SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

(MARK ONE)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended March 31, 2000

                                       OR

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________


                        Commission file number 000-21735

                        CREDIT MANAGEMENT SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                    52-1549401
      (State or other jurisdiction of            (I.R.S. Employer
       incorporation or organization)            Identification No.)

135 National Business Parkway, Annapolis Junction, MD                      20701
 (Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code (301) 362-6000

     FORMER NAME,  FORMER  ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.

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

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock,  as of the latest  practicable  date:  7,820,598  shares of the
Company's Common Stock, $.01 par value, were outstanding as of May 10, 2000.


<PAGE>


                        CREDIT MANAGEMENT SOLUTIONS, INC.
                        Index to March 31, 2000 Form 10-Q

                                                                           Page
                                                                           ----
                         Part I -- Financial Information

Item 1. Financial Statements (unaudited)

        Consolidated Balance Sheets -- March 31, 2000 and December           3
        31, 1999

        Consolidated Statements of Operations -- Three Months Ended
        March 31, 2000 and 1999                                              4

        Consolidated Statements of Cash Flows -- Three Months Ended
        March 31, 2000 and 1999                                              5

        Notes to Consolidated Financial Statements                           6

Item 2. Management's Discussion and Analysis of
        Financial Condition and Results of Operations                        7

                         Part II -- Other Information

Item 1. Legal Proceedings                                                    17

Item 2. Changes in Securities                                                17

Item 3. Defaults upon Senior Securities                                      17

Item 4. Submission of Matters to a Vote of Security Holders                  17

Item 5. Other Information                                                    17

Item 6. Exhibits and Reports on Form 8-K                                     17

        Signatures                                                           19



                                       2
<PAGE>

Item I. FINANCIAL STATEMENTS

                Credit Management Solutions, Inc. and Subsidiary
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                       March 31,     December 31,
                                                                         2000           1999
                                                                     ------------    ------------
                                                                      (unaudited)
                                     Assets
<S>                                                                  <C>             <C>
Current assets:
   Cash and cash equivalents                                         $  3,253,187    $  3,594,328
   Investments available-for-sale                                       2,316,957       1,316,470
   Accounts receivable, net of allowance of $311,583
     in 2000 and 1999                                                   5,482,747       5,724,256
   Costs and estimated earnings in excess of
     billings on uncompleted contracts                                     55,159           5,891
   Prepaid expenses and other current assets                              412,066         474,725
                                                                     ------------    ------------

Total current assets                                                   11,520,116      11,115,670

Property and equipment:
   Computer equipment and software                                      5,485,919       5,234,084
   Office furniture and equipment                                       1,221,260       1,458,793
   Leasehold improvements                                               2,775,460       2,769,926
                                                                     ------------    ------------
                                                                        9,482,639       9,462,803
   Accumulated depreciation and amortization                           (3,362,436)     (3,065,136)
                                                                     ------------    ------------
                                                                        6,120,203       6,397,667
   Software development costs, net of accumulated amortization
     of $359,165 in 2000 and 1999                                       2,312,020       1,932,867
   Other non current assets                                                33,239          46,386
                                                                     ------------    ------------

Total assets                                                         $ 19,985,578    $ 19,492,590
                                                                     ============    ============

Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable                                                  $  2,002,520       2,163,044
   Accrued payroll and related expenses                                   876,589         722,389
   Billings in excess of costs and estimated
     earnings on uncompleted contracts                                    714,265         101,046
   Deferred revenue                                                     2,634,573       2,920,904
   Current portion of deferred tenant allowance                           144,866         144,866
   Short-term borrowings                                                  798,000         798,000
   Current portion of long-term debt and capital lease obligations          9,286          25,402
Total current liabilities                                               7,180,099       6,875,651

    Deferred tenant allowance, less current portion                     1,104,602       1,140,818
                                                                     ------------    ------------
Total liabilities                                                       8,284,701       8,016,469

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;
     7,816,949 and 7,689,570 shares issued and outstanding at
     March 31, 2000 and December 31, 1999, respectively                    78,169          76,896
   Additional paid-in capital                                          27,733,329      27,034,049
   Accumulated deficit                                                (16,110,621)    (15,634,824)
                                                                     ------------    ------------
Total shareholders' equity                                             11,700,877      11,476,121
                                                                     ------------    ------------
Total liabilities and shareholders' equity                           $ 19,985,578    $ 19,492,590
                                                                     ============    ============
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       3
<PAGE>


