SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-QSB



X     Quarterly  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
      Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 No: 00-113959

                                CPS SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

                TEXAS                                      75-1607857
    (STATE OR OTHER JURISDICTION OF      (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)

                           3400 CARLISLE, SUITE 500
                            DALLAS, TEXAS 75204
                                 (214) 855-5277

       (Address, including zip code, and telephone number, including area
               code, of Registrant's principal executive offices)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

                  CLASS                     OUTSTANDING AS OF  NOVEMBER 12, 1999
                  -----                     ------------------------------------
             Common stock
         Par value $.01 per share                        6,777,685


                                        1
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                        CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                      CONDENSED CONSOLIDATED BALANCE SHEETS

           (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                                           As of        As of
                                                       Sept 30, 1999  Dec 31, 1998
                                                         (unaudited)
<S>                                                        <C>         <C>
ASSETS
CURRENT ASSETS
     Cash ..............................................   $     48    $    296
     Accounts receivable ...............................      1,624       2,852
     Deferred income tax ...............................      1,967         907
     Inventory .........................................        135         201
     Refundable income taxes ...........................         89         267
     Prepaid expense and other current assets ..........        381         564
                                                           --------    --------
                 Total current assets: .................      4,244       5,087
PROPERTY AND EQUIPMENT .................................        719         790
SOFTWARE DEVELOPMENT COST ..............................      6,797       4,167
OTHER ASSETS
     Costs in excess of net assets acquired ............      1,412       1,623
     Debt issue costs ..................................         17          79
     Other assets ......................................         27          29
                                                           --------    --------
                                                              1,456       1,731
                                                           --------    --------
                                                           $ 13,216    $ 11,775
                                                           ========    ========
LIABILITIES  AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
     Current portion of long term debt .................   $  1,050    $  1,050
     Accounts payable - Trade ..........................      2,476       1,066
     Note payable ......................................      1,200        --
     Note payable - Related parties ....................        722        --
     Accrued income tax payable ........................         35        --
     Other accrued expenses ............................        702         437
     Customer deposits and unearned revenue ............      4,049       4,013
                                                           --------    --------
                 Total current liabilities: ............     10,234       6,566
OTHER LIABILITIES
     Long-term debt ....................................      1,035       1,023
     Unearned revenue ..................................         14          14
     Other liabilities .................................       --          --
                                                           --------    --------
                 Total long term debt: .................      1,049       1,037
                                                           --------    --------
                 Total Liabilities: ....................     11,283       7,603

COMMITMENTS AND CONTINGENCIES ..........................       --          --
SHAREHOLDERS' EQUITY
     Preferred stock, $.01 par value; authorized
        10,000,000 shares, none issued and outstanding .       --          --
     Common stock, $.01 par value, 50,000,000 shares
        authorized; 6,765,337 shares issued in 1999
        and 6,734,928 shares issued in 1998 ............         68          67
     Additional paid-in capital ........................      6,831       6,805
     Accumulated deficit ...............................     (4,966)     (2,700)
                                                           --------    --------
                 Total Shareholders' Equity: ...........      1,933       4,172
                                                           --------    --------
                                                           $ 13,216    $ 11,775
                                                           ========    ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.

                                       2
<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

             (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                     (UNAUDITED)

                                              THREE MONTHS ENDED SEPT 30,  NINE MONTHS ENDED SEPT 30,
                                                       1999       1998       1999       1998
                                                       ----       ----       ----       ----
<S>                                                 <C>        <C>        <C>        <C>
Revenue
           License fees .........................   $   165    $   327    $ 1,013    $   927
           Recurring maintenance and service fees   $   946    $ 1,136    $ 2,954    $ 3,265
           Product sales ........................   $   149    $   642    $   804    $ 2,041
           Other service fees ...................   $   119    $   356    $   339    $   908
                                                    ------------------    ------------------
                                                    $ 1,379    $ 2,461    $ 5,110    $ 7,141

Cost of Revenue
           Product sales ........................   $   102    $   476    $   614    $ 1,609
           Purchased software ...................   $   152    $   309    $   685    $   684
           Distribution .........................   $     1    $    10    $     9    $    17
                                                    ------------------    ------------------
                                                    $   255    $   795    $ 1,308    $ 2,310
                                                    ------------------    ------------------

                Gross profit ....................   $ 1,124    $ 1,666    $ 3,802    $ 4,831

Operating Expenses:
           Support and customer service .........   $ 1,100    $ 1,018    $ 3,276    $ 2,940
           Selling and marketing ................   $   249    $   593    $   741    $ 1,631
           Research and development .............   $   402    $     7    $   880    $   273
           General and administrative ...........   $   521    $   492    $ 1,673    $ 1,260
           Amortization of intangible goodwill ..   $    70    $    70    $   210    $   211
                                                    ------------------    ------------------
                                                    $ 2,342    $ 2,180    $ 6,780    $ 6,315

                Loss from operations ............   ($1,218)   ($  514)   ($2,978)   ($1,484)
                                                    ------------------    ------------------

Interest and financing costs ....................   $   125    $    54    $   322    $   387
                                                    ------------------    ------------------
                Loss before income taxes ........   ($1,343)   ($  568)   ($3,300)   ($1,871)

Income tax benefit ..............................   ($  403)   ($  191)   ($1,036)   ($  643)
                                                    ------------------    ------------------
                Net loss ........................   ($  940)   ($  377)   ($2,264)   ($1,228)
                                                    ==================    ==================


Net loss per common share
     Basic and Diluted ..........................   ($ 0.14)   ($ 0.06)   ($ 0.34)   ($ 0.21)
Weighted average shares used in computing net
loss per common share:
     Basic and Diluted ..........................     6,764      6,733      6,754      5,790
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        3
<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


                                                                             NINE MONTHS ENDED SEPT 30,
                                                                                  1999       1998
                                                                             --------------------------
<S>                                                                             <C>        <C>
Cash flows from operating activities:
     Net loss ...............................................................   $(2,266)   $(1,229)
     Adjustments to reconcile net loss to net cash provided
     by (used in) operating activities:
        Depreciation and amortization .......................................       577        555
        Adjustment to put warrants ..........................................        --        125
        Loss on disposal of property and equipment ..........................         7          1
        Accrued interest to shareholders ....................................        --          2
        Changes in assets and liabilities, net of business acquired:
            Accounts receivable .............................................     1,228     (2,415)
            Refundable income taxes .........................................       178       (125)
            Inventories .....................................................        66         12
            Deferred income tax expense .....................................    (1,060)      (912)
            Prepaid expenses and other current assets .......................       179       (556)
            Accounts payable ................................................     1,945       (151)
            Accrued expenses ................................................       283        347
            Customer deposits and unearned revenue ..........................        36      3,354
            Income taxes payable ............................................        35         37
            Other liabilities ...............................................        --          9
                                                                                ------------------
                          Net cash provided by (used in) operating activities   $ 1,208    $  (947)

