<PAGE>

           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, 2001

                                      OR

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

For the transition period from _________________ to _________________

                       Commission file number 000-21735

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


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


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


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

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

   Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]  No [_]

   Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,999,431 shares of the
Company's Common Stock, $.01 par value, were outstanding as of May 8, 2001.
<PAGE>

                       CREDIT MANAGEMENT SOLUTIONS, INC.
                       Index to March 31, 2001 Form 10-Q


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

Item 1.  Financial Statements
          Consolidated Balance Sheets-- March 31, 2001 (unaudited) and
             December 31, 2000                                                             3
          Consolidated Statements of Operations-- Three Months Ended March 31,
             2001 (unaudited) and 2000 (unaudited)                                         4
          Consolidated Statements of Cash Flows -- Three Months Ended
             March 31, 2001 (unaudited) and 2000 (unaudited)                               5
          Notes to Consolidated Financial Statements                                       6
Item 2.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                            8

                                   Part II -- Other Information

Item 1.  Legal Proceedings                                                                19
Item 2.  Changes in Securities                                                            19
Item 3.  Defaults upon Senior Securities                                                  19
Item 4.  Submission of Matters to a Vote of Security Holders                              19
Item 5.  Other Information                                                                19
Item 6.  Exhibits and Reports on Form 8-K                                                 19
         Signatures                                                                       20
         Exhibit Index                                                                    21
</TABLE>


                                       2
<PAGE>

Item I. FINANCIAL STATEMENTS

              CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          March 31,            December 31,
                                                                             2001                  2000
                                                                          ---------            ------------
                                                                         (Unaudited)
<S>                                                                      <C>                   <C>
                                      Assets
Current assets:
     Cash and cash equivalents                                           $  2,290,878          $  1,588,133
     Investments available-for-sale                                                 -             2,529,097
     Accounts receivable, net of allowance of $371,946 and
        $339,681 in 2001 and 2000, respectively                             6,620,116             6,558,672
     Costs and estimated earnings in excess of
        billings on uncompleted contracts                                      94,542                25,779
     Prepaid expenses and other current assets                                260,913               362,720
                                                                         ------------          ------------
     Total current assets                                                   9,266,449            11,064,401
Property and equipment:
     Computer equipment and software                                        5,924,321             5,775,962
     Office furniture and equipment                                         1,225,786             1,223,036
     Leasehold improvements                                                 3,189,184             3,189,184
                                                                         ------------          ------------
                                                                           10,339,291            10,188,182
     Accumulated depreciation and amortization                             (5,105,818)           (4,651,211)
                                                                         ------------          ------------
                                                                            5,233,473             5,536,971
Software development costs, net of accumulated amortization
        of $226,604 in 2001                                                 3,399,061             3,625,665
Other non-current assets                                                       36,356                37,463
                                                                         ------------          ------------
Total assets                                                             $ 17,935,339          $ 20,264,500
                                                                         ============          ============
                          Liabilities and Shareholders' Equity
Current liabilities:
     Accounts payable                                                    $  2,086,870          $  2,944,574
     Accrued payroll and related expenses                                   1,496,994             1,161,131
     Billings in excess of costs and estimated
       earnings on uncompleted contracts                                      179,169               367,319
     Deferred revenue                                                       3,292,454             3,547,108
     Current portion of deferred tenant allowance                             144,866               144,866
     Short-term borrowings                                                    798,000               798,000
                                                                         ------------          ------------
     Total current liabilities                                              7,998,353             8,962,998
     Deferred tenant allowance, less current portion                          959,736               995,952
                                                                         ------------          ------------
Total liabilities                                                           8,958,089             9,958,950
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;
        7,994,167 and 7,824,113 shares issued and outstanding at
        March 31, 2001 and December 31, 2000, respectively                     79,942                78,241
     Additional paid-in capital                                            28,529,883            27,770,711
     Accumulated deficit                                                  (19,632,575)          (17,543,402)
                                                                         ------------          ------------
Total shareholders' equity                                                  8,977,250            10,305,550
                                                                         ------------          ------------
Total liabilities and shareholders' equity                               $ 17,935,339          $ 20,264,500
                                                                         ============          ============
</TABLE>

             THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                             FINANCIAL STATEMENTS

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Three Months Ended,
                                                                        March 31,
                                                           -----------------------------------
                                                                2001                 2000
                                                           -------------         -------------
                                                             (Unaudited)          (Unaudited)
<S>                                                     <C>                     <C>
Revenues:
  License and software development fees                    $  2,554,480            $  2,602,235
  Maintenance fees                                            1,814,485               1,487,314
  Computer hardware sales                                        55,423                  49,003
  Service bureau revenues                                     1,855,493               1,058,861
                                                           ------------            ------------
                                                              6,279,881               5,197,413
Costs of revenues:
  Cost of license and software development fees               2,205,452               1,391,528
  Cost of maintenance fees                                      396,228                 289,897
  Cost of computer hardware sales                               138,566                  84,136
  Cost of service bureau                                      1,600,141               1,026,956
                                                           ------------            ------------
                                                              4,340,387               2,792,517
                                                           ------------            ------------
Gross profit                                                  1,939,494               2,404,896

