CPS SYSTEMS INC
SB-2/A, 1998-02-13
COMPUTER INTEGRATED SYSTEMS DESIGN
Previous: NEW MARRIOTT MI INC, 10-12B, 1998-02-13
Next: DIGITEC 2000 INC, 10-Q, 1998-02-13



<PAGE>
 
     
  As filed with the Securities and Exchange Commission on February 13, 1998.
                                         
                                                     Registration No. 333-39173
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
 
                            WASHINGTON, D.C. 20549
 
                                ---------------
                                
                             AMENDMENT NO. 3     
 
                                      TO
 
                                   FORM SB-2
                            REGISTRATION STATEMENT
 
                                     UNDER
 
                          THE SECURITIES ACT OF 1933
 
                                ---------------
                               CPS SYSTEMS, INC.
          (NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
         TEXAS                      7379                    75-1607857
    (STATE OR OTHER          (PRIMARY STANDARD           (I.R.S EMPLOYER
    JURISDICTION OF              INDUSTRIAL           IDENTIFICATION NUMBER)
    INCORPORATION OR        CLASSIFICATION CODE
     ORGANIZATION)                NUMBER)
                                 3400 CARLISLE
                                   SUITE 500
                              DALLAS, TEXAS 75204
                                (214) 855-5277
             (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
                   OFFICES AND PRINCIPAL PLACE OF BUSINESS)
 
                                 PAUL E. KANA
                            CHIEF EXECUTIVE OFFICER
                             C/O CPS SYSTEMS, INC.
                                 3400 CARLISLE
                                   SUITE 500
                              DALLAS, TEXAS 75204
                                (214) 855-5277
           (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
 
                                  COPIES TO:
         EDWARD H. BROWN, ESQ.                MICHAEL J. ERICKSON, ESQ.
        CHESTER J. HOSCH, ESQ.                  LAURA A. BERTIN, ESQ.
    SCHREEDER, WHEELER & FLINT, LLP          SUMMIT LAW GROUP, P.L.L.C.
       1600 THE CANDLER BUILDING             1505 WESTLAKE AVENUE NORTH
      127 PEACHTREE STREET, N.E.                      SUITE 300
        ATLANTA, GEORGIA 30303                SEATTLE, WASHINGTON 98109
            (404) 681-3450                         (206) 281-9881
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
                                ---------------
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
                  
               Subject to Completion Dated February  , 1998     
                                
                             1,900,000 SHARES     
 
                                      LOGO
                                  COMMON STOCK
   
  CPS Systems, Inc. ("CPS" or the "Company") hereby offers 1,900,000 shares of
its common stock (the "Common Stock"). Prior to this offering, there has been
no public market for the Common Stock. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
It is currently estimated that the initial public offering price will be
between $5.00 and $6.00 per share. The Company anticipates that the Common
Stock will be quoted on the American Stock Exchange under the symbol "SYS"
effective upon the closing of this offering.     
 
                                  -----------
 
            THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                 SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
 
                                  -----------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE SECURITIES  AND
  EXCHANGE  COMMISSION  OR  ANY  STATE  SECURITIES  COMMISSION  NOR  HAS   THE
   SECURITIES AND  EXCHANGE COMMISSION  OR  ANY STATE  SECURITIES  COMMISSION
    PASSED  UPON  THE   ACCURACY  OR  ADEQUACY   OF  THIS  PROSPECTUS.   ANY
     REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S>                                <C>                 <C>                 <C>
                                                          UNDERWRITING
                                          PRICE           DISCOUNTS AND        PROCEEDS TO
                                        TO PUBLIC        COMMISSIONS(1)        COMPANY(2)
- ------------------------------------------------------------------------------------------
Per share.......................      $                   $                   $
- ------------------------------------------------------------------------------------------
Total(3)........................     $                   $                   $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
   
(1) Excludes a non-accountable expense allowance payable to Cruttenden Roth
    Incorporated and Josephthal & Co. Inc., representatives of the Underwriters
    (the "Representatives", and the value of warrants to purchase up to 190,000
    shares of Common Stock (218,500 shares if the Underwriters' over-allotment
    option is exercised in full) at an exercise price of 120% of the public
    offering price to be issued to the Representatives (the "Representatives'
    Warrant"). The Company and the selling shareholders have agreed to
    indemnify the Underwriters against certain liabilities, including
    liabilities under the Securities Act of 1933, as amended. See
    "Underwriting."     
   
(2) Before deducting offering expenses, including the non-accountable expense
    allowance in the amount of $313,500 ($360,525 if the Underwriters' over-
    allotment option is exercised in full), estimated at $910,000, payable by
    the Company.     
   
(3) Certain shareholders have granted to the Underwriters a 45-day option to
    purchase up to 285,000 additional shares of Common Stock on the same terms
    and conditions as set forth above, solely to cover over-allotments, if any.
    If such option is exercised in full, the total Price to Public,
    Underwriting Discounts and Commissions and Proceeds to the Selling
    Shareholders will be $  , $   and $  , respectively. See "Underwriting."
        
  The shares of Common Stock are offered by the several Underwriters, when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
share certificates will be made against payment therefor at the offices of
Cruttenden Roth Incorporated in Irvine, California, or through the facilities
of The Depository Trust Company on or about     , 1998.
 
 
                                  -----------
   
Cruttenden Roth_______________________________________Josephthal & Co. Inc.     
   
Incorporated     
                 
              THE DATE OF THIS PROSPECTUS IS          , 1998.     
<PAGE>
 
    
 [Map showing the locations of the Company's customer installations and of the
                    Company's personnel and sales offices.]     
       
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
 
  The Company intends to furnish annual reports to shareholders containing
audited financial statements and make available quarterly reports and such
other periodic reports as it may determine to be appropriate or as may be
required by law.
 
                                       2
<PAGE>
 
                               PROSPECTUS SUMMARY
 
  The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Except as
otherwise indicated, the information in this Prospectus (a) assumes that the
over-allotment option granted to the Underwriters has not been exercised and
(b) gives effect to the exercise of outstanding warrants to purchase an
aggregate of 927,766 shares of common stock, exercisable at a per share price
of $0.0026, which warrants will be exercisable on the earlier of December 31,
1999, or completion of an initial public offering. See "Underwriting."
Investors should carefully consider the information set forth under the heading
"Risk Factors."
 
                                  THE COMPANY
 
  CPS develops, markets, implements and supports fully integrated software
applications designed specifically for public sector organizations, including
states, counties, townships, city governments and other municipal agencies. The
Company's products address the following functional areas: (i) property tax
appraisal and assessment, (ii) property tax billing and collection, (iii) city
and municipal systems and (iv) remittance processing systems. Currently, the
Company's public sector software applications are installed in six states
(Colorado, Florida, North Carolina, New Mexico, Oklahoma and Texas),
representing more than 250 customers. The majority of its customers are county
governments with taxable parcel counts over 10,000 or cities with populations
between 5,000 and 35,000. The Company's focus on the public sector allows it to
design solutions that address the needs of these organizations.
 
  The Company has identified three significant growth opportunities in the
public sector marketplace. First, CPS intends to geographically expand its core
product business to address the following functional areas: property tax
appraisal and assessment, property tax billing and collection and city and
municipal systems. This opportunity represents a key segment of the Company's
business strategy due to the growing recurring revenue streams generated by
license agreements entered into by customers of the Company's core business.
Second, the Company plans to leverage its 17 years of public sector experience
to capitalize on the opportunity created by the Year 2000 ("Y2K") problem. The
Y2K problem results from the inability of certain computer systems to properly
interpret dates for the year 2000 and beyond. For example, unless Y2K
compliance is completed in certain systems, public sector organizations cannot
properly (i) appraise, bill and collect property taxes, a principal revenue
source, (ii) record fines and deeds resulting from property sales, and (iii)
maintain and retain accurate law enforcement records. In addressing the Y2K
problem, public sector entities are faced with the prospect of competing with
the private sector for recruiting, hiring and retaining top data processing
talent, despite possessing limited ability to match competitive salaries for
attracting new hires or retaining existing staff. Although the Company began
integrating Y2K solutions and applications into its core products in 1995, the
Company believes the opportunity to leverage Y2K applications into additional
sales has only recently materialized. Third, CPS intends to leverage the
interoperability of the Company's core products to manage information flow
between departments as organizations shift from mainframe computers to
client/server systems.
 
  The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. This market
comprises over 3,000 counties and over 19,000 municipalities in the United
States. According to one industry source, state and local government agencies
spent approximately $34.5 billion on information technology and related
products in 1996. This total includes approximately $5.0 billion for software,
$6.7 billion for external services, $7.4 billion for hardware and $15.4 billion
for internal services (e.g., in-house management information systems
departments). Management estimates the remaining $1.9 billion was spent on the
software in the Company's core product areas. While the private sector is
taking steps to address the Y2K problem, the Company believes many public
sector organizations lack the resources to achieve a timely solution due to
budgetary and other constraints. One industry source estimates that the overall
cost of solving the Y2K problem worldwide will be in the range of $300 billion
to $600 billion. CPS believes the Y2K problem will cause many public sector
organizations
 
                                       3
<PAGE>
 
to explore further the possibility of migrating all or portions of their legacy
systems to Y2K compliant client/server systems. As computing technology evolves
and information processing requirements expand, medium to large public sector
organizations are seeking to preserve the investment in their existing systems
by integrating or replacing mainframe computers with modern distributed
computer processing architectures, such as client/server systems.
   
  CPS currently markets 41 applications to public sector organizations,
offering customers the following: (i) compliance with periodically changing
legislation, (ii) simplification of data entry, (iii) extensive security
features, (iv) flexible report configuration and (v) open system technology.
CPS has developed a proprietary tool that converts client data into a Y2K
compliant format that can be run by CPS applications which are Y2K compliant.
Management believes this tool offers a significant competitive advantage in
marketing software applications. The Company's application software products
are designed to be readily adaptable to meet a customer's initial needs and to
offer sufficient flexibility to respond to a customer's specific system
refinements and ongoing changes. The Company's tiered software architecture
enables CPS to utilize multiple platforms and effectively integrate new
technologies with existing software.     
 
  The Company views the Y2K market as an opportunity to become one of the
leaders in providing public sector solutions on a national basis. To accomplish
this, CPS plans to expand geographically the size of its direct sales and
marketing force and concurrently hire additional technical support and systems
personnel. Expansion benefits include the execution of additional long-term
service agreements, generating recurring revenue from continuing monthly
maintenance and service fees, typically at a rate equal to approximately 32% of
the software license fee. The Company believes that the public sector
marketplace is highly fragmented with many small, closely-held companies and
views acquisitions as a means of acquiring technology and application
expertise, broadening its customer base and expanding geographically. To
support its growth, the Company has entered into an alliance with an external
software developer and intends to enter into additional strategic alliances
with other external software developers and Y2K service providers enabling the
Company to provide the necessary technical resources in a timely manner. The
Company believes a substantial opportunity exists to sell additional products
to current customers who have only one installed CPS product. Moreover, CPS
believes its customer base offers considerable leverage to new business since
references from existing customers often result in future sales opportunities.
 
  The Company was incorporated under the laws of the state of Texas in July
1978. The Company's executive offices are located at 3400 Carlisle, Suite 500,
Dallas, Texas 75204, and its telephone number is (214) 855-5277.
 
                                  THE OFFERING
 
Common Stock offered by the            
Company...........................  1,900,000     
 
Common Stock to be outstanding
 after this offering..............
                                       
                                    6,732,502(1)     
 
Use of Proceeds...................     
                                    Repayment of certain indebtedness, working
                                    capital, research and development,
                                    potential acquisitions, certain investments
                                    and other general corporate purposes. See
                                    "Use of Proceeds."     
 
Proposed American Stock Exchange    SYS
Symbol............................
- --------
   
(1) Does not give effect to (i) 335,000 shares of Common Stock reserved for
    issuance upon exercise of outstanding options under the Company's 1997
    Equity Participation Plan with a per share exercise price equal to the
    initial offering price, (ii) 265,000 shares of Common Stock reserved for
    issuance upon exercise of options reserved for future grant under the
    Company's 1997 Equity Participation Plan, (iii) 100,000 shares of Common
    Stock reserved under the Company's Employee Stock Purchase Plan and (iv)
    190,000 shares (218,500 shares if the Underwriters' over-allotment option
    is exercised in full) of Common Stock issuable upon exercise of the
    Representatives' Warrant at an exercise price of $7.20 per share. See
    "Management--Employee Equity Plans," "Description of Capital Stock--
    Warrants" and "Underwriting."     
 
                                       4

<PAGE>
 
 
                             SUMMARY FINANCIAL DATA
 
                 (amounts in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                  NINE MONTHS
                                                  YEAR ENDED         ENDED
                                                  DECEMBER 31,   SEPTEMBER 30,
                                                 --------------  --------------
                                                  1995    1996    1996    1997
                                                 ------  ------  ------  ------
<S>                                              <C>     <C>     <C>     <C>
STATEMENT OF OPERATIONS DATA:
 Total revenue.................................. $6,253  $8,363  $6,356  $7,719
 Gross profit...................................  4,953   6,496   4,950   5,633
 Operating expenses.............................  4,683   5,758   4,143   5,255
 Earnings from operations.......................    270     738     807     379
 Net earnings (loss)............................   (230)   (246)    (30)     17
Net earnings (loss) per common share(1)......... $(0.06) $(0.06) $(0.01) $ 0.00
Weighted average shares used in computing net
 earnings (loss) per common share(1)............  3,905   3,905   3,905   3,905
</TABLE>
 
<TABLE>   
<CAPTION>
                                                           SEPTEMBER 30, 1997
                                                         -----------------------
                                                         ACTUAL AS ADJUSTED(/2/)
                                                         ------ ----------------
<S>                                                      <C>    <C>
BALANCE SHEET DATA:
 Cash................................................... $  338    $   7,660
 Working capital........................................     67        7,710
 Total assets...........................................  6,101       13,370
 Long-term debt, net of current portion.................  2,503        2,014
 Shareholders' equity...................................    540        8,854
</TABLE>    
- --------
   
(1) Does not give effect to (i) the exercise of outstanding warrants to
    purchase an aggregate of 927,766 shares of Common Stock, exercisable at a
    price per share of $0.0026, which will be exercisable on the earlier of
    December 31, 1999 or completion of an initial public offering, (ii) 335,000
    shares of Common Stock reserved for issuance upon exercise of outstanding
    options under the Company's 1997 Equity Participation Plan with a per share
    exercise price equal to the initial offering price, (iii) 265,000 shares of
    Common Stock reserved for issuance upon exercise of options reserved for
    future grant under the Company's 1997 Equity Participation Plan, (iv)
    100,000 shares of Common Stock reserved under the Company's Employee Stock
    Purchase Plan and (v) 190,000 shares (218,500 shares if the Underwriters'
    over-allotment option is exercised in full) of Common Stock issuable upon
    exercise of the Representatives' Warrant at an exercise price of $7.20 per
    share. See "Management--Employee Equity Plans," "Description of Capital
    Stock--Warrants" and "Underwriting."     
   
(2) Adjusted to give effect to the sale by the Company of 1,900,000 shares of
    Common Stock offered hereby at the public offering price of $5.50 per share
    and the application of the estimated net proceeds therefrom. See "Use of
    Proceeds."     
 
                                ----------------
 
  The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Certain statements in this
Prospectus that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing such forward-looking statements may be found in the
material set forth under "Summary," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as within this Prospectus generally. In addition, when used in this
Prospectus, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth in this Prospectus and the matters
set forth in this Prospectus generally. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
 
                                       5
<PAGE>
 
                                 RISK FACTORS
 
  In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing any of the Common Stock offered
hereby.
 
RISKS ASSOCIATED WITH PUBLIC SECTOR MARKET
 
  A substantial portion of the Company's revenue to date has been attributable
to sales of software and services to state, county and city governments and
other municipal agencies. The Company expects that sales to such public sector
customers will account for substantially all of the Company's revenue in the
future. Virtually all of these public sector organizations have existing
information processing systems. Accordingly, in order to continue to increase
its sales to this market, the Company must persuade these organizations to
replace or upgrade existing information processing systems. Change to an
organization's information system is a costly, time consuming and
operationally disruptive process for the customer. Conversion to a new
information processing system must typically be done without any disruption of
service and, accordingly, the Company's potential customers perceive a high
degree of risk in connection with the adoption of a new system. In addition,
the purchase of the Company's products involves a significant commitment of
capital, with attendant delays frequently associated with large capital
expenditures by an organization. For these and other reasons, the sales cycle
associated with the purchase of the Company's products is typically lengthy
and subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, over which the Company has little
or no control. There can be no assurance that potential customers for the
Company's products in the public sector market will continue to make
information processing system replacement decisions at rates necessary to
maintain demand for the Company's products and sustain market growth or that
the Company's products will be accepted by public sector organizations that
consider replacing their current information processing systems. A significant
reduction in demand or acceptance of the Company's products could have a
material adverse effect on the Company's business, financial condition and
operating results.
 