                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    Three Months Ended March 31,
                                                       2000            1999
                                                    -----------    -----------
                                                    (Unaudited)    (Unaudited)
Revenues:
  License and software development fees             $ 2,602,235    $ 3,553,099
  Maintenance fees                                    1,487,314      1,191,197
  Computer hardware sales                                49,003        778,827
  Service bureau revenues                             1,058,861        608,608
                                                    -----------    -----------
                                                      5,197,413      6,131,731
                                                    -----------    -----------

Costs of revenues:
  Cost of license and software development fees       1,391,528      1,704,541
  Cost of maintenance fees                              289,897        270,480
  Cost of computer hardware sales                        84,136        784,840
  Cost of service bureau                              1,026,956        736,467
                                                    -----------    -----------
                                                      2,792,517      3,496,328
                                                    -----------    -----------
Gross profit                                          2,404,896      2,635,403

Other Operating Expenses:
  Selling, general and administrative expenses        2,684,857      2,969,572
  Research and development costs                        237,079        356,823
                                                    -----------    -----------
                                                      2,921,936      3,326,395
                                                    -----------    -----------
Loss from operation                                    (517,040)      (690,992)

Other income (expense):
  Interest expense                                      (22,785)        (9,732)
  Interest income                                        64,028         55,119
                                                    -----------    -----------
                                                         41,243         45,387
                                                    -----------    -----------

Net loss                                            $  (475,797)   $  (645,605)
                                                    ===========    ===========

Basic and diluted loss per common share             $     (0.06)   $     (0.08)
                                                    ===========    ===========
Weighted average shares used in computation           7,729,142      7,654,291
                                                    ===========    ===========


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       4
<PAGE>


                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED MARCH 31,
                                                                2000           1999
                                                           ------------    ------------
                                                           (UNAUDITED)      (UNAUDITED)
<S>                                                        <C>             <C>
OPERATING ACTIVITIES:
Net loss                                                   $   (475,797)   $   (645,605)
ADJUSTMENTS:
      Depreciation                                              440,273         458,232
      Amortization of software development costs                     --          29,930
      Amortization of deferred tenant allowance                 (36,216)             --
      Gain on disposal of property and equipment                 80,494          15,937
      Other lease obligations                                        --         (95,780)

CHANGES IN OPERATING ASSETS AND LIABILITIES:
      Accounts receivable, net                                  241,509         120,471
      Prepaid expenses and other current assets                  62,659        (381,926)
      Accounts payable                                         (160,524)     (1,458,495)
      Accrued payroll and related expenses                      154,200         401,501
      Net billings in excess of costs and estimated
        gross profit on uncompleted contracts                   563,951        (576,429)
      Deferred revenue                                         (286,331)       (627,667)
                                                           ------------    ------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES                584,218      (2,759,831)

INVESTING ACTIVITIES:
      Purchase of investments available-for-sale             (5,572,969)     (8,823,470)
      Sale of investments available-for-sale                  4,572,482      13,485,998
      Proceeds from sale of property and equipment                3,175             533
      Purchase of property and equipment                       (246,478)       (479,994)
      Capitalized software development costs                   (379,153)       (522,405)
      Change in other assets                                     13,147            (893)
                                                           ------------    ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES             (1,609,796)      3,659,769

FINANCING ACTIVITIES:
      Payments under capital lease obligations and short
term borrowings                                                 (16,116)        (16,790)
      Proceeds from exercise of stock options                   691,049              --
      Proceeds from issuance of common stock                      9,504          19,459
                                                           ------------    ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                       684,437           2,669
                                                           ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                        (341,141)        902,607

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              3,594,328       3,090,565
                                                           ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $  3,253,187    $  3,993,172
                                                           ============    ============
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       5
<PAGE>


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

NOTE 1. BASIS OF PRESENTATION

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the three months ended March 31, 2000 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended  December 31, 2000.  For further  information,  refer to the  consolidated
financial  statements  and footnotes  thereof  included in the Company's  annual
report on Form 10-K,  for the year ended December 31, 1999.  Certain  amounts in
the 1999 consolidated  financial statements have been reclassified to conform to
the 2000 presentation.