Other operating expenses:
  Selling, general and administrative expenses                3,610,491               2,684,857
  Research and development costs                                449,866                 237,079
                                                           ------------            ------------
                                                              4,060,357               2,921,936
                                                           ------------            ------------
  Loss from operations                                       (2,120,863)               (517,040)

Other income (expense):
  Interest expense                                              (20,017)                (22,785)
  Interest income                                                51,707                  64,028
                                                           ------------            ------------
                                                                 31,690                  41,243
                                                           ------------            ------------
Net loss                                                   $ (2,089,173)           $   (475,797)
                                                           ============            ============

Basic and diluted loss per common share                    $      (0.27)           $      (0.06)
                                                           ============            ============
Weighted-average shares used in computation                   7,874,564               7,729,142
                                                           ============            ============
</TABLE>

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

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                          ------------------------------------------
                                                                                 2001                     2000
                                                                          ----------------          ----------------
                                                                             (Unaudited)               (Unaudited)
<S>                                                                   <C>                       <C>
Operating activities:
     Net loss                                                             $   (2,089,173)           $    (475,797)
     Adjustments:
        Depreciation                                                             454,607                  440,273
        Amortization of software development costs                               226,604                        -
        Amortization of deferred tenant allowance                                (36,216)                 (36,216)
        Loss on disposal of property and equipment                                     -                   80,494
     Changes in operating assets and liabilities:
        Accounts receivable, net                                                 (61,444)                 241,509
        Prepaid expenses and other current assets                                101,807                   62,659
        Accounts payable                                                        (857,704)                (160,524)
        Accrued payroll and related expenses                                     335,863                  154,200
        Net billings in excess of costs and estimated gross profit
             on uncompleted contracts                                           (256,913)                 563,951
        Deferred revenue                                                        (254,654)                (286,331)
                                                                          --------------            -------------
        Net cash (used in) provided by operating activities                   (2,437,223)                 584,218

Investing activities:
        Purchase of investments available-for-sale                                     -               (5,572,969)
        Sale of investments available-for-sale                                 2,529,097                4,572,482
        Proceeds from sale of property and equipment                                   -                    3,175
        Purchase of property and equipment                                      (151,109)                (246,478)
        Capitalized software development costs                                         -                 (379,153)
        Decrease in other assets                                                   1,107                   13,147
                                                                          --------------            -------------
        Net cash (used in) provided by investing activities                    2,379,095               (1,609,796)

Financing activities:
        Payments under capital lease obligations and
           short-term borrowings                                                       -                  (16,116)
        Proceeds from credit line                                                      -                  691,049
        Proceeds from exercise of stock options                                  754,733                        -
        Proceeds from issuance of common stock                                     6,140                    9,504
                                                                          --------------            -------------
Net cash provided by financing activities                                        760,873                  684,437
                                                                          --------------            -------------
Net change in cash and cash equivalents                                          702,745                 (341,141)
                                                                          --------------            -------------
Cash and cash equivalents at beginning of period                               1,588,133                3,594,328
                                                                          --------------            -------------
Cash and cash equivalents at end of period                                $    2,290,878            $   3,253,187
                                                                          ==============            =============
</TABLE>

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

                                       5
<PAGE>

              CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARIES
                  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, 2001 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.  The balance sheet at December 31, 2000 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.  For further information, refer to
the consolidated financial statements and footnotes thereof included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform to the 2001 presentation.

NOTE 2.  ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the SEC staff issued Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements ("SAB 101").  The Company adopted the
provisions of SAB No. 101 in its consolidated financial statements in 2000.  The
adoption of this pronouncement did not have any impact on the Company's revenue
recognition policies, consolidated financial position or results of operations.

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 was later amended by the
Financial Accounting Standards Board in 1999 and 2000 upon the issuance of SFAS
No. 137 and SFAS No. 138.  The standards, which the Company adopted on January
1, 2001, provide a comprehensive and consistent method for the recognition and
measurement of derivatives and hedging activities.  The adoption of SFAS No. 133
and its amendments did not have any impact on the consolidated financial
statements.

NOTE 3.  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, 2000:
    Cost and estimated earnings      $          209,940              $       1,760,763                $    1,970,703
    Billings                                    184,161                      2,128,082                     2,312,243
                                 ----------------------         ----------------------          --------------------
                                     $           25,779              $        (367,319)               $     (341,540)
                                 ======================         ======================          ====================

March 31, 2001:
    Cost and estimated earnings      $          694,114              $         693,040                $    1,387,154
    Billings                                    599,572                        872,209                     1,471,781
                                 ----------------------         ----------------------          --------------------
                                     $           94,542              $        (179,169)               $      (84,627)
                                 ======================         ======================          ====================
</TABLE>

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

                                       6
<PAGE>

NOTE 4.  SEGMENT REPORTING

During 2000, the Company organized its operations into two wholly owned
subsidiaries, Credit Online, Inc. and CMSI Systems, Inc. Credit Online, Inc.
operates an automated service bureau which electronically assembles and
transmits between merchants and credit grantors credit applications of the
merchant's customers. CMSI Systems, Inc. operates the Company's software license
and related services business. Previously, the Company was organized into three
distinct business lines, Credit Decisioning Systems (CDS), E-Commerce and
Service Bureau Alliances (SBA).