UNCERTAINTY OF DEMAND FOR YEAR 2000 SOLUTIONS
 
  The Company anticipates focusing a significant portion of its marketing and
sales efforts on products and solutions addressing the Y2K problem. The
Company's current plans involve developing solutions for existing and
potential customers based upon modifications to the Company's existing
software product lines. Although the Company believes that the market for Y2K
solutions will grow significantly as the year 2000 approaches, there can be no
assurance that the market will develop to the extent anticipated by the
Company. Moreover, the Company's efforts are directed at addressing the Y2K
problem within the framework of its traditional software products.
Consequently, the Company's market for its Y2K solution products is limited to
existing and potential public sector customers of the Company's existing
software products. In addition, the Company's customers may seek alternative
solutions for the Y2K problem. Many customers may attempt to resolve the
problem internally rather than purchase products and solutions from the
Company or may seek to solve the Y2K problem by retaining consultants or other
competitors who may address the Y2K problem through enterprise solutions
covering the customer's entire computer system. Due to these factors,
development of a market for the Company's Y2K solution is uncertain and
unpredictable. Furthermore, the demand for Y2K products and solutions is
likely to diminish after the year 2000. The failure of the market to increase,
or to increase more slowly than anticipated, could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Industry Overview."
 
COMPETITION
 
  The market in which the Company competes is highly fragmented, with a large
number of competitors that vary in size, primary computer platforms and
overall product scope. Within its traditional public sector markets, the
Company competes from time to time with (i) custom software and services
providers (such as
 
                                       6
<PAGE>
 
Andersen Consulting, KPMG Peat Marwick and Oracle Corporation), (ii) companies
which focus on selected segments of the public sector market (including
Systems & Computer Technology Corporation, Manatron, Inc., H.T.E., Inc.,
American Management Systems Incorporated and BRC Holdings, Inc.) and (iii) a
significant number of smaller private companies. The Company also competes
with in-house management information services staff. In addition, within the
market for its Y2K solution products, the Company anticipates that it will
compete with companies who focus upon overall enterprise solutions to the Y2K
problem. Many of the Company's competitors are more established, benefit from
greater name recognition and have substantially greater resources than the
Company. Moreover, the Company could face additional competition as other
established and emerging companies enter the public sector software
application market and/or the Y2K market and new products and technologies are
introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, financial
condition and operating results. See "Business--Competition."
 
MANAGEMENT OF GROWTH
 
  The Company has recently experienced a period of significant expansion in
the number of its employees, the scope of its operating and financial systems
and the geographic area of its operations, and anticipates that growth may
continue in the future. To accommodate future growth, if any, the Company must
continue to implement and improve information systems, procedures and controls
and hire and train management, technical and sales personnel. The Company
believes there is significant competition for software development
professionals with the skills and expertise necessary to perform services
offered by the Company. Although the Company invests, and plans to continue
investing, significant resources in retaining and expanding its management,
technical and sales force, the Company may experience difficulty in recruiting
and retaining capable personnel. There can be no assurance that the Company
will be able to expand successfully its management, technical or sales
personnel or that any such expansion will increase revenue. Failure by the
Company to implement and improve the Company's operational, financial and
management systems or maintain and expand personnel could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Risk Factors--Dependence on Key Personnel" and "Business--
Employees."
 
POTENTIAL FLUCTUATIONS OF OPERATING RESULTS; FUTURE OPERATING RESULTS
UNCERTAINTY
 
  The Company's revenue and operating results are subject to fluctuations
resulting from a variety of factors, including the effect of budgeting and
purchasing practices of its customers, the length of customer evaluation
processes for the Company's solutions, the timing of customer system
conversions, announcements of new products by the Company or its competitors
and the Company's sales practices. In addition, since a significant portion of
the Company's operating expenses is fixed, the Company may not be able to
adjust or reduce spending in response to sales shortfalls or delays. Many of
these factors are not within the Company's control. These factors can cause
significant variations in operating results from quarter to quarter, which may
also adversely affect and cause volatility in the market price of the
Company's common stock. The Company believes that quarter to quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future quarterly performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
 
 
                                       7
<PAGE>
 
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
 
  The Company's future success will depend significantly upon its ability to
enhance its current products, develop or acquire and market new products which
keep pace with technological developments, evolving industry standards and
legislative amendments and respond to changes in customer needs. There can be
no assurance that the Company will be successful in developing or acquiring
product enhancements or new products to address changing technologies and
customer requirements, or that its competitors will not develop products that
are superior to the Company's products or achieve greater market acceptance
than the Company's products. Failure by the Company to respond to
technological change or the development of superior products by its
competitors could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Growth Strategy."
 
DEPENDENCE ON KEY PERSONNEL
 
  The Company's continued success will depend upon the availability and
performance of its senior management team, particularly Paul E. Kana, Chairman
and Chief Executive Officer, and James K. Hoofard, Jr., President and Chief
Operating Officer, each of whom possess unique and extensive industry
knowledge and experience. While the Company currently maintains key-man life
insurance policies on Paul E. Kana and James K. Hoofard, Jr., the loss of
either man could have a material adverse effect on the Company's business,
financial condition and operating results. See "Management--Directors,
Executive Officers and Key Employees" and "--Executive Compensation."
 
PROPRIETARY RIGHTS AND RISKS OF INFRINGEMENT
 
  The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of contract and trade secret laws and other measures to protect its
proprietary intellectual property. Despite these precautions, it may be
possible for unauthorized parties to copy the Company's software or reverse
engineer or otherwise obtain and use information the Company regards as
proprietary. The Company has no patents and, under existing copyright laws,
has only limited protection. In addition, certain provisions of the license
agreements entered into by the Company, including provisions against
unauthorized use, transfer and disclosure, may be unenforceable under the laws
of certain jurisdictions. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to deter
misappropriation of its technology or independent development by others of
technologies that are substantially equivalent or superior to the Company's
technology. Any such misappropriation or development could have a material
adverse effect on the Company's business, financial condition and operating
results. As the number of competitors providing similar products increases,
overlapping methodologies used in such products will become more likely.
Although the Company's methodology has never been the subject of an
infringement claim, there can be no assurance that third parties will not
assert infringement claims against the Company in the future, that assertion
of such claims will not result in litigation or that the Company would prevail
in such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial cost to the
Company and divert resources and management from the Company's operations. Any
infringement claim or litigation against the Company could, have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Intellectual Property, Proprietary Rights and
Licenses."
 
POTENTIAL PRODUCT LIABILITY AND RISK OF SOFTWARE DEFECTS
 
  The Company markets to its customers complex, mission-critical applications.
Any failure in a customer's system could result in a claim for damages,
regardless of the Company's responsibility for such failure. The Company has
never been involved in product liability litigation, and the Company's license
agreements with its customers typically contain provisions designed to limit
the Company's exposure to potential product liability claims. However, there
can be no assurance that the limitation of liability provisions contained in
the
 
                                       8
<PAGE>
 
Company's license agreements would be enforceable or would otherwise protect
the Company from liability for damages. The Company currently carries general
liability insurance protecting against product liability claims. There can be
no assurance that such insurance will continue to be available, or available
at a cost acceptable to Company, or that the policy's limits will be
sufficient to satisfy any judgment or claim. The successful assertion of one
or more large claims against the Company that exceed available insurance
coverage or changes in the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance requirements
could have a material adverse effect on the Company's business, financial
condition and operating results. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to the Company and divert
management's attention from the Company's operations, which could have a
material adverse effect on the Company's business, financial condition and
operating results.
 
  Software products as complex as those developed by the Company may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Errors, bugs or viruses could result in loss or
delay of market acceptance, a failure in a client's system or complete loss of
client data. Although the Company has not experienced material adverse effects
resulting from any such defects or errors to date, there can be no assurance
that defects and errors will not be found after commencement of product
shipments. Any such defects could have a material adverse effect upon the
Company's business, financial condition and operating results. See "Business--
Research and Development."
 
ACQUISITION RISK
 
  As part of its growth strategy, the Company intends to evaluate the
acquisition of other companies, assets or product lines that would complement
or expand its existing business in attractive geographic or service markets or
that would broaden its customer relationships. Although the Company
periodically considers possible acquisitions, no specific acquisitions are
being negotiated. In addition, although the Company conducts due diligence
reviews of potential acquisition candidates, the Company may not be able to
identify all material liabilities or risks related to potential acquisition
candidates. There can be no assurance that the Company will be able to locate
and acquire any business, retain key personnel and customers of an acquired
business or integrate any acquired business successfully. Additionally, there
can be no assurance that financing for any acquisition, if necessary, will be
available on acceptable terms, if at all, or that the Company will be able to
accomplish its strategic objectives in connection with any acquisition. See
"Business--Growth Strategy."
 
DEPENDENCE ON KEY SUPPLIERS AND RELATIONSHIPS
 
  The Company purchases certain key components of its products from limited
source suppliers. Establishing relationships with additional or replacement
suppliers for any of the components used in the Company's products, if
required, could involve significant additional costs. The Company is not a
party to any long-term agreements with any of these suppliers. The Company
believes no significant obstacles to replacing these suppliers exist. However,
the inability of any of the Company's suppliers to provide functional
components on a timely basis, or the inability of the Company to locate
qualified alternative suppliers or coding programmers on acceptable terms,
could have a material adverse effect on the Company's business, financial
condition and operating results. The Company may also need to establish
additional alliances and relationships in order to keep pace with evolutions
in technology and enhance its service offerings, and there can be no assurance
such additional alliances will be established. See "Business--Growth Strategy"
and "--Sales and Marketing."
 
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
   
  Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
has been determined through negotiations between the Company and the
Representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this offering. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results,     
 
                                       9
<PAGE>
 
announcements of technological innovations, new products or new contracts by
the Company or its competitors, developments with respect to patents,
copyrights or proprietary rights, conditions and trends in the software and
other technology industries, adoption of new accounting standards affecting
the software industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stock of
technology companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
 
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS
   
  Upon completion of this offering, the six existing directors, executive
officers and principal shareholders of the Company and their affiliates will
beneficially own approximately 68% of the outstanding Common Stock (64% if the
over-allotment option is exercised in full). As a result, these shareholders
will be able to exercise control over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. In addition, each
of the Company's current shareholders has pledged his shares to secure certain
of the Company's outstanding indebtedness. The Company believes that operating
revenue and reserves will be sufficient to pay such indebtedness. However,
there can be no assurance that the Company will be able to repay such
indebtedness and failure to do so could result in a change of control of the
Company and/or have a material adverse effect on the Company's business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Principal Shareholders."     
 
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
   
  The principal purposes of this offering are to retire certain indebtedness,
obtain additional working capital, fund expanding research and development
efforts, create a public market for the Company's Common Stock and facilitate
the Company's future access to public equity markets. The Company expects to
use most of the net proceeds of this offering for working capital, research
and development, possible acquisitions and general corporate purposes.
Accordingly, the Company's management will retain broad discretion as to the
allocation of a substantial portion of the net proceeds from this offering.
Pending such uses, the Company intends to invest the net proceeds in short-
term, investment-grade, interest-bearing securities. See "Use of Proceeds."
    
RISK OF LOW-PRICED STOCKS
 
  The Company has applied to have its Common Stock listed on the American
Stock Exchange effective upon the closing of this offering. In order to be
listed on the American Stock Exchange, a company must meet certain financial
maintenance criteria. Although the Company's Common Stock has been approved
for listing (subject to the completion of this offering) the Company currently
does not meet these criteria. There can be no assurance that the Company will
continue to be allowed to be listed on the American Stock Exchange and/or that
it will meet these criteria in the future. Failure to meet these maintenance
criteria in the future and/or the delisting of the Common Stock from the
American Stock Exchange could result in the Common Stock being traded on the
over-the-counter market, in which case investors may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Common Stock. If the Company's Common Stock was delisted from the American
Stock Exchange, and the trading price of the Common Stock were less than $5.00
per share, the Common Stock might be considered "penny stock" and trading in
the Common Stock might be subject to the requirements of certain rules under
the Securities Exchange Act of 1934. These rules could adversely affect the
ability and willingness of broker-dealers to sell the Common Stock, which
could reduce the liquidity of the Common Stock and have a material adverse
effect on the trading market for the Common Stock.
 
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POSSIBLE ADVERSE EFFECT
ON FUTURE MARKET PRICES
 
  Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company
 
                                      10
<PAGE>
 
   
will have outstanding 6,732,502 shares of Common Stock, of which the 1,900,000
shares sold in this offering (2,185,000 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable. Approximately
4,832,502 (4,547,502 if the Underwriters' over-allotment option is exercised
in full) of the remaining shares are subject to agreements with the
Underwriters under which such shares may not be offered, sold or otherwise
disposed of for a period of one year after the date of this Prospectus without
the prior written consent of Cruttenden Roth, but will thereafter be eligible
for sale pursuant to Rule 144 of the Securities Act. Cruttenden Roth has no
present intention to release the locked-up shares prior to expiration of the
one-year period. The holders of 927,766 shares of Common Stock (832,374 if the
Underwriters' over-allotment option is exercised in full) are entitled to
certain piggyback and demand registration rights with respect to such shares.
By exercising their rights, such holders could cause additional shares to be
sold in the public market. Sales pursuant to Rule 144 or other exemptions from
registration, or pursuant to registration rights, may have an adverse effect
on the market price for the common stock and could impair the Company's
ability to raise capital through an offering of its equity securities. See
"Shares Eligible for Future Sale," "Underwriting" and "Description of Capital
Stock--Registration Rights of Certain Holders."     
 
DILUTION
 
  Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price and will incur additional
dilution upon the exercise of stock options and warrants. See "Dilution."
 
NO CASH DIVIDENDS
 
  The Company intends to retain any future earnings for its business and does
not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
 
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTITAKEOVER EFFECTS
   
  Certain provisions of the Company's Articles of Incorporation, as amended
(the "Restated Articles"), may deter or frustrate a takeover attempt of the
Company that a shareholder might consider in his best interest. The Company's
Restated Articles or Bylaws, among other things, provide that (i) the annual
meeting of shareholders shall be held on such date and at such time fixed from
time to time by the Board of Directors, provided that there shall be an annual
meeting held every calendar year, (ii) any special meeting of the shareholders
may be called only by the Chairman of the Board, President or upon the
affirmative vote of at least a majority of the members of the Board of
Directors, or upon the written demand of the holders of not less than 50% of
the votes entitled to be cast at a special meeting, (iii) an advance notice
procedure must be followed for nomination of directors and for other
shareholder proposals to be considered at annual shareholders' meetings and
(iv) the Company's Board of Directors be divided into three classes, each of
which serves for different three-year periods, and for which shareholders have
no cumulative voting rights. In addition, the Company will be authorized to
issue additional shares of Common Stock and up to 10 million shares of
preferred stock in one or more series, having terms fixed by the Board of
Directors without shareholder approval, including voting, dividend or
liquidation rights that could be greater than or senior to the rights of
holders of Common Stock. Shareholders will have no preemptive rights with
respect to any additional common stock or preferred stock. Issuance of
additional shares of Common Stock or new shares of preferred stock could also
be used as an antitakeover device. Except as set forth herein, the Company has
no current intentions or plans to issue additional Common Stock or issue
preferred stock. See "Description of Capital Stock."     
 
 
                                      11
<PAGE>
 
                                USE OF PROCEEDS
   
  The net proceeds to the Company from the sale of the 1,900,000 shares of
Common Stock offered by the Company at the assumed public offering price of
$5.50 per share are estimated to be $8.3 million after deducting the estimated
underwriting discounts and commissions and other estimated offering expenses
payable by the Company (assuming the over-allotment option granted to the
Underwriters by certain selling shareholders is exercised). The Company will
not receive any proceeds from any shares sold by the selling shareholders in
the event the over-allotment option is exercised, but will incur additional
expenses of approximately $200,000 in the event such option is exercised in
full. The Company intends to use the net proceeds from this offering for the
following specific purposes in order of priority:     
 
<TABLE>   
<CAPTION>
                                                    IN DOLLARS   AS A PERCENTAGE
                                                   (APPROXIMATE) OF NET PROCEEDS
                                                   ------------- ---------------
<S>                                                <C>           <C>
Repayment of indebtedness(1)......................  $1,000,000        12.05%
Working capital...................................   2,100,000        25.30%
Research and development..........................   2,400,000        28.92%
Acquisitions and investments(2)...................   2,400,000        28.92%
General corporate purposes........................     400,000         4.81%
                                                    ----------       ------
Total.............................................  $8,300,000       100.00%
                                                    ==========       ======
</TABLE>    
- --------
(1) As of November 30, 1997 the outstanding principal amount under the
    Company's senior term loan with FINOVA Capital Corporation ("FINOVA") was
    approximately $872,000, including certain prepayment fees, bearing
    interest at prime plus 2 1/2% and maturing December 30, 1998, and the
    loans from shareholders to the Company's subsidiary, CDP Systems, Inc.,
    amounted to approximately $128,000, bearing interest at 8% and maturing
    July 1, 2000. See "Risk Factors--Acquisition Risk," "Management's
    Discussion and Analysis of Financial Condition and Results of Operations--
    Liquidity and Capital Resources" and "Certain Transactions."
   