NOTE 2. 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.

NOTE 3. 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.   Unrealized   security   holding  gains  are  recognized  in
comprehensive income.

At  March  31,  2000,  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.

NOTE 4. LOSS PER SHARE

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

                                                  THREE MONTHS ENDED MARCH 31
                                                      2000           1999
                                                  ------------   ------------

     Numerator:
     Net loss                                     $  (475,797)   $  (645,605)
                                                  ===========    ===========
     Denominator:
     Weighted-average shares                        7,729,142      7,654,291
                                                  ===========    ===========

     Basic and diluted loss per common share      $     (0.06)   $     (0.08)
                                                  ===========    ===========


Dilutive  loss per common share is equal to basic loss per common share  because
if  potentially  dilutive  securities  were  included in the  computations,  the
results would be anti-dilutive.


                                       6
<PAGE>


NOTE 5. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Uncompleted contracts consist of the following components:

<TABLE>
<CAPTION>
                                                          BALANCE SHEET CAPTION
                                               ------------------------------------------------------------
                                               COSTS AND ESTIMATED    BILLINGS IN EXCESS
                                                    EARNINGS IN          OF COSTS AND
                                               EXCESS OF BILLINGS     ESTIMATED EARNINGS            TOTAL
                                               ------------------------------------------------------------
     <S>                                          <C>                    <C>                    <C>
     December 31, 1999:
           Cost and estimated earnings            $   169,923            $   261,742            $   431,665
           Billings                                   164,032                362,788                526,820
                                                  -----------            -----------            -----------
                                                  $     5,891            $  (101,046)           $   (95,155)
                                                  ===========            ===========            ===========
     March 31, 2000:
           Cost and estimated earnings            $   367,639            $   668,885            $ 1,036,524
           Billings                                   312,480              1,383,150              1,695,630
                                                  -----------            -----------            -----------
                                                  $    55,159            $  (714,265)           $  (659,106)
                                                  ===========            ===========            ===========
</TABLE>

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

NOTE 6. SEGMENT REPORTING

Segment Reporting

The Company manages its business by focusing on distinct  products and services.
Previously the Company was organized into three distinct business lines;  Credit
Decreasing Systems,  e-Commerce and Service Bureau Alliances.  In February 2000,
the Company  formed two new  wholly-owned  subsidiaries;  Credit Online Inc. and
CMSI  Systems  Inc.  and  reorganized  its three  business  lines into these new
subsidiaries.

<TABLE>
<CAPTION>
                                        Three months ended March 31, 2000

                    ------------------------ --------------- -------------- ------------
                                               CMSI Systems  Credit Online     Total
                    ------------------------ --------------- -------------- ------------
                    <S>                        <C>            <C>           <C>
                    Revenues                   $ 4,281,142    $   916,271   $ 5,197,413
                    ------------------------ --------------- -------------- ------------
                    Segment profit (loss)        1,953,233       (846,206)    1,107,027
                    ------------------------ --------------- -------------- ------------

<CAPTION>

                                       Three months ended March 31, 1999

                    ------------------------ --------------- -------------- ------------
                                              CMSI Systems    Credit Online     Total
                    ------------------------ --------------- -------------- ------------
                    <S>                       <C>             <C>           <C>
                    Revenues                  $ 5,696,783     $   434,948   $ 6,131,731
                    ------------------------ --------------- -------------- ------------
                    Segment profit(loss)        2,374,893      (1,517,435)      857,458
                    ------------------------ --------------- -------------- ------------

<CAPTION>

A  reconciliation  of segment  profit for all segments to income  before  income
taxes is as follows:

                                           Three months ended March 31,

                    ----------------------------------------- -------------- ------------
                                                                  2000          1999
                                                                  ----          ----
                    ----------------------------------------- -------------- ------------
                    <S>                                       <C>            <C>
                    Total segment profit                      $1,107,027     $  857,458
                    ----------------------------------------- -------------- ------------
                    Corporate, general and administrative     (1,183,794)    (1,060,288)
                    expenses
                    ----------------------------------------- -------------- ------------
                    Depreciation and amortization               (440,273)      (488,162)
                    ----------------------------------------- -------------- ------------
                    Net interest income                           41,243         45,387
                    ----------------------------------------- -------------- ------------
                    Loss before income taxes                  $ (475,797)    $ (645,605)
                    ----------------------------------------- -------------- ------------
</TABLE>

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

ITEM 2. 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 interim
results of operations and financial condition. This discussion should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations  included in the Company's  Annual Report on Form 10-K
for the year ended December 31, 1999. 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  "--Certain  Factors  That May Affect  Future  Results,
Financial Condition and the Market Price of Securities."