The Company evaluates performance and allocates resources based on income from
operations before depreciation and amortization, and corporate general and
administrative expenses. There are no intercompany sales or transfers. The
subsidiaries are managed separately by presidents who are most familiar with the
segment's operations. The following table sets forth information on the
Company's reportable segments:

                                     Three months ended March 31, 2001
                           --------------------------------------------------
                           CMSI Systems      Credit Online        Total
                           ------------      -------------     --------------
Revenues                   $  4,706,946      $ 1,572,935       $ 6,279,881
Segment profit (loss)           976,167         (681,592)      $   294,575

                                     Three months ended March 31, 2000
                           -------------------------------------------------
                           CMSI Systems      Credit Online        Total
                           -------------     --------------    -------------
Revenues                   $ 4,281,142       $   916,271       $ 5,197,413
Segment profit (loss)        1,953,233          (846,206)      $ 1,107,027

A reconciliation of segment profit for all segments to net loss is as follows:

<TABLE>
<CAPTION>
                                                                         Three months ended March 31,
                                                                 ------------------------------------------
                                                                       2001                    2000
                                                                 ---------------      ------------------
<S>                                                              <C>                     <C>
Total segment profit                                                 $   294,575             $ 1,107,027
Unallocated corporate, general and administrative expenses            (1,770,443)             (1,220,010)

Depreciation and amortization                                           (644,995)               (404,057)
Net interest income                                                       31,690                  41,243
                                                                 ---------------         ---------------
Net loss                                                             $(2,089,173)            $  (475,797)
                                                                 ===============        ================
</TABLE>

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

NOTE 5.  SALE OF COMPANY

On January 30, 2001, the Company entered into an Agreement and Plan of Merger
with The First American Corporation, a California corporation ("First
American"), and Rusti Corp., a wholly-owned subsidiary of First American. If the
merger contemplated by the Agreement is completed, the Company's stockholders
will receive, for each share of common stock held by them, the right to receive
such fraction of a share of First American common stock equal to the quotient
(rounded to the nearest ten-thousandth decimal place) resulting from the
division of $6.25 by the average closing price per share of First American
common stock as reported on the New York Stock Exchange for the ten trading days
ended on the third trading day prior to the special meeting of the Company's
stockholders to be held for the purpose of voting upon the merger. However, if
the average closing price is greater than $30 per share, such average closing
price shall be deemed to be $30 per share, and if the average closing price is
less than $22 per share, the average closing price shall be deemed to be $22 per
share. Consummation of the merger is subject to various conditions, including,
among other things, receipt of the necessary approvals of the stockholders of

                                       7
<PAGE>

the Company, performance of covenants and agreements of the parties and other
customary terms. The merger is intended to constitute a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended. The transaction
is expected to be completed in the second quarter of 2001.


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 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, 2000.  This report contains certain statements
of a forward-looking nature relating to future events or the future financial
performance of the Company.  Investors are cautioned that such statements are
only predictions and that actual events or results may differ materially.  In
evaluating such statements, investors should carefully consider the various
factors identified in this Report which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth in "--Certain Factors That May Affect Future Results,
Financial Condition and the Market Price of Securities."

OVERVIEW

The Company was incorporated in 1987 to commercialize an automated credit
processing system developed by James R. DeFrancesco, the Company's co-founder,
and Scott L. Freiman, the Company's President, Chief Executive Officer and co-
founder 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 the Company's CreditRevue software.  CreditRevue was initially released in
1988.  Since its initial release, the Company has continually enhanced
CreditRevue in response to the needs of its customers.  The Company's
CreditConnection service became commercially available in July 1996.  The Dun &
Bradstreet OneScore product was commercially released in October 1997.  The
CreditRevue Service Bureau product was introduced in January 1998.  The
Company's original strategy for CreditRevue Service Bureau  was to enter into
marketing alliances with established service bureau providers whereby such
providers would re-market CreditRevue Service Bureau to their clients on a
transaction fee basis.  The Company is changing its strategy to focus on an
application service provider (ASP) or other service bureau model built around
its new eValuate software product and an enhanced CreditRevue product offering.
New licenses for the original CreditRevue Service Bureau are no longer being
offered.  The Dun & Bradstreet Portfolio Monitoring service was introduced in
June 1998 and the CreditOnline network, was announced in February 1999.  In
March 1999, the Company announced the introduction of CreditRevue Maestro, an
automated analysis engine for evaluating and decisioning consumer and small
business credit applications.  During 1999, the CreditRevue Maestro product was
renamed eValuate.  eValuate became commercially available on a limited basis
during the first quarter of 2001.

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

License fees for CreditRevue are recognized based on a percentage-of-completion
method, measured generally on a cost-incurred basis.  The Company typically
charges a nonrefundable fee of 25% of the preliminary estimate of the total
license fee to develop an analysis of the customer's credit operations and a
plan for the configuration and implementation of CreditRevue according to the
customer's requirements.