Cash Flows from investing activities:
     Purchase of property and equipment .....................................      (124)      (416)
     Software development costs .............................................    (2,746)    (2,318)
                                                                                ------------------
                          Net cash used in investing activities .............   $(2,870)   $(2,734)

Cash flows from financing activities:
     Principal payment on long-term debt ....................................        --       (855)
     Proceeds from notes payable - Tyler Corporation ........................     1,000         --
     Proceeds from notes payable - Tyler Corporation ........................       200
     Proceeds from notes payable - Director's ...............................       187
     Proceeds from employee stock purchase plan .............................        27         --
     Proceeds from public offering, net of offering cost ....................        --      5,768
                                                                                ------------------
                          Net cash provided by financing activities .........   $ 1,414    $ 4,913

Net increase(decrease) in cash ..............................................      (248)     1,234
Cash at beginning of period .................................................       296        327
                                                                                ------------------
Cash at end of period .......................................................   $    48    $ 1,561

Supplementary Cash Flow Disclosure:
     Interest and financing costs paid ......................................   $    63    $   198
     Income taxes paid (refunded), net ......................................   $  (180)   $   200
</TABLE>
        The accompanying notes are an integral part of these statements.

                                        4
<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY
                 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1999



        (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


NOTE A - BASIS OF PRESENTATION

The interim condensed  consolidated  financial  statements  included herein have
been  prepared  by the  Company  without  audit.  These  statements  reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the  consolidated   financial  position  as  of  September  30,  1999,  and  the
consolidated  results of  operation  for the three  months and nine months ended
September  30, 1999 and 1998.  All such  adjustments  are of a normal  recurring
nature.  Certain  information  and  footnote  disclosures  normally  included in
financial  statements  prepared in accordance with generally accepted accounting
principles  have been  condensed  or  omitted.  The  Company  believes  that the
disclosures are adequate to make the information presented not misleading. It is
suggested  that these  consolidated  financial  statements  and notes be read in
conjunction with the audited consolidated financial statements and notes for the
year ended December 31, 1998, included in the Company's Form 10-K filed with the
Securities and Exchange Commission on April 15, 1999.

NOTE B - REVENUE RECOGNITION

The Company  licenses  its  software  products.  Pursuant to AICPA  Statement of
Position 97-2,  "Software  Revenue  Recognition",  revenue from software license
fees is  recognized  when an  agreement  has been  executed,  software  has been
delivered and installed,  all significant  contractual obligations have been met
and  collection of the related  receivable is probable.  Post contract  customer
support  revenue,   consisting  of  continuing  maintenance  and  service  fees,
including  that bundled with initial  license fees,  is deferred and  recognized
ratably over the contractual  periods the services are provided.  Product sales,
consisting  primarily of computer hardware,  are recognized upon delivery of the
product.

NOTE C - SENIOR TERM LOAN

On December  31, 1999,  the current  portion,  approximately  $1,100 of a $2,100
senior note payable to Hanifen Imhoff  Mezzanine Fund, L.P. (the "Hanifen Loan")
becomes due. As of December  31, 1998,  the Company was in violation of the note
agreement  with Hanifen Imhoff  Mezzanine  Fund,  L.P.,  relating to the Hanifen
Loan. The violation pertains to the ratio of cash flow to total contractual debt
service.  Hanifen Imhoff  Mezzanine  Fund, L.P has waived through  September 30,
1999  compliance  with this ratio.  As of  September  30, 1999 the Company is in
violation  of the loan  agreement's  covenant  ratios.  Since July 1, 1999,  the
Company is also in default of the note  agreement  for failure to make  interest
payments of $63, due June 30 and September 30, 1999.

NOTE D - MERGER AGREEMENT AND TERM LOAN

On March 30, 1999,  the Company  executed an  Agreement  and Plan of Merger (the
"Merger   Agreement")  with  Tyler   Technologies   (formerly  known  as  "Tyler
Corporation"  and  referred to  hereinafter  as  "Tyler")  pursuant to which the
Company would merge with and into a wholly owned  subsidiary  of Tyler.  Also on
March 30,  1999,  Tyler  loaned  $1,000 to the  Company,  evidenced by a secured
promissory  note.  On June 3, 1999,  the Company  received  notice from Tyler of
termination of the Merger  Agreement.  On August 23, 1999,  Tyler loaned $200 to
the Company, also evidenced by a secured promissory note (the March 30, 1999 and
August  23,  1999  loans  collectively  referred  to  hereinafter  as the "Tyler
Loans").  The Tyler Loans,  bearing interest at a rate of 2% over the prime rate
due June 30, 1999 and October 30, 1999,  were due on October 30, 1999.  The note
is secured by a lien on the Company's assets, subordinate to the Hanifen Loan.

                                        5

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY
                               SEPTEMBER 30, 1999


As of  September  30,  1999,  the  Company is in default of the Tyler  Loans for
non-payment  of the interest  due on June 30,  1999.  As of October 30, 1999 the
Company is also in default for non-payment of the entire  principal  balance and
accrued interest due on October 30, 1999.

NOTE E - TERM LOAN

On July 13, 1999,  the Company  received a loan of $147 from its Chairman of the
Board and C.E.O.,  Paul E. Kana.  Also,  on July 30,  1999  Sidney H.  Cordier a
member of the Company's  Board of Directors  loaned the Company $40. Both loans,
subordinate  to the Hanifen  Loan and Tyler  Loans,  were  evidenced  by secured
promissory notes that have an interest rate of 2% over the prime rate.  Interest
payments are due  September  30,  1999,  and the entire  principal  with accrued
interest is then due on December 31, 1999.  As of September 30, 1999 the Company
is in violation  for  non-payment  of the accrued  interest due on September 30,
1999.

On August 25, 1999, the Company  converted $535 of accounts  payable and accrued
expenses owed to Schreeder, Wheeler & Flint, LLP, into a secured promissory note
(the  "Schreeder  Loan").  Schreeder,  Wheeler  & Flint is the  Company's  legal
counsel.  The Schreeder  Loan has an interest  rate of 8%. The entire  principal
balance and accrued  interest is due on August 1, 2000. The note is secured by a
lien on the Company's assets, subordinate to the Hanifen Loan and Tyler Loans.

