<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, 1999
                               -------------------------------------------

                                       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>


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: 7,654,291 shares of the
Company's Common Stock, $.01 par value, were outstanding as of May 10, 1999


<PAGE>   2


                        CREDIT MANAGEMENT SOLUTIONS, INC.

                        Index to March 31, 1999 Form 10-Q



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

<S>      <C>                                                                                                         <C>
Item 1.  Financial Statements (unaudited)..............................................................................3

         Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998...........................................3

         Consolidated Statements of Operations -- Three Months Ended
            March 31, 1999 and 1998....................................................................................4

         Consolidated Statements of Cash Flows -- Three Months Ended March 31,
            1999 and 1998..............................................................................................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............................................................................................22

Item 2.  Changes in Securities........................................................................................22

Item 3.  Defaults upon Senior Securities..............................................................................22

Item 4.  Submission of Matters to a Vote of Security Holders..........................................................22

Item 5.  Other Information............................................................................................22

Item 6.  Exhibits and Reports on Form 8-K.............................................................................22

         Signatures...................................................................................................24
</TABLE>

                                       2
<PAGE>   3



                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                      MARCH 31,               DECEMBER 31,
                                                                                         1999                     1998
                                                                                -----------------------  ------------------------
                                                   ASSETS                            (UNAUDITED)
CURRENT ASSETS:
<S>                                                                                <C>                           <C>            
      Cash and cash equivalents                                                    $         3,993,172           $     3,090,565
      Investments available-for-sale                                                         1,819,493                 6,482,021
      Accounts receivable, net of allowance of $443,447 and $352,664 in 1999
      and 1998, respectively                                                                 5,366,731                 5,487,202
      Costs and estimated earnings in excess of billings on uncompleted
      contracts                                                                                549,276                   246,831
      Prepaid expenses and other current assets                                                662,441                   280,515
      Deferred income taxes                                                                     58,513                    58,513
                                                                                -----------------------  ------------------------
Total current assets                                                                        12,449,626                15,645,647
                                                                                -----------------------  ------------------------

PROPERTY AND EQUIPMENT:
      Computer equipment and software                                                        7,753,986                 7,306,811
      Office furniture and equipment                                                         1,679,624                 1,657,294
      Leasehold improvements                                                                 2,648,754                 2,661,291
                                                                                -----------------------  ------------------------
                                                                                            12,082,364                11,625,396
Accumulated depreciation and amortization                                                  (3,001,127)               (2,549,451)
                                                                                -----------------------  ------------------------
                                                                                             9,081,237                 9,075,945
Software development costs, net of accumulated amortization of
     $328,234 and $298,304 in 1999 and 1998, respectively                                      831,199                   338,724
Other assets                                                                                    50,253                    49,360
                                                                                -----------------------  ------------------------

Total assets                                                                         $      22,412,315    $           25,109,676
                                                                                =======================  ========================

                                 LIABILITIES AND SHAREHOLDERS' EQUITY

      Accounts payable and accrued expenses                                          $       4,339,884    $            5,798,379
      Accrued payroll and related expenses                                                   1,070,131                   668,630
      Billings in excess of costs and estimated earnings on uncompleted 
      contracts                                                                                770,030                 1,044,015
      Deferred revenue                                                                       2,294,256                 2,921,923
      Current portion of capital lease obligations                                              67,837                    65,994
                                                                                -----------------------  ------------------------
Total current liabilities                                                                    8,542,138                10,498,941

LONG-TERM DEBT:
      Capital lease obligations, less current portion                                           10,334                    28,966
      Other lease obligations, less current portion                                            636,346                   732,126
                                                                                -----------------------  ------------------------
Total liabilities                                                                            9,188,818                11,260,033
      Commitments and contingent liabilities                                                         -                         -

SHAREHOLDERS' EQUITY:

      Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares
      issued or outstanding                                                                          -                         -
      Common stock, $.01 par value; 40,000,000 shares authorized; 
      7,654,291 and  7,649,770 shares issued and outstanding at March 31, 
      1999 and December 31, 1998, respectively                                                  76,543                    76,497
      Additional paid-in capital                                                            26,872,607                26,853,194
      Accumulated deficit                                                                 (13,725,653)              (13,080,048)
                                                                                -----------------------  ------------------------
Total shareholders' equity                                                                  13,223,497                13,849,643
                                                                                -----------------------  ------------------------
Total liabilities and shareholders' equity                                          $       22,412,315    $           25,109,676
                                                                                =======================  ========================
</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,
                                                                -------------------------------------------------------------
                                                                            1999                            1998
                                                                -----------------------------   -----------------------------
                                                                        (UNAUDITED)                     (UNAUDITED)

REVENUES:
<S>                                                                               <C>                             <C>       
      License and software development fees                                       $3,553,099                      $2,773,455
      Maintenance fees                                                             1,191,197                         982,693
      Computer hardware sales                                                        778,827                         174,142
      Service bureau revenues                                                        608,608                         312,727
                                                                -----------------------------   -----------------------------
Total revenues                                                                     6,131,731                       4,243,017

COSTS OF REVENUES:
      Cost of license and software development fees                                1,704,541                       1,831,724
      Cost of maintenance fees                                                       270,480                         261,633
      Cost of computer hardware sales                                                784,840                         247,006
      Cost of service bureau                                                         806,467                         699,306
                                                                -----------------------------   -----------------------------
                                                                                   3,566,328                       3,039,669
                                                                -----------------------------   -----------------------------
Gross Profit                                                                       2,565,403                       1,203,348

OTHER OPERATING EXPENSES:
      Selling, general and administrative expenses                                 2,899,572                       2,322,301
      Research and development costs                                                 356,823                         484,876
                                                                -----------------------------   -----------------------------
                                                                                   3,256,395                       2,807,177
                                                                -----------------------------   -----------------------------
Loss from operations                                                               (690,992)                     (1,603,829)

OTHER INCOME (EXPENSE):
      Interest expense                                                               (9,732)                         (7,460)
      Interest income                                                                 55,119                         253,557
                                                                -----------------------------   -----------------------------
                                                                                      45,387                         246,097
                                                                -----------------------------   -----------------------------

Net loss                                                                          $(645,605)                    $(1,357,732)
                                                                =============================   =============================

Basic loss per common share                                                       $   (0.08)                    $     (0.18)
                                                                =============================   =============================
Weighted average shares used in computation                                        7,654,291                       7,619,625
                                                                =============================   =============================

Dilutes loss per common share                                                     $   (0.08)                    $     (0.18)
                                                                =============================   =============================
Weighted average shares used in computation                                        7,654,291                       7,619,625
                                                                =============================   =============================
</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,
                                                                            -------------------------------------------------------
                                                                                      1999                         1998
                                                                            -------------------------  ----------------------------
                                                                                   (UNAUDITED)                 (UNAUDITED)
OPERATING ACTIVITIES:
<S>                                                                         <C>                          <C>                      
Net loss                                                                      $            (645,605)       $           (1,357,732)
ADJUSTMENTS:
      Depreciation                                                                           458,232                       237,887
      Amortization of software development costs                                              29,930                        29,930
      Amortization of discount debt on securities included in interest
      income                                                                                (45,535)                      (22,745)
      Loss (gain) on disposal of property and equipment                                       15,937                             -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
      Accounts receivable, net                                                               120,471                       974,039
      Prepaid expenses and other current assets                                            (381,926)                        59,560
      Accounts payable                                                                   (1,458,495)                     (922,244)
      Accrued payroll and related expenses                                                   401,501                     (154,185)
      Net billings in excess of costs and estimated
        gross profit on uncompleted contracts                                              (576,429)                     (715,676)
      Deferred revenue                                                                     (627,667)                     (157,107)
      Other lease obligations                                                               (95,780)
                                                                            -------------------------  ----------------------------
NET CASH USED IN OPERATING ACTIVITIES                                                    (2,805,366)                   (2,028,273)

