<PAGE>   1

                       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, 1998
                               -------------------------------------------------

                                       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)

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

5950 Symphony Woods Road, Columbia, Maryland                              21044
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code         (410) 740-1000
                                                   -----------------------------

              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: 7,627,783 shares of
the Company's Common Stock, $.01 par value, were outstanding as of May 6,
1998.


<PAGE>   2


                        CREDIT MANAGEMENT SOLUTIONS, INC.

                        Index to March 31, 1998 Form 10-Q

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
                                      Part I -- Financial Information

Item 1.       Financial Statements (unaudited).................................................................3

              Consolidated Balance Sheets -- March 31, 1998 and December 31, 1997..............................3

              Consolidated Statements of Operations -- Three Months Ended
                 March 31, 1998 and 1997.......................................................................4

              Consolidated Statements of Cash Flows -- Three Months Ended March 31,
                 1998 and 1997.................................................................................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
</TABLE>


                                       2
<PAGE>   3


                         PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            MARCH 31,         DECEMBER 31,
                                                                                              1998                1997
                                                                                          ------------        ------------
                                           ASSETS                                         (UNAUDITED)
<S>                                                                                       <C>                 <C>
CURRENT ASSETS:
     Cash and cash equivalents                                                            $  7,933,346        $ 20,569,300
     Investments available-for-sale                                                          9,908,712                  -
     Accounts receivable, net of allowance of $259,512 and $194,856
       in 1998 and 1997, respectively                                                        2,576,888           3,550,927
     Costs and estimated earnings in excess of billings on uncompleted contracts               923,813             503,875
     Prepaid expenses and other current assets                                                 404,289             463,849
     Deferred income taxes                                                                      58,513              58,513
                                                                                          ------------        ------------
Total current assets                                                                        21,805,561          25,146,464

PROPERTY AND EQUIPMENT:
     Computer equipment and software                                                         3,937,881           3,442,792
     Office furniture and equipment                                                          1,037,488             941,733
     Leasehold improvements                                                                    602,335             499,404
                                                                                          ------------        ------------
                                                                                             5,577,704           4,883,929
Accumulated depreciation and amortization                                                   (1,915,025)         (1,677,138)
                                                                                          ------------        ------------
                                                                                             3,662,679           3,206,791

Software development costs, net of accumulated amortization of
     $209,513 and $178,583 in 1998 and 1997, respectively                                      149,652             179,582
Other assets                                                                                   482,493             423,886
                                                                                          ------------        ------------
Total assets                                                                              $ 26,100,385        $ 28,956,723
                                                                                          ============        ============

                          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                                     $  1,303,501        $  2,225,745
     Accrued payroll and related expenses                                                      904,992           1,059,177
     Billings in excess of costs and estimated earnings on uncompleted contracts               292,784             588,522
     Deferred revenue                                                                        1,475,232           1,632,339
     Current portion of capital lease obligations                                               76,993             138,165
                                                                                          ------------        ------------
Total current liabilities                                                                    4,053,502           5,643,948

LONG-TERM DEBT:
     Capital lease obligations, less current portion                                           113,739             101,390
     Commitments and contingent liabilities                                                         -                   -
                                                                                          ------------        ------------
Total liabilities                                                                            4,167,241           5,745,338

STOCKHOLDERS' 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; 7,627,783 and
          7,615,510 shares issued and outstanding at March 31, 1998 and December
          31, 1997, respectively                                                                76,278              76,155
     Additional paid-in capital                                                             26,727,815          26,645,247
     Retained earnings (deficit)                                                            (4,870,949)         (3,510,017)
                                                                                          ------------        ------------
Total stockholders' equity                                                                  21,933,144          23,211,385
                                                                                          ------------        ------------
Total liabilities and stockholders' equity                                                $ 26,100,385        $ 28,956,723
                                                                                          ============        ============
</TABLE>


