-sale securities are carried at fair value, as
measured on quoted exchanges, with unrealized security holding gains and losses
recognized in comprehensive income. Realized gains and losses and declines in
value judged to be other than temporary on available-for-sale securities are
included in interest income.


At December 31, 1999, available-for-sale securities consisted of
municipal, corporate and government agency obligations, the cost of which
approximates fair value. The Company has not had significant realized or
unrealized gains or losses on its investments during the periods presented.
These investments are classified as current as all maturities are less than one
year.


F-7
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

Property and Equipment


Property and equipment is stated at cost and depreciated using
the straight-line method based on estimated useful lives of between three and
seven years.


Included in computer equipment and software are direct costs of
computer software developed for internal use. Costs incurred are capitalized and
amortized over periods not exceeding three years.


Amortization of leasehold improvements is provided using the
straight-line method over the lesser of the life of the improvement or the
remaining term of the lease. Assets held under capital leases are stated at the
lesser of the present value of future minimum payments using the Companys
incremental borrowing rate at the inception of the lease or the fair value of
the property at the inception of the lease. The assets recorded under capital
leases are amortized over the lesser of the lease term or the estimated useful
life of the assets in a manner consistent with the Companys depreciation
policy for owned assets.

Software Development Costs

Costs related to conceptual formulation and design of Company
products are expensed as incurred. Costs incurred subsequent to establishment
of technological feasibility, but prior to the product being available for
general release to customers, are capitalized and amortized over estimated
productive lives, generally three years. Amortization is recorded at the greater of the amount computed using
the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that
product, or the straight-line method.

The Company evaluates its investment in product development as
events or changes in circumstances may arise, for the purpose of determining
whether the carrying amount of such assets may exceed the net realizable value
of the products. In the event that capitalized costs of a product exceed the
estimated net realizable value of the product, such excess amount is expensed.

Deferred Tenant Allowances


Payments made by landlords to the Company as incentives under
operating leases are recorded as liabilities and recognized as reductions in
rental expense ratably over the terms of the leases.

Revenue Recognition


Revenues from long-term software license contracts are
recognized on the percentage-of-completion method, measured generally on a cost
incurred basis. Costs consist primarily of direct labor and applicable overhead.
Contracts in progress are reviewed periodically as the work progresses, and
revenues and earnings are adjusted in current accounting periods based on
revisions in contract value and estimates to complete. Losses on contracts are
provided for in the period they are first determined.


F-8
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



The Company recognizes revenue from software maintenance contracts
pro rata over the term of the agreements, generally one-year. Revenues from
sales of hardware and software are recognized at time of shipment and when
collection of the receivable is probable. Payments received in advance of
revenue recognition for these services and product sales are included in
deferred revenue. Service bureau revenues are transaction-based revenues that are recognized when the transaction is completed.

Advertising Costs


All advertising costs are expensed when incurred. Costs, which
are included in selling, general and administrative expense, for the year ended
December 31, 1999, 1998 and 1997 are $282,262, $384,863 and $265,404,
respectively.

Income Taxes


The Company uses the liability method in accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

Reclassifications


Certain amounts in the 1998 consolidated financial statements
have been reclassified to conform to the 1999 presentation.


F-9
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


2. Income Taxes


The significant items comprising the Companys net deferred
tax assets are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | December 31
|------------------------------------------- | -----------
|
|Deferred tax assets:                       
|Net operating loss carry forwards           |            
|Accrued expenses                            |            
|Provision for bad debts                     |            
|Revenue recognition                         |            
|                                           
|Total deferred tax assets                   |            
|Deferred tax liabilities:                  
|Software development costs                  |            
|Revenue recognition                         |            
|Depreciation                                |            
|                                           
|Total deferred tax liabilities              |            
|Net future income tax benefit               |            
|Valuation allowance for deferred tax assets |            
|                                           
|Net deferred tax assets                     |            
|                                           

|A reconciliation of income tax expense computed at the U.S.
Federal statutory rate to the recorded amount of income tax expense is as
follows:
|----------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                            | Year ended December 31
|------------------------------------------------------------------------------------------- | ----------------------
|
|Tax expense at U.S. statutory rate                                                          |                       
|Effect of permanent differences                                                             |                       
|Change in allocation of net loss in 1996 between C Corporation and Subchapter S Corporation |                       
|State income taxes                                                                          |                       
|Effect of change in  valuation  allowance  for deferred tax assets                          |                       
|                                                                                           
|Total                                                                                       |                       
|                                                                                           

|At December 31, 1999 the Company had a net operating loss
of $1,031,472 expires in 2011. The Company had a net operating loss of $17,423,445 which begins to expire in 2017.