                                       8
<PAGE>

Costs consist primarily of direct labor, temporary contract labor and office
space. Contracts in progress are reviewed periodically, and revenues and
earnings are adjusted based on revisions in contract value and estimated time to
completion. The Company recognizes revenue for maintenance fees pro rata over
the term of the related agreement, which is generally one year. Maintenance fees
received in advance of revenue recognition are included in deferred revenue. In
addition, as a convenience to its customers, the Company offers third-party
computer hardware through various reseller arrangements. However, neither third-
party hardware nor third-party software sales are a focus of the Company's
overall marketing strategy. For the three months ended March 31, 2001, revenues
from third-party hardware and software sales accounted for 0.9% and 2.8% of
total revenues, respectively. Revenues from resales of third-party computer
hardware and software are recognized at the time of shipment and installation.

Certain of the Company's products and services, including CreditConnection, Dun
& Bradstreet's OneScore, Dun & Bradstreet's Portfolio Monitoring and the
CreditOnline network are charged on a per transaction basis. As a result, the
Company anticipates that transaction-based revenue will represent an increasing
proportion of the Company's revenue. The Company's sales and marketing efforts
will no longer be exclusively targeted at generating license-based revenue but
will be increasingly focused on generating transaction-based revenue from
prospective customers. The Company's anticipated future growth is based, in
large part, on the success of these products and services and the transition to
a transaction-based revenue stream. Accordingly, the failure by the Company to
generate demand for the CreditConnection service, Dun & Bradstreet's OneScore,
Dun & Bradstreet's Portfolio Monitoring, CreditOnline network, eValuate
software, 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 could 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, 2001, the Company had 20 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 20.8% from $5.2 million in the three
months ended March 31, 2000 to $6.3 million in the three months ended March 31,
2001.  The primary factors affecting revenue growth in the quarter relate to
increases in maintenance and service bureau revenues.  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 in the quarter
ended March 31, 2001.  License and software

                                       9
<PAGE>

development fees remained level at $2.6 million in the three month periods ended
March 31, 2000 and 2001.

Maintenance Fees.  Maintenance fees include fees from software maintenance
agreements.  Maintenance fees increased 22.0% from $1.5 million in the three
months ended March 31, 2000 to $1.8 million in the three months ended March 31,
2001.  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.    Maintenance fees related to
third-party software are also included in this category and with the increased
number of installed CreditRevue systems, maintenance on the required third-party
software is also increasing.  Enhancements to previously installed CreditRevue
systems performed by the Company's professional services staff are also subject
to maintenance and contributed to the growth in maintenance revenues.

Computer Hardware Sales.  Computer hardware sales revenues increased 13.1% from
$49,000 in the three months ended March 31, 2000 to $55,400 in the three months
ended March 31, 2001.  Computer hardware sales revenue consists of revenues
received from resales of third-party hardware in connection with the license and
installation of the Company's software.  The fluctuation in such revenues during
these periods is the result of customer purchase preferences for computer
hardware systems.  In certain instances, CreditRevue customers have volume
discount arrangements with hardware resellers making them eligible for discounts
greater than those offered by the Company.

Service Bureau Fees. Service Bureau revenues originate from several sources
including: CreditConnection transaction and interface fees, Credit Online
network fees, Dun & Bradstreet OneScore and Portfolio Monitoring transaction and
implementation fees. Total service bureau revenues increased 75.2% from $1.1
million for the three months ended March 31, 2000 to $1.9 million for the three
months ended March 31, 2001. The CreditConnection service and Credit Online
network generated $1.5 million of revenue in the quarter ended March 31, 2001
compared to $0.9 million for the quarter ended March 31, 2000, an increase of
72.7%. Revenue increases are the result of increases in the number of dealers
and lenders enrolled in the CreditConnection service and the resulting growth in
transaction volume. At March 31, 2001, there were approximately 386 dealers
enrolled in the CreditConnection service compared to approximately 280 dealers
at March 31, 2000.

Dun & Bradstreet OneScore and Dun & Bradstreet Portfolio Monitoring accounted
for an aggregate revenue of $0.4 million in the quarter ended March 31, 2001,
which represents an increase of 86.6% compared to the $0.2 million recorded in
the quarter ended March 31, 2000.

Cost of License and Software Development Fees.  Cost of license and software
development fees consists 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 increased 58.5% from $1.4 million
in the three months ended March 31, 2000 to $2.2 million in the three months
ended March 31, 2001.  As a percentage of license fee and software development
revenue, cost of license and software development fees were 53.5% and 86.3% in
the three months ended March 31, 2000 and 2001, respectively.  The increase in
cost of license and software fees as a percentage of license and software
development fees relates to the fluctuation in the Company's quarterly revenues
and the costs associated with in-house programmers and temporary contract labor.
Revenue fluctuations result in corresponding fluctuations in the extent to which
the Company employs temporary contractors and may also result in increases or
decreases in in-house programmer staffing as revenues increase or decrease.   Of
the $0.8 million increase in costs, $0.3 is the result of increased costs for
temporary contractors and $0.3 is the result of increased in-house staffing.
The remaining $0.2 million increase relates to amortization of the eValuate
software.