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

                                       7
<PAGE>


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  became commercially available in July
1996. The Dun & Bradstreet OneScore product was commercially released in October
1997.  The  CreditRevue  Service  Bureau was  introduced  in January  1998.  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.  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.  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 the second quarter of 2000.

     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.

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.  Costs consist  primarily of direct  labor,  temporary
contract   labor  and  office   space.   Contracts   in  progress  are  reviewed
periodically,  and revenues  and  earnings  are  adjusted  based on revisions in
contract value and estimated time to completion.  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
three  months  ended March 31,  2000,  revenues  from  third-party  hardware and
software  sales  accounted  for 1.0% and 1.8% of total  revenues,  respectively.
Revenues  from  resales  of  third-party  computer  hardware  and  software  are
recognized at the time of shipment and installation.

Certain of the  Company's  products and  services,  including  CreditConnection,
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 & Bradstreet's  Portfolio Monitoring,  CreditOnline network,  eValuate,  the
occurrence of any significant  technological  problems, such as a system failure
incurred  prior  to  the  implementation  of  a  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.

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 working model. 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.

As of March 31, 2000,  the Company had 16  employees in its sales and  marketing
organization.  The  Company  intends  to hire  additional  sales  and  marketing
personnel  in the  future  to help  the  Company  expand  its  market  presence.
Competition  for such  personnel is intense,  and there can be no assurance that
the Company can retain its  existing  sales  personnel  or that it can  attract,
assimilate or retain additional highly qualified sales persons in the future. If
the Company is unable to hire such  personnel on a


                                       8
<PAGE>


timely  basis,  the  Company's  business,  results of  operations  and financial
condition could be materially and adversely affected.

RESULTS OF OPERATIONS

Total  Revenues.  Total revenues  decreased 15.2% from $6.1 million in the three
months  ended March 31, 1999 to $5.2 million in the three months ended March 31,
2000. The Company's revenues are derived from four sources: license and software
development fees,  maintenance fees,  computer hardware sales and service bureau
revenues.

License and Software Development Fees.  CreditRevue  accounted for virtually all
of the Company's license and software  development fee revenue through March 31,
2000. License and software development fees decreased 26.8% from $3.6 million in
the three  months ended March 31, 1999 to $2.6 million in the three months ended
March 31, 2000.  The decrease in license and  software  development  fee revenue
through March 31, 2000 was the result of longer than  expected  sales cycles for
the  CreditRevue  product during the last half of 1999, due in part to Year 2000
freezes implemented by many of the Company's prospective customers.

Maintenance  Fees.  Maintenance  fees  include  fees from  software  maintenance
agreements.  Maintenance  fees  increased  24.9% from $1.2  million in the three
months  ended March 31, 1999 to $1.5 million in the three months ended March 31,
2000. 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.  New system  implementations
coupled with increases of professional services license enhancements resulted in
increased base licenses subject to maintenance fees.

Computer  Hardware Sales.  Computer  hardware sales revenue decreased 93.7% from
$0.8  million in the three  months  ended March 31, 1999 to $49,000 in the three
months  ended  March 31,  2000.  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 several  sources
including:  CreditConnection  transaction  and  interface  fees,  Credit  Online
network fees, Dun & Bradstreet OneScore and Portfolio Management transaction and
implementation  fees  and  CreditRevue  Service  Bureau.  Total  Service  Bureau
revenues  increased 74.0% from $0.6 million for the quarter ended March 31, 1999
as  compared  to  $1.1  million  for the  quarter  ended  March  31,  2000.  The
CreditConnection  service and Credit Online  network  generated  $0.9 million of
revenue in the quarter  ended March 31,  2000  compared to $0.4  million for the
period ended March 31, 1999,  an increase of 129.4%.  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
March 2000 there were  approximately 280 active dealer's enrolled in the service
compared to approximately 80 dealers at March 1999.