(2) The Company expects to use approximately $2.4 million from net proceeds
    for possible acquisitions or investments in products, technologies or
    businesses that broaden or enhance the Company's current product or
    service offerings, working capital and for general corporate purposes.
        
  There are no current agreements or understandings with respect to any
acquisitions, investments or other transactions. Pending the uses described
above, the Company intends to invest the remaining net proceeds in short-term,
investment grade, interest-bearing securities.
 
                                DIVIDEND POLICY
 
  The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings, if any, for use in its business and to
support growth and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The Company's credit facilities currently
place certain restrictions on the Company's ability to declare and pay
dividends.
 
                                      12
<PAGE>
 
                                   DILUTION
   
  The net tangible book value of the Company as of September 30, 1997 was
approximately ($.64) per share of Common Stock. Net tangible book value per
share of the Common Stock is equal to the book value of the Company's total
tangible assets less the book value of its total liabilities, divided by the
total number of shares of Common Stock outstanding as of September 30, 1997.
After giving effect to the sale by CPS of the 1,900,000 shares of Common Stock
offered hereby, assuming the over-allotment option granted to the Underwriters
by the selling shareholders is exercised in full and the exercise of the put
warrants, and after deducting the underwriting discount and the estimated
offering expenses payable by CPS, the pro forma net tangible book value of CPS
at September  30, 1997 would have been $5,852,733, or $.87 per share. This
represents an immediate increase in the net tangible book value of $1.51 per
share to existing holders of Common Stock and an immediate dilution of $4.63
per share to the persons purchasing shares of Common Stock at the assumed
public offering price. The following table illustrates this per share
dilution:     
 
<TABLE>   
<S>                                                                <C>     <C>
Public offering price.............................................         $5.50
 Net tangible book value before the offering......................  ($.64)
 Increase attributable to new investors...........................   1.51
                                                                   ------
Pro forma net tangible book value after the offering..............           .87
                                                                           -----
Dilution to new investors (84.2%).................................         $4.63
                                                                           =====
</TABLE>    
 
  The following table compares, as of September 30, 1997, the number of shares
of Common Stock purchased from CPS by its existing shareholders prior to this
offering and to be purchased by new investors in this offering, the total
consideration paid or to be paid to CPS and the average price per share paid
or to be paid to the Company by the Company's existing shareholders and by new
investors purchasing shares in this offering, assuming no exercise of the
Underwriters' over-allotment option:
 
<TABLE>   
<CAPTION>
                                 SHARES PURCHASED  TOTAL CONSIDERATION  AVERAGE
                                 ----------------- -------------------   PRICE
                                  NUMBER   PERCENT   AMOUNT    PERCENT PER SHARE
                                 --------- ------- ----------- ------- ---------
<S>                              <C>       <C>     <C>         <C>     <C>
Existing shareholders........... 4,832,502    72%  $ 1,002,376     9%    $ .21
New investors................... 1,900,000    28    10,450,000    91     $5.50
                                 ---------   ---   -----------   ---
  Total......................... 6,732,502   100%  $11,452,376   100%
                                 =========   ===   ===========   ===
</TABLE>    
   
  The foregoing table assumes exercise of outstanding options or warrants.
Subsequent to September 30, 1997, CPS granted options to purchase 335,000
shares of Common Stock under the Stock Option Plan. In addition, CPS will
issue to the Representatives, effective upon consummation of this offering,
the Representatives' Warrant. See "Management--Employee Equity Plans,"
"Principal Shareholders" and "Underwriting."     
 
                                      13
<PAGE>
 
                                CAPITALIZATION
 
  The following table sets forth the historical capitalization of the Company
as of September 30, 1997 on an actual and as adjusted basis. The information
set forth in the table below should be read in conjunction with the Company's
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
See "Use of Proceeds."
 
<TABLE>   
<CAPTION>
                                                            SEPTEMBER 30, 1997
                                                            -------------------
                                                               (AMOUNTS IN
                                                                THOUSANDS)
                                                                        AS
                                                            ACTUAL  ADJUSTED(2)
                                                            ------  -----------
<S>                                                         <C>     <C>
Cash and cash equivalents.................................. $  338    $ 7,660
                                                            ======    =======
SHORT-TERM DEBT:
Current portion of long-term debt..........................    321        -0-
                                                            ------    -------
LONG-TERM DEBT:
Senior term loan...........................................    489        -0-
Senior subordinated note...................................  2,014      2,014
Other debt(3)..............................................    235        -0-
                                                            ------    -------
 Total long-term debt...................................... $2,738    $ 2,014
                                                            ------    -------
SHAREHOLDERS' EQUITY:
Common stock and paid-in capital
$.01 par value, 50,000 shares authorized;
4,833 shares issued and outstanding; 6,733 shares issued
and outstanding,
as adjusted(1).............................................  1,000      9,528
Accumulated deficit........................................   (460)      (674)
                                                            ------    -------
Total shareholders' equity................................. $  540    $ 8,854
                                                            ------    -------
Total capitalization....................................... $3,599    $10,868
                                                            ======    =======
</TABLE>    
- --------
(1) Does not give effect to (i) 335,000 shares of Common Stock reserved for
    issuance upon exercise of outstanding options under the Company's 1997
    Equity Participation Plan with a per share exercise price equal to the
    initial offering price, (ii) 265,000 shares of Common Stock reserved for
    issuance upon exercise of options reserved for future grant under the
    Company's 1997 Equity Participation Plan and (iii) 100,000 shares of
    Common Stock reserved under the Company's Employee Stock Purchase Plan.
    See "Management--Employee Equity Plans," "Description of Capital Stock--
    Warrants" and "Underwriting."
   
(2) Reflects the issuance and sale by the Company of 1,900,000 shares of the
    Common Stock offered hereby and the application of a portion of the net
    proceeds therefrom to repay certain indebtedness, after deducting the
    underwriting discount and estimated offering expenses. Assumes the over-
    allotment option granted to the Underwriters by the selling shareholders
    is exercised in full.     
(3) Represents recorded amount of put warrants as of September 30, 1997.
    Warrant holders have agreed to exercise all warrants upon the effective
    date of the Company's initial public offering.
 
                                      14
<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The selected financial data set forth below for the nine months ended
September 30, 1997, the years ended December 31, 1996 and 1995 and as of
September 30, 1997 and December 30, 1996 are derived from the Company's
audited Financial Statements, which appear elsewhere in this Prospectus. The
selected financial data as of December 31, 1995 are derived from the Company's
audited financial statements which are not included in this Prospectus. The
selected financial data as of September 30, 1996 are derived from the
Company's unaudited financial statements, which are not included in this
Prospectus. The selected financial data for the nine months ended September
30, 1996, are derived from the Company's unaudited financial statements which
appear elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on a basis consistent with
the Financial Statements which appear elsewhere in this Prospectus, and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such unaudited financial statements. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
                                                                    NINE
                                                YEAR ENDED      MONTHS ENDED
                                                DECEMBER 31,    SEPTEMBER 30,
                                               --------------  ----------------
                                                1995    1996    1996     1997
                                               ------  ------  -------  -------
                                               (AMOUNTS IN THOUSANDS EXCEPT
                                                      PER SHARE DATA)
<S>                                            <C>     <C>     <C>      <C>
STATEMENT OF OPERATIONS DATA:
 Revenue:
  License fees................................ $  424  $1,635  $ 1,436  $ 1,795
  Recurring maintenance and service fees......  3,907   3,851    2,872    2,887
  Product sales...............................  1,594   2,052    1,571    2,299
  Other service fees..........................    328     825      477      738
                                               ------  ------  -------  -------
   Total revenue..............................  6,253   8,363    6,356    7,719
                                               ------  ------  -------  -------
 Cost of revenue:
  Product sales...............................  1,033   1,465    1,148    1,616
  Software....................................    256     391      250      414
  Distribution................................     11      11        8       56
                                               ------  ------  -------  -------
   Total cost of revenue......................  1,300   1,867    1,406    2,086
                                               ------  ------  -------  -------
 Gross profit.................................  4,953   6,496    4,950    5,633
 Operating expenses:
  Support and customer service................  2,276   2,743    1,979    2,358
  Selling.....................................    601     772      584      702
  Research and development....................    588     866      554    1,136
  General and administrative..................    871   1,030      757      793
  Amortization of goodwill and non-compete
   agreements.................................    347     347      269      265
                                               ------  ------  -------  -------
                                                4,683   5,758    4,143    5,254
                                               ------  ------  -------  -------
 Earnings from operations.....................    270     738      807      379
 Interest and financing costs.................    524     819      618      275
                                               ------  ------  -------  -------
 Earnings (loss) before income taxes..........   (254)    (81)     189      104
 Income tax expense (benefit).................    (24)    165      219       87
                                               ------  ------  -------  -------
 Net earnings (loss).......................... $ (230) $ (246) $   (30) $    17
                                               ======  ======  =======  =======
 Net earnings (loss) per common share(1)...... $(0.06) $(0.06) $ (0.01) $  0.00
 Weighted average shares used in computing net
  earnings (loss) per common share............  3,905   3,905    3,905    3,905
<CAPTION>
                                                DECEMBER 31,    SEPTEMBER 30,
                                               --------------  ----------------
                                                1995    1996    1996     1997
                                               ------  ------  -------  -------
<S>                                            <C>     <C>     <C>      <C>
BALANCE SHEET DATA:
 Cash......................................... $  385  $  592  $   292  $   338
 Working capital..............................    200     303      531       67
 Total assets.................................  6,025   6,134    6,567    6,101
 Long-term debt, net of current portion.......  3,041   2,741    2,819    2,503
 Shareholders' equity.........................    770     524      743      540
</TABLE>
- --------
   
(1) Does not give effect to (i) the exercise of outstanding warrants to
    purchase an aggregate of 927,766 shares of Common Stock, exercisable at a
    price per share of $0.0026, which will be exercisable on the earlier of
    December 31, 1999 or completion of an initial public offering, (ii)
    335,000 shares of Common Stock reserved for issuance upon exercise of
    outstanding options under the Company's 1997 Equity Participation Plan
    with a per share exercise price equal to the initial offering price, (iii)
    265,000 shares of Common Stock reserved for issuance upon exercise of
    options reserved for future grant under the Company's 1997 Equity
    Participation Plan, (iv) 100,000 shares of Common Stock reserved under the
    Company's Employee Stock Purchase Plan and (v) 190,000 shares (218,500
    shares if the Underwriters' over-allotment option is exercised in full) of
    Common Stock issuable upon exercise of the Representatives' Warrant at an
    exercise price of $7.20 per share. See "Management--Employee Equity
    Plans," "Description of Capital Stock--Warrants" and "Underwriting."     
 
                                      15
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
  The Company offers fully integrated, Y2K compliant, software solutions
designed to automate and integrate the operations of public sector
organizations. CPS serves the public sector market through three core product
groups: property tax appraisal and assessment, property tax billing and
collection and city and municipal systems. The Company provides its software
applications to customers in public sector markets under license agreements
and service contracts generally ranging from one to five years with automatic
renewals thereafter. The Company also markets to the private sector its
remittance processing systems ("RPS") solutions and related network and
communications products. The Company derives its revenue from four principal
sources: software license fees; recurring monthly maintenance and service
fees; hardware and product sales; and recurring monthly hardware maintenance
fees. Revenue from software licenses is generated from the initial contracts
that grant customers the right to use the Company's software products. Revenue
from recurring monthly service fees is generated from the continued use of the
Company's software products. Revenue from hardware and product sales includes
sales of computers, data collection equipment, peripherals, RPS solutions and
related network and communications products purchased from third parties and
sold by the Company to its customers. Maintenance and other revenue includes
revenue associated with hardware maintenance and support services.
 
  License fees charged to end users are fixed, with the amount of the fee
based upon the number of accounts processed, hardware configuration, number of
users and applications licensed. License fees are recognized when the related
license 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. Revenue from maintenance and
service agreements are deferred and recognized ratably over the contractual
periods the services are provided. Service contracts are required to be in
effect during the entire license term. Hardware revenue is recognized upon
shipment.
 
  The Company capitalizes software development costs associated with the
development of products. At September 30, 1997, capitalized software
development costs totaled approximately $877,000. These costs relate primarily
to the development of new products and major enhancements to existing products
to accommodate new markets or platforms using existing technologies and
programming methods. These capitalized costs are amortized on a straight line
basis over a 72-120 month period, commencing when each product is available to
the market. The useful lives of the capitalized software development costs are
based on management's expectations of the minimum life cycle of each product.
 
  At September 30, 1997 goodwill and other intangible assets totaled
approximately $1,976,000 and $201,000, respectively. The goodwill arose
primarily in connection with the 1994 Acquisition (as defined below) of the
Company. The useful life of the goodwill was based on management's estimate of
the minimum period of time that the goodwill acquired by the Company would be
of benefit to its operations. The useful lives of the other intangible assets,
consisting of debt issue costs and non-compete agreements were based on the
terms of the related agreements.
 
  Management periodically evaluates the realizability of its capitalized
software development costs, goodwill and other intangible assets in light of
current technology, as it relates to the Company's products, and the current
environment of its industry and markets. Management believes that no material
impairment of software development costs, goodwill and other intangible assets
existed as of September 30, 1997.
 
  Management has addressed the Y2K issue as it affects the Company's internal
computer programs and believes that its significant internal computer programs
and systems are currently Y2K compliant.
 
                                      16
<PAGE>
 
RESULTS OF OPERATIONS
 
  Certain of the Company's operating data for fiscal years 1995 and 1996 and
for the nine months ended September 30, 1997 and 1996 are set forth below as
percentages of total revenue:
 
<TABLE>
<CAPTION>
                                                                NINE MONTHS
                                              YEAR ENDED           ENDED
                                             DECEMBER 31,      SEPTEMBER 30,
                                             ---------------   ---------------
                                              1995     1996     1996     1997
                                             ------   ------   ------   ------
<S>                                          <C>      <C>      <C>      <C>
STATEMENT OF OPERATIONS DATA:
 Revenue:
  License fees..............................    6.8%    19.6%    22.6%    23.2%
  Recurring maintenance and service fees....   62.5     46.0     45.2     37.4
  Product sales.............................   25.5     24.5     24.7     29.8
  Other service fees........................    5.2      9.9      7.5      9.6
                                             ------   ------   ------   ------
    Total revenue...........................  100.0    100.0    100.0    100.0
                                             ------   ------   ------   ------
 Cost of revenue:
  Product sales.............................   16.5     17.5     18.1     20.9
  Software..................................    4.1      4.7      3.9      5.4
  Distribution..............................    0.2      0.1      0.1      0.7
                                             ------   ------   ------   ------
    Total cost of revenue...................   20.8     22.3     22.1     27.0
                                             ------   ------   ------   ------
 Gross profit...............................   79.2     77.7     77.9     73.0
 Operating expenses:
  Support and customer service..............   36.4     32.8     31.2     30.6
  Selling...................................    9.6      9.2      9.2      9.1
  Research and development..................    9.4     10.4      8.7     14.7
  General and administrative................   13.9     12.3     11.9     10.3
  Amortization of goodwill and non-compete
   agreements...............................    5.6      4.2      4.2      3.4
                                             ------   ------   ------   ------
    Operating expenses......................   74.9     68.9     65.2     68.1
                                             ------   ------   ------   ------
Earnings from operations....................    4.3      8.8     12.7      4.9
Interest and financing costs................    8.4      9.7      9.7      3.6
                                             ------   ------   ------   ------
Earnings (loss) before income taxes.........   (4.1)    (0.9)     3.0      1.3
Income tax expense (benefit)................   (0.4)     2.0      3.5      1.1
                                             ------   ------   ------   ------
Net earnings (loss).........................   (3.7)%   (2.9)%   (0.5)%    0.2%
                                             ======   ======   ======   ======
</TABLE>
 
                                       17
<PAGE>
 
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
 
 REVENUE
 
  The Company's total revenue was $7.7 million for the nine months ended
September 30, 1997 compared to $6.4 million for the nine months ended
September 30, 1996, an increase of $1.3 million, or 20.3%. This increase was
due to an increase in computer assisted mass appraisal ("CAMA") installations,
RPS hardware and software sales and $330,000 of revenue related to CDP
integrated voice response systems.
 