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 36.7% from $0.3 million in the three months ended
March 31, 2000 to $0.4 million in the three months ended March 31, 2001.  As a
percentage of maintenance fee revenue, cost of maintenance fees was 19.5% and
21.8% in the three months ended March 31, 2000 and 2001, respectively.  The
dollar increase in the cost of maintenance fees reflects increased costs
associated with maintenance for third-party software for which the Company is a
reseller.

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<PAGE>

As the number of CreditRevue systems in use increases, the base of installed
third-party software is likewise increasing. Compared to first quarter 2000,
there were a greater number of third-party software systems under contract. The
costs associated with maintenance for these third-party software products
resulted in increased costs of maintenance for the quarter ended March 31, 2001.

Cost of Computer Hardware Sales. Cost of computer hardware sales consists of the
Company's cost of computer hardware resold to the Company's customers that are
licensing CreditRevue and salaries and benefits for systems integration
employees. Cost of computer hardware sales remained level at $0.1 million in the
three months ended March 31, 2001 and March 31, 2000. As a percentage of
computer hardware sales revenue, cost of computer hardware sales was 171.7% and
250.0% in the three months ended March 31, 2000 and 2001, respectively. The
increase in the cost of computer hardware sales as a percent of revenue is the
result of decreased hardware margins resulting from decreased hardware sales,
while fixed expenses, primarily personnel-related in nature, remained relatively
constant during the same period.

Cost of Service Bureau Revenues. Cost of service bureau fees consists primarily
of personnel costs associated with the operation and support of the service
bureau. Other costs of service bureau revenues include equipment rental
expenses, communications network costs from third parties and hardware and
software pass-through expenses. Service bureau costs increased 55.8% from $1.0
million for the three months ended March 31, 2000 to $1.6 million for the three
months ended March 31, 2001. Cost of service bureau revenues as a percent of
service bureau revenues were 97.0% and 86.2% for the three months ended March
31, 2000 and 2001, respectively. While service bureau costs increased 55.8%,
corresponding service bureau revenues increased 75.2%. The increase in costs
relates to increased labor costs related to additional field support personnel
and fees associated with alliance partner revenue sharing arrangements for the
CreditConnection service.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 34.5% from $2.7 million in the three months
ended March 31, 2000 to $3.6 million in the three months ended March 31, 2001.
Of this $0.9 million increase, approximately $0.7 million relates to costs,
primarily legal, accounting and financial advising fees, incurred in connection
with the Company's proposed merger with First American.

Research and Development Costs. Research and development costs consist primarily
of salaries and benefits for in-house programmers. These costs increased $0.2
million, from $0.2 million for the quarter ended March 31, 2000 to $0.4 million
for the quarter ended March 31, 2001. The increase is primarily due to costs
incurred for the development of eValuate which were capitalized in during 2000,
resulting in higher year to year research and development expenses being
recorded. Overall research and development staffing at March 31, 2001 was 19
compared to 25 at March 31, 2000.

Interest Income (Expense). Net interest income for the three months ended March
31, 2001 of $31,690 was slightly less than net interest income for the three
months ended March 31, 2000 of $41,243. Lower average invested cash balances
were responsible for the decline in net interest income.

LIQUIDITY AND CAPITAL RESOURCES

The Company has primarily 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, 2000, the Company generated net cash in operating activities of
$0.6 million. During the three months ended March 31, 2001, the Company consumed
$2.4 million of cash in operating activities. The $3.0 million decrease in cash
flow from operations resulted from an increase in the net loss of $1.6 million,
increased payments made on outstanding accounts payable, which consumed $0.7
million more in the first quarter of 2001 as compared to the comparable period
in 2000, and a net decrease of $0.8 million in billings in excess of costs and
estimated gross profit on uncompleted contracts.

The Company's cash used in or provided by investing activities consisted
principally of investments in property and equipment and the sale of
investments. During the three months ended March 31, 2001, investments totaling
$2.5 million were liquidated to fund the $2.1 million in operating losses for
the

                                       11
<PAGE>

quarter. This compares to a net increase in investments of $1.0 million for the
three months ended March 31, 2000. During each of the three month periods ended
March 31, 2000 and March 31, 2001, the Company invested a total of $0.2 million
in property and equipment. 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, 2001.

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 $22.1 million of net proceeds from its
initial public offering. The Company maintains a secured bank line of credit in
the amount of $1.5 million, of which the balance outstanding at March 31, 2001
was approximately $0.8 million. The line of credit bears interest at the bank's
prime rate per annum plus 1% (9.5% at March 31, 2001). Further, the bank's line
of credit requires the bank's written consent prior to, among other things, the
payment of cash dividends, the Company's engagement in a substantially different
business activity, or 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 2001.

The Company has entered into an Agreement and Plan of Merger with First American
and its wholly-owned subsidiary which substantially limits the Company's ability
to incur indebtedness without the consent of First American. In addition, the
Merger Agreement generally precludes the issuance of debt or equity securities
by the Company without the prior consent of First American.