NOTE F - MAJOR VENDOR

The Company currently employs a contractor, Majesco Software, Inc., to assist in
the development of certain Company software  projects.  The outstanding  balance
owed in accounts payable and other accrued expenses is $1,814. The payment terms
are net 90 days.  The  Company  is in  violation  due to  delinquent  payment of
invoices.  As of September 30, 1999, the amount owed over 90 days is $1,177. The
Company  has agreed to make  weekly  payments  to Majesco  Software  so that the
outstanding  balance  does not increase as new  invoices  are  received.  If the
Company  did not meet  this  obligation  then  the  contractor  may not  provide
services.  As of  September  30,  1999 the  contractor  has 12  on-shore  and 10
off-shore employees working on certain software projects. If the contractor were
to halt services, completion of the software projects would be delayed.

NOTE G - CUSTOMER DEPOSIT AND UNEARNED REVENUE

On June 1, 1999, the Company and Hillsborough County ("Hillsborough")  reached a
mutual  agreement  to  terminate  the contract  dated  February  26, 1998.  This
contract was to have the Company install its Collection product for licensed use
by Hillsborough.  The Company retained the $274 Hillsborough paid to the Company
pursuant  to the  terms of the  contract.  However,  in the  event  Hillsborough
purchases the Collection  product from the Company prior to January 1, 2001, the
Company  will credit  Hillsborough  with $266 against the payment of the license
fee for the newly purchased software.  The $274 is recorded as a liability under
customer deposits and unearned revenue.

NOTE H - BACKLOG

As  of  September  30,  1999,  the  Company  has a  backlog  of  five  contracts
representing  approximately $3,100 in initial license fees and $1,000 in average
annual recurring maintenance revenue. These five contracts are for the Company's
property tax billing and collection  product  ("Collection"),  computer-assisted
mass appraisal ("CAMA") and interactive voice response system ("IVR").

                                        6
<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY
                               SEPTEMBER 30, 1999


One of  the  backlog  contracts  has a  clause  in the  contract  providing  for
liquidated damages under limited circumstances. Circumstances triggering damages
include failure to complete  installation of the CAMA and Collection products by
January 1, 1999 and March 1, 1999,  respectively.  Liquidated damages accumulate
until live production of the systems.  As of September 30, 1999, the Company may
be subject to a potential liquidated damages claim of approximately  $2,249. The
Company does not believe it is subject to the claim for liquidated damages.


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

             (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

This  section  of the  Report  contains  forward-looking  statements  within the
meaning of Section  21E of the  Securities  Exchange  Act of 1934,  as  amended.
Actual results for future periods could differ  materially  from those discussed
in this  section as a result of the various  risks and  uncertainties  discussed
herein. A comprehensive  summary of such risks and uncertainties can be found in
the Company's  filings with the Securities and Exchange  Commission from time to
time,  including  the  Company's  annual report on Form 10-K for the fiscal year
ended  December 31, 1998 filed with the  Securities  and Exchange  Commission on
April 15, 1999. All dollar amounts are expressed in thousands,  except per share
amounts. The financials results reflected in this Item 2 are unaudited.


                                        7

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999

RESULTS OF OPERATIONS

The following  table sets forth,  for the periods  indicated,  the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED SEPT 30,   NINE MONTHS ENDED SEPT 30,
                                                       1999      1998      1999      1998
                                                       ----      ----      ----      ----
<S>                                                    <C>       <C>       <C>       <C>
Revenue
           License fees .........................      12.0%     13.2%     19.8%     13.0%
           Recurring maintenance and service fees      68.6%     46.2%     57.8%     45.7%
           Product sales ........................      10.8%     26.1%     15.7%     28.6%
           Other service fees ...................       8.6%     14.5%      6.7%     12.7%
                                                      -----     -----     -----     -----
                Total Revenue ...................     100.0%    100.0%    100.0%    100.0%
                                                      -----     -----     -----     -----

Cost of Revenue
           Product sales ........................       7.4%     19.3%     12.0%     22.5%
           Purchased software ...................      11.0%     12.6%     13.4%      9.6%
           Distribution .........................       0.1%      0.4%      0.2%      0.2%
                                                      -----     -----     -----     -----
                Total Cost of Sales .............      18.5%     32.3%     25.6%     32.3%
                                                      -----     -----     -----     -----

                Gross profit ....................      81.5%     67.7%     74.4%     67.7%

Operating Expenses:
           Support and customer service .........      79.8%     41.4%     64.1%     41.2%
           Selling and marketing ................      18.1%     24.1%     14.5%     22.8%
           Research and development .............      29.2%      0.3%     17.2%      3.8%
           General and administrative ...........      37.8%     20.0%     32.7%     17.6%
           Amortization of intangible goodwill ..       5.1%      2.8%      4.1%      3.0%
                                                      -----     -----     -----     -----

                 Total Operating Expense ........     170.0%     88.6%    132.6%     88.4%
                                                      -----     -----     -----     -----

                 Loss from operations ...........     (88.5)%   (20.9)%   (58.2)%   (20.7)%

Interest and financing costs ....................       9.1%      2.2%      6.3%      5.4%
                                                      -----     -----     -----     -----
                 Loss before income taxes .......     (97.6)%   (23.1)%   (64.5)%   (26.1)%

Income tax benefit ..............................     (29.2)%    (7.8)%   (20.3)%    (9.0)%
                                                      -----     -----     -----     -----
                 Net loss .......................     (68.4)%   (15.3)%   (44.2)%   (17.1)%
                                                      -----     -----     -----     -----
</TABLE>


                                        8

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998

REVENUE

The Company's  revenue includes revenue of license fees,  recurring  maintenance
and service fees,  product sales,  and other service fees.  The Company's  total
revenue was $1,379 for the three months  ended  September  30, 1999  compared to
$2,461 for the three  months ended  September  30, 1998, a decrease of $1,082 or
44.0%.  This decrease was  primarily due to a decrease in remittance  processing
("RPS")  hardware,  software and  installation  sales.  To a lesser extent,  the
decrease was attributed to a decline in sales from the hardware parts and repair
("Systems  Engineering")  group.  Due to  diminishing  returns  in a low  margin
hardware  intensive  environment  and  increasing  cost of third party  software
installations,   the  Company  reached  a  decision  during  November  1999,  to
discontinue the RPS product line.

 License Fees.  The  Company's  revenue from license fees was $165 for the three
months  ended  September  30, 1999  compared to $327 for the three  months ended
September 30, 1998, a decrease of $162 or 49.5%.  The decrease was primarily due
to a  decrease  in RPS third  party  software  sales.  To a lesser  extent,  the
decrease was attributed to a decline in IVR sales.  The Company  currently has a
backlog of five contracts  representing  approximately $3,100 in initial license
fees.