  License Fees. The Company's revenue from license fees was $1.8 million for
the nine months ended September 30, 1997 compared to $1.4 million for the nine
months ended September 30, 1996, an increase of $400,000, or 28.6%. The
increase was primarily due to an increase in new customer CAMA installations
and, to a lesser extent, installations of RPS software and CDP integrated
voice response systems. The Company sold 164 licenses at fees ranging from
less than $10,000 to $200,000 per license during the nine months ended
September 30, 1997. The Company sold 153 licenses at fees ranging from less
than $10,000 to $500,000 per license during the nine months ended September
30, 1996. Revenues from each license fee vary depending upon the number of
accounts processed, hardware configuration, number of users and applications
licensed.
 
  Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $2.9 million for the nine months ended September 30, 1997 compared to
$2.9 million for the same period in 1996. Although there was an increase in
license fees during the period, the recurring revenues attributable to the
maintenance and service contracts remained constant because revenues
associated with such sales are not realized until the effective date of the
maintenance and service contracts, which could become effective up to three to
12 months following execution of the licensing agreement. During this same
period, recurring software and service fees increased while the recurring fees
associated with hardware maintenance declined due to hardware manufacturers
offering longer extended warranties, declining costs of hardware and the
Company's belief that some customers no longer view hardware maintenance as a
mission critical need for all components.
 
  Product Sales. Revenue from product sales was $2.3 million for the nine
months ended September 30, 1997 compared to $1.6 million for the nine months
ended September 30, 1996, an increase of $700,000, or 43.8%. This increase was
primarily due to an increase in RPS sales and, to a lesser extent,
installations of CAMA, sales of hardware for property tax billing and
collection systems, and CDP integrated voice response systems.
 
  Other Service Fees. Revenue from other service fees was $700,000 for the
nine months ended September 30, 1997 compared to $500,000 for the nine months
ended September 30, 1996, an increase of $200,000, or 40.0%. This increase was
primarily due to increased RPS software and hardware sales, CAMA installations
and, starting in 1997, cabling installations to improve client site
infrastructure.
 
 COST OF REVENUE
 
  The Company's cost of revenue includes the cost of hardware product sales,
the cost of software and distribution costs.
 
  Product Sales. The cost of product sales was $1.6 million, or approximately
70.3% of product sales, for the nine months ended September 30, 1997 compared
to $1.1 million, or approximately 73.1% of product sales, for the nine months
ended September 30, 1996, an increase of $500,000, or 45.5%. This increase was
primarily due to costs associated with an increase in RPS hardware sales and,
to a lesser extent, hardware sales associated with CAMA installations. The
decrease in cost as a percentage of product sales was due to an increase in
sales at full list price.
 
                                      18
<PAGE>
 
  Software. Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software
was $400,000, or approximately 23.1% of license fees, for the nine months
ended September 30, 1997 compared to $300,000, or approximately 17.4% of
license fees, for the nine months ended September 30, 1996, an increase of
$100,000, or 33.3%. This increase was largely due to the cost of purchased
software associated with the Cleveland County, Oklahoma installation.
 
  Distribution. The costs associated with distribution were $60,000 for the
nine months ended September 30, 1997 compared to $10,000 for the nine months
ended September 30, 1996, an increase of $50,000, or 500.0%. This increase was
due to increased sales of RPS and cabling installation work performed as a
result of new CAMA installations.
 
  Total cost of revenue was $2.1 million for the nine months ended September
30, 1997 compared to $1.4 million for the nine months ended September 30,
1996, an increase of $700,000, or 50.0%. This yielded a gross profit margin of
73.0% for the nine months ended September 30, 1997 compared to a gross profit
margin of 77.9% for the nine months ended September 30, 1996. This decrease in
gross profit resulted from an increase in product sales from 24.7% of total
revenue in 1996 to 29.8% in 1997. Product sales have a higher cost of revenue
associated with them than the Company's other sources of revenue.
 
 OPERATING EXPENSES
 
  Support and Customer Service. Expenses related to support and customer
service were $2.4 million for the nine months ended September 30, 1997
compared to $2.0 million for the nine months ended September 30, 1996, an
increase of $400,000, or 20.0%. This increase resulted from an increase in
personnel costs relating to enhancing customer service and supporting future
growth for expected Y2K sales.
 
  Selling. The Company's selling expenses were $700,000 for the nine months
ended September 30, 1997 compared to $600,000 for the nine months ended
September 30, 1996, an increase of $100,000, or 16.7%. This increase was due
to an increase in the number of sales personnel and the expenses related to
covering new markets such as California, Nevada and Ohio. In addition, sales
commission expenses rose as a result of increased sales of RPS and CAMA.
 
  Research and Development. Research and development expenses were $1.1
million, or 14.7% of revenue, for the nine months ended September 30, 1997
compared to $600,000, or 8.7% of revenue, for the nine months ended September
30, 1996, an increase of $500,000, or 83.3%. These expenses are comprised
primarily of salaries and a portion of the Company's overhead as well as
amounts paid to outside consultants to supplement product development efforts.
This increase resulted from the initiation of development for new database
technology.
 
  General and Administrative. General and administrative expenses were
$800,000 for the nine months ended September 30, 1997 compared to $800,000 for
the nine months ended September 30, 1996.
 
  Amortization of Goodwill and Non-Compete Agreements. The Company incurred a
non-cash expense for amortization of goodwill and non-compete agreements
related to the 1994 Acquisition (as defined below) of $300,000 for the nine
months ended September 30, 1997 compared to $300,000 for the nine months ended
September 30, 1996.
 
 EARNINGS FROM OPERATIONS
 
  Earnings from operations were $400,000, or 4.9% of revenue, for the nine
months ended September 30, 1997 compared to $800,000, or 12.7% of revenue, for
the nine months ended September 30, 1996. The decline in earnings from
operations of $400,000 was primarily due to the increase in research and
development expenses to 14.7% of revenue for the nine months ended September
30, 1997 compared to 8.7% of revenue for the nine months ended September 30,
1996. In each period earnings from operations includes non-cash expenses
related to the amortization of goodwill and non-complete agreements of
$300,000, incurred in connection with the 1994 Acquisition (as defined below).
 
                                      19
<PAGE>
 
 NON-OPERATING EXPENSES
 
  Interest and Financing Costs. The Company's interest expense on its long
term debt was $300,000 for the nine months ended September 30, 1997 compared
to $600,000 for the nine months ended September 30, 1996, a decrease of
$300,000, or 50.0%. This decrease was primarily attributable to a decrease in
the put warrant adjustment. The put warrant adjustment is primarily based on
the operating earnings of the Company for the previous twelve month period,
which decreased from 1996 to 1997. In addition, the Company's investment
policies contributed approximately $20,000 of earned interest towards
offsetting interest expense during the first nine months of 1997.
 
  Provision for Income Taxes. The Company's provision for income taxes was
$90,000 for the nine months ended September 30, 1997, compared to $200,000 for
the nine months ended September 30, 1996, a decrease of $110,000, or 55.0%.
This decrease was primarily attributable to decreased earnings from
operations. The income tax provision is higher than income taxes determined by
applying the applicable statutory tax rates primarily due to non-deductible
amortization of goodwill and non-deductible put warrant adjustments.
 
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
 
 REVENUE
 
  The Company's total revenue was $8.4 million for the year ended December 31,
1996, compared to $6.3 million for the year ended December 31, 1995, an
increase of $2.1 million, or 33.3%. This increase was primarily due to
increased license fees related to installation of the Company's property tax
billing and collection systems software, sales of related hardware and RPS
software and hardware sales.
 
  License Fees. The Company's revenue from license fees was $1.6 million for
the year ended December 31, 1996, compared to $400,000 for the year ended
December 31, 1995 an increase of $1.2 million, or 300.0%. This increase was
primarily the result of increased license fees related to installation of the
Company's property tax billing and collection system and, to a lesser extent,
RPS and the Company's city and municipal systems software. The Company sold
219 licenses at fees ranging from less than $10,000 to $500,000 per license
during the year ended December 31, 1996. The Company sold 97 licenses at fees
ranging from less than $10,000 to $200,000 per license during the year ended
December 31, 1995. Revenues from each license fee vary depending upon the
number of accounts processed, hardware configuration, number of users and
applications licensed.
 
  Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $3.9 million for the year ended December 31, 1996, compared to $3.9
million for the year ended December 31, 1995. Although there was an increase
in license fees during the period, the recurring revenues attributable to the
maintenance and service contracts remained constant because revenues
associated with such sales are not realized until the effective date of the
maintenance and service contracts, which could become effective up to three to
12 months following execution of the licensing agreement. During this same
period, recurring software and service fees increased while recurring fees
associated with hardware maintenance declined due to hardware manufacturers
offering longer extended warranties, declining costs of hardware and the
Company's belief that some customers no longer view hardware maintenance as a
mission critical need for all components.
 
  Product Sales. Revenue from hardware product sales was $2.1 million for the
year ended December 31, 1996, compared to $1.6 million for the year ended
December 31, 1995, an increase of $500,000, or 31.3%. This increase was
primarily attributable to sales of RPS hardware and, to a lesser extent,
increased delivery of hardware associated with the increased sales of property
tax billing and collection systems software.
  Other Service Fees. Revenue from other service fees was $800,000 for the
year ended December 31, 1996, compared to $300,000 for the year ended December
31, 1995, an increase of $500,000, or 166.7%. This
 
                                      20
<PAGE>
 
increase resulted principally from increased RPS hardware installations and,
to a lesser extent, RPS software customizations and customer conversions of
the property tax billing and collection systems.
 
 COST OF REVENUE
 
  Product Sales. The cost of product sales was $1.5 million, or approximately
71.4% of product sales, for the year ended December 31, 1996 compared to $1.0
million, or approximately 64.8% of product sales, for the year ended December
31, 1995, an increase of $500,000, or 50.0%. This increase was primarily due
to costs associated with an increase in RPS hardware sales. The increase in
cost as a percentage of product sales was due to RPS hardware comprising a
larger portion of total hardware sales as RPS hardware generally has a higher
cost of sales than other hardware products.
 
  Software. The cost of software was $400,000, or approximately 23.9% of
license fees, for the year ended December 31, 1996 compared to $300,000, or
approximately 60.3% of license fees, for the year ended December 31, 1995, an
increase of $100,000, or 33.3%. This increase was largely due to the cost of
purchased software associated with RPS installations. Cost of software as a
percentage of license fees was significantly higher in 1995 than 1996 as a
result of the amortization of capitalized software costs remaining consistent
from year to year yet with a significant increase in license fees in 1996.
 
  Distribution. The costs attributed to distribution and other miscellaneous
costs were $10,000 for the year ended December 31, 1996, compared to $10,000
for the year ended December 31, 1995.
 
  The total cost of revenue was $1.9 million for year ended December 31, 1996,
compared to $1.3 million for the year ended December 31, 1995, an increase of
$600,000, or 46.2%. This yielded a gross profit margin of 77.7% for the year
ended December 31, 1996 compared to a gross profit margin of 79.2% for the
year ended December 31, 1995. The decrease in the gross profit margin was
primarily attributable to the decrease in gross margin on hardware sales.
 
 OPERATING EXPENSES
 
  Support and Customer Service. The Company's expenses related to support and
customer service, which include personnel costs, travel and other costs
related to the service business, were $2.7 million for the year ended December
31, 1996, compared to $2.3 million for the year ended December 31, 1995, an
increase of $400,000, or 17.4%. This increase resulted primarily from
increased staffing to enhance customer service and to support growth.
 
  Selling. The Company's selling expenses were $800,000 for the year ended
December 31, 1996, compared to $600,000 for the year ended December 31, 1995,
an increase of $200,000, or 33.3%. This increase resulted primarily from
expansion of the Company's RPS sales force, as well as enhanced marketing
efforts, travel and commissions directly related to increased sales.
 
  Research and Development. Research and development expenses, which consist
primarily of salaries and a portion of the Company's overhead for in-house
staff as well as amounts paid to outside consultants to supplement product
development efforts, were $900,000 for the year ended December 31, 1996,
compared to $600,000 for the year ended December 31, 1995, an increase of
$300,000, or 50.0%. This increase resulted primarily from the use of outside
professional services to supplement the product development efforts of the
Company's in-house staff.
 
  General and Administrative. The Company's general and administrative
expenses, which include the cost of corporate operations, finance and
accounting, human resources and other general operations of the Company, were
$1.0 million for the year ended December 31, 1996, compared to $900,000 for
the year ended December 31, 1995, an increase of $100,000, or 11.1%. This
increase resulted primarily from staff additions and increases in other
general corporate expenses.
 
 
                                      21
<PAGE>
 
  Amortization of Goodwill and Non-Compete Agreements. The Company incurred a
non-cash expense primarily for amortization of goodwill and non-compete
agreements related to the 1994 Acquisition (as defined below) of $300,000 for
the year ended December 31, 1996, compared to $300,000 for the year ended
December 31, 1995.
 
 EARNINGS FROM OPERATIONS
 
  Earnings from operations were $700,000, or 8.8% of revenue, for the year
ended December 31, 1996 compared to $300,000, or 4.3% of revenue, for the year
ended December 31, 1995. The increase in earnings from operations of $400,000
was primarily due to the decrease in support and customer service expenses to
32.8% of revenue for the year ended December 31, 1996 compared to 36.4% of
revenue for the year ended December 31, 1995. In each period earnings from
operations includes non cash expenses related to the amortization of goodwill
and non compete agreements of $300,000 incurred in connection with the 1994
Acquisition (as defined below).
 
 NON-OPERATING EXPENSES
 
  Interest and Financing Costs. The Company's interest expense on its long-
term debt was $800,000 for the year ended December 31, 1996, compared to
$500,000 for the year ended December 31, 1995, an increase of $300,000, or
60.0%. This increase was attributable to an increase in the put warrant
adjustment. The put warrant adjustment is based primarily on the operating
earnings of the Company for the preceding 12-month period, which increased
from 1995 to 1996.
 
  Provision for Income Taxes. The Company's provision for income taxes was
$200,000 for the year ended December 31, 1996, compared to a benefit of
$20,000 for the year ended December 31, 1995, an increase of $220,000. This
increase was primarily attributable to an increase in earnings from
operations. The income tax provision is higher than income taxes determined by
applying the applicable statutory tax rates primarily due to non-deductible
amortization of goodwill and non-deductible put warrant adjustments.
 
 QUARTERLY RESULTS OF OPERATIONS
 
  The following tables set forth a summary of the Company's unaudited
quarterly operating results for each of the eight quarters in the period ended
September 30, 1997. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on
a basis consistent with the Financial Statements contained elsewhere in this
Prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of such information when read in
conjunction with the Company's Financial Statements and Notes thereto. The
operating results for any quarter are not necessarily indicative of results
for any future period. See "Risk Factors--Potential Fluctuations of Operating
Results; Future Operating Results Uncertainty."
 