F-10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


3. Loss Per Share

The following table summarizes the computations of basic and
diluted loss per common share:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Year ended December 31
|--------------------------------------- | ----------------------
|
|Numerator:                              |                       
|Net loss                                |                       
|                                       
|Denominator:                            |                       
|Weighted-average shares                 |                       
|Basic and diluted loss per common share |                       
|                                       

|Diluted loss per share is equal to basic loss per share in 1999,
1998 and 1997 because if potentially dilutive securities were included in the
computation, the result would be anti-dilutive. These potentially dilutive
securities consist of stock options as described in Note 10.


4. Impairment Charge


The Company recorded an impairment charge of $1.2 million on a
pre-tax basis ($0.16 per share) during the fourth quarter of 1999. This charge
resulted from an impairment of computer software developed by third parties to
integrate some of the Companys internal systems. During the fourth
quarter, due to concerns about the softwares functionality, the
Company abandoned the integration project and recorded a charge for the
carrying amount of the assets which it will no longer utilize. The impairment
charge has been classified in the consolidated statement of operations as
selling, general and administrative expenses.


5. Supplemental Disclosures of Non-Cash Investing
and Financing Activities


Interest paid during the years ended December 31, 1999, 1998,
and 1997 was $57,426, $24,965 and $56,171, respectively. The Company paid no
amounts related to income taxes during the three years ended December 31, 1999



F-11
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)




6. Costs and Estimated Earnings on Uncompleted
Contracts


Uncompleted contracts consist of the following components:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Balance Sheet Caption
|---------------------------- | ---------------------
|
|December 31, 1998            |                      
|Costs and estimated earnings |                      
|Billings                     |                      
|                            
|                             |                      
|                            
|December 31, 1999            |                      
|Costs and estimated earnings |                      
|Billings                     |                      
|                            
|                             |                      
|                            

|All receivables on contracts in-progress are expected to be
collected within twelve months.


7. Bank Line of Credit


The Company has a revolving line of credit with a bank which
allows for aggregate borrowings of $1.5 million through the expiration date of
December 1, 2000. Borrowings under the line of credit are secured by the
Companys accounts receivable and property and equipment, and bear interest
at the banks prime rate plus one percent (9.50% at December 31, 1999).
Under the terms of the loan agreement, the Company is required to comply with
certain covenants including a restriction on assuming additional indebtedness
without the prior written consent of the bank. As of December 31, 1999, the
Company was in compliance with all covenants. As of December 31, 1999, the
Company had $798,000 outstanding under this line of credit.


F-12
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


8. Capital Lease Obligations


The Company leases equipment under capital leases. Property and
equipment includes the following amounts for leases that have been capitalized:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | December 31
|------------------------------- | -----------
|
|Computer equipment              |            
|Office furniture and equipment  |            
|                               
|                                |            
|Less:  accumulated amortization |            
|                               
|                                |            
|                               

|Amortization of leased assets is included in depreciation
expense.


All future minimum payments under capital lease obligations come
due in 2000.


9. Other Lease Obligations


During 1998, the Company relocated its corporate headquarters,
and  at December 31, 1998 remained obligated under operating leases for unutilized
space at the former headquarters. Accordingly, in 1998 the Company estimated the present value of
its future minimum obligations and recorded $1,062,425 of rent expense. At December
31, 1998, $330,299 is classified in accounts payable and accrued
expenses and $732,126 is classified as other lease obligations.

During 1999, the Company sublet portions of the unutilized
space and terminated the leases on the remaining space.
As a result of the 1999 agreements, the present value of the
future mininmun lease payments was reduced by $831,660. This amount
was recorded as a reduction of rent expense in 1999.