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 


                                       3
<PAGE>   4


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

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                          ------------------------------
                                                              1998               1997
                                                          -----------        -----------
                                                          (UNAUDITED)        (UNAUDITED)
<S>                                                       <C>                <C>
REVENUES:
     License and software development fees                 $2,773,455         $2,447,629
     Maintenance fees                                         982,693            564,688
     Computer hardware sales                                  174,142            823,472
     Service bureau revenues                                  312,727            116,956
                                                          -----------        -----------
Total revenues                                              4,243,017          3,952,745

COSTS OF REVENUES:
     Cost of license and software development fees          1,831,724          1,455,038
     Cost of maintenance fees                                 261,633             98,846
     Cost of computer hardware sales                          247,006            665,055
     Cost of service bureau                                   699,306            281,862
                                                          -----------        -----------
                                                            3,039,669          2,500,801
                                                          -----------        -----------
Gross Profit                                                1,203,348          1,451,944

OTHER OPERATING EXPENSES:
     Selling, general and administrative expenses           2,322,301          1,899,266
     Research and development costs                           484,876            284,404
                                                          -----------        -----------
                                                            2,807,177          2,183,670
                                                          -----------        -----------
Income (loss) from operations                              (1,603,829)          (731,726)

OTHER INCOME (EXPENSE):
     Interest expense                                          (7,460)           (19,828)
     Interest income                                          253,557            330,661
     Amortization  of excess of assigned value of
       Identifiable assets over cost of an acquired
       Interest                                                    -              50,792
                                                          -----------        -----------
                                                              246,097            361,625
                                                          -----------        -----------
Loss before income taxes                                   (1,357,732)          (370,101)


Income tax benefit                                                 -             148,040
                                                          -----------        -----------

Net loss                                                  ($1,357,732)          (222,061)
                                                          ===========        ===========

Loss per common share                                           (0.18)             (0.03)
                                                          ===========        ===========

Diluted loss per common share                                   (0.18)             (0.03)
                                                          ===========        ===========
</TABLE>


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


                                       4
<PAGE>   5


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

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                ------------------------------
                                                                                   1998               1997
                                                                                -----------        -----------
                                                                                (UNAUDITED)        (UNAUDITED)
<S>                                                                           <C>                  <C>
OPERATING ACTIVITIES:
Net loss                                                                      $  (1,357,732)       $  (222,061)
ADJUSTMENTS:
     Depreciation                                                                   237,887            115,605
     Recoverable income taxes                                                            -            (148,040)
     Amortization of excess of assigned value of identifiable assets
       over cost of an acquired interest                                                 -             (50,792)
     Amortization of software development costs                                      29,930             29,930
     Amortization of discount on debt securities included in interest income        (22,745)                -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
     Accounts receivable, net                                                       974,039         (1,414,693)
     Prepaid expenses and other current assets                                       59,560            304,098
     Accounts payable                                                              (922,244)          (356,122)
     Accrued payroll and related expenses                                          (154,185)          (189,079)
     Net billings in excess of costs and estimated
       gross profit on uncompleted contracts                                       (715,676)           (11,913)
     Deferred revenue                                                              (157,107)          (509,657)
     Accrued interest on stockholders loans                                               -              4,017
                                                                                -----------        -----------
NET CASH USED IN OPERATING ACTIVITIES                                            (2,028,273)        (2,448,707)

INVESTING ACTIVITIES:
     Purchase of investments available-for-sale                                  (9,889,167)                -
     Purchase of property and equipment                                            (693,775)          (655,933)
     Increase in other assets                                                       (58,607)          (192,516)
                                                                                -----------        -----------
NET CASH USED IN INVESTING ACTIVITIES                                           (10,641,549)          (848,449)

FINANCING ACTIVITIES:
     Payments under capital lease obligations                                       (48,823)           (58,900)
     Repayments of long-term debt                                                        -              (4,316)
     Proceeds from exercise of stock options                                         43,740                 -
     Proceeds from issuance of common stock                                          38,951          4,171,050
     Other                                                                               -              29,085
                                                                                -----------        -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                            33,868          4,136,919
                                                                                -----------        -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                         (12,635,954)           839,763

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                 20,569,300         23,501,633
                                                                                -----------        -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                    $   7,933,346       $ 24,341,396
                                                                              =============       ============
</TABLE>


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


                                       5
<PAGE>   6


                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, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereof included in the Company's annual
report or Form 10-K, for the year ended December 31, 1997.