                                      22
<PAGE>
 
<TABLE>
<CAPTION>
                                                       QUARTER ENDED
                         ------------------------------------------------------------------------------
                         DEC. 31,  MAR. 31,  JUNE 30, SEPT. 30, DEC. 31,  MAR. 31,  JUNE. 30, SEPT. 30,
                           1995      1996      1996     1996      1996      1997      1997      1997
                         --------  --------  -------- --------- --------  --------  --------- ---------
                                                   (DOLLARS IN THOUSANDS)
<S>                      <C>       <C>       <C>      <C>       <C>       <C>       <C>       <C>
Revenue:
 License fees...........  $  138    $  123    $  729   $  584    $  199    $  190    $1,175    $  430
 Recurring maintenance
  and service fees......     985       969       959      944       979       955       956       976
 Product sales..........     598       360       618      593       481       501     1,147       651
 Other service fees.....     141        68       168      241       348       146       335       257
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total revenue........   1,862     1,520     2,474    2,362     2,007     1,792     3,613     2,314
                          ------    ------    ------   ------    ------    ------    ------    ------
Cost of revenue:
 Product sales..........     438       238       465      445       317       363       873       380
 Software...............      74        54        85      111       141        93       189       132
 Distribution...........       6         1         4        3         3         3        37        16
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total cost of
    revenue.............     518       293       554      559       461       459     1,099       528
                          ------    ------    ------   ------    ------    ------    ------    ------
Gross profit............   1,344     1,227     1,920    1,803     1,546     1,333     2,514     1,786
Operating expenses:
 Support and customer
  service...............     588       587       714      678       764       732       727       899
 Selling................     252       165       214      205       188       145       264       293
 Research and
  development...........      40       137       200      217       312       353       376       407
 General and
  administrative........     277       251       252      254       273       301       229       263
 Amortization of
  goodwill and non-
  compete agreements....      75        90        89       90        78        90        91        84
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total operating
    expenses............   1,232     1,230     1,469    1,444     1,615     1,621     1,687     1,946
                          ------    ------    ------   ------    ------    ------    ------    ------
Earnings (loss) from
 operations.............     112        (3)      451      359       (69)     (288)      827      (160)
Interest and financing
 costs..................     152       208       207      203       201       116       116        43
                          ------    ------    ------   ------    ------    ------    ------    ------
Earnings (loss) before
 income taxes...........     (40)     (211)      244      156      (270)     (404)      711      (203)
Income tax expense
 (benefit)..............      (4)      (31)      142      108       (54)     (125)      299       (87)
                          ------    ------    ------   ------    ------    ------    ------    ------
Net earnings (loss).....  $  (36)   $ (180)   $  102   $   48    $ (216)   $ (279)   $  412    $ (116)
                          ======    ======    ======   ======    ======    ======    ======    ======
<CAPTION>
                                                       QUARTER ENDED
                         ------------------------------------------------------------------------------
                         DEC. 31,  MAR. 31,  JUNE 30, SEPT. 30, DEC. 31,  MAR. 31,  JUNE 30,  SEPT. 30,
                           1995      1996      1996     1996      1996      1997      1997      1997
                         --------  --------  -------- --------- --------  --------  --------- ---------
<S>                      <C>       <C>       <C>      <C>       <C>       <C>       <C>       <C>
Revenue:
 License fees...........     7.4%      8.1%     29.4%    24.7%      9.9%     10.6%     32.5%     18.6%
 Recurring maintenance
  and service fees......    52.9      63.8      38.8     40.0      48.8      53.3      26.5      42.2
 Product sales..........    32.1      23.7      25.0     25.1      24.0      28.0      31.7      28.1
 Other service fees.....     7.6       4.4       6.8     10.2      17.3       8.1       9.3      11.1
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total revenue........   100.0     100.0     100.0    100.0     100.0     100.0     100.0     100.0
                          ------    ------    ------   ------    ------    ------    ------    ------
Cost of revenue:
 Product sales..........    23.5      15.6      18.8     18.9      15.8      20.2      24.2      16.4
 Software...............     4.0       3.6       3.4      4.7       7.0       5.2       5.2       5.7
 Distribution...........     0.3       0.1       0.2      0.1       0.2       0.2       1.0       0.7
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total cost of
    revenue.............    27.8      19.3      22.4     23.7      23.0      25.6      30.4      22.8
                          ------    ------    ------   ------    ------    ------    ------    ------
Gross profit............    72.2      80.7      77.6     76.3      77.0      74.4      69.6      77.2
Operating expenses:
 Support and customer
  service...............    31.6      38.6      28.9     28.7      38.1      40.9      20.1      38.8
 Selling................    13.5      10.9       8.6      8.7       9.3       8.1       7.3      12.7
 Research and
  development...........     2.2       9.0       8.1      9.2      15.5      19.7      10.4      17.6
 General and
  administrative........    14.9      16.5      10.2     10.7      13.6      16.8       6.4      11.4
 Amortization of
  goodwill and non-
  compete agreements....     4.0       5.9       3.6      3.8       3.9       5.0       2.5       3.6
                          ------    ------    ------   ------    ------    ------    ------    ------
   Total operating
    expenses............    66.2      80.9      59.4     61.1      80.4      90.5      46.7      84.1
                          ------    ------    ------   ------    ------    ------    ------    ------
Earnings (loss) from
 operations.............     6.0      (0.2)     18.2     15.2      (3.4)    (16.1)     22.9      (6.9)
Interest and financing
 costs..................     8.1      13.7       8.4      8.6      10.0       6.5       3.2       1.9
                          ------    ------    ------   ------    ------    ------    ------    ------
Earnings (loss) before
 income taxes...........    (2.1)    (13.9)      9.8      6.6     (13.4)    (22.6)     19.7      (8.8)
Income tax expense
 (benefit)..............    (0.2)     (2.1)      5.7      4.6      (2.7)     (7.0)      8.3      (3.8)
                          ------    ------    ------   ------    ------    ------    ------    ------
Net earnings (loss).....    (1.9)%   (11.8)%     4.1%     2.0%    (10.7)%   (15.6)%    11.4%     (5.0)%
                          ======    ======    ======   ======    ======    ======    ======    ======
</TABLE>
 
 
 
                                       23

<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
  A private investor group acquired the Company on December 30, 1994 for
approximately $4.6 million (including a non-compete payment of $250,000) in
leveraged transaction (the "1994 Acquisition"). The 1994 Acquisition was
financed with funding provided by certain of the Company's officers and
directors in the form of equity capital as well as with a $1.5 million senior
term loan due December 1998 provided by FINOVA and a $2.1 million senior
subordinated note due in two equal installments in December 1999 and December
2000, with 12% interest paid quarterly, provided by Hanifen Imhoff Mezzanine
Fund, L.P. ("Hanifen"). Each of FINOVA and Hanifen hold a security interest in
substantially all of the Company's assets and the Company's currently
outstanding Common Stock. Moreover, each loan agreement contains certain
restrictive covenants relating to debt coverage and liquidity ratios, payment
of cash dividends and other matters. The Company intends to retire the
outstanding balance of the FINOVA senior term loan with proceeds from this
offering, as well as certain shareholder indebtedness in the amount of
$128,000. Management believes the Hanifen note can be retired with cash
generated from operations. However, management intends to seek alternative
financing with more favorable terms to replace the Hanifen note. There can be
no assurance that the Company will be able to obtain such alternative
financing on acceptable terms. In addition, in connection with the 1994
Acquisition, FINOVA agreed to provide a $1.0 million revolving credit facility
(the "Revolver") for working capital and general corporate purposes.
Subsequent to the closing of the 1994 Acquisition, the Company has funded its
business solely with the cash generated from operations and therefore to date
has not utilized the Revolver. See "Use of Proceeds" and "Risk Factors--
Control by Principal Shareholders, Officers and Directors."
 
  The Company's cash balances were $340,000, $590,000 and $390,000 as of
September 30, 1997, December 31, 1996 and December 31, 1995, respectively. In
1996 and 1995, the Company generated cash from operating activities of
$550,000 and $470,000 respectively, which was principally attributable to an
increase in non-cash operating expenses in 1996. For the nine months ended
September 30, 1997 and September 30, 1996, the Company generated cash from
operations of $360,000 and $140,000, respectively. This increase was primarily
the result of improved collections of accounts receivable partially offset by
a reduction in non-cash operating expenses. Cash used in investing activities
totaled $250,000 and $290,000 in fiscal 1996 and 1995, respectively. For the
nine months ended September 30, 1997 and September 30, 1996, cash used in
investing activities totaled $400,000 and $190,000, respectively. Investing
activities include capital expenditures and software development costs. The
increase in the nine months ended September 30, 1997 over the nine months
ended September 30, 1996 was primarily due to the increase in capitalized
software development costs and an increase in investments of tooling and
related software. Net cash used in financing activities was $100,000 and
$210,000 in fiscal 1996 and 1995, respectively. For the nine months ended
September 30, 1997 and September 30, 1996, cash used in financing activities
was $220,000 and $50,000, respectively. Included in financing activities for
the year ended December 31, 1996 and the nine months ended September 30, 1996
is a reimbursement of $170,000 from the seller's escrow entered into in
connection with the 1994 Acquisition.
 
  The Company believes that the proceeds of this offering when combined with
its cash balances, cash generated from operations, and proceeds from this
offering will satisfy the Company's working capital, business development and
capital expenditures for at least the next 12 months. In the longer term, the
Company may require additional sources of liquidity to fund future growth.
Such sources of liquidity may include additional equity offerings, or debt
financings. In the normal course of business, the Company evaluates
acquisitions of business, products and technologies that complement the
Company's business. The Company has no present commitments or agreements with
respect of any such transaction. There can be no assurance, however, that the
Company will have sufficient working capital to satisfy all of the anticipated
needs for the next 12 months. Increased costs or expenses, acquisition
prospects and opportunities for growth or expansion may increase the demand
for working capital thereby making an additional infusion of capital
necessary. See "Risk Factors--Acquisition Risk."
 
                                      24
<PAGE>
 
   
RECENT DEVELOPMENTS     
   
  The following discussion reflects the unaudited results of operations for
the year and quarter ended December 31, 1997 and unaudited balance sheet data
as of December 31, 1997. Amounts in the Summary Financial Data are in
thousands (except per share data).     
   
  Summary Financial Data:     
 
<TABLE>   
<CAPTION>
                                                                YEAR ENDED
                                                           DECEMBER 31, 1997(1)
                                                           --------------------
                                                               (UNAUDITED)
<S>                                                        <C>
STATEMENT OF OPERATIONS DATA:
  Total revenue...........................................       $10,488
  Gross profit............................................         7,316
  Operating expenses......................................         7,171
  Earnings from operations................................           145
  Net earnings (loss).....................................          (246)
Net earnings (loss) per common share, basic (2)...........       $ (0.07)
Net earnings (loss) per common share, assuming dilution...       $ (0.07)
Weighted average shares used in computing net loss per
 common share, basic and assuming dilution................         4,833
</TABLE>    
 
<TABLE>   
<CAPTION>
                                        DECEMBER 31, 1997(1) SEPTEMBER 30, 1997
                                        -------------------- ------------------
                                            (UNAUDITED)
<S>                                     <C>                  <C>
BALANCE SHEET DATA:
 Cash..................................        $  327              $  338
 Working capital (deficit).............          (487)                 67
 Total assets..........................         6,230               6,101
 Long-term debt, net of current
  portion..............................         2,014               2,503
 Shareholders' equity..................           277                 540
</TABLE>    
- --------
   
(1) Consolidated financial statements as of and for the year ended December
    31, 1997 are not included in this registration statement.     
   
(2) Does not give effect to (i) 335,000 shares of Common Stock reserved for
    issuance upon exercise of outstanding options under the Company's 1997
    Equity Participation Plan with a per share exercise price equal to the
    initial offering price, (ii) 265,000 shares of Common Stock reserved for
    issuance upon exercise of options reserved for future grant under the
    Company's 1997 Equity Participation Plan, (iii) 100,000 shares of Common
    Stock reserved under the Company's Employee Stock Purchase Plan and
    (iv) 190,000 shares (218,500 shares if the Underwriters' over-allotment
    option is exercised in full) of Common Stock issuable upon exercise of the
    Representatives' Warrant at an exercise price of $7.20 per share. See
    "Management--Employee Equity Plans," "Description of Capital Stock--
    Warrants" and "Underwriting."     
   
  Total revenue for the year ended December 31, 1997 was $10.5 million,
comprised of license fees totaling $2.2 million, recurring maintenance and
service fees totaling $3.9 million, product sales totaling $3.4 million, and
other service fees totaling $1.0 million. Total revenue for the three months
ended December 31, 1997 was $2.8 million, comprised of license fees totaling
$400,000, recurring maintenance and service fees totaling $1.0 million,
product sales totaling $1.1 million, and other service fees totaling $230,000.
       
  Gross profit for the year ended December 31, 1997 was $7.3 million, or 69.5%
of total revenue. Gross profit for the three months ended December 31, 1997
was $1.7 million, or 60.7% of total revenue. The decline in the gross profit
percentage during the three months ended December 31, 1997 from the nine
months ended September 30, 1997 resulted primarily from RPS products and
software comprising a greater portion of total revenue during the fourth
quarter. RPS products and software sales have a higher cost of revenue
associated with them than the Company's other products, software and services.
    
                                      25
<PAGE>
 
   
  Earnings (loss) from operations were $145,000 for the year ended December
31, 1997 and ($233,000) for the three months ended December 31, 1997. The loss
from operations during the fourth quarter was primarily due principally to the
decline in gross profit percentage on the revenue during the fourth quarter
and operating losses incurred by CDP due to an increase in staffing and
facilities in order to support future growth.     
   
  The net loss was $246,000 for the year ended December 31, 1997 and $263,000
for the three months ended December 31, 1997. The net loss for the three
months ended December 31, 1997 was due principally to the lower gross profit
percentage on revenue during the fourth quarter and the operating losses
incurred by CDP. Additionally, interest and financing costs increased during
the fourth quarter due to a decrease in the benefit from the put warrant
adjustment.     
   
  The basic net loss per common share and net loss per common share assuming
dilution for the year ended December 31, 1997 was $.07. The basic net loss per
common share and net loss per common share assuming dilution for the three
months ended December 31, 1997 was $.07. Restatement of earnings per share for
periods prior to 1997 for Statement of Financial Accounting Standards No. 128
will have no effect on earnings per share as previously reported.     
   
  The deficit in working capital at December 31, 1997 was $487,000. The
decline in working capital from September 30, 1997 is primarily a result of
the reclassification of $490,000 of the senior term loan, which matures in
December 1998, from a long-term liability at September 30, 1997 to a current
liability at December 31, 1997. Shareholders' equity was $277,000 at December
31, 1997. The decline from September 30, 1997 was a result of the net loss
incurred during the quarter ended December 31, 1997.     
 
ACCOUNTING PRONOUNCEMENTS
 
  The Financial Accounting Standards Board (FASB) has issued the following
Statements of Financial Accounting Standards (SFAS):
 
  SFAS 128, Earnings Per Share, which is effective for financial statements
for periods ending after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed.
 
  SFAS 129, Disclosure of Information about Capital Structure, which is
effective for financial statements for periods ending after December 15, 1997.
SFAS 129 requires disclosure of certain information about a Company's
securities.
 
  SFAS 130, Reporting Comprehensive Income, which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 requires companies to
include details about comprehensive income that arise during a reporting
period. Comprehensive income includes revenue, expenses, gains and losses that
bypass the income statement and are reported directly in a separate component
of equity.
 
  SFAS 131, Disclosures About Segments of an Enterprise and Related
Information, which is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 requires companies to report information
about an entity's different types of business activities and the different
economic environments in which it operates, referred to as operating segments.
 
  Additionally, the AICPA Accounting Standards Executive Committee has issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
modifies the criteria for determining recognition of revenue and allocation of
the contract fee for contracts containing multiple elements, such as software
products, rights to upgrades and other services.
 
  Management does not expect the adoption of the Statements of Financial
Accounting Standards and SOP 97-2, referred to above, to have a material
impact on the Company's presentation of its results of operations or financial
condition.
 
                                      26
<PAGE>
 
                                   BUSINESS
 
INTRODUCTION
 
  CPS develops, markets, implements and supports fully integrated software
applications designed specifically for public sector organizations, including
states, counties, townships, city governments and other municipal agencies.
The Company's products address the following functional areas: (i) property
tax appraisal and assessment, (ii) property tax billing and collection, (iii)
city and municipal systems and (iv) remittance processing systems. Currently,
the Company's public sector software applications are installed in six states
(Colorado, Florida, North Carolina, New Mexico, Oklahoma and Texas),
representing more than 250 customers. The majority of its customers are county
governments with taxable parcel counts over 10,000 or cities with populations
between 5,000 and 35,000. The Company's focus on the public sector allows it
to design solutions that address the needs of these organizations. The Company
has identified three significant growth opportunities in the public sector
marketplace as described below.
 
  Expand Core Public Sector Business. The Company intends to geographically
expand its core product business to address the following functional areas:
property tax appraisal and assessment; property tax billing and collection;
and city and municipal systems. Recently, this core business has been growing
rapidly due, in the Company's judgment, to the ability of the Company's
software to improve delivery of service, reduce costs, enhance revenue
collection, operate successfully within budget constraints, comply with
rapidly changing local, state and federal regulations and improve management
economics. This opportunity represents a key segment of the Company's business
strategy due to the growing recurring revenue streams generated by license
agreements entered into by customers of the Company's core business.
 
  Provide Y2K Solutions. The Company plans to leverage its 17 years of public
sector experience to capitalize on the opportunity to provide Y2K-compliant
software applications to public sector organizations. The Y2K problem results
from the traditional use of two-digit date fields to perform computations and
decision-making functions. For example, a program using a two-digit date field
may misinterpret "00" as the year 1900 rather than the year 2000. The Company
believes this problem has been magnified in the public sector due to the
substantially greater allocation of resources to the higher-paying private
sector. In addressing the Y2K problem, public sector entities are faced with
the prospect of competing with the private sector for recruiting, hiring and
retaining top data processing talent, despite possessing limited ability to
match competitive salaries for attracting new hires or retaining existing
staff. As a result, the Company believes many public sector organizations are
seeking cost-effective, non-labor intensive solutions such as those offered by
CPS.
 
  Leverage Client/Server-Based Products. The Company intends to leverage the
interoperability of the Company's core products to manage information flow
between departments as organizations shift from mainframe computers to
client/server systems. When local governments began to use computerized
operations in the 1970s and 1980s, management systems were originally based on
mainframe computers and later based on minicomputers. These legacy systems
typically were developed on a customized basis using proprietary and often in-
house operating systems and database software. The Company believes many
public sector organizations currently are faced with a pressing need to
integrate mission critical functions and databases by replacing standalone
applications and customized, out-dated software with integrated software
applications similar to those offered by CPS.
 