10. Stock Options


The Company records compensation expense for all stock-based
compensation plans using the intrinsic value method prescribed by APB Opinion
25, Accounting for Stock Issued to Employees (APB No. 25).
Under APB No. 25, if the exercise price of the Companys employee stock
options equals the quoted value of the underlying stock on the date of
grant, no compensation expense is generally recognized. Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation(Statement No. 123), encourages companies to recognize expense
for stock-based awards based on their estimated value on the date of grant.
Statement No. 123 requires the disclosure of pro forma income and earnings
per share data in the notes to the financial statements if the fair value method
is not elected. The Company supplementally discloses in these
financial statements the pro forma information as if the fair value method had
been adopted.


F-13
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


In 1997, the Company adopted the 1997 Stock Incentive Plan (the
1997 Plan). The 1997 Plan provides for the granting of either
non-qualified or qualified options to purchase an aggregate of up to 3,400,000
shares of common stock, subject to adjustment, to employees of the Company and
others. Each year, the 1997 Plan allows for a one percent increase in the number
of shares available to be granted. At December 31, 1999, the Company had
3,503,000 shares of common stock available. The 1997 Plan includes a
discretionary option grant program, a salary investment option grant program, a
stock issuance program, an automatic option grant program and a director fee
option grant program.


In 1999 and 1998, the Company issued options outside the 1997
Plan to purchase 750,000 and 254,000 shares of common stock, respectively,
pursuant to certain officer employment agreements. At December 31, 1999, there
was 254,000 shares issued outside the 1997 Plan outstanding.


A summary of the Companys stock options activity and
related information is as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                        | 1999 | 1998      | 1997
|------------------------------------------------------------------------------------------------------- | ---- | --------- | ----
|
|Options outstanding                                                                                    |      |           |     
|beginning of year                                                                                       |      | 3,669,648 |     
|Granted                                                                                                 |      | 841,350   |     
|Exercised                                                                                               |      | (24,960   | )   
|Forfeited                                                                                               |      | (991,580  | )   
|                                                                                                       
|Options outstanding                                                                                    |     
|end of year                                                                                             |      | 3,494,458 |     
|                                                                                                       
|Exercisable at end of year                                                                              |      | 1,847,688 |     
|                                                                                                       
|Weighted-average fair value     of  options granted during
                the year at market value     |      |           |     
|                                                                                                       
|Weighted average fair value
     
of options granted during
     
the year at greater than market value |      |           |     
|                                                                                                       

|F-14
|----

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


10. Stock Options (continued)


Exercise prices for options outstanding as of December 31, 1999
ranged from $3.50 to $13.13 as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Exercise          Price | OptionsOutstanding | OptionsExercisable | Weighted-averageremaining life in years | Weighted-averageexercise price ofoptions exercisable | Weighted- averageexercise price ofoptions outstanding
|----------------------- | ------------------ | ------------------ | --------------------------------------- | ---------------------------------------------------- | -----------------------------------------------------
|$3.50 to $5.38          |                    | 2,914,822          |                                         | 1,658,412                                            |                                                      
|$5.50 to $8.00          |                    | 217,880            |                                         | 31,480                                               |                                                      
|$8.25 to $9.60          |                    | 229,336            |                                         | 116,396                                              |                                                      
|$9.75 to $13.13         |                    | 132,420            |                                         | 41,400                                               |                                                      

|All options granted under the Plan are subject to vesting
provisions at the discretion of the Board of Directors. Options granted to date
vest in varying percentages through 2004.


Pro forma net loss and loss per share information required by
Statement No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of options
granted in 1999, 1998 and 1997 was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 5.8% in 1999, and 5.5% in 1998 and 1997;
dividend yield of 0% in 1999, 1998 and 1997; volatility factor of the expected
market price of the Companys common stock of 1.00, 0.81 and 0.67 in 1999,
1998 and 1997, respectively; and a weighted-average expected life of the options
of eight years in 1999, and five years in 1998 and 1997.


Because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the
minimum value method and other methods prescribed by Statement No. 123 do not
necessarily provide a single measure of the fair value of its employee stock
options.