NOTE 2.     INVESTMENTS AVAILABLE-FOR-SALE

The Company invested approximately $10 million in securities classified as
available-for-sale. The securities consist of commercial paper with an A-1/P-1
rating and maturities of up to 160 days whose cost approximates fair value.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amoritization is included in interest 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. The cost of securities sold is based
on the specific identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income.

NOTE 3.     LOSS PER SHARE

The following table summarizes the computations of loss per share:

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED MARCH 31
                                                                        --------------------------------
                                                                            1998                 1997
                                                                        -------------        -----------
<S>                                                                     <C>                  <C>
Numerator for basic and diluted earnings (loss) per common share:

Net loss                                                                $  (1,357,732)       $  (222,061)
                                                                        =============        ===========
Denominator:

Denominator for basic and diluted loss per
     common share - weighted-average shares                                 7,619,625          7,556,767
                                                                        =============        ===========

Basic and diluted loss per common share                                 $       (0.18)       $     (0.03)
                                                                        =============        ===========
</TABLE>

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>   7


NOTE 4.     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, 1997:
     Cost and estimated earnings       $        3,899,095       $          272,953        $        4,172,048
     Billings                                   3,395,220                  861,475                 4,256,695
                                       ------------------       ------------------        ------------------
                                       $          503,875       $        (588,522)        $         (84,647)
                                       ==================       ==================        ==================
March 31, 1998:
     Cost and estimated earnings       $        3,227,988       $          539,625        $        3,767,613
     Billings                                   2,304,175                  832,409                 3,136,584
                                       ------------------       ------------------        ------------------
                                       $          923,813       $        (292,784)        $          631,029
                                       ==================       ==================        ==================
</TABLE>

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

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, 1997. 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 President and
Chief Executive Officer, and Scott L. Freiman, the Company's Executive Vice
President, 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 OneScore service, developed in conjunction with Dun &
Bradstreet, was the Company's initial Service Bureau offering and was
introduced in October 1997. The Company is introducing additional service
bureau product offerings including Batch OneScore, Portfolio Moritoring and a
service bureau version of its CreditRevue software. 

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 and temporary
contract labor. 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 has


                                       7
<PAGE>   8


introduced and is continuing to refine a new version of its CreditRevue
software, referred to as CreditRevue 2000. This new version of CreditRevue has
been redesigned to be more easily configured and deployed. CreditRevue 2000 will
be licensed and delivered as a core functional system with customer specific
enhancements delivered after initial system implementation. Post implementation
customer-unique enhancements are billed on a time and material basis. With the
introduction of CreditRevue 2000, the Company's traditional CreditRevue
offering is now referred to as CreditRevue Classic. 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, 1998, revenues from third-party hardware and
software sales accounted for 3.5% and 2.1% 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 and
CreditRevue Service Bureau, 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 CreditConnection or
CreditRevue Service Bureau, 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, 1998, the Company had 16 employees in its sales and marketing
organization. The Company intends to hire a significant number of 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 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 increased 7.3% from $4.0 million in the three
months ended March 31, 1997 to $4.2 million in the three months ended March 31,
1998. 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,
1998. License and software development fees increased 13.3% from $2.4 million in
the three months ended March 31, 1997 to $2.8 million in the three months ended
March 31, 1998. The increases during these periods resulted from increased
market acceptance of CreditRevue.