Dun & Bradstreet  OneScore was  commercially  released in the fourth  quarter of
1997.  Portfolio  Monitoring and  CreditRevue  Service Bureau were  commercially
released in the first quarter of 1999. These Service Bureau products account for
an aggregate  revenue of $0.2 million in the quarter ended March 31, 2000, which
is equal to the $0.2 million recorded in the quarter ended March 31, 1999.

Cost of License and  Software  Development  Fees.  Cost of license and  software
development  fees  consist  primarily  of salaries  and  benefits  for  in-house
programmers,  the cost of temporary  contract  labor and costs for office space.
Cost of license and software  development fees decreased 18.4% from $1.7 million
in the three  months  ended March 31, 1999 to $1.4  million in the three  months
ended March 31, 2000.  As a percentage  of license fee and software  development
revenue,  cost of license and software  development fees were 48.0% and 53.5% in
the three  months ended March 31, 1999 and 2000,  respectively.  The increase in
cost of license  and  software  fees as a  percentage  of license  and  software
development fees relates to the fluctuation in the Company's  quarterly revenues
and the costs associated with in-house programmers and temporary contract labor.
Revenue fluctuations result in corresponding fluctuations in the extent to which
the Company  employs  temporary  contractors and can also result in increases or
decreases in-house programmer staffing as revenues increase or decrease. The net
reduction in costs of $0.3 million is the result of lower costs for the in-house
programmers.  Total  headcount  for the Company was down to 180  employees as of
March 2000, compared to 201 employees as of March 1999.

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  7.2% from $0.27  million in the three months ended
March 31, 1999 to $0.29  million in the three months ended March 31, 2000.  As a
percentage of maintenance  fee revenue,  cost of maintenance  fees was 22.7% and
19.5% in the three  months  ended  March 31,  1999 and 2000,  respectively.  The
dollar  increase  in the  cost  of  maintenance  fees  reflects  the  growth  in
CreditRevue systems in use during the periods presented.


                                       9
<PAGE>


The fluctuation in the percentage of cost of maintenance fees to maintenance fee
revenues in 1999 and 2000 results from lower expenses for maintenance  personnel
related to staffing reductions as maintenance revenues have increased.  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 89.3% from $0.8 million in
the three  months ended March 31, 1999 to $0.1 million in the three months ended
March 31, 2000.  As a percentage of computer  hardware  sales  revenue,  cost of
computer  hardware  sales was 101.0% and 171.7% in the three  months ended March
31, 1999 and 2000,  respectively.  The increase in the cost of computer hardware
sales as a percent  of  revenue  is the  result of  decreased  hardware  margins
resulting  from  decreased  hardware  sales,  while  fixed  expenses,  primarily
personnel-related  in  nature,  remained  relatively  constant  during  the same
period.

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 for the three months ended
March 31, 1999 and 2000 were $0.8 million and $1.0 million,  respectively.  Cost
of service bureau revenues during the three months ended March 31, 1999 exceeded
service bureau revenues because of start-up costs  associated with  establishing
the  service  bureau.  As  revenues  from these new  services  continue to grow,
corresponding costs of service bureau fees are expected to decrease as a percent
of service bureau revenues.  For the three months ended March 31, 2000,  service
bureau costs increased 39.4% compared to service bureau revenue increases of 74%
generating a positive gross profit from service bureau revenues.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  decreased  9.6% from $3.0  million in the three months
ended March 31, 1999 to $2.7  million in the three  months ended March 31, 2000.
Of this $0.3  million  decrease,  approximately  $0.1  million  related to lower
payroll expenses which resulted primarily from a decrease in the Company's sales
staff and approximately $0.2 million of the decrease relates to non-salary based
administrative expenses,  consisting primarily of travel,  advertising,  general
insurance and bad debt expenses.