INDUSTRY OVERVIEW
 
 PUBLIC SECTOR MARKETPLACE
 
  The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. The
Company estimates the local government market comprises over 3,000 counties
and over 19,000 municipalities in the United States, not including school
districts, townships
 
                                      27
<PAGE>
 
and special government districts. According to one industry source, state and
local government agencies spent approximately $34.5 billion on information
technology and related products in 1996. This total included approximately
$5.0 billion for software, $6.7 billion for external services, $7.4 billion
for hardware and $15.4 billion on internal services (e.g., in-house management
information systems departments).
 
  Of the $5.0 billion in 1996 software expenditures, approximately $3.1
billion was spent on law enforcement, child welfare, education and emergency
services. Management estimates the remaining $1.9 billion was spent on
software in the four areas CPS markets applications: property tax appraisals
and assessments, property tax billing and collection, city and municipal
systems and remittance processing systems. As local jurisdictions experience
increasing pressure to provide more services without raising taxes, management
believes state legislatures will raise needed revenue by amending tax laws.
However, these same legislatures cannot, in the Company's view, appropriate
sufficient resources to modify existing information systems. Thus, the public
sector is faced with the dilemma of responding to frequent legislative change
during a period of budget cuts.
 
 YEAR 2000 OPPORTUNITY
 
  The Y2K problem relates to the highly publicized inability of many existing
computer legacy systems to accurately process information involving the year
2000 and beyond. For example, unless Y2K compliance is completed in certain
systems, public sector organizations cannot properly (i) appraise, bill and
collect property taxes, a principal revenue source, (ii) record fines and
deeds resulting from property sales and (iii) maintain and retain accurate law
enforcement records. Date-dependent programs are commonly found in legacy
software applications used in many critical business operations, including
those used by public sector organizations. Management has observed that the
public awareness and recognition of the Y2K crisis is rapidly increasing as
the millennium approaches.
 
  While the business community is taking steps to address the Y2K problem, the
Company believes many public sector organizations lack the resources to
achieve a timely solution due to budgetary and other constraints. One industry
source estimates that the overall cost of solving the Y2K problem worldwide
will be in the range of $300 billion to $600 billion. As a result of the
significant resources required to resolve an enterprise-wide Y2K problem, many
public sector organizations may adopt temporary or partial solutions. The
failure by public sector organizations to install permanent Y2K solutions is
expected by management to provide opportunities for CPS to provide Y2K
solutions for years after the year 2000.
 
 DELIVERY OF CLIENT/SERVER TECHNOLOGY
 
  As computing technology evolves and information processing requirements
expand, medium to large public sector organizations are seeking to preserve
the investment in their existing systems by integrating or replacing mainframe
computers with modern distributed computer processing architectures, such as
client/server systems. Distributed computing refers to computer transactions
that may take place among different types of computers at one or more
locations, thereby permitting enterprise-wide information exchanges to occur
that otherwise might not be possible. In a client/server environment, a mid-
range computer serves as the network's hub or server. The server is connected
to possibly hundreds of desktop personal computers or workstations known as
"clients" throughout an organization. The Company believes the client/server
approach has several benefits over mainframe-based systems, including user
friendliness, flexibility in creating new applications in response to changes
in an organization's informational requirements such as tax code changes,
accessibility of enterprise-wide data from a variety of databases, and the
ability to present data in different formats. Moreover, client/server
architectures are becoming more cost effective as a result of technological
advances in personal computers, networking, disk storage, operating systems
and tiered software applications. As the public sector marketplace
increasingly recognizes the benefits of client/server technology, the Company
believes that there will be an increased demand for software and services that
assist such organizations in making this transition.
 
                                      28
<PAGE>
 
THE CPS SOLUTION
 
 PUBLIC SECTOR MARKETPLACE
 
  Extensive Public Sector Experience. The Company's products are the result of
more than 17 years of focusing on the public sector. CPS software is designed
to help organizations streamline and automate administrative intensive
processes such as property tax billing and collection, property tax appraisal
and assessment and improve timeliness and quality of services. Each product
was developed specifically for the public sector, addressing specific needs at
an attractive price.
 
  Integrated Solution and Depth of Functionality. CPS currently markets 41
applications, which provide feature-rich systems for property tax appraisal
and assessment, property tax billing and collection, as well as city and
municipal systems. The Company's software applications are designed to offer
customers the following: (i) simplification of data entry, (ii) compliance
with periodically changing legislation, (iii) extensive security features,
(iv) flexible report configuration and (v) open system technology. The
Company's products operate as stand-alone applications or as integrated suites
which provide users with a consistent graphical user interface ("GUI") and the
ability to easily access data and share information between different
departments. The Company's applications are based upon proven technologies and
are designed to function in mission critical environments.
 
  Cost Effective Implementation Technology. The Company employs a highly
responsive implementation and planning process, offering rapid product
deployment and easy migration among its product lines. The Company minimizes
the productivity interruption that typically results from the introduction of
new technology, thereby enabling organizations to realize the associated
benefits more quickly.
 
 YEAR 2000 OPPORTUNITY
 
  Y2K Solutions and Applications. The CPS solution methodology incorporates
the following process: (i) complete assessment of the customer's information
systems using a proprietary technique to identify critical software components
and related Y2K compliance, (ii) demonstrate the benefits of the Company's Y2K
software applications, (iii) implement consulting and programming services to
convert the non-Y2K data, (iv) install the Company's Y2K software application
and (v) commence user training.
 
  Proprietary Software Conversion Tool. The most important element of the Y2K
solution methodology is the conversion of the non-Y2K compliant data into Y2K
compliance. CPS has developed a proprietary tool that converts data into a
form that can be run by CPS applications. Management believes this tool offers
a significant competitive advantage in marketing its software applications
because the time to conversion and compliance is much shorter than a tedious
legacy conversion of data and source code.
 
  Elimination Rather Than Correction of Legacy Code. The Company believes that
the principal issues facing all Y2K solution providers are finding the hidden
date codes embedded within legacy systems and locating any original lost
source codes. The CPS solution overcomes these obstacles through the following
process: (i) applying field expansion to the year field, (ii) running the
newly-converted Y2K-compliant database on the Company's software, thereby
eliminating the possibility of lost source codes and (iii) replacing the
legacy source code with the Company's Y2K compliant application, thus
eliminating the costly and time-consuming process of searching the legacy
system for hidden date codes. CPS believes the Y2K problem will cause many
public sector organizations to explore further the possibility of migrating
all or portions of their legacy systems to Y2K compliant client/server
systems.
 
 DELIVERY OF CLIENT/SERVER TECHNOLOGY
 
  Adaptability/Flexibility/Scalability. The Company's application software
products are designed to be readily adaptable to meet a customer's initial
needs and to offer sufficient flexibility to respond to a customer's specific
system refinements and ongoing changes once the system is fully in service.
The scalability of the
 
                                      29
<PAGE>
 
Company's software applications and the customer's ability to migrate within
the Company's product family allow state and local governments to increase
operating levels and expand application functionality. In addition, the
Company offers several application programming interfaces intended to enable
customers to develop customized reporting and satisfy unique requirements.
 
  Multi-Platform Tiered Software Architecture. The Company's tiered software
architecture separates the application logic from the GUI and database. This
feature enables the Company to utilize multiple platforms and effectively
integrate new technologies with existing software. The tiered architecture
also allows customers to protect their investments in information systems
while positioning them to adopt new object-based solutions, high performance
servers and database management systems with no loss of functionality.
 
  Centralized System Administration. System administration is simplified in
the Company's software applications, thereby simplifying system management,
reducing the need for in-house system administrators and programmers and
mitigating the need for third-party services. The Company's software
applications incorporate extensive security features designed to protect data
from unauthorized retrieval or modification. Simplified menus and data access
can be tailored to meet each organization's requirements.
 
GROWTH STRATEGY
 
  The Company's growth strategy with respect to serving the public sector
marketplace providing Y2K solutions and capitalizing on the shift to
client/server-based systems includes the following elements:
 
  Augment Recurring Revenue Base. The Company's customers typically enter into
long-term service agreements which generate recurring revenue from continuing
monthly maintenance and service fees, typically at a rate equal to
approximately 32% of the software license fee. Recurring monthly maintenance
and service fees represented approximately 46% of the Company's revenues in
fiscal 1996. Customers benefit from continually updated software and service
in response to technological and legislative changes. In addition, long-term
agreements serve as competitive barriers to entry in the Company's markets.
The Company believes that its service, support and singular knowledge of its
customers' hardware and software requirements ensure continued service and
support revenues. See "Product Description."
 
  Leverage the Y2K Opportunity. The Company views the Y2K market as an
opportunity to become one of the leaders in providing public sector solutions
on a national basis. The Company's history in servicing the public sector
coupled with the need for timely Y2K solutions creates a significant growth
opportunity for the Company. The Company believes the Y2K opportunity will
allow it to establish an installed base of large public sector accounts
nationwide.
 
  Expand Geographic Initiatives. The Company intends to increase its
penetration of the public sector market by expanding the distribution of its
products into new and existing geographic markets. Currently, the Company has
installations in six states and is actively pursuing new business
opportunities in additional states, including Kentucky, Montana, Ohio and
California. To accomplish this expansion, the Company plans to actively
increase the size of its direct sales and marketing force and concurrently,
hire additional technical, support and systems personnel. In addition, the
Company intends to continue to build collaborative relationships with
customers in order to develop new applications and assist customers in keeping
pace with technology and in maintaining compliance with changing governmental
regulations. The Company intends to leverage its installed customer base in
order to enhance its ability to capture additional statewide accounts, as
exemplified by the Company's market penetration in the state of Florida. Since
entering the Florida market in 1988, the Company has completed 25 county
installations out of a total of 67 counties in the state.
 
  Pursue Strategic Acquisitions. The Company views acquisitions as a means of
acquiring technology and application expertise, broadening its customer base
and expanding geographically. The Company believes that the public sector
marketplace is highly fragmented with many small, closely-held companies. The
Company believes its strong management team, the ability to leverage its core
technologies and expertise, proven marketing programs and strategies, as well
as access to capital, should provide the Company with a competitive advantage
and position it to capitalize on acquisition and integration opportunities
which may
 
                                      30
<PAGE>
 
become available over the next several years. Its only corporate acquisition
to date has been the acquisition of its subsidiary CDP Systems, Inc. in July
1997. See "Risk Factors--Acquisition Risk" and "Certain Transactions."
 
  Leverage Software Development Relationship. In 1995, the Company entered
into an agreement with a subsidiary of Mastek, Ltd. ("Mastek"), an offshore
provider of economical programming services, to provide coding services. All
work is communicated to Mastek's Bombay, India office. Due to the difference
in time zones, the Company can send Mastek a new specification or design and
generally obtain the development code by the next business day. The Company
believes this relationship provides several competitive advantages. First, the
Company can respond rapidly to state and local regulatory changes through
prompt software modifications and updates. Second, the costs of recruitment,
hiring and traditional employee overhead expenses are minimized (if not
completely eliminated). Third, by utilizing a varying number of offshore
programming and development individuals, the Company minimizes its need to
employ increasingly sought-after and highly qualified technical personnel,
particularly as such programming relates to Y2K activities.
 
  Capitalize on Public Sector Expertise. The Company intends to capitalize on
its public sector knowledge and experience to enhance sales in existing
markets and new markets. For the past 17 years, the Company has focused
exclusively on the public sector marketplace, resulting in the development of
core expertise. The Company believes its customer base offers considerable
leverage to new business since references from existing customers often result
in future sales opportunities.
 
  Maximize Integrated Solutions to Become Sole Source Provider. The Company
believes a substantial opportunity exists to sell additional products to
current customers who have only one installed CPS product. For example, a
customer using the Company's property tax appraisal and assessment system
offers a direct-sales opportunity for the Company's property tax billing and
collection system since both systems share a common database and processes.
 
  Leverage Relationships With Y2K Tool and Service Providers. CPS plans to
leverage relationships with leading Y2K tool and service providers. In certain
circumstances, CPS solutions may be unavailable to some public sector
organizations who have already committed to in-house remedial measures. These
public sector organizations can be referred to a Y2K tool and service provider
partner of CPS for a fee. CPS will then use corresponding referrals from these
Y2K tool and service providers of public sector organizations who desire a
replacement application.
 
PRODUCT DESCRIPTION
 
  CPS offers fully integrated, Y2K compliant software solutions designed to
automate and integrate the operations of county governments with taxable
parcel counts over 10,000 or cities with populations between 5,000 and 35,000.
The Company has designed its products based upon the philosophy that complete
application integration is essential for the effective sharing of information
across an organization.
 
  CPS seeks to be an innovative leader in each market served and set the
standard through high perceived value. This perception results in premium
pricing for its application software and related services which serves to
strengthen the Company's market position. Upon contract signing, customers pay
a license fee and a recurring maintenance and service fee equal to a rate of
approximately 32% (depending upon a variety of factors) of the software
license fee, which compares favorably with the Company's estimate of the
industry average of 12-20%. The Company can often command such a premium in
most markets it serves because the Company's products are designed to offer:
(i) the ability to maintain legislative compliance, (ii) a strong service and
support organization with a single point of contact, (iii) fully-integrated,
proven and feature-rich software applications, and (iv) a complete system
solution. Pricing for most applications is generally transaction based on a
parcel count which allows the larger, more affluent governmental units to bear
a proportionately higher cost in a way that is readily justifiable. The
Company also provides RPS hardware and software to regulated utilities and
commercial markets to meet the needs of public and private sector
organizations with high speed processing of check payments. Currently, the
Company has RPS solutions installed in 12 states with
 
                                      31
<PAGE>
 
applications in such areas as utility payments, subscription payments and
county property tax collections. The Company also offers Windows NT-based
integrated voice response and document imaging systems.
 
  The Company's technological strategy is to continue to offer applications
that run across the most popular operating systems. Currently, supported
systems include UNIX, AIX and Microsoft NT. The Company's products are
supported on databases including Oracle, Informix, Microsoft SQL Server and C-
ISAM.
 
  The following table sets forth a summary description of certain of the
Company's products.
 
<TABLE>
<CAPTION>
                                    CAMA
                            COMPUTER ASSISTED MASS                   TAX MANAGER                          CITY MANAGER
                                 APPRAISAL                   TAX BILLING AND COLLECTIONS              MUNICIPAL SOLUTIONS
                      --------------------------------- -------------------------------------- ----------------------------------
<S>                   <C>                               <C>                                    <C>
PRODUCT POSITIONING:  Exceeding 100,000 taxable parcels Exceeding 100,000 taxable parcels      Population up to 35,000
SOLUTIONS:            Software and Y2K tools/services   Software and Y2K tools/services        Software and Y2K tools/services
PRODUCTS/FEATURES:    CAMA System                       Tax Manager                            General Ledger
                      --------------------------------- -------------------------------------- ----------------------------------
                      -- Appeals tracking               -- Integrated current/delinquent taxes -- Flexible chart of accounts
                      -- Real time valuation            -- Unlimited paid and audit history    -- Integrated budgeting
                      -- Valuations by all methods      -- Comprehensive distribution of taxes -- Financial reporting
                      -- Sketching/Field automation
                      -- Integrated real and personal
                       systems
                                                        Occupational License                   Utility Billing
                                                                                               ----------------------------------
                                                                                               -- Mutliple services tracked
                                                        Tourism Tax                            -- Hand held meter reading
                                                                                               -- Extensive billing parameters
                                                        Game and Fish Licensing                -- Cycle billing
                                                        Vessel Registration                    Accounts Payable
                                                                                               ----------------------------------
                                                                                               -- Unlimited vendor history
                                                        Non-Ad Valorem Assessment System       -- Integrated with purchase orders
                                                                                               -- Allows for one time vendors
<CAPTION>
                                RPS
                       REMITTANCE PROCESSING
                      -----------------------
<S>                   <C>
PRODUCT POSITIONING:  50,000 peak items
                      per day or less
SOLUTIONS:            Various services
PRODUCTS/FEATURES:
                      Integrators for various
                      software systems
                      designed for the NCR
                      7780
</TABLE>
 
PROPERTY TAX APPRAISAL AND ASSESSMENT SYSTEMS
 
  The Company's CAMA system, designed and written using computer-aided
software engineering tools, is a fully integrated suite of programs with
applications for mass property tax appraisal, assessment administration
(appeals processing, statistical analysis of property values and sketching of
property and buildings), integrated imaging and GIS/911 interfacing and is
designed to meet the needs of county property appraisers and/or tax assessors.
The CAMA system adheres to IAAO standards and provides a powerful set of tools
to establish an equitable, defensible set of property values for a variety of
property types including residential, agricultural, multi-family, commercial,
industrial, business, personal and household goods.
 
  The CPS CAMA system incorporates regression and feedback methodologies to
produce direct market values and market adjusting techniques which are
available for costing out location and depreciation. The system also provides
the user with the ability to: (i) specify which valuation appraisal method
(cost, market or income) will be used as the default valuation for each type
of property, (ii) maintain a comprehensive history file on each parcel,
including transactions affecting it, which can be displayed or printed upon
request and (iii) maintain sales data and descriptive information on each
parcel at the time of sale, thereby generating a "snapshot" vital in market
valuation and appraisal analyses.
 