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

In addition to the other information in this Report, the following factors
should be carefully considered in evaluating the Company and its business. The
risks and uncertainties described below are not the only ones facing the Company
and there may be additional risks that the Company does not presently know of or
that it currently deems immaterial. All of these risks and uncertainties could
cause actual results to differ materially from the results discussed in the
forward-looking statements contained in this Report. If any of the following
risks actually occur, the Company's business, financial condition, cash flow or
results of operations could be materially adversely affected. In such case, the
trading price of the Company's common stock could decline.

The Proposed Merger with First American May Not Be Completed. If the proposed
merger with First American is not completed for any reason, the Company may be
subject to a number of material risks, including the following:

  .   the price of the Company's common stock may decline to the extent that the
      current market price reflects a market assumption that the merger will be
      completed; and

  .   costs related to the merger, such as legal, accounting and financial
      advisor fees, must be paid even if the merger is not completed.

In addition, the Company's customers and suppliers, in response to the
announcement of the merger, may delay or defer decisions concerning the Company
or decide to terminate their relationships with the Company. Any delay or
deferral in those decisions or any decision to terminate such relationships by
the Company's customers or suppliers could have a material adverse effect on the
Company's business. Similarly, this could adversely affect the Company's ability
to attract and maintain key management, sales, marketing and technical
personnel.

Further, if the merger is terminated and the Company's Board of Directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to

                                       12
<PAGE>

pay an equivalent or more attractive price than the price to be paid in the
merger. In addition, during the period in which the merger agreement is in
effect, and subject to very narrowly-defined exceptions, the Company is
prohibited from soliciting, initiating, knowingly encouraging, endorsing or
entering into any competing transaction.

Uncertainty of Future Results of Operations; Fluctuations in Quarterly Results
of Operations. Prior growth rates in the Company's revenue and net income should
not be considered indicative of future results of operations. Future results of
operations will depend upon many factors, including market acceptance of new
services, such as the Company's CreditConnection, eValuate and CreditOnline
products and services, the demand for the Company's products and services, the
success of the Company's relationships with third party re-marketers of the
CreditConnection service and CreditOnline network, the successful transition
from predominantly license fee-based revenue to predominantly transaction fee-
based revenue, the timing of new product and service introductions and software
enhancements by the Company or its competitors, the level of product, service
and price competition, the length of the Company's sales cycle, the size and
timing of individual transactions, the delay or deferral of customer
implementations, the Company's success in expanding its customer support
organization, direct sales force and indirect distribution channels, the nature
and timing of significant marketing programs, the mix of products and services
sold, the timing of new hires, the ability of the Company to develop and market
new products and services and control costs, competitive conditions in the
industry and general economic conditions. In addition, the decision to implement
the Company's products or services typically involves a significant commitment
of customer resources and is subject to the budget cycles of the Company's
customers. Licenses of CreditRevue generally reflect a relatively high amount of
revenue per order. The Company typically enters into an initial contract with
each client for the purposes of developing an analysis of the customer's credit
operations and a functional specification for the customer's proposed
CreditRevue system. Following this initial contract phase, customers may elect
to not proceed with the CreditRevue license and system implementation. The loss,
cancellation or delay of individual orders, therefore, would have a significant
impact on the Company's revenue and quarterly results of operations. The timing
of revenue is difficult to predict because of the length and variability of the
Company's sales cycle, which has ranged to date from two to 18 months from
initial customer contact to the execution of a license agreement. In addition,
since a substantial portion of the Company's revenue is recognized on a
percentage-of-completion basis, the timing of revenue recognition for its
licenses may be materially and adversely affected by delays, deferrals or
cancellation of customer implementations. Such delays or deferrals may also
increase expenses associated with such implementations which would materially
and adversely affect related operating margins. The Company's operating expenses
are based in part on planned product and service introductions and anticipated
revenue trends and, because a high percentage of these expenses are relatively
fixed, a delay in the recognition of revenue from a limited number of
transactions could cause significant variations in operating results from
quarter-to-quarter and could result in operating losses. To the extent such
expenses precede, or are not subsequently followed by, increased revenues, the
Company's results of operations could 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 may 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 the Company's revenues through
March 31, 2001. Although the Company introduced its CreditConnection service in
the fourth quarter of 1996, its Dun & Bradstreet OneScore Service in the fourth
quarter of 1997, its CreditRevue Service Bureau in January 1998, and its
CreditOnline network in February 1999, the Company expects that revenues
generated from licenses and installations of CreditRevue will continue to
account for a significant portion of the Company's revenues for the foreseeable
future. The life cycles of the Company's products and services are difficult to
predict due to the effect of new product and service introductions or software
enhancements by the Company or its competitors, market acceptance of new and

                                       13
<PAGE>

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,
could have a material adverse effect on the Company's business, results of
operations and financial condition.