Research and Development Costs. Research and development costs consist primarily
of salaries and benefits of in-house  programmers.  These costs  decreased  $0.1
million  during the three  months  ended March 31, 2000 as compared to the three
months ended March 31, 1999 due to primarily  the  reductions  in R&D  staffing.
Certain  development  initiatives  active  during the first quarter of 1999 have
been  completed and the Company is moving  towards a development  model based on
smaller more focused  development teams.  Overall R&D staffing at March 31, 2000
was 25 compared to 35 at March 31, 1999. The Company is continuing to capitalize
certain  development costs associated with the eValuate product until commercial
release  which is  expected to occur in the second  quarter of 2000.  During the
three  months  ended  March 31,  2000,  approximately  $0.4  million of expenses
related to the  development  of  eValuate  were  capitalized  which  compares to
approximately  $0.5 million which was  capitalized,  during the first quarter of
1999. See Note 1 to Notes to Consolidated  Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.

Interest Income (Expense).  Net interest income for the three months ended March
31, 2000 of approximately  $41,000 stayed even with net interest income reported
in the first three months ended March 31, 1999 of approximately $45,000.

LIQUIDITY AND CAPITAL RESOURCES

The  Company  has  funded  its  working  capital  needs,  operating  losses  and
investments  in property and equipment  from the net proceeds from the Company's
initial  public  offering  completed in December  1996.  During the three months
ended March 31, 1999, the Company  consumed net cash in operating  activities of
$2.8  million.  During  the three  months  ended  March 31,  2000,  the  Company
generated $0.6 million of cash in operating activities.  The improvement in cash
flow from  operations  results  from a decrease in the net loss of $170,000  and
decreases  in  working  capital  investments.  The  working  capital  components
effecting the greatest  change during the quarter were accounts  payable,  which
consumed  $1.3  million  less in 2000,  and net  billings in excess of costs and
estimated  gross  profit  on  uncompleted  contracts,   which  reflected  a  net
improvement of $1.1 million in 2000 compared to 1999.

The  Company's  cash  used  in  investing  activities  consists  principally  of
investments in property and  equipment.  During the three months ended March 31,
1999 and 2000, the Company invested a total of $0.5 and $0.2 million in property
and equipment, respectively. These investments were directly attributable to the
Company's  growth  in  operations.  The  Company  does  not  have  any  material
commitments for the purchase of property and equipment at March 31, 2000.

The Company has historically  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  $22.6 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,  of which the balance  outstanding at March 31, 2000
was approximately $0.8 million.  The line of credit bears interest at the bank's
prime rate per annum  (8.5% at March 31,  2000).  Further,  the  bank's  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


                                       10
<PAGE>


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 second quarter 2001.

Impact of Year 2000.

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.

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").

As of March 31, 2000, 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.


ITEM 3. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL CONDITION AND
        THE MARKET PRICE OF SECURITIES.

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,  including  the Company's  CreditConnection  and  CreditRevue  Service
Bureau,  the demand for the  Company's  products and  services,  the  successful
distribution  and  implementation  of the Company's  products and services,  the
successful   transition  from   predominantly   license   fee-based  revenue  to
predominantly  transaction  fee-based  revenue,  the timing of new  product  and
service  development and 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 timely  develop and  successfully  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 loss 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


                                       11
<PAGE>


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 or deferrals 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.

Dependence on  CreditRevue  Product Line.  License  fees,  maintenance  fees and
third-party  computer  hardware sales associated with licenses and installations
of CreditRevue  accounted for the majority of all the Company's revenues through
March  31,   2000.   Although   the  Company   has   recently   introduced   its
CreditConnection  service,  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  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.

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.

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


                                       12
<PAGE>


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  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  assurance  that  these  companies  will not  otherwise
discontinue their  relationships with or support of the Company.  The failure by
the  Company  to  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.

In addition,  the Company has formed  strategic  alliances  with  Automatic Data
Processing   (ADP)  and  Universal   Computer   Systems  (UCS)  for  remarketing
CreditConnection and with Dun & Bradstreet for the marketing of OneScore.  There
can be no assurance that these relationships will be successful. Moreover, there
can be no assurance that these companies will actively remarket CreditConnection
or  OneScore.  The failure by the Company to leverage  and maintain its existing
relationships  ADP, UCS and Dun & Bradstreet,  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.

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 generally 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 55.1% and 55.4% 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 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.

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.