INVESTING ACTIVITIES:
      Purchase of investments available-for-sale                                           4,708,063                   (9,889,167)
      Proceeds from sale of property and equipment                                               533                             -
      Purchase of property and equipment                                                   (479,994)                     (693,775)
      Capitalized software development costs                                               (522,405)                             -
      Increase in other assets                                                                 (893)                      (58,607)
                                                                            -------------------------  ----------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                        3,705,304                  (10,641,549)

FINANCING ACTIVITIES:
      Payments under capital lease obligations                                              (16,790)                      (48,823)
      Proceeds from exercise of stock options                                                      -                        43,740
      Proceeds from issuance of common stock                                                  19,459                        38,951
                                                                            -------------------------  ----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                      2,669                        33,868
                                                                            -------------------------  ----------------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                                      902,607                  (12,635,954)
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                           3,090,565                    20,569,300
                                                                            -------------------------  ----------------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $         3,993,172      $              7,933,346
                                                                            =========================  ============================
</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, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998.

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

NOTE 4.  LOSS PER SHARE

The following table summarizes the computations of loss per share:

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED MARCH 31
                                                                        ------------------------------------------------------
                                                                                1999                         1998
                                                                        ---------------------------   ------------------------

<S>                                                                     <C>                              <C>                  
Numerator for basic and diluted loss per
      common share:
Net loss                                                                $                (645,605)       $         (1,357,732)
                                                                        ===========================   ========================
Denominator:
Denominator for basic and diluted loss per
      common share - weighted-average shares                                             7,654,291                   7,619,625
                                                                        ===========================   ========================

Basic and diluted loss per common share                                 $                   (0.08)       $              (0.18)
                                                                        ===========================   ========================
</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 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, 1998:
      Cost and estimated earnings      $              1,573,861      $                    3,236,349      $           4,810,210
      Billings                                        1,327,030                           4,280,364                  5,607,394
                                     ---------------------------   ---------------------------------  -------------------------
                                       $                246,831      $                  (1,044,015)      $           (797,184)
                                     ===========================   =================================  =========================
March 31, 1999:
      Cost and estimated earnings      $              3,099,184      $                    3,187,063      $           6,286,247
      Billings                                        2,549,908                           3,957,093                  6,507,001
                                     ---------------------------   ---------------------------------  -------------------------
                                       $                549,276      $                    (770,030)      $           (220,754)
                                     ===========================   =================================  =========================
</TABLE>

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

NOTE 6. SEGMENT REPORTING 

Segment Reporting
                        Three months ended March 31, 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                    CDS              E-Commerce                SBA                 Total
------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                     <C>                  <C>      
Revenues                         5,523,123               371,897               236,711            6,131,731
------------------------------------------------------------------------------------------------------------
Segment profit (loss)            2,460,584           (1,119,306)             (282,504)            1,058,774
------------------------------------------------------------------------------------------------------------
</TABLE>

                        Three months ended March 31, 1998
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                 CDS              E-Commerce             SBA                Total
-------------------------------------------------------------------------------------------------------
<S>                             <C>                   <C>                <C>                 <C>      
Revenues                        4,008,063               106,049            128,905           4,243,017
-------------------------------------------------------------------------------------------------------
Segment profit(loss)            1,319,256             (764,256)          (224,885)             330,115
-------------------------------------------------------------------------------------------------------
</TABLE>