  Representative current licensees and users of the CPS CAMA system product
include Martin County (Florida), Union County (North Carolina) and Canadian
County (Oklahoma). The initial license fee for a typical client currently
ranges from approximately $225,000 to $1,800,000, depending on hardware
configurations, number of users and applications licensed.
 
 
                                      32

<PAGE>
 
PROPERTY TAX BILLING AND COLLECTION SYSTEMS
 
  Designed to meet the needs of county tax collectors and/or treasurers, the
Company's property tax billing and collection product (the "Tax Manager")
provides public sector organizations with a comprehensive integrated property
tax billing and collection reporting system designed to improve and streamline
revenue tracking, processing and payment collection. The Tax Manager provides
multiple terminal cash drawer, payment processing and validation capability
and eliminates redundant data entry. The product is designed to handle a full
range of services including posting, recording, universal cashiering,
reconciliation, cash control, auditing, distribution of funds, report
generation and interfacing to various high speed remittance processors.
 
  The Tax Manager encompasses the following property tax billing and
collection applications: (i) current ad valorem tax system, (ii) installment
processing, (iii) mortgage processing, (iv) non ad valorem assessments, (v)
distribution systems, (vi) splits and corrections, (vii) advertising, (viii)
current tax roll billing, (ix) personal property system, (x) tax sale (real
estate, non ad valorem assessments), (xi) delinquent tax and assessment
system, (xii) tax deed processing, (xiii) boat licensing system and (xiv)
hunting and fishing licensing systems.
 
  Representative current licensees and users of the Tax Manager product
include the Florida counties of Broward (Fort Lauderdale), Okaloosa (Fort
Walton Beach/Destin) and Volusia (Daytona Beach). The initial license fee for
a typical client currently ranges from approximately $225,000 to $1,800,000,
depending on hardware configurations, number of users and applications
licensed.
 
CITY AND MUNICIPAL SYSTEMS
 
  The Company's city and municipal systems products provide key operating and
financial management functions for public city and municipal governments. The
Company's City Manager ("City Manager") and Financial Manager ("Financial
Manager") are both state-of-the-art libraries of software applications which
can be completely integrated with each other. CPS provides its users with
customization capabilities and updated applications which are the result of
changes mandated by state and local legislatures.
 
  The City Manager and Financial Manager have been designed to serve the needs
of governmental financial officers and human resource managers in public
sector organizations by providing the following benefits: (i) serve as an
integrated financial reporting system designed to monitor organizational
goals, (ii) comply with all Governmental Accounting, Auditing, and Financial
Reporting and state standards, (iii) streamline reporting requirements, and
(iv) eliminate redundant data entry and minimizes record management. Both the
City Manager and the Financial Manager are integrated with the following
applications: (i) general ledger, (ii) payroll, (iii) purchase order, (iv)
inventory management, (v) accounts payable, (vi) account receivable, (vii)
fixed asset management and (viii) investment management.
 
  Representative current licensees and users of the City Manager and Financial
Manager products include the City of Port Lavaca (Texas), City of Cedar Hill
(Texas) and City of Altus (Oklahoma). The initial license fee for a typical
sale currently ranges from approximately $25,000 to $150,000, depending on
hardware configurations, number of users and applications licensed.
 
REMITTANCE PROCESSING SYSTEMS
 
  The Company also provides remittance processing hardware and software to
regulated utilities and commercial markets to meet the needs of public and
private sector organizations for high speed processing of check payments with
applications in such areas as utility payments, subscription payments and
county property tax collections. Currently, the Company has RPS installations
in 12 states (Arizona, California, Florida, Kansas, New York, Georgia,
Massachusetts, Minnesota, Utah, Oregon, Idaho and Texas) and has completed
21 installations since commencing RPS activities in June 1995. Representative
installations in the public sector market include San Bernardino County, Texas
Department of Public Safety, Georgia Department of Revenue and Tax and
Hillsborough County, Florida. In the private sector, representative
installations include Guidepost, Feature Films, Palm Coast Data, Snapping
Shoals Utility and Eugene Electric and Water Board. A typical RPS sale
currently ranges from approximately $50,000 to $650,000, depending on hardware
configuration and software conversion.
 
                                      33

<PAGE>
 
CPS PROPRIETARY Y2K CONVERSION PROCESS
 
  CPS utilizes a unique, step-by-step process by which the client's legacy
data is removed, re-engineered with compliant date fields and then loaded into
an industry standard relational database of the client's choosing. Prior to
entering into a contract, CPS analyzes the data formats, sources and types in
anticipation of using the Company's Y2K tools. Immediately after the contract
process is complete, both on-site and in the Company's conversion centers, CPS
begins the process of extracting the raw data, analyzing it field by field,
mapping to the CPS database layout by application and testing the system
through use of the Company's Y2K compliant application software.
 
  The Company believes that the primary advantage of the CPS approach is that
the time to conversion and compliance is much shorter than a tedious legacy
conversion of data and source code. In addition, the Company's Y2K compliant
application will be offering the client a multi-tiered client/server approach
allowing for extensive data mining using standard structured query language
("SQL") tools.
 
                                     LOGO
        [CHART OF CPS PROPRIETARY Y2K CONVERSION PROCESS APPEARS HERE]
 
  As shown above, the Y2K conversion process involves numerous steps to
interrogate the legacy data, inventory all date fields and create a data
dictionary map for use in the Company's Y2K compliant software. Each date
field is expanded, tested for proper validation, formatted to the proper Y2K
compliant format of the target database and then loaded for testing. All date
fields are converted in this process. By making the legacy source code
obsolete and eventually discarding it, the unique CPS solution ensures that no
non-Y2K compliant processes inherent in the legacy code survive the conversion
process. In addition, this solution eliminates the problems of hidden date
codes and lost source code.
 
                                      34
<PAGE>
 
CPS TIERED SOFTWARE ARCHITECTURE
 
  The Company's tiered software architecture separates the application logic
from the GUI and the database, thereby enabling the Company's products to
operate on any Windows NT, UNIX or any UNIX derivative platform including IBM
(AIX), NCR (UNIX), Hewlett-Packard (HP-UX) and Sun Microsystems (Solaris). The
Company offers customers CPS GUI, internet browser and character-based
interface. Furthermore, the applications can be implemented on multiple
platforms with no loss of functionality. The Company's applications operate on
systems running databases such as Oracle, Informix, Microsoft SQL Server and
C-ISAM. The Company's tiered software architecture does not require the
application code to be reconfigured to enable the applications to operate on
different platforms, databases or operating systems. The tiered architecture
permits customers to protect their investment in the Company's system while
enabling them to adapt to emerging operating systems, servers and databases.
 
                      CPS TIERED APPLICATION ARCHITECTURE
                                     LOGO
                             [Chart appears here]
 
SALES AND MARKETING
 
  The Company sells its products in the United States through a direct sales
force. As of November 30, 1997, the Company had 17 employees in its sales and
marketing organization. The Company employs a variety of business development
and marketing techniques to communicate directly with current and prospective
 
                                      35
<PAGE>
 
customers. These techniques include exhibiting at trade shows, holding
seminars for clients and prospective clients on technology and industry issues
and marketing through targeted mail campaigns.
 
  The Company believes in establishing a strong local presence in order to
effectively address the needs of local governments and establish long-term
relationships. For that reason, CPS has established regional offices in
Dallas, Texas; Tampa, Florida; and Tulsa, Oklahoma. The Company also operates
customer service and sales offices in San Antonio, Houston, Abilene and
Wichita Falls, Texas. Additionally, CPS maintains sales and software
development personnel in Los Angeles and San Francisco, California; Boston,
Massachusetts; Atlanta, Georgia; and Tallahassee, Florida.
 
  The Company's sales and marketing strategy focuses on building and
maintaining strong relationships with businesses that the Company believes
play a role in the successful marketing of its software products. These
providers include software and hardware vendors and technology consulting
firms, some of which are active in the selection and implementation of
information systems for organizations that comprise the Company's principal
customer base.
 
  In connection with the sales and marketing of software application products,
the Company has established direct and indirect value-added re-seller
arrangements pursuant to standard re-seller agreements with IBM, NCR and
Compaq Computer for the sale of hardware and related products. In turn, the
sales force of these manufacturers work closely with the Company's sales and
marketing personnel in an effort to promote sales of the Company's products
and services in conjunction with hardware sales by such manufacturer.
 
  A sales cycle is the period between the confirmation of interest and the
consummation of the sale. Historically, the sales cycle for the Company ranges
from nine to 18 months on average. Since public sector entities are subject to
and bound by budgets formally approved by the appropriate governing board, the
length of the sales cycle depends on (i) when the entity becomes a prospect,
(ii) the size of the appropriation and (iii) the availability of budgeted
funds for the purchase of a new system. In the future, management has
experienced and expects to continue to experience a trend towards a shorter
sales cycle. Entities who are experiencing a dilemma due to a Y2K problem are
accelerating their purchasing requirements. Moreover, CPS employs creative
software financing techniques that shorten the sales cycle.
 
RESEARCH AND DEVELOPMENT
 
  The Company's research and development activities are focused on the
enhancement of its existing products and the introduction of new products. The
Company outsources certain product development and enhancement activities to
independent contractors. CPS continually updates its products for amendments
to the various tax laws and regulations. Research and development expenses
were $870,000 for the year ended December 31, 1996, compared to $590,000 for
the year ended December 31, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
 
  The Company believes it has a strong competitive advantage in the areas of
cost containment and time to market with key technology for its clients
resulting from its offshore out-sourcing programming services. Costs of
recruitment, hiring and traditional employee overhead expenses are minimized
or eliminated. By utilizing a team of offshore developers, the size of which
can be modified upon request, the Company can maintain a level of development
resources to match existing market needs. The Company is presently obtaining
these programming services through a non-exclusive agreement with Mastek,
cancellable upon 30 days' written notice. However, management believes
commercially competitive replacement services are available through other
offshore programming service providers.
 
  The Company plans to continue to enhance its applications to suit the
evolving needs of the public sector market. In particular, the Company intends
to develop additional functionality on existing application modules and to
create new modules. Additionally, the Company seeks to improve and expand its
object development
 
                                      36
<PAGE>
 
environment, with two fundamental objectives: (i) continued user empowerment
with an emphasis on ease-of-use and (ii) increased flexibility to modify base
products in order to suit specific customer requirements. The Company plans to
continue to add new products and services, both through internal development
and potential acquisitions, to leverage the Company's core technologies and
expertise.
 
COMPETITION
 
  The market in which the Company competes is highly fragmented, with a large
number of competitors that vary in size, primary computer platforms and
overall product scope. Within its traditional public-sector markets, the
Company competes from time to time with (i) custom software and services
providers (such as Andersen Consulting, KPMG Peat Marwick and Oracle
Corporation), (ii) companies which focus on selected segments of the public
sector market (including Systems & Computer Technology Corporation, Manatron,
Inc., H.T.E., Inc., American Management Systems, Incorporated and BRC
Holdings, Inc.), and (iii) a significant number of smaller private companies.
The Company also competes with in-house management information services staff.
In addition, within the market for its Y2K solution products, the Company
anticipates that it will compete with companies who focus upon overall
enterprise solutions to the Y2K problem. Many of the Company's competitors are
more established, benefit from greater name recognition and have substantially
greater resources than the Company. Moreover, the Company could face
additional competition as other established and emerging companies enter the
public sector software application market and/or the Y2K market and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, financial condition and operating results. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third-parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share.
 
  CPS believes it can differentiate its own products and services from these
current and future competitors, focusing on the Company's functionality,
product flexibility, ease of implementation and adaptability to customer needs
without custom programming, enterprise product breadth, individual product
features, service reputation and price. The Company believes that many of its
competitors lack these essential qualities because they do not focus
exclusively on the public sector market or offer fully-integrated software
applications. However, there can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so could have a material adverse effect upon the Company's
business, financial condition and operating results. See "Risk Factors--
Competition."
 
  The following table sets forth a representative list of the Company's
competitors.
 
 
<TABLE>   
<CAPTION>
         CAMA
COMPUTER ASSISTED MASS          TAX MANAGER                 CITY MANAGER                  RPS
       APPRAISAL        TAX BILLING AND COLLECTIONS     MUNICIPAL SOLUTIONS      REMITTANCE PROCESSING
- ----------------------  --------------------------- ---------------------------- ---------------------
<S>                     <C>                         <C>                          <C>
Cole Layer Trumble      ASIX, Inc.                  H.T.E., Inc.                 Wassau Financial
                                                                                  Systems, Inc.*
American Management     BRC Holdings, Inc.          Interactive Computer Designs J & B Software, Inc.
 Systems, Incorporated                               d/b/a INCODE
Sigma Systems                                       New World Systems
 Technology, Inc.                                    Corporation
Kb Systems, Inc.                                    Pentamation
BRC Holdings, Inc.
</TABLE>    
- --------
* Currently serves as a supplier to the Company
 
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
 
  The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of contract and trade secret laws and other measures to protect its
proprietary intellectual property. Despite these precautions, it may be
possible for unauthorized
 
                                      37
<PAGE>
 
parties to copy the Company's software or reverse engineer or otherwise obtain
and use information the Company regards as proprietary. The Company has no
patents and, under existing copyright laws, has only limited protection. In
addition, certain provisions of the license agreements entered into by the
Company, including provisions against unauthorized use, transfer and
disclosure, may be unenforceable under the laws of certain jurisdictions.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to deter misappropriation of its
technology or independent development by others of technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation or development could have a material adverse effect on the
Company's business, financial condition and operating results. As the number
of competitors providing similar products increases, overlapping methodologies
used in such products will become more likely. Although the Company's
methodology has never been the subject of an infringement claim, there can be
no assurance that third parties will not assert infringement claims against
the Company in the future, that assertion of such claims will not result in
litigation or that the Company would prevail in such litigation or be able to
obtain a license for the use of any infringed intellectual property from a
third party on commercially reasonable terms. Litigation, regardless of its
outcome, could result in substantial cost to the Company and divert resources
and management from the Company's operations. Any infringement claim or
litigation against the Company could, have a material adverse effect on the
Company's business, financial condition and operating results. See "Risk
Factors--Proprietary Rights and Risks of Infringement."
 
CUSTOMERS
 
  The following table sets forth a representative list of the Company's
customers.
 
<TABLE>
<CAPTION>
                               CAMA                       TAX MANAGER            CITY MANAGER                  RPS
CLIENT LOCATION  COMPUTER ASSISTED MASS APPRAISAL TAX BILLING AND COLLECTIONS MUNICIPAL SOLUTIONS     REMITTANCE PROCESSING
- ---------------  -------------------------------- --------------------------- ------------------- -----------------------------
<S>              <C>                              <C>                         <C>                 <C>
California       Sacramento County                  Sacramento County                             San Bernardino County
                                                                                                  San Diego County
Colorado                                            Douglas County            City of Alamosa
                                                    Adams County
Florida          Martin County Appraiser            Broward County                                Sarasota County Tax Collector
                                                    Charlotte County                              Hillsborough County Tax
                                                    Sarasota County                               Collector
New Mexico                                                                    City of Artesia
North Carolina   Union County
Oklahoma         Canadian County Assessor           Rogers County Treasurer   City of Altus
                                                                              City of El Reno
Texas            Cooke County Appraisal District                              City of Port Lavaca City of Arlington
                                                                              City of Cedar Hill  Texas Department of Public
                                                                                                  Safety
</TABLE>
 
EMPLOYEES
 
  As of November 30, 1997, the Company had 85 full-time and 4 part-time
employees. This total includes 17 people in sales and marketing, 19 in
research and development, 40 in customer support and field services and 13 in
general administration. None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement. The Company
believes its relations with its employees are good.
 
DESCRIPTION OF PROPERTIES
   
  The Company maintains its headquarters in Dallas, Texas where it leases from
a non-affiliated party an aggregate of approximately 14,250 square feet under
a lease expiring in April 2000. The lease requires annual rental payments of
$182,811 ($12.83 per sq ft per year) in 1998, $194,682 ($13.66 per sq ft per
year) in 1999 and $66,477 ($14.00 per sq ft per year) in 2000 through the
lease termination date. General and administrative, marketing, product
development and customer support and service operations are located in this
space. The Company also leases from a non-affiliated party an aggregate of
approximately 7,800 square     
 
                                      38
<PAGE>
 
feet of office space in various other locations throughout the United States
for sales and service offices. These leases typically have terms of one year
or less with an average per square foot rental of $9.44, and on standard
commercial terms. CPS believes its facilities are in good condition and
adequate for present needs.
 
LEGAL PROCEEDINGS
 
  From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. 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.
 