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

Market Acceptance of CreditOnline and CreditConnection; Transition to
Transaction-Based Revenue. The Company's CreditConnection service was
commercially introduced in 1996, and the Company's CreditOnline network was
introduced in February 1999. The CreditConnection service and CreditOnline
network are projected to account for a significant portion of the Company's
revenues in the future. As a result, demand and market acceptance for these
services are subject to a high level of uncertainty, and the Company will be
heavily dependent on their market acceptance. There can be no assurance that
these products and services will be commercially successful. The failure of the
Company to generate demand for the CreditConnection service or CreditOnline
network, or the occurrence of any significant technological problems with such
products or services, could have a material adverse effect on the Company's
business, results of operations and financial condition. Historically, the
majority 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 and the subsequent custom enhancements provided by the Company's
professional services staff. However, the Company anticipates that a significant
portion of the Company's future revenues will be derived from per-usage
transaction-based fees and subscription fees charged to credit originators and
financial institutions for transactions originated through the CreditConnection
service or CreditOnline network. There can be no assurance that the Company will
successfully manage the transition of a significant portion of its revenues from
license-based revenue to transaction-based revenue. The failure of the Company
to successfully manage the transition to a transaction-based revenue stream
would have a material adverse effect on the Company's business, results of
operations and financial condition.

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

                                       14
<PAGE>

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 companies that re-
market the CreditConnection service or CreditOnline network, and with Dun &
Bradstreet for the marketing of OneScore and Portfolio Monitoring. There can be
no assurance that these relationships will be successful. Moreover, there can be
no assurance that these companies will actively re-market the CreditConnection
service, CreditOnline network or OneScore or Portfolio Monitoring. The failure
by the Company to leverage and maintain its existing re-marketing 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.

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 56.6% and 55.1% of total revenues in 2000 and 1999, respectively.
One of the Company's customers individually accounted for 10% or more of total
revenues in 2000. None of the Company's customers individually accounted for 10%
or more of total revenues in 1999. The Company expects that a limited number of
customers will continue to account for a significant percentage of revenue for
the foreseeable future. The loss of any major customer or any reduction or delay
in orders by any such customer, delay or deferral in configurations or
enhancements by such customers or the failure of the Company to successfully
market its products or services to new customers, could have a material adverse
effect on the Company's business, results of operations and financial condition.

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

Management of Changing Business. The Company has experienced significant changes
in its business, such as changes in the Company's staff and an expansion in the
Company's customer base and the development of new products, services and
enhancements to its software, including the commercial release of
CreditConnection in 1996, Credit Revue Service Bureau in 1998 and the
CreditOnline network in 1999. Such changes have placed and may continue to place
a significant strain upon the Company's management, systems and resources. As of
March 31, 2001, the Company had 188 employees up from 180 employees at March 31,
2000. 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, or the Company's current management, will be able to manage such
changes successfully. The Company's

                                       15
<PAGE>

failure to do so could have a material adverse effect upon the Company's
business, results of operations and financial condition.

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

Rapid Technological Change; Risk Associated with New Products, Services or
Enhancements. The credit processing software products and services industry in
which the Company competes is characterized by rapid technological change,
frequent introductions of new products and services, changes in customer demands
and evolving industry standards. The introduction or announcement of new
products, services or enhancements by the Company or one or more of its
competitors embodying new technologies or changes in industry standards or
customer requirements could render the Company's existing products or services
obsolete or unmarketable. Accordingly, the life cycles of the Company's products
are difficult to estimate. The Company's future results of operations will
depend, in part, upon its ability to enhance its products and services and to
develop and introduce new products and services on a timely and cost-effective
basis that will keep pace with technological developments and evolving industry
standards, as well as address the increasingly sophisticated needs of the
Company's customers. There can be no assurance that these new products and
services will gain market acceptance or that the Company will be successful in
developing and marketing new products or services that respond to technological
change, evolving industry standards and changing customer requirements, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or
services, or that its new products or services will adequately meet the
requirements of the marketplace and achieve any significant degree of market
acceptance. In addition, a majority of the Company's current products operates
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 relocated
operations to new leased facilities in Annapolis Junction, MD in late 1998. The
new facilities, which include the Company's main data center, have become the
primary production center for the Company's data processing needs. The Company
currently does not have a separate back up facility to

                                       16
<PAGE>

mitigate certain substantial risks, including temporary interruptions resulting
from damage caused by any one or more of the foregoing factors or due to other
causes including computer viruses, hackers or similar disruptive problems. While
the Company maintains $1.6 million of property insurance coverage, business
interruption insurance coverage, $2.0 million of errors and omissions insurance
coverage and $10.0 million of umbrella insurance coverage, such insurance may
not be adequate to compensate the Company for all losses that may occur or to
provide for costs associated with system failure or business interruption. Any
damage or failure that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, results of operations
and financial condition.

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

Risk of Defects, Development Delays and Lack of Market Acceptance. Software
products and services as sophisticated as those offered by the Company often
encounter development delays and may contain defects or failures when introduced
or when new versions are released. The Company has in the past and may in the
future experience 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. The Company may continue
to experience development delays, resulting in delays in the commercial release
of new products and services, the loss of market share or the failure to achieve
market acceptance. Any such occurrence could have a material adverse effect upon
the Company's business, results of operations and financial condition.

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 2001. Thereafter, in the
event that the proposed merger with First American is not completed, 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.