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

                          Three months ended March 31,
<TABLE>
<CAPTION>
 ------------------------------------------------------------------------------------------
                                                                   1999           1998
 ------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>     
 Total segment profit                                            1,058,774         330,115
 ------------------------------------------------------------------------------------------
 Corporate, general and administrative expenses                (1,261,604)     (1,666,127)
 ------------------------------------------------------------------------------------------
 Depreciation and amortization                                   (488,162)       (267,817)
 ------------------------------------------------------------------------------------------
 Net interest income                                                45,387         246,097
 ------------------------------------------------------------------------------------------
 Loss before income taxes                                        (645,605)     (1,357,732)
 ------------------------------------------------------------------------------------------
</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, 1998. 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 Chairman 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 commercially released in the fourth quarter of 1997. The Portfolio
Monitoring service and CreditRevue Service Bureau were commercially released in
the first quarter of 1998. CreditRevue for Student Lending was introduced in the
fourth quarter of 1998. The Company introduced its internet lending solution,
Credit Online, and CreditRevue Maestro software during the first quarter of
1999.

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 



                                       7
<PAGE>   8

Company's overall marketing strategy. For the three months ended March 31, 1999,
revenues from third-party hardware and software sales accounted for 12.7% and
0.5% 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, 1999, the Company had 22 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 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 44.5% from $4.2 million in the three
months ended March 31, 1998 to $6.1 million in the three months ended March 31,
1999. 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,
1999. License and software development fees increased 28.1% from $2.8 million in
the three months ended March 31, 1998 to $3.6 million in the three months ended
March 31, 1999. The increase during this period resulted from increased market
acceptance of CreditRevue and increased demand for the Company's professional
consulting services.

Maintenance Fees. Maintenance fees include fees from software maintenance
agreements. Maintenance fees increased 21.2% from $1.0 million in the three
months ended March 31, 1998 to $1.2 million in the three months ended March 31,
1999. The growth in these revenues during the periods presented was the result
of increased maintenance fees associated with the increased number of licenses
of CreditRevue outstanding during such periods.

Computer Hardware Sales. Computer hardware sales revenue increased 347.2% from
$0.2 million in the three months ended March 31, 1998 to $0.8 million in the
three months ended March 31, 1999. Computer hardware sales revenue consists of
revenues received from resales of third-party hardware in connection with the
license and installation of the Company's software. The fluctuation in such
revenues during these periods is the result of customer purchase preferences for
computer hardware systems. In certain instances, CreditRevue customers have
volume discount arrangements with hardware resellers making them eligible for
discounts greater than those offered by the Company.



                                       8
<PAGE>   9

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 94.6% from
$0.3 million for the quarter ended March 31, 1998 as compared to $0.6 million
for the quarter ended March 31, 1999. The CreditConnection service generated
$372,000 of revenue in the quarter ended March 31, 1999 compared to $219,000 for
the period ended March 31, 1998, an increase of 70.0%. 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
$237,000 in the quarter ended March 31, 1999 representing an increase of 152.1%
over the $94,000 recorded 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, the cost of temporary contract labor and costs for office space.
Cost of license and software development fees decreased 6.9% from $1.8 million
in the three months ended March 31, 1998 to $1.7 million in the three months
ended March 31, 1999. As a percentage of license fee and software development
revenue, cost of license and software development fees were 66.0% and 48.0% in
the three months ended March 31, 1998 and 1999, respectively. The decrease 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 results in corresponding fluctuations in the extent to
which the Company employs temporary contractors. The net reduction in costs of
$0.1 million is the result of lower costs for the in-house programmers of
approximately $0.2 million offset by increased costs of temporary contractors of
approximately $0.1 million. 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.

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 3.4% from $0.3 million in the three months ended
March 31, 1998 to $0.3 million in the three months ended March 31, 1999. As a
percentage of maintenance fee revenue, cost of maintenance fees was 26.6% and
22.7% in the three months ended March 31, 1998 and 1999, 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 1998 and 1999 results from
incremental increases in office related expenses 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, 1999.