Maintenance Fees. Maintenance fees include fees from software maintenance
agreements. Maintenance fees increased 74.0% from $0.6 million in the three
months ended March 31, 1997 to $1.0 million in the three months ended March 31,
1998. 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


                                       8
<PAGE>   9


during such periods.

Computer Hardware Sales. Computer hardware sales revenue decreased 78.9% from
$0.8 million in the three months ended March 31, 1997 to $0.2 million in the
three months ended March 31, 1998. 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, Dun & Bradstreet
OneScore, Portfolio Management transaction and implementation fees and
CreditRevue Service Bureau. Total Service Bureau revenues increased 167.5% from
$117,000 as compared to $313,000 for the quarter ended March 31, 1997 and March
31, 1998, respectively. The CreditConnection service was commercially released
in 1996 and generated $219,000 of revenue in the quarter ended March 31, 1998
compared to $117,000 for the period ended March 31, 1997, an increase of 87.2%.
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 1998. These Service Bureau products account for
an aggregate revenue of $94,000 in the quarter ended March 31, 1998.

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 increased 25.9% from $1.5 million in the three months
ended March 31, 1997 to $1.8 million in the three months ended March 31, 1998.
As a percentage of license fee and software development revenue, cost of license
and software development fees were 59.5% and 66% in the three months ended March
31, 1997 and the three months ended March 31, 1998, respectively. The increase
in cost of license and software fees as a percentage of license and software
development fees over these periods is related to: (1) 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; and (2) the increased labor costs associated with the transition
to the CreditRevue 2000 product. 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. With respect to the transition to CreditRevue 2000, it is necessary
to train certain of the Company's in-house technical personnel on this new
architecture, while at the same time continuing to support those existing
customer projects for CreditRevue Classic(TM), the Company's traditional
CreditRevue product offering. This transition requirement has resulted in
increased staffing levels during the period that contracts are completed and are
replaced by new contracts based on the CreditRevue 2000 product. Total labor
costs as a percentage of revenue are also expected to decrease as the Company
and its customers move to a greater level of product standardization available
with the CreditRevue 2000 offering.

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 164.7% from $0.1 million in the three months ended
March 31, 1997 to $0.3 million in the three months ended March 31, 1998. As a
percentage of maintenance fee revenue, cost of maintenance fees was 17.5% and
26.6% in the three months ended March 31, 1997 and the three months ended March
31, 1998, respectively. The dollar increase in the cost of maintenance fees
reflects the growth in license fees for CreditRevue during the periods presented
and the resultant increase in the number of installations. The fluctuation in
the percentage of cost of maintenance fees to maintenance fee revenues in 1997
and 1998 results from incremental increases in staffing for maintenance
personnel as maintenance revenues have increased. Staffing utilization
efficiencies will vary based on the timing and training of additions to
maintenance staff personnel. Additionally, the cost of maintenance for third
party software that is resold is included in cost of maintenance fees for the
period ended March 31, 1998.

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 62.9% from $0.7 million in
the three months ended March 31, 1997 to $0.2 million in the three months ended
March 31, 1998. As a percentage of computer hardware sales revenue, cost of
computer hardware sales was 80.8% and 141.8% in the three months ended March 31,
1997 and the three months ended March 31, 1998, respectively. The


                                       9
<PAGE>   10


increase in the cost of computer hardware sales as a percent of revenue is the
result of lower hardware revenues, while fixed expenses, primarily
personnel-related in nature, remained constant during the same period.