                                       17
<PAGE>

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 may
not itself be directly subject to such regulations, the Company's products and
services must be designed to work within the extensive and evolving regulatory
constraints in which its customers operate. These constraints include federal
and state truth-in-lending disclosure rules, state usury laws, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act and the Community Reinvestment
Act. Furthermore, some consumer groups have expressed concern regarding the
privacy and security of automated credit processing, the use of automated credit
scoring tools in credit underwriting, and whether electronic lending is a
desirable technological development in light of the current level of consumer
debt. The failure by the Company's products and services to support customers'
compliance with current regulations and to address changes in customers' or the
Company's regulatory environments, or to adapt to such changes in an efficient
and cost-effective manner, could have a material adverse effect on the Company's
business, results of operations and financial condition.

Control by Existing Stockholders. Assuming no exercise of outstanding options,
James R. DeFrancesco, the Company's co-founder and Scott L. Freiman, the
Company's President and Chief Executive Officer collectively beneficially own
approximately 48% 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, including the vote on the Company's proposed merger with First
American. With regard to the vote on the First American merger, Messrs.
DeFrancesco and Freiman have executed Voting Agreements with respect to shares
representing, in the aggregate, approximately 48% of the outstanding shares of
Common Stock, pursuant to which they have agreed to vote for the merger. This
may prevent or discourage tender offers for the Company's Common Stock.

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. Furthermore, the price of the Company's Common Stock
may fluctuate as a result of fluctuations in the market price of First
American's Common Stock. In addition, the stock market in general has
experienced extreme price and volume fluctuations which have affected the market
price for many companies in industries similar or related to that of the Company
and which have been unrelated to the operating performance of these companies.
These market fluctuations may adversely affect the market price of the Company's
Common Stock.

Effect of Certain Charter Provisions; Anti-takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has the
authority to issue up to 1,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights of those shares without any further vote or action by the stockholders.
The Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to those of the Common Stock. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of making it more difficult
for a third-party to acquire a majority of the outstanding voting stock of the
Company. Further, certain provisions of the Company's Certificate of
Incorporation, including provisions that create a classified Board of Directors,
and certain provisions of the Company's Bylaws and of Delaware law could delay
or make more difficult a merger, tender offer or proxy contest involving the
Company. The Company currently has no plans to issue Preferred Stock, and the
Merger Agreement with First American substantially limits the Company's ability
to issue equity securities without the prior consent of First American.

                                       18
<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 2.  CHANGES IN SECURITIES

   None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

   None.

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

   None.

ITEM 5.  OTHER INFORMATION

   None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

   (a) EXHIBITS.

   2.1  Agreement and Plan of Merger by and among The First American
        Corporation, Rusti Corp. and the Company, dated as of January 30, 2001*.

   10.1 Form of Voting Agreement, dated as of January 30, 2001, by and among
        The First American Corporation and certain stockholders of the Company.*

   10.2 Amendment, dated January 15, 2001, to Consulting Agreement between
        Businessliner, Inc. and the Company**.

   *    Incorporated by reference to exhibits filed with the Company's Current
        Report on Form 8-K filed on February 2, 2001.

   **   Incorporated by reference to exhibits filed with the Company's Annual
        Report on Form 10-K for the fiscal year ended December 31, 2000.

  (b) REPORTS ON FORM 8-K.

  On February 2, 2001, the Company filed a Current Report on Form 8-K reporting
that it had entered into an Agreement and Plan of Merger with First American and
Rusti Corp.

  On March 8, 2001, the Company filed a Current Report on Form 8-K reporting
that it had issued a press release announcing (1) the Company's financial
results for the fiscal year ended December 31, 2000, and (2) that Miles Grody
had resigned from the Company's Board of Directors and departed from his
positions as President of the Company's CMSI Systems, Inc. subsidiary and a
Senior Vice President of the Company.

                                       19
<PAGE>

                                   SIGNATURES

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

                                 CREDIT MANAGEMENT SOLUTIONS, INC.
                                            (Registrant)

            Date: May 14, 2001   By: /s/ Scott L. Freiman
                                 -----------------------------------
                                 Scott L. Freiman
                                 President, Chief Executive Officer
                                 and Director
                                 (Principal Executive Officer)


            Date: May 14, 2001   By: /s/ Robert P. Vollono
                                 -----------------------------------
                                 Robert P. Vollono
                                 Senior Vice President, Treasurer, Chief
                                 Financial Officer and Director (Principal
                                 Financial and Accounting Officer)

                                       20
<PAGE>

                                 EXHIBIT INDEX


   2.1    Agreement and Plan of Merger by and among The First American
          Corporation, Rusti Corp. and the Company, dated as of January 30,
          2001*.

   10.1   Form of Voting Agreement, dated as of January 30, 2001, by and among
          The First American Corporation and certain stockholders of the
          Company.*

   10.2   Amendment, dated January 15, 2001, to Consulting Agreement between
          Businessliner, Inc. and the Company**.

   *      Incorporated by reference to exhibits filed with the Company's Current
          Report on Form 8-K filed on February 2, 2001.

   **     Incorporated by reference to exhibits filed with the Company's Annual
          Report on Form 10-K for the fiscal year ended December 31, 2000.

                                      21