 Recurring  Maintenance  and Service Fees. The Company's  revenue from recurring
fees was $946 for the three months ended  September  30, 1999 compared to $1,136
for the three months ended September 30, 1998, a decrease of $190 or 16.7%.  The
decrease  was  primarily  due to a decline in  hardware  and city and  municipal
software ("City")  maintenance.  The hardware  maintenance decline is associated
with hardware manufacturers offering longer extended warranties, declining costs
of hardware, reduction of contracts and the Company's belief that some customers
no  longer  view  hardware  maintenance  as a  mission  critical  need  for  all
components.  The decline of City maintenance  (approximately  $43) is due to the
reduction  of City  contracts.  The  Company  currently  has a  backlog  of five
contracts   representing   approximately  $1,000  in  average  annual  recurring
maintenance revenue.

 Product  Sales.  Revenue from product sales was $149 for the three months ended
September  30, 1999  compared to $642 for the three months ended  September  30,
1998, a decrease of $493 or 76.8%.  This decrease is primarily due to a decrease
in RPS product  sales and,  to a lesser  extent,  product  sales for the Systems
Engineering group.

Other  Service  Fees.  Revenue  from other  service  fees was $119 for the three
months  ended  September  30, 1999  compared to $356 for the three  months ended
September 30, 1998, a decrease of $237 or 66.6%. This decrease was primarily due
to decreased RPS installation sales.

COST OF REVENUE

The Company's cost of revenue  includes the cost of hardware  product sales, the
cost of  purchased  software,  amortization  of  software  development  cost and
distribution  costs.  The total  cost of revenue  was $255 for the three  months
ended  September 30, 1999 compared to $795 for the three months ended  September
30,  1998, a decrease of $540 or 67.9%.  This  yielded a gross profit  margin of
81.5% for the three months ended  September  30, 1999 compared to a gross profit
margin of 67.7% for the three months ended  September 30, 1998.  The decrease in
total cost of revenue was  primarily  associated  with a decrease in the revenue
from product sales.  This decrease was partially  offset by additional  costs in
1999 to resolve RPS third-party software issues for existing customers.

                                        9

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


Product  Sales.  The cost of product sales was $102, or  approximately  68.5% of
product sales,  for the three months ended  September 30, 1999 compared to $476,
or  approximately  74.1% of product sales,  for the three months ended September
30, 1998, a decrease of $374 or 78.6%.  This  decrease  was  primarily  due to a
decrease in product sales revenue of 76.8% for the three months ended  September
30, 1999 compared to the three months ended September 30, 1998.

Software.   Cost  of  software  includes  purchased  software  as  well  as  the
amortization of capitalized software development costs. The cost of software was
$152 or  approximately  92.1%  of  license  fees,  for the  three  months  ended
September 30, 1999 compared to $309, or approximately 94.5% of license fees, for
the three months  ended  September  30, 1998, a decrease of $157 or 50.8%.  This
decrease was primarily due to the decrease of cost  associated with the decrease
in installation of new RPS software.  Amortization of software  development cost
was $41 for the three  months  ended  September  30,  1999 and $33 for the three
months ended September 30, 1998.

Distribution.  The  costs  associated  with  distribution  were $1 for the three
months  ended  September  30, 1999  compared to $10 for the three  months  ended
September 30, 1998.

OPERATING EXPENSES

The Company's operating expenses includes support and customer service,  selling
and  marketing,  research  and  development,  general  and  administrative,  and
amortization of intangible goodwill.

 Support and Customer Service.  Expenses related to support and customer service
were $1,100 for the three months ended September 30, 1999 compared to $1,018 for
the three  months ended  September  30,  1998,  an increase of $82 or 8.1%.  The
increase resulted from movement of personnel from the capitalization projects to
support and customer service expensed  assignments.  This increase was partially
offset by a decrease in salaries of 7.0% for three  months ended  September  30,
1999 compared to the three months ended September 30, 1998.

Selling and Marketing.  The Company's  selling and marketing  expenses were $249
for the three months  ended  September  30, 1999  compared to $593 for the three
months ended September 30, 1998, a decrease of $344 or 58.0%.  This decrease was
due to a decrease in the numbers of sales and  marketing  personnel and expenses
related to developing new markets.

 Research and Development.  Research and development  expenses were $402 for the
three months ended  September 30, 1999 compared to $7 for the three months ended
September  30,  1998,  an  increase  of $395 or  5,642.9%.  These  expenses  are
comprised  primarily of salaries as well as amounts paid to outside  consultants
to supplement  continuing product  enhancement  efforts.  The increase primarily
resulted from movement of personnel from the capitalization projects to research
and  development  expensed  assignments  and to a lesser  extent an  increase in
salaries and travel expenses.

 General and Administrative.  General and administrative  expenses were $521 for
the three months ended  September 30, 1999 compared to $492 for the three months
ended  September  30,  1998,  an  increase  of $29 or 5.9%.  This  increase  was
primarily due to an increase in legal expenses  related to claims arising out of
the  Company's   operations,   claims  arising  out  of  an  alleged  breach  of
non-competition  agreements by Company  employees,  and claims filed against the
Company  alleging  securities  violations.  This  increase in legal  expense was
partially offset by a decrease in traveling expenses.

                                       10

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


Amortization of Goodwill. The Company incurred a non-cash expense related to the
1994 acquisition of the Company by a private investor group of $70 for the three
months  ended  September  30, 1999  compared to $70 for the three  months  ended
September 30, 1998.

EARNINGS FROM OPERATIONS

Loss from  operations  was $1,218 or (88.5%) of  revenue,  for the three  months
ended September 30, 1999,  compared to a loss from operations of $514 or (20.9%)
for the three months ended  September  30, 1998.  This decrease in earnings from
operations of $704 was primarily due to a decrease of 44.0% in total revenue for
the three months  ended  September  30, 1999  compared to the three months ended
September  30,  1998 and to an increase  in  operating  expenses of 7.4% for the
three  months  ended  September  30,  1999  compared to the three  months  ended
September 30, 1998.

NON-OPERATING EXPENSES

Interest and Financing Costs. The Company's  interest expense and financing cost
was $125 for the three months ended  September  30, 1999 compared to $54 for the
three  months  ended  September  30,  1998,  an increase of $71 or 131.5%.  This

increase was primarily attributed to interest expense accrued on the Tyler Loans
for the three months ended  September 30, 1999 and earned  interest  income from
short term investments for the three months ended September 30, 1998.


COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998


REVENUE

The Company's  revenue includes revenue of license fees,  recurring  maintenance
and service fees,  product sales,  and other service fees.  The Company's  total
revenue  was $5,110 for the nine months  ended  September  30, 1999  compared to
$7,141 for the nine months  ended  September  30,  1998, a decrease of $2,031 or
28.4%.  This decrease was primarily due to a decrease in RPS hardware,  software
and  installation  sales  and to a lesser  extent a  decrease  in sales  for the
Systems  Engineering group. Due to diminishing  returns in a low margin hardware
intensive environment and increasing cost of third party software installations,
the Company  reached a decision  during  November 1999, to  discontinue  the RPS
product line.

License Fees.  The  Company's  revenue from license fees was $1,013 for the nine
months  September 30, 1999 compared to $927 for the nine months ended  September
30,  1998,  an increase of $86 or 9.3%.  The increase  was  primarily  due to an
increase in new Collection installations. This increase, to a lesser extent, was
partially offset by a decrease in RPS third party license fee sales. The Company
currently has a backlog of five contracts  representing  approximately $3,100 in
initial license fees.

Recurring  Maintenance  and Service Fees.  The Company's  revenue from recurring
fees was $2,954 for the nine months ended  September 30, 1999 compared to $3,265
for the nine months ended  September  30, 1998, a decrease of $311 or 9.5%.  The
decrease was primarily due to a decline in hardware  maintenance and to a lesser
extent a decline in City software maintenance.  The hardware maintenance decline
is associated with hardware  manufacturers  offering longer extended warranties,
declining  costs of hardware,  reduction of contracts and the  Company's  belief
that some customers no longer view hardware  maintenance  as a mission  critical
need for all components.  The decline of City maintenance (approximately $64) is
due to the reduction of City contracts.  The Company  currently has a backlog of
five contracts  representing  approximately  $1,000 in average annual  recurring
maintenance revenue.
                                       11

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


Product  Sales.  Revenue from  product  sales was $804 for the nine months ended
September  30, 1999  compared to $2,041 for the nine months ended  September 30,
1998, a decrease of 1,237 or 60.6%. This decrease is primarily due to a decrease
in RPS product  sales and to a lesser  extent a decrease in  Collection  product
sales.

Other Service Fees. Revenue from other service fees was $339 for the nine months
ended  September 30, 1999  compared to $908 for the nine months ended  September
30,  1998,  a decrease of $569 or 62.7%.  This  decrease  was  primarily  due to
decreased RPS installation sales.

COST OF REVENUE

The Company's cost of revenue  includes the cost of hardware  product sales, the
cost of  purchased  software,  amortization  of  software  development  cost and
distribution  costs.  The total cost of revenue  was $1,308 for the nine  months
ended  September 30, 1999 compared to $2,310 for the nine months ended September
30, 1998, a decrease of $1,002 or 43.4%.  This yielded a gross profit  margin of
74.4% for the nine months ended  September  30, 1999  compared to a gross profit
margin of 67.7% for the nine months ended  September 30, 1998.  This decrease in
cost of revenue was primarily attributed to a decrease in product sales of 60.6%
for the nine months ended  September  30, 1999 compared to the nine months ended
September 30, 1998.

Product  Sales.  The cost of product sales was $614, or  approximately  76.4% of
product sales,  for the nine months ended September 30, 1999 compared to $1,609,
or approximately 78.8% of product sales, for the nine months ended September 30,
1998,  a decrease of $995 or 61.8%.  This  decrease was  primarily  due to costs
associated  with a decrease in sales of hardware for RPS and to a lesser  extent
Collection.

Purchased Software.  Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software was
$685,  or  approximately  67.6%  of  license  fees,  for the nine  months  ended
September 30, 1999 compared to $684, or approximately 73.8% of license fees, for
the  nine  months  ended  September  30,  1998,  an  increase  of  $1  or  0.1%.
Amortization  of software  development  cost was $112 for the nine months  ended
September 30, 1999 and $100 for the nine months ended September 30, 1998.

Distribution. The costs associated with distribution were $9 for the nine months
ended September 30, 1999 compared to $17 for the nine months ended September 30,
1998, a decrease of $8 or 47.1%.

OPERATING EXPENSES

The Company's operating expenses includes support and customer service,  selling
and  marketing,  research  and  development,  general  and  administrative,  and
amortization of intangible goodwill & non-compete agreements.

Support and Customer  Service.  Expenses related to support and customer service
were $3,276 for the nine months ended  September 30, 1999 compared to $2,940 for
the nine month  ended,  September  30, 1998,  an increase of $336 or 11.4%.  The
primary increase was due to increases in salaries and hiring to enhance customer
service.  To a lesser extent the increase is associated  with  increased  rental
expense due to the opening of the  California  office on August 01, 1998 and the
move of the  Florida  office to a new  location  on May 15,  1998.  Also  travel
expense  have  increased  12.1% for the nine  months  ended  September  30, 1999
compared to the nine months ended September 30, 1998.

Selling and Marketing.  The Company's  selling and marketing  expenses were $741
for the nine months  ended  September  30, 1999  compared to $1,631 for the nine
months ended September 30, 1998, an decrease of $890 or 54.6%. This decrease was
due to a decrease in the numbers of sales and  marketing  personnel and expenses
related to developing new markets.

                                       12

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


Research and  Development.  Research and development  expenses were $880 for the
nine months ended  September 30, 1999 compared to $273 for the nine months ended
September 30, 1998, an increase of $607 or 222.3%.  These expenses are comprised
primarily  of  salaries  as  well as  amounts  paid to  outside  consultants  to
supplement  continuing product enhancement efforts. The primary increase was due
to increases in salaries and hiring to enhance  customer service and to a lesser
extent the movement of personnel  from the  capitalization  projects to research
and development expensed assignments.

General and Administrative.  General and administrative expenses were $1,673 for
the nine months ended  September 30, 1999 compared to $1,260 for the nine months
ended  September  30,  1998,  an increase of $413 or 32.8%.  This  increase  was
primarily due to an increase in legal expenses  related to claims arising out of
the  Company's   operations,   claims  arising  out  of  an  alleged  breach  of
non-competition  agreements by Company  employees,  and claims filed against the
Company alleging securities violations.

Amortization  of Goodwill and  Non-compete  Agreements.  The Company  incurred a
non-cash  expense  related to the 1994  acquisition  of the Company by a private
investor group of $210 for the nine months ended  September 30, 1999 compared to
$211 for the nine months ended  September 30, 1998, a decrease of  approximately
$1 or 0.5%.