                                      39
<PAGE>
 
                                  MANAGEMENT
 
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
 
  The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
 
<TABLE>
<CAPTION>
      NAME                     AGE POSITION
      ----                     --- --------
      <S>                      <C> <C>
      Paul E. Kana............ 64  Chairman and Chief Executive Officer
      James K. Hoofard, Jr. .. 38  Director, President and Chief Operating Officer
      Kevin L. Figge.......... 39  Chief Financial Officer
      Michael P. Brown........ 47  Vice President
      John C. Thomas.......... 51  Vice President
      Bobby C. Dow............ 38  Vice President
      Lisa D. Hargiss......... 36  Vice President
      Randy A. Sellers........ 35  Vice President
      G. Dean Booth, Jr. ..... 58  Director and Secretary
      Sidney H. Cordier....... 53  Director
      Brian R. Wilson......... 46  Director
</TABLE>
 
  PAUL E. KANA has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since December 1994. From 1988 to 1994, Mr.
Kana served as President, Chief Executive Officer and a member of the Board of
Directors of Delaware-based MR Data Management, Inc. ("MR"), a wholly-owned
subsidiary of MR Data Management Group PLC ("MR Data Management"), which
engages in data transcription and document image-processing. In 1988, MR
acquired Computer Microfilm Corporation ("CMC"), a publicly-held company
founded by Mr. Kana in 1968. CMC engages in digital image processing,
conversion of computer output to microfilm and CD-ROM, computer processing,
high volume laser printing services and micro-publishing. Mr. Kana is a
graduate of Columbia University of New York with a Bachelor of Science in
Engineering.
 
  JAMES K. HOOFARD, JR. has served as a Director, President and Chief
Operating Officer of CPS since December 1994. From 1991 to 1994, Mr. Hoofard
served as Vice President of Marketing and Sales, and was responsible for the
Property Tax Billing and Collection group. He joined the Company as a
Programmer/Analyst in May 1982 and moved into the marketing and sales area in
September 1987, focusing on developing the Florida market. From 1982 to 1987,
he served as a Revenue Analyst, Software Product Manager, and as a Product
Manager for the Florida Tax Manager product. Mr. Hoofard is a graduate of the
University of Texas at Arlington with a Bachelor of Business Administration in
Systems Analysis.
 
  KEVIN L. FIGGE has served as Chief Financial Officer since October 1997. Mr.
Figge's responsibilities since December 1994 have been encompassed within the
Administrative Services group which is comprised of the Accounting and the
Finance Department, as well as the Personnel and Corporate Services
Department. He joined the Company in July 1992 as Controller and was made an
officer of the Company in December 1994. Prior to joining CPS, Mr. Figge
served as Controller of Aarberg Printing Inks, Inc. and was an Accounting
Manager with the Army and Air Force Exchange Service. Mr. Figge graduated with
a Bachelor of Science degree in Business Administration from the University of
Maryland and also obtained a Bachelor of Science degree in Accounting from the
same university. Mr. Figge is a certified public accountant.
 
  MICHAEL P. BROWN has served as Vice President--Conversions since October
1996. From June 1995 to October 1996, Mr. Brown was responsible for the
Property Tax Appraisal and Assessment group. He served as Vice President of
Special Projects from 1993 to 1995 with responsibility for the development of
Property Tax Billing and Collection. Prior thereto, Mr. Brown was the Vice
President of the City and Municipal group primarily in Florida. Mr. Brown
joined CPS in November 1980. He is a graduate of Louisiana Tech University
with a Bachelor of Science degree in Computer Science.
 
                                      40
<PAGE>
 
  JOHN C. THOMAS has served as Vice President--Sales since June 1997. Mr.
Thomas was previously employed by Kb Systems, Inc., a Florida-based developer
of property tax appraisal and assessment software ("Kb Systems"), where he
served in various corporate management and marketing positions, focusing on
the areas of administration, CAMA and Property Tax Billing and Collection
software. Prior to joining Kb Systems in 1989, Mr. Thomas authored the Thomas
Sales Prospecting and Territory Management Directory, which was published by
the American Management Association. Prior thereto, he served as Vice
President of Sales of Citicorp Information Services, a division of Citibank,
N.A. and as Regional Sales Manager of Interactive Data Corporation, a wholly-
owned subsidiary of Chase Manhattan Corporation. Mr. Thomas earned a Bachelor
of Science degree in Industrial Management from Wayne State University.
 
  LISA D. HARGISS has served as Vice President--Long Term Client Care since
September 1995. She joined the Company in August 1987 as a Client Support
Representative, becoming an integral part of the design team for the Florida
Property Tax Billing and Collection product and the CAMA product. Ms. Hargiss
obtained a Bachelor of Science degree in Computer Science from Texas A&M
University at Commerce.
 
  RANDY A. SELLERS has served as Vice President--Implementation since November
1996. Prior to joining CPS in March 1994, Mr. Sellers served two years as MIS
director and four years in technical support with DacEasy, Inc., a provider of
accounting software. Mr. Sellers received a Bachelor of Science degree in
Management Science and Computer Systems from Oklahoma State University.
 
  BOBBY C. DOW has served as Vice President--Product Development since October
1996. Mr. Dow was responsible for the Municipal group for one year prior to
joining the Product Development group. Mr. Dow, who joined the Company in 1983
as a programmer/analyst, has been part of the original development team that
designed and produced the City group product and has also devoted considerable
developmental efforts to the Tax Collection product. Mr. Dow is a graduate of
Southeastern Oklahoma State University with a Bachelor of Science degree in
Computer Science.
 
  G. DEAN BOOTH, JR. has served as a Director and the Secretary of CPS since
December 1994. Mr. Booth is a partner at the law firm of Schreeder, Wheeler &
Flint, LLP of Atlanta, Georgia. Prior to joining Schreeder, Wheeler & Flint in
March 1996, he was the founder and managing partner of Booth, Wade and
Campbell from 1990. He currently serves as Honorary Chairman and Member of the
Executive Council for the International Bar Association, Trustee and Secretary
for the Institute for Political Economy, and Chairman of the Bar Council,
United States District Court, Northern District of Georgia.
 
  SIDNEY H. CORDIER has served as a Director of the Company since December
1994. From January 1994 to present, Mr. Cordier has served as Chairman of the
Board of Directors of Cedardata PLC, a publicly-held U.K. company listed on
the London Stock Exchange, specializing in commercial and financial accounting
systems software ("Cedardata"). From 1984 to 1993, Mr. Cordier was Chief
Executive Officer of MR Data Management.
 
  BRIAN R. WILSON has served as a Director of CPS since December 1994. From
1993 to the present, Mr. Wilson has been a management consultant, advising
companies on restructurings and serving as a manager of a private investment
trust, and in May 1996, was appointed a director of Cedardata. From 1987 to
1993 Mr. Wilson served as Finance Director and a member of the Board of
Directors of MR Data Management where his responsibilities included mergers
and acquisitions, cash management, pensions, insurance, certain legal matters
and investor relations. Prior to joining MR Data Management in 1987,
Mr. Wilson was the Chief Financial Officer for European Properties with the
Pension Fund Property Unit Trust in the United Kingdom.
 
  The Company's Board of Directors is divided into three classes, with two
classes composed of two directors and one class with one director. The classes
serve staggered three-year terms. G. Dean Booth, Jr.'s term as Director shall
expire as of the 1998 annual meeting, Brian P. Wilson's and Sidney H.
Cordier's terms shall expire as of the 1999 annual meeting, and James K.
Hoofard, Jr.'s and Paul E. Kana's terms shall expire
 
                                      41
<PAGE>
 
at the 2000 annual meeting. The Company's executive officers are appointed by
and serve at the discretion of the Board of Directors. No family relationships
exists between any directors or executive officers of CPS.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  The Board maintains an Audit Committee and Compensation Committee. The Audit
Committee is responsible for reviewing the results and scope of audits and
other services provided by the Company's independent auditors. The Audit
Committee is comprised of Messrs. Kana and Wilson. The Compensation Committee
is comprised of Messrs. Booth, Wilson and Kana. The Compensation Committee
makes recommendations concerning the salaries and incentive compensation of
employees and consultants to the Company, and will oversee and administer the
Company's stock option plans.
 
EXECUTIVE COMPENSATION
 
  The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and the four next most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") for
services rendered during the fiscal year ended December 31, 1996.
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                            LONG-TERM COMPENSATION
                                                          --------------------------
                               ANNUAL COMPENSATION              AWARDS       PAYOUTS
                         -------------------------------- ------------------ -------
                                                          RESTRICTED
NAME AND                                     OTHER ANNUAL   STOCK    OPTION/  LTIP      OTHER
PRINCIPAL POSITION       YEAR  SALARY  BONUS COMPENSATION   AWARDS    SARS   PAYOUTS COMPENSATION
- ------------------       ---- -------- ----- ------------ ---------- ------- ------- ------------
<S>                      <C>  <C>      <C>   <C>          <C>        <C>     <C>     <C>
Paul E. Kana............ 1996 $110,000   --       --          --        --      --        --
 Chairman and Chief
 Executive Officer
James K. Hoofard, Jr.... 1996 $125,000   --       --          --        --      --        --
 Director, President and
 Chief Operating Officer
</TABLE>
 
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
 
  Messrs. Kana and Hoofard entered into employment agreements with the Company
on December 30, 1997.
   
These agreements are for a two-year term and automatically renew for another
two-year period absent termination by the Company or the employee. The
employment agreements provide for an annual salary of not less than $150,000
per year for Mr. Hoofard and $110,000 per year for Mr. Kana, with annual
performance bonuses to be determined by the Compensation Committee in
connection with achievement of performance criteria to be determined. In
addition, each of Messrs. Kana and Hoofard shall receive severance payments
equal to base compensation at the most recent annual amount (including
performance bonus) for two years if employment is terminated by the Company
without cause or if such employee resigns with "good cause" (i.e., in the
event of any material alteration, reduction or dimmunition in duties or
responsibilities, or following a merger or change in control of the Company).
    
COVENANTS NOT TO COMPETE
 
  Messrs. Kana and Hoofard have agreed to devote substantially full time to
the business of the Company and not engage in any competitive businesses. In
particular, they will not manage, consult or participate in any software
business (other than an ownership 5% or less), unless the independent
directors of the Company determine such investment is in the best interests of
the Company.
 
                                      42
<PAGE>
 
COMPENSATION OF DIRECTORS
 
  All directors are reimbursed for their usual and customary expenses incurred
in attending all Board and committee meetings. CPS currently pays directors
who are not also employees (Messrs. Cordier, Wilson and Booth) $650 per day of
service as it relates to attending such meetings. Directors who are also
employees of the Company receive no remuneration for serving as directors.
 
BONUS PLAN
 
  The Company has adopted bonus programs for employees, including executive
officers, whereby bonus payments are made based on achievement of individual
performance and consolidated corporate operating results. Business unit
performance also will be a factor in determining compensation awards with
respect to key employees who are not executive officers. The specified
qualitative and quantitative criteria employed by the Board of Directors of
the Company in determining bonus awards will vary for each individual and from
year to year.
 
401(K) SAVINGS PLAN
 
  The Company sponsors a deferred savings plan (the "401(k) Plan") qualified
under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). All employees over the age of 21 who have completed one
year of service with the Company are eligible to participate in the 401(k)
Plan. Eligible employees may contribute to the 401(k) Plan up to 15% of their
salary subject to an annual maximum established under the Code. Presently, the
Company does not match employee contributions to the 401(k) Plan.
 
EMPLOYEE EQUITY PLANS
 
  1997 Equity Participation Plan. 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 is designed to attract and retain executive officers, other key
employees, independent directors and consultants of the Company and to provide
incentives to such persons to maximize the Company's performance. 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.
 
  The 1997 Equity Participation Plan is administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with the Company will select
from among the eligible participants the individuals to whom nonqualified
stock options are to be granted, except as set forth below, and will determine
the number of shares to be subject thereto and the terms and conditions
thereof. The Compensation Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the 1997 Equity Participation
Plan.
 
  Nonqualified stock options will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
 
                                      43
<PAGE>
 
  Incentive stock options will be designed to comply with the provisions of
the Code and will be subject to restrictions contained in the Code, including
exercise prices equal to at least 100% of fair market value of Common Stock on
the grant date and a ten year restriction on their term, but may be
subsequently modified to disqualify them from treatment as an incentive stock
option.
 
  Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions
lapse.
 
  Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Common
Stock over a predetermined period. Performance awards may also include bonuses
which may be granted by the Compensation Committee on an individual or group
basis and which may be payable in cash or in Common Stock or in a combination
of cash and Common Stock.
 
  There are 600,000 shares of Common Stock reserved for issuance pursuant to
the 1997 Equity Participation Plan, of which options to purchase 335,000
shares have been granted to certain directors, officers and employees to be
effective upon the closing of this offering, with an exercise price equal to
the initial public offering price.
 
  Employee Stock Purchase Plan. The Company has 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. Each employee is limited to purchasing
Common Stock having an aggregate market value of $25,000 in any calendar year.
 
CERTAIN TRANSACTIONS
   
  G. Dean Booth, Jr., a director of the Company, is a partner in the law firm
of Schreeder, Wheeler & Flint, LLP of Atlanta, Georgia ("SWF") and was
formerly a partner at Booth, Owens & Jospin, LLP ("BOJ"). SWF has acted as
counsel to the Company and has been retained by the Company to assist in the
preparation of this offering. During fiscal 1996, SWF was paid approximately
$28,000 in legal fees and expenses, and BOJ was paid approximately $7,000 in
legal fees and expenses. The Company did not make any payments to SWF in
fiscal 1995; however during that year the Company paid approximately $27,500
in legal fees and expenses to BOJ. Though October 24, 1997, the Company has
paid SWF approximately $135,000 in legal fees and expenses and it is
anticipated the firm's fees from services in the preparation of this offering
will total approximately $120,000.     
 
  In May 1997, the Company's shareholders formed Thor Concepts, Inc., a
Georgia corporation ("Thor"), for the sole purpose of acquiring CDP Systems,
Inc., a Florida corporation ("CDP"), for nominal consideration. In addition,
the Company's shareholders advanced approximately $123,000 to CDP to cover CDP
expenses (the "CDP Loans"). Effective July 1997, the Company purchased the
shares of CDP from Thor in exchange for nominal consideration and assumption
of the CDP Loans. As of October 31, 1997, there was approximately $128,000 in
principal and accrued interest outstanding under the CDP Loans. See "Use of
Proceeds."
 
                                      44

<PAGE>
 
                            PRINCIPAL SHAREHOLDERS
   
  The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1998, and as adjusted to
reflect the sale of the shares of the Common Stock offered hereby, by (i) each
of the directors of CPS, (ii) each of the Named Executive Officers, (iii) each
person or entity known to CPS to own beneficially more than 5% of the
Company's Common Stock and (iv) all directors and executive officers as a
group. To the Company's knowledge, none of these entities has a relationship
with any Underwriters of this offering or their respective affiliates. Except
as otherwise indicated below, each person or entity named in the table has
sole voting and investment power (or shares such power with his or her spouse)
with respect to his or her Common Stock shown as beneficially owned by each.
    
<TABLE>   
<CAPTION>
                                SHARES BENEFICIALLY        BENEFICIAL OWNERSHIP
                                       OWNED                    AFTER THE
NAME AND ADDRESS OF           PRIOR TO THE OFFERING(1)         OFFERING(1)
DIRECTOR, OFFICER AND         -------------------------------------------------
OTHER PRINCIPAL SHAREHOLDER     NUMBER        PERCENTAGE    NUMBER   PERCENTAGE
- ---------------------------   -------------- ----------------------- ----------
<S>                           <C>            <C>           <C>       <C>
Paul E. Kana.................      1,139,402         23.6% 1,139,402    16.9%
 3400 Carlisle, Suite 500
 Dallas, Texas 75204
Sidney H. Cordier(2).........      1,139,402         23.6% 1,139,402    16.9%
 Weybourne
 10 Wray Park Road
 Reigate Surrey
 RH2 2 ODD
 United Kingdom
Brian R. Wilson(2)...........      1,139,402         23.6% 1,139,402    16.9%
 Drymen House
 Horn Lane
 East Hendren, Near Wantage,
 Oxon OX128LD United Kingdom
G. Dean Booth, Jr.(2)........        243,265          5.0%   243,265     3.6%
 Schreeder, Wheeler & Flint
  LLP
 1600 The Candler Building
 127 Peachtree Street, N.E.
 Atlanta, Georgia 30303
James K. Hoofard, Jr.........        182,449          3.8%   182,449     2.7%
 3400 Carlisle, Suite 500
 Dallas, Texas 75204
Hanifen Imhoff Mezzanine
 Fund, L.P.(2)(3)............        724,719         15.0%   724,719    10.8%
 1125 17th Street, Suite 1600
 Denver, Colorado 80202
All directors and executive
 officers as a group(2)
 (5 persons).................      3,843,920         79.5% 3,843,920    57.1%
</TABLE>    
- --------
(1) The number of shares beneficially owned by each shareholder is determined
    under rules and regulations promulgated by the Securities and Exchange
    