Cost of Service Bureau Revenues. Of the three primary sources of service bureau
revenues; CreditConnection, Dun & Bradstreet OneScore and CreditRevue service
bureau, only CreditConnection was operational in both 1997 and 1998. 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 the three months ended March 31, 1997 and March 31, 1998 were $0.3 and
$0.7, respectively. Cost of service bureau revenues during the three months
ended March 31, 1997 and March 13, 1998 exceeded service bureau revenues because
of start up costs associated with establishing the service bureau. Dun &
Bradstreet OneScore was commercially introduced in the fourth quarter of 1997.
As these new services continue to gain market acceptance, corresponding costs of
service bureau fees are expected to decrease as a percent of service bureau
revenues.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.3% from $1.9 million in the three months
ended March 31, 1997 to $2.3 million in the three months ended March 31, 1998.
Of this $0.4 million increase, approximately $0.2 million related to payroll
expenses which resulted primarily from an increase in the Company's management
and administrative staff and approximately $0.2 million of the increase related
to non-salary based administrative expenses, consisting primarily of 
depreciation and sales and marketing expenses. Selling, general and
administrative expenses includes (i) salaries, commissions and bonuses paid to
sales and marketing personnel, as well as travel and promotional expenses, and
(ii) salaries of administrative, executive and financial personnel, and (iii)
outside professional fees. The increase in these expenses is attributable to
several factors. The increase in such expenses was a result of an increase in
sales and marketing staff from 8 in the three months ended March 31, 1997 to 16
in the three months ended March 31, 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 three months ended March 31, 1998 as compared to the three
months ended March 31, 1997 due primarily to the addition of six programmers in
1997. The increase staffing was required to address a number of strategic
development efforts underway during 1997 including on going efforts for 
CreditConnection, CreditRevue 2000, Dun & Bradstreet OneScore and
CreditRevue service bureau projects. All development activities during the 1997
and 1998 periods were expensed. During the period from September 1994, the
direct payroll costs of certain programmers were capitalized as software
development costs. See Note 1 to Notes to Consolidated Financial Statements in
the Company's 10-K or Annual Report for the year ended March 31, 1998.

Interest Income (Expense). Net interest income decreased to $0.1 million in the
three months ended March 31, 1998 from $0.3 million in the first three months
ended March 31, 1997 to $0.2 million in the three months ended March 31, 1998.


                                       10
<PAGE>   11


    LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its working capital needs and investments in property and
equipment from operating cash flows and approximately $22.6 million of net
proceeds from the Company's initial public offering completed in December 1996.
During the three months ended March 31, 1997, the Company consumed net cash from
operating activities of $2.4 million. During the three months ended March 31,
1998, the Company consumed $2.0 million of cash from operations. The primary use
of cash for operations was the growth in accounts receivable of approximately
$1.4 million for the period ended March 31, 1997 and from the net growth of
costs in excess of billings of $.7 million and the reduction of accounts payable
of $.9 million during the three months ended March 31, 1998. This working
capital deficiency is further caused by the deferral for financial reporting
purposes of certain billings on contracts to develop software, and deferred
revenue related to maintenance contracts and computer hardware and software
sales. Net deferred revenue at December 31, 1997 and March 31, 1998 was $1.7
million and $0.8 million, respectively.

The Company's cash used for investing activities consists principally of
investments in property and equipment. During the three months ended March 31,
1997 and 1998, the Company invested a total of $0.7 and $0.7 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, 1998.

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 there was no balance outstanding at March
31, 1998. The line of credit bears interest at the bank's prime rate per annum
(9.25% at March 31, 1998). 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 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 1998.


                                       11
<PAGE>   12


Impact of Year 2000. The Company has completed an assessment of the potential
impact of Year 2000 related issues and has assigned resources to continually
update its Year 2000 assessment. Based on the initial assessment, it has been
determined that the Company will not experience any material adverse impact to
its business, operations or financial condition as a result of Year 2000 issues.
The Company's internal technology environment is based on state-of-the-art
hardware and software components which are already either entirely or
substantially Year 2000 compliant. The products the Company licenses to others
are already either entirely or substantially Year 2000 compliant. Modifications
to the interfaces between the Company's installed products and other systems
within client environments may be required. The Company has initiated formal
communications with all of its significant suppliers and large customers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties failure to remediate their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.