EARNINGS FROM OPERATIONS

Earnings  from  operations  was a loss of $2,978 or (58.2%) of revenue,  for the
nine months ended September 30, 1999,  compared to a loss of $1,484,  or (20.7%)
of revenue,  for the nine months  ended  September  30, 1998.  This  decrease in
earnings from operations of $1,494 was primarily due to the decrease of sales in
the RPS group  coupled with  increased  cost in 1999 to correct RPS  third-party
software  issues for  existing  customers.  To a lesser  extent the  decrease is
attributed to a 9.5% decrease in recurring  maintenance and service fees revenue
and a 7.4%  increase in operating  expenses for the nine months ended  September
30, 1999 compared to September 30, 1998.

NON-OPERATING EXPENSES

Interest and Financing Costs. The Company's  interest expense and financing cost
was $322 for the nine months ended  September  30, 1999 compared to $387 for the
nine months ended September 30, 1998, an decrease of $65 or 16.8%. This decrease
was  primarily  attributed  to a put warrant  adjustment of $131 made during the
nine months ended  September 30, 1998.  This  decrease was  partially  offset by
interest expense accrued on the Tyler Loans in 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  cash  balances were $48 and $1,561 as of September 30, 1999,  and
September 30, 1998,  respectively.  The Company's operating  activities provided
cash of $1,208 and used cash of $947 during the nine months ended  September 30,
1999 and September 30, 1998,  respectively.  The Company's source of cash during
the nine  months  ended  September  30,  1999 was  primarily  attributable  to a
reduction in accounts  receivable of $1,228 and an increase to accounts  payable
of $1,945.  These  increases  to cash were offset by a decrease to net income of
$2,266 and an increase in deferred income tax of $1,060.

The Company used cash of $2,870 and $2,734 for investing  activities  during the
nine months ended  September  30, 1999 and  September  30,  1998,  respectively.
Investing  activities have consisted  principally of the acquisition of property
and  equipment  and  capitalized  software  development  cost.  The increase was
primarily  attributable to increases in capitalized  software  development cost,
partially  offset by a decrease in the acquisition of property and equipment for
the nine months ended September 30, 1999.

                                       13

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


The Company's  financing  activities provided cash of $1,414 for the nine months
ended  September  30, 1999 and $4,913 for the nine months  ended  September  30,
1998. On March 30, 1999,  the Company  executed the Merger  Agreement with Tyler
pursuant  to which  the  Company  would  merge  with  and  into a  wholly  owned
subsidiary  of  Tyler.  Also,  on March 30,  1999,  Tyler  loaned  $1,000 to the
Company,  evidenced by a secured promissory note. The Tyler Loan, originally due
on September  30,  1999,  had been  extended by  agreement of the parties  until
October 30, 1999.  The interest rate remains 2% over the prime rate. An interest
payment is still due June 30, 1999, but the entire principal balance and accrued
interest is next due on October 30,  1999.  The note is secured by a lien on the
Company's assets,  subordinate to the Hanifen Loan. On June 3, 1999, the Company
received notice from Tyler of termination of the Merger  Agreement.  The Company
and Tyler are in active  negotiations  to find an alternative  structure for the
transaction.  On August 23, 1999 Tyler loaned an additional $200 to the Company,
evidenced by a secured  promissory  note. As of June 30, 1999, the Company is in
violation of the Tyler Loan for failure to make an interest  payment of $25, due
June 30,  1999.  As of October  30, 1999 the  Company is also in  violation  for
non-payment of the entire principal balance of $1,200 and accrued interest,  due
on October 30, 1999.

On June 1, 1999, the Company and Hillsborough County ("Hillsborough")  reached a
mutual  agreement  to  terminate  the contract  dated  February  26, 1998.  This
contract was to have the Company install its Collection product for licensed use
by Hillsborough.  The Company retained the $274 Hillsborough paid to the Company
pursuant  to the  terms of the  contract.  However,  in the  event  Hillsborough
purchases the Collection  product from the Company prior to January 1, 2001, the
Company  will credit  Hillsborough  with $266 against the payment of the license
fee for the newly purchased software.

On July 13, 1999,  the Company  received a loan of $147 from its Chairman of the
Board and C.E.O.,  Paul E. Kana.  Also,  on July 30,  1999  Sidney H.  Cordier a
member of the Company's  Board of Directors  loaned the Company $40. Both loans,
subordinate  to the Hanifen  Loan and Tyler  Loans,  were  evidenced  by secured
promissory notes that have an interest rate of 2% over the prime rate.  Interest
payments are due  September  30,  1999,  and the entire  principal  with accrued
interest is then due on December 31, 1999.  As of September 30, 1999 the Company
is in violation  for  non-payment  of the accrued  interest due on September 30,
1999.

On October 27, 1999, the Company received an additional loan of $105 from Sidney
H.  Cordier  and $30 from G.  Dean  Booth,  members  of the  Company's  Board of
Directors.  Both loans,  subordinate  to the Hanifen Loan and Tyler Loans,  were
evidenced by secured  promissory notes that have an interest rate of 2% over the
prime rate. Interest and principal payments are due December 31, 1999.

On November  12,  1999,  the Company  received a loan of $83 from Brian  Wilson,
member of the Company's Board of Directors. The loan, subordinate to the Hanifen
Loan and Tyler Loans,  was evidenced by a secured  promissory  notes that has an
interest rate of 2% over the prime rate. Interest and principal payments are due
December  31, 1999.  The loans by Messrs.  Kana,  Cordier,  Booth and Wilson are
collectively referred to hereinafter as the "Director Loans."