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 increased 217.7% from $0.2 million in
the three months ended March 31, 1998 to $0.8 million in the three months ended
March 31, 1999. As a percentage of computer hardware sales revenue, cost of
computer hardware sales was 141.8% and 101% in the three months ended March 31,
1998 and 1999, respectively. The decrease in the cost of computer hardware sales
as a percent of revenue is the result of increased hardware margins resulting
from increased hardware sales, while fixed expenses, primarily personnel-related
in nature, remained constant during the same period.



                                       9
<PAGE>   10

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, 1998 and 1999 were $0.7 million and $0.8 million, respectively. Cost
of service bureau revenues during the three months ended March 31, 1998 and 1999
exceeded service bureau revenues because of start up costs associated with
establishing the service bureau. 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 24.9% from $2.3 million in the three months
ended March 31, 1998 to $2.9 million in the three months ended March 31, 1999.
Of this $0.6 million increase, approximately $0.3 million related to payroll
expenses which resulted primarily from an increase in the Company's sales staff
and approximately $0.3 million of the increase related to non-salary based
administrative expenses, consisting primarily of depreciation and communications
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, 1999 as compared to the three
months ended March 31, 1998 due primarily the capitalization of certain
development costs associated with the Company's CreditRevue Maestro product. The
CreditRevue Maestro product is a robust automated analysis engine for evaluating
and decisioning consumer and small business credit applications. Technological
feasibility of CreditRevue maestro was deemed to have occurred November 1, 1998
at which point capitalization of certain expenses commenced. During the three
months ended March 31, 1999, approximately $0.4 million of expenses related to
the development of CreditRevue Maestro were capitalized. All development
activities during the three months ended March 31, 1998 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 December 31, 1998.
 
Interest Income (Expense). Net interest income decreased to $0.1 million in the
three months ended March 31, 1999 from $0.3 million in the first three months
ended March 31, 1998.


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<PAGE>   11

     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, 1998, the Company consumed net cash in operating activities of
$2.0 million. During the three months ended March 31, 1999, the Company consumed
$2.8 million of cash in operating activities. The primary use of cash in
operations during the three months ended March 31, 1999, was the reduction of
accounts payable of approximately $1.5 million and increases in prepaid
expenses, deferred revenue and net billings in excess of costs and estimated
gross profit on uncompleted contracts totaling approximately $1.4 million in the
aggregate.

The Company's cash used in investing activities consists principally of
investments in property and equipment. During the three months ended March 31,
1998 and 1999, the Company invested a total of $0.7 and $0.5 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, 1999.

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, 1999 was approximately $48,000. The line of credit bears interest at the
bank's prime rate per annum (8.5% at March 31, 1999). 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 1999.

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.

STATE OF READINESS

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

       -      Executive Sponsor - The Executive Sponsor works with the Senior
              Technology Executive on

                                       11
<PAGE>   12


              budgeting and resources management and other major year 2000
              issues, and reports on Year 2000 Program status to the Executive
              Management of the Company as well as the Board of Directors.

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

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

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

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

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

       -      Developers - Developers perform coding modifications to address
              year 2000 issues.

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

Individual members of the Year 2000 Team communicate frequently with respect to
Year 2000 issues. The Year 2000 Team meets as a group and reports status
bi-weekly. Subgroups of the Year 2000 Team meet as needed to address specific
issues.

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

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

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

CREDIT DECISIONING SYSTEMS (EXISTING). For existing credit decisioning systems
(i.e., systems which customers were using in production at the time the Year
2000 Program was applied to the system), the Company performs the following
activities:

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

       2.     The Year 2000 modifications are made.

       3.     The modifications are tested. The customer also has an opportunity
              to test the modifications.

       4.     Following the testing, the modifications are installed in the
              customer's system.

                                       12
<PAGE>   13

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

CREDIT DECISIONING SYSTEMS (NEW). For new credit decisioning systems (i.e.,
systems which were not used by customers until after the Year 2000 Program was
applied to the system), the Company performs the following activities:

       1.     Each new credit decisioning system starts with a "base" system.
              The base system is analyzed for Year 2000 issues.