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 sucessfully 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 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 virtually all of the Company's revenues through
March 31, 1998. Although the Company has recently introduced its
CreditConnection service, the Company expects that revenues generated from
licenses and installations of


                                       12
<PAGE>   13


CreditRevue will continue to account for a significant portion of the Company's
revenues for the foreseeable future. The Company has introduced and is
continuing to refine a new version of its CreditRevue software, referred to as
CreditRevue 2000. There can be no assurance that CreditRevue 2000 will achieve
market acceptance or that the Company will successfully develop, refine or
market CreditRevue 2000 in a timely fashion, if at all. The failure of the 
Company to successfully develop, refine or market CreditRevue 2000 would have a
material adverse effect on the Company's business, results or operations and
financial condition.  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 CreditConnection; Transition to Transaction-Based Revenue.
The Company's CreditConnection service was commercially introduced in 1996 and
the Company's CreditRevue Service Bureau service was commercially introduced
through strategic alliance partner, AnyTime Access, in January, 1998. The
CreditConnection service and the CreditRevue Service Bureau service (as provided
by AnyTime Access and other third parties to which the Company licenses the
CreditRevue Service Bureau) 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 services will be commercially successful. Since
inception in 1996. CreditConnection has generated approximately $885,500 in
revenues. The failure of the Company to generate demand for CreditConnection or
CreditRevue Service Bureau or the occurrence of any significant technological
problems with such services would have a material adverse effect on the
Company's business, results of operations and financial condition. Further, the
CreditConnection service has taken longer to commercialize than originally
anticipated. Although the Company is exploring additional distribution options
to further enhance the CreditConnection service, there can be no assurance that
any such channels will be available to the Company on commercially reasonable
terms, or at all. The failure of the Company to successfully commercialize the
CreditConnection service would have a material adverse effect on the Company's
business, financial condition and results of operations. 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
charged to credit originators and financial institutions for transactions
originated from the CreditConnection and CreditRevue Service Bureau services.
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 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


                                       13
<PAGE>   14


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 48.8% and 65.1% of total revenues in 1997 and 1996, respectively.
None of the Company's customers accounted for 10% or more of total revenues in
1997 or 1996. 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,
including the recent commercial release of CreditConnection. Such changes have
placed and may continue to place a significant strain upon the Company's
management, systems and resources. As of March 31, 1998, the Company had grown
to 213 employees from 182 employees at March 31, 1997. 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


                                       14
<PAGE>   15


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 James R. DeFrancesco, President and
Chief Executive Officer, and Scott L. Freiman, Executive Vice President. The
Company has obtained for key-person life insurance on the lives of each of
Messrs. DeFrancesco and 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 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 planning stages 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, during 1997, implemented a limited redundant data center
and will be upgrading its main data center in late 1998. Prior to such
implementation, the Company's operations are subject to substantial risks,
including temporary interruptions resulting from


                                       15
<PAGE>   16


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 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 1998. 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


                                       16
<PAGE>   17


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 President and Chief Executive Officer, and
Scott L. Freiman, the Company's Executive Vice President, collectively
beneficially own approximately 64% 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 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.


                                       17
<PAGE>   18


                          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)*


                                       18
<PAGE>   19


       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*

       10.9        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*

         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.


                                       19
<PAGE>   20


                                   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.

<TABLE>
<S>                                  <C>
                                               CREDIT MANAGEMENT SOLUTIONS, INC.
                                               ---------------------------------
                                                           (Registrant)

Date: May __, 1998                   /s/ James R. DeFrancesco
                                     ----------------------------------------------------------------
                                               James R. DeFrancesco
                                               President, Chief Executive Officer and Chairman of the
                                               Board of Directors (Principal Executive Officer)

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


                                       20
<PAGE>   21


                        CREDIT MANAGEMENT SOLUTIONS, INC.

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.          Description                                                                                             Page
-----------          -----------                                                                                             ----
<S>                  <C>                                                                                                     <C>
       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

      10.9           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
</TABLE>

<PAGE>   22

<TABLE>
<S>                  <C>
     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

        27           Financial Data Schedule
</TABLE>