Management of Changing Business. The Company has experienced significant changes
in its business,  such as an expansion in the Company's  staff and customer base
and the development of new products,  services and enhancements to its software.
Such changes have placed and may continue to place a significant strain upon the
Company's management,  systems and resources.  As of March 31, 2000, the Company
had 180  employees  down from 201  employees  at March 31, 1999.  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 and budgeting and  forecasting  capabilities  on a timely
basis and expand its sales and  marketing  work force,  and train and manage its
employee work force.  There can be no assurance that the Company 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.

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


                                       13
<PAGE>


Company has obtained for key-person  life insurance on the life 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.  Except
with  respect to Messrs.  Freiman  and  Vollono the  Company's  Chief  Financial
Officer, the Company has no employment agreements.  The Company intends to enter
into employment  agreements with other senior executives in the near future. The
Company's  future success also depends on its continuing  ability to attract and
retain  highly  qualified  technical,  customer  support,  sales and  managerial
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.  There can be no  assurance  that these new  products  and
services  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.

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
processing operations,  is located at a single site. The Company is currently in
the process of acquiring and implementing a back-up,  off-site processing system
capable of fully  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,
is primary  production center for the Company's data processing needs.  Prior to
full  implementation  of 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


                                       14
<PAGE>


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 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.  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 in future releases or enhancements,  or that the Company will
not 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.

Future Capital Needs; Uncertainty of Additional Financing. The Company currently
anticipates that its available cash resources  combined with  anticipated  funds
from  operations  will be sufficient to meet its presently  anticipated  working
capital and capital expenditure requirements through the second quarter of 2001.
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 complementary businesses or technologies. If
additional  funds are raised  through  the  issuance of equity  securities,  the
percentage  ownership  of the  stockholders  of the  Company  will  be  reduced,
stockholders 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 competitive  pressures,  which
could have a  material  adverse  effect on the  Company's  business,  results of
operations and financial condition.

Government  Regulation and  Uncertainties  of Future  Regulation.  The Company's
current  and  prospective  customers,  which  consist  of  state  and  federally
chartered banks, saving 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 is not
itself 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.

Control by Existing  Stockholders.  Assuming no exercise of outstanding options,
James R.  DeFrancesco,  the  Company's  co-founder  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 stockholder
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 stockholders.

Possible  Volatility of Stock Price.  The trading price of the Company's  Common
Stock could be subject to significant  fluctuations in response to variations in
quarterly operating results, the gain or loss of significant orders,  changes in
earning estimates by analysts, 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 or related to that of the Company
and which have been unrelated to the operating  performance of these


                                       15
<PAGE>


companies. These market  fluctuations  may adversely affect the market price of
the Company's Common Stock.

Effect of Certain Charter  Provisions;  Anti-takeover  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
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.


                                       16
<PAGE>


                          PART II -- OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

              The Company is not a party to any material legal proceedings.

ITEM 2.       CHANGES IN SECURITIES

              None.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

              None.

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

              None.

ITEM 5.       OTHER INFORMATION

              None.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

              (a)     EXHIBITS.

                        3.1    Certificate of Incorporation*

                        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*

                      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
                               Constellation Real Estate, Inc. and the Company
                               dated April 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*


                                       17
<PAGE>


                      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**

                      10.17    Employment Agreement between Scott Freiman and
                               the Company

                      10.18    Employment Agreement between Robert Vollono and
                               the Company

                      27       Financial Data Schedule

          (b)      REPORTS ON FORM 8-K.

                   No reports on Form 8-K were filed  during the quarter for
which this report is filed.


*      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


                                       18
<PAGE>


                                   SIGNATURES

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

                                      CREDIT MANAGEMENT SOLUTIONS, INC.
                                                 (Registrant)

                Date: May 15, 1998    /s/ Scott L. Freiman
                                      ----------------------------------------
                                      Scott L. Freiman
                                      President, Chief Executive Officer
                                      and Director
                                      (Principal Executive Officer)


                Date: May 15, 1998    /s/ Robert P. Vollono
                                      ----------------------------------------
                                      Robert P. Vollono
                                      Senior Vice President, Treasurer, Chief
                                      Financial Officer and Director (Principal
                                      Financial and Accounting Officer)




                                       19