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

       3.     Before or concurrent with the user acceptance testing, the Company
              reviews the code enhancements for compliance with the Company's
              Year 2000 coding standards.

       4.     The Company implements required modifications on the test system
              at the Company's site, and tests the modifications.

       5.     Upon completion of testing of the changes by the Company, the
              software changes are reported to the customer and installed in the
              customer's system for further testing by the customer.

       6.     With respect to any enhancements to the credit decisioning system
              after acceptance by the customer of the system, the Company
              performs the enhancements in a test environment. The enhancements
              are then analyzed and tested for Year 2000 issues following the
              above approach.

E-COMMERCE SYSTEMS. For e-commerce systems, the Company performs the following
activities:

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

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

       3.     The Company analyzes and tests the modifications, patches,
              upgrades and replacements. The Company makes the Year 2000 version
              of the software programs supporting the e-commerce system
              available to its customers in a Year 2000 environment for testing
              of the modifications. The customer schedules the testing with the
              Company.

       4.     The modifications, patches, upgrades and replacements are placed
              into production.

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

SERVICE BUREAU SYSTEMS. For service bureau systems, the Company performs the
following activities:

       1.     The "base" service bureau system is analyzed for compliance with
              the Company's Year 2000 coding standards.

       2.     The Year 2000 modifications are made.

       3.     The modifications are tested.

       4.     For any subsequent releases, the Company analyzes the changes for
              compliance with the Company's Year 2000 coding standards. The
              Company makes any required modifications to the code.

       5.     The Company tests the modifications.

       6.     Following the testing, the release is ready to be delivered to the
              customer.



                                       13
<PAGE>   14

INFRASTRUCTURE. For products and systems used by the Company internally, the
Company performs one or more of the following activities:

       1.     The Company contacts the provider of the product or system in
              writing to request information regarding the Year 2000 readiness
              of its product or system, and evaluates the response for
              reasonableness and acceptability, based on CMSI's knowledge of the
              product or system.

       2.     The Company obtains Year 2000 compliance information from the
              third party's web site and evaluates the response for
              reasonableness and acceptability based on the Company's knowledge
              of the product or system.

       3.     The Company tests the product or system where appropriate and
              possible.

       4.     For any third party products or systems that require
              modifications, the Company works with the vendor to ensure that
              the modifications are completed in an acceptable time frame.

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

As of March 31, 1999, approximately 90% of the analysis, remediation and testing
had been completed, collectively, for the Company's customers' credit
decisioning systems. The implementation phase for the credit decisioning
customers is largely dependent on the customers' schedules, and for those
customers which have not implemented the necessary changes to their credit
decisioning systems, the Company is working with those customers to implement
the changes as soon as possible. As of March 31, 1999, approximately 80% of the
analysis, remediation, testing and implementation had been completed for the
software and systems comprising the Company's e-commerce systems, which is
scheduled to be completed during the second quarter of 1999. As of March 31,
1999, approximately 90% of the analysis, remediation, testing and implementation
had been completed for the Company's service bureau systems, which is also
scheduled to be completed during the second quarter of 1999. The Company has
also implemented analysis and testing procedures to ensure that any enhancements
to a system following the completion of the analysis, remediation, testing and
implementation of that system do not contain any year 2000 issues. As of March
31, 1999, approximately 50% of the analysis, remediation, testing and
implementation had been completed for the Company's internal products and
systems, which is also scheduled to be completed during the second quarter of
1999.

In most cases, the software products and software-related services provided by
the Company interface to third party systems. In cases where a third party has
provided Year 2000 interface specifications, the Company is developing, testing
and implementing new interface code to comply with those specifications. All new
interface code is scheduled to be completed and implemented during the second
quarter of 1999.