For the purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting
periods. The Companys pro forma information follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 1999 | 1998               | 1997
|---------------------------- | ---- | ------------------ | ----
|Pro forma net loss           |      | $   (3,984,340     | )   
|Pro forma earnings per share |     
|(basic and diluted)          |      | $            (0.52 | )   

|F-15
|----

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


11. Profit Sharing Plan


The Company maintains a 401(k) profit sharing plan which covers
all employees with at least six months of service. In addition, the Company may
make a discretionary contribution based on each eligible participants
compensation. Participant contributions vest immediately and employer
contributions vest over a six year period. In January 1996, the Company began
matching 20% per annum of the first $1,000 contributed to the plan by each
employee. Contributions for the years ended December 31, 1999, 1998 and 1997
were $29,745, $33,189 and $23,315, respectively.


12. Concentrations of Credit Risk and Major
Customers


Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of accounts
receivable.


To date, these financial instruments have been derived from
revenues earned primarily from banks and other financial institutions located in
the United States. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses; historically, such losses have been
insignificant and within managements expectations. For the year ended
December 31, 1999, no customer accounted for more than 10% of total revenues. For the
year ended December 31, 1998, one customer accounted for 10% of total revenues.
For the year ended December 31, 1998, one customer accounted for 10% of total revenues.



F-16
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


13. Operating Leases


The Company leases certain office space and equipment under
non-cancelable operating lease agreements which expire through 2008. The Company also subleases office space that was vacated in 1998. Future
minimum lease payments at December 31, 1999 for leases and subleases with initial terms of one
year or more consist of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | As Lessee |              | As Sublessor |           
|---------------------------- | --------- | ------------ | ------------ | ----------
|2000                         |           | $  1,824,345 |              | $  211,515
|2001                         |           | 1,780,570    |              | $  223,338
|2002                         |           | 1,467,620    |              |           
|2003                         |           | 1,441,524    |              |           
|2004                         |           | 1,427,271    |              |           
|Thereafter                   |           | 5,842,883    |              |           
|                            
|Total minimum lease payments |           | $13,784,213  |              | $  434,853
|                            

|Rent expense under all operating leases for the year ended
December 31, 1999, 1998 and 1997 was $809,236, $2,359,666 and $891,360,
respectively.



14. Segment Reporting



The Company manages its business by focusing on distinct products and services.
Under this structure, products and services were organized into three
distinct business lines, Credit Decisioning Systems (CDS), E-Commerce and
Service Bureau Alliances (SBA). The CDS business line consists of
CreditRevue software and related services. The
E-Commerce business line consists of the CreditConnection service, CreditRevue, LenderLink, and
CreditOnline network. The SBA business line includes the OneScore product,
Portfolio Monitoring and the CreditRevue Service Bureau offerings.



The Company evaluates performance and allocates resources based
on income from operations before depreciation and amortization, and corporate
general and administrative expenses. Assets are not

F-17
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)


apportioned by segment and are not reviewed by management in reviewing
segment performance. The accounting policies used by
the reportable segments are the same as those used by the Company and described
in Note 1 to the consolidated financial statements. There are no intercompany
sales or transfers. The segments are managed separately by Business Line
Managers who are most familiar with segment operations. The following table sets
forth information on the Companys reportable segments:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | Year Ended December 31, 1999
|--------------------- | ----------------------------
|
|Revenues              |                             
|Segment profit (loss) |                             

|                      | Year Ended December 31, 1998
|--------------------- | ----------------------------
|
|Revenues              |                             
|Segment profit (loss) |                             

|                       | Year Ended December 31, 1997
|---------------------- | ----------------------------
|
|Revenues               |                             
|Segment profits (loss) |                             

|A reconciliation of segment profit (loss) for all segments to
net loss for the years ended December 31, 1999, 1998 and 1997 is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------

|                                      | 1999 | 1998        | 1997
|------------------------------------- | ---- | ----------- | ----
|Total segment profit (loss)           |      | $5,379,350  |     
|Corporate, general and administrative |      | (6,497,718  | )   
|Depreciation and amortization         |      | (1,698,851  | )   
|Net interest income                   |      | 262,443     |     
|                                     
|Net loss                              |      | $(2,554,776 | )   
|                                     

|Substantially all of the revenues and assets of the
Companys reportable segments are attributed to or located in the United
States.


F-18
|-------------------------------------------------------------------------------------------------------------------------------------------