On December 31,  1999,  the current  portion,  $1,050,  of a $2,100  senior note
payable to Hanifen Imhoff  Mezzanine  Fund,  L.P. under the Hanifen Loan becomes
due. As of December 31, 1998, the Company was in violation of the note agreement
with Hanifen Imhoff Mezzanine Fund, L.P. The violation  pertains to the ratio of
cash flow to total contractual debt service. Hanifen Imhoff Mezzanine Fund, L.P.
has waived through September 30, 1999 compliance with this ratio. Since June 30,
1999,  the  Company  is in  default of the note  agreement  for  failure to make
interest  payments of $63, due June 30 and  September  30, 1999. As of September
30,  1999 the  Company is also in  violation  of the loan  agreement's  covenant
ratios.
                                       14

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


The Company  believes that  proceeds from the Director  Loans when combined with
its cash balances and cash  anticipated  to be generated  from  operations  will
satisfy the Company's  capital,  business  development  and capital  expenditure
requirements  only through  November 30, 1999. At the time of filing Form 10-QSB
for the quarter ended June 30, 1999 on August 14, 1999, the Company  anticipated
timely receipt of milestone  payments under certain  existing  contracts.  These
payments  have not been  forthcoming,  resulting in a revision of the  Company's
liquidity estimate. Moreover,  unexpected delays in development and installation
have  resulted in  deferral  of certain  revenue  previously  anticipated  to be
received in the third and fourth  quarters of the fiscal year ended December 31,
1999.  The  Company now expects to  complete  all  installations  on the backlog
contracts and receive payment therefor by the end of June 30, 2000. There can be
no assurances, however, that the Company will have sufficient working capital to
complete these  installations.  Further,  increased costs,  delays in receivable
collections  and  opportunities  for growth or expansion may prevent the Company
from satisfying all of its obligations,  working capital,  business  development
and capital  expenditure  requirements after November 30, 1999 without immediate
additional sources of liquidity through equity offerings or debt financing.



YEAR 2000 COMPLIANCE

There  is  significant  uncertainty  in the  software  industry  concerning  the
potential effects  associated with compliance with Year 2000 ("Y2K") date codes.
Potential effects include, but are not limited to, product compliance,  internal
systems  compliance,  impact upon the Company's  revenue,  and expenses  related
thereto.

Product  Compliance.  Most of the Company's  current products are Y2K compliant,
based upon results of successful tests on its software.  Those products that are
not presently Y2K compliant are presently under development. These products will
be made Y2K compliant  prior to December 31, 1999.  Therefore,  the Company does
not  anticipate  its products will be adversely  affected by date changes in the
Y2K. However,  there can be no assurance that the Company's products contain all
features or functions deemed necessary by customers, distributors, resellers and
systems integrators to be Y2K compliant. While the Company continuously enhances
its software to ensure availability of desired features and functions, there can
be no assurance that such features and functions will be timely  available.  The
Company's products may also rely upon the products of other vendors that may not
be Y2K  compliant.  Such  reliance  may prevent  the  Company's  customers  from
achieving  all of the  Company's  desired  features and  functions.  The Company
anticipates  the  software  industry  will  generally  be  subject  to  material
litigation. Such claims against the Company, with or without merit, could have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

Internal Systems.  The Company has assessed the impact of Y2K issues with regard
to its  internal  reporting  systems  and  operations  and  determined  that the
remaining costs associated with addressing such issues will not be material. The
Company expects all of its internal systems to be Y2K compliant prior to January
1,  2000.  The  Company  is  contacting  its own key  suppliers  and  vendors to
ascertain  the extent to which their systems are Y2K compliant and the extent to
which the Company could be adversely  affected by the failure of such systems to
be Y2K  compliant.  Management  does not  believe  that  the  cost to bring  its
software  products and internal systems into Y2K compliance will have a material
adverse  effect on the Company's  results of operations or financial  condition.
However,  a failure to fully  identify  all Y2K  dependencies  in the  Company's
systems or in the systems of its suppliers,  vendors, and financial institutions
could have material  adverse effect upon the Company,  including but not limited
to operating results,  financial condition and delays in the delivery or sale of
products. The Company believes that the likelihood of a disruption in operations
related to Y2K issues is remote.
                                       15

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


Impact on Revenue.  The Company believes the purchasing patterns of existing and
potential  customers may be affected by Y2K issues. Many companies are expending
substantial  resources  to repair,  in some  cases  temporarily,  their  current
software  systems  for Y2K  compliance.  These  expenditures  may  result  in an
increase  in  demand  for  the  Company's  products.  However,  there  can be no
assurance that such increase in demand will be realized or that any increase can
be sustained beyond the end of the current fiscal year. Consequently, changes in
purchasing  patterns  could have a material  adverse  effect upon the  Company's
business, operating results and financial condition.

Expenses  Related to Y2K  Compliance.  The Company has not incurred  significant
expense in becoming Y2K  compliant.  Future costs related to Y2K  compliance are
not  expected  to have a  material  adverse  effect on the  Company's  operating
results or financial condition.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is presently  involved in material  litigation.  Five lawsuits,  now
consolidated  into a single  proceeding,  have been filed against the Company in
the United States  District Court for the Northern  District of Texas during the
period from December 1998 through January 1999. The plaintiffs are seeking class
certification  and  recovery  for,  among other  things,  violations  of federal
securities  laws associated  with the Company's  registration  statement and its
Form 10-Qs for the first and second  quarter of 1998.  These lawsuits were filed
following the Company's  November 4, 1998 press release  announcing  that it was
restating  its  first and  second  quarter  revenues  for 1998 in light of AICPA
Statement of Position 97-2, for software revenue recognition  requirements.  The
Company has filed a motion to dismiss in each suit.  The  motions are  presently
pending. The Company intends to vigorously defend the lawsuits.

The  Company is also a  defendant  in  Continental  Pacific  Corporation  v. CPS
Systems  Inc.,  et al.,  pending  in the  Circuit  Court in and for Lee  County,
Florida.  This suit,  instituted  in February  1998,  alleges  that three former
employees of the plaintiff  joined the employment of the Company in violation of
their  non-competition  agreement,  and seeks injunctive and monetary relief for
the defendants' breaches of the irrespective  employment  agreements and for the
Company's role in soliciting their employment. The three former employees of the
plaintiff  left the  plaintiff  and sought  other  employment  due to  financial
difficulties facing the plaintiff,  which caused it to discontinue paying salary
and employment  benefits to the three individual  defendants.  Accordingly,  the
defendants contend that the non-competition  agreements at issue in the case are
unenforceable. In a preliminary injunction hearing held in the case, the Company
and the  individual  defendants  prevailed.  The Court  refused  to  enjoin  the
individual  defendants  from  continuing  to work for the  Company.  The case is
presently in  discovery,  and several key  witnesses  remain to be deposed.  The
Company and the individual  defendants have filed a motion for summary  judgment
asking the Court to dismiss the case based on the lack of a  genuinely  disputed
issue of material fact that remains for trial.  Although the motion is presently
pending,  the Company and the defendants do not expect a ruling until  discovery
in the case has been completed.

The  Company  is a third  party  defendant  in  Civitas  Bank v.  Smith v.  CPS,
instituted June 1999, in which the finance company alleges that Okaloosa County,
Florida  breached  its  obligations  thereto  under the  terms of its  financing
agreement  for the purchase of CPS  software.  Okaloosa  County,  contending  it
failed to comply  with the  terms of its  agreement  because  CPS  breached  its
purchase  agreement with the County,  filed a third party complaint  against the
Company.  The Company filed its answer in September  1999,  denying  contractual
liability. The Company intends to defend itself vigorously.