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

COSTS

As of March 31, 1999, all expenses have been associated with the opportunity
cost of time spent by employees of the Company on the Year 2000 Program,
particularly on the analysis, development, testing and implementation relating
to software products and software-related services provided to customers. The
Company estimates that the opportunity cost incurred as of March 31, 1999 is
approximately $1.6 million. This cost can be allocated as follows: $800,000 to
credit decisioning systems, $260,000 to e-commerce systems, $140,000 to service
bureau systems, $35,000 to internal products and systems, and $365,000 to Year
2000 Program management, project oversight, and client and vendor
communications. To complete the Year 2000 Program, in addition to the
opportunity costs of employees' time, the Company may also need to purchase
replacement products. The Company's projected costs of the entire Year 2000
Program is $2.3 million.



                                       14
<PAGE>   15

RISKS

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

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

CONTINGENCY PLANS

The Company will have a dedicated year 2000 support staff which will be prepared
to address year 2000 issues. The Company is currently in the process of
investigating and developing additional contingency plans which will be
implemented if necessary. The Company expects to complete development of the
contingency plans by the end of the third quarter of 1999.

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 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 





                                       15
<PAGE>   16

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, 1999. 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 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. 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 



                                       16
<PAGE>   17

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 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 55.4% and 48.8% of total revenues in 1998 and 1997, respectively.
One of the Company's customers accounted for 10% or more of total revenues in
1998 and none of the Company's customers accounted for more than 10% of total
revenues in 1997. 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.



                                       17
<PAGE>   18

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, 1999, the Company
had grown to 201 employees from 213 employees at March 31, 1998. 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 James R. DeFrancesco, Chairman and
Chief Executive Officer, Peter M Leger, President and Chief Operating 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. Except
with respect to Mr. Leger, 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 




                                       18
<PAGE>   19

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.
During 1997, the Company implemented a limited redundant data center. 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,
will become the primary production center for the Company's data processing
needs. The Company also renewed its lease on its former data center located in
Columbia, Maryland. This former center will, during 1999 will become a back-up
center capable of fully supporting operations in the event of failure of the new
production center. Prior to full implementation of the new facility and the back
up facility, the Company's operations are subject to substantial risks,
including temporary interruptions resulting from damage caused by any one or
more of the foregoing factors or due to other causes including computer viruses,
hackers or similar disruptive problems. While the Company maintains $1.6 million
of property insurance coverage, business interruption insurance coverage, $2.0
million of errors and omissions insurance coverage and $10.0 million of umbrella
insurance coverage, such insurance may not be adequate to compensate the Company
for all losses that may occur or to provide for costs associated with system
failure or business interruption. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, results of operations and financial condition.

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

Risk of Defects, Development Delays and Lack of Market Acceptance. Software
products and services as sophisticated as those offered by the Company often
encounter development delays and may contain defects or failures when introduced
or when new versions are released. The Company has in the past and may in the




                                       19
<PAGE>   20

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 1999. 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 Chairman and Chief Executive Officer, and
Scott L. Freiman, the Company's Executive Vice President, collectively
beneficially own approximately 60% 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 




                                       20
<PAGE>   21

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.


                                       21
<PAGE>   22


                          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)*



                                       22
<PAGE>   23

        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.


                                       23
<PAGE>   24



                                   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)



<TABLE>
<S>                   <C>                              
Date: May 14, 1998    /s/ James R. DeFrancesco
                      -------------------------
                         James R. DeFrancesco
                         Chief Executive Officer, Chairman of the Board of Directors 
                         and (Principal Executive Officer)




Date: May 14, 1998    /s/ Robert P. Vollono
                      -----------------------
                         Robert P. Vollono
                         Senior Vice President, Treasurer, Chief Financial Officer 
                         and Director (Principal Financial and Accounting Officer)
</TABLE>




                                       24
<PAGE>   25



                        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>   26

<TABLE>
<S>    <C>               <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>