                                       16

<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


The  Company  is a  defendant  in  Havill v. CPS  Systems,  Inc.,  Commercial  &
Municipal  Capital,  LLC and Civitas Bank,  initiated in September 1999. Havill,
the Property Tax Appraiser for Lake County,  Florida,  alleges common law fraud,
breach of contract and  violation of a Florida  statute  regarding  misleading a
public  official.  Plaintiff seeks rescission of its agreements with the Company
and Civitas  Bank,  refunds of monies paid,  consequential  damages,  attorneys'
fees. If proven,  the plaintiff would be entitled to treble damages,  attorneys'
fees and costs. The Company has filed an answer denying the claims,  has filed a
motion for dismissal, and intends to vigorously defend itself.

From time to time,  the  Company is  involved  in other  litigation  relating to
claims arising out of its operations in the normal course of business. Except as
set  forth  above,  the  Company  is not a party to any legal  proceedings,  the
adverse  outcome  of  which,  individually  or in the  aggregate,  would  have a
material  adverse  effect on the  Company's  results of  operations or financial
position.

The Company has been  notified by Peoria  County,  Illinois  that the county has
terminated  the  contract  with the Company and intends to recover the  $340,000
customer deposit. The outstanding receivable is not recognized as current income
but is recorded as unearned revenue. The Company has reviewed the notice and the
contract  and  determined  the county does not have the right to  terminate  the
contract.  The Company  will  challenge  any claim for a return of the  customer
deposit.

The Company has also been notified by Fresno County,  California that the county
has, in its opinion,  the right to invoke a clause in its contract providing for
liquidated damages under limited circumstances. Circumstances triggering damages
under the  contract  include  failure to complete  installation  of the CAMA and
Collection  products  by  January  1,  1999  and  March 1,  1999,  respectively.
Liquidated  damages  accumulate  until live  production  of the  systems.  As of
October 31, 1999, the Company may be subject to a potential  liquidating damages
claim of approximately  $2,559. The Company has reviewed the notice and does not
believe it is subject to the claim for liquidating damages.


ITEM 2.  CHANGES IN SECURITIES

The Company  has  established  an equity  participation  plan (the "1997  Equity
Participation  Plan")  to  enable  executive  officers,   other  key  employees,
independent  directors and consultants of CPS to participate in the ownership of
the  Company.  The 1997  Equity  Participation  Plan  provides  for the award to
executive officers,  other key employees,  independent directors and consultants
of the Company of a broad variety of stock-based compensation  alternatives such
as nonqualified  stock options,  incentive stock options,  restricted  stock and
performance awards and provides for the grant to executive  officers,  other key
employees,  independent directors and consultants of nonqualified stock options.
Awards under the 1997 Equity  Participation  Plan may provide  participants with
rights to acquire  shares of common stock.  A total of 600,000  shares of Common
Stock are reserved for issuance pursuant to the 1997 Equity  Participation Plan,
of which  options  to  purchase  525,100  shares  have been  granted  to certain
directors, officers and employees as of September 30, 1999. Options shall become
exercisable in three cumulative equal installments.  The first installment shall
become  exercisable on the first anniversary of the date the option was granted.
Neither these options, nor the underlying securities, have been registered under
the Securities Act of 1933, as amended (the "Securities Act").

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<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999


The Company has also established the CPS Systems,  Inc.  Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") to assist  employees of the Company in
acquiring a stock  ownership  interest in CPS and to encourage them to remain in
the  employment  of the  Company.  The  Employee  Stock  Purchase  Plan  permits
employees to purchase  shares of Common Stock  through  payroll  deductions at a
price equal to 85% of fair  market  value.  A total of 100,000  shares of Common
Stock are reserved for issuance  pursuant to the Employee  Stock  Purchase Plan.
For the three months ended September 30, 1999,  employees have purchased  12,348
shares.  Shares  purchased under the Employee Stock Purchase Plan are restricted
for one year from the date of purchase.  These  shares have not been  registered
under the Securities Act.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

As of December 31, 1998, the Company was in violation of the note agreement with
Hanifen Imhoff Mezzanine Fund, L.P.  relating to the Hanifen Loan. The violation
pertains to the ratio of cash flow to total  contractual  debt service.  Hanifen
Imhoff Mezzanine Fund, L.P has waived through September 30, 1999 compliance with
this  ratio.  As of June 30,  1999,  the Company  was in  violation  of the note
agreement with Hanifen Imhoff Mezzanine Fund, L.P.  relating to the Hanifen Loan
and the secured  promissory  note with Tyler  relating  to the Tyler  Loan.  The
violations  pertain to non-payment of interest due June 30, 1999,  September 30,
1999 and  October  30,  1999.  As of  September  30, 1999 the Company is also in
violation of the Hanifen loan  agreement's  covenant  ratios.  As of October 30,
1999 the Company is also in violation for  non-payment  of the entire  principal
balance of $1,200 and accrued interest due on the Tyler loans.


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

None

ITEM 5.  OTHER INFORMATION

The Company's  common stock is listed on the American  Stock  Exchange under the
symbol "SYS". Trading in the stock began on March 25, 1998.

On June 14, 1999, R. Harris  Turner  resigned from the Board of Directors of the
Company,  for personal reasons which would limit the time available to devote to
the Company.


On  November  10, 1999 the Company  received a letter  from the  American  Stock
Exchange informing the Company of their intentions to proceed with the filing of
an  application  with the Security and Exchange  Commission to strike the common
stock from the listing and  registration  on the  Exchange.  The Company has the
right to appeal  this  determination  by  notifying  the  Exchange in writing by
November 16, 1999. The Company plans to appeal this determination.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

Exhibit 27.1               Financial Data Schedule


(c) No reports on Form 8-K were filed by CPS  SYSTEMS,  INC.  during the quarter
ended September 30, 1999.



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<PAGE>
                        CPS SYSTEMS, INC. AND SUBSIDIARY

                               SEPTEMBER 30, 1999



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


Date:  November 15, 1999

                                   /s/ PAUL E. KANA
                                -----------------------------------------------
                                Paul E. Kana
                                CHAIRMAN OF THE BOARD OF DIRECTORS,
                                CHIEF EXECUTIVE OFFICER
                                AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)


                                   /s/ KEVIN L. FIGGE
                                -----------------------------------------------
                                Kevin L. Figge
                                VICE PRESIDENT, CHIEF FINANCIAL OFFICER
                                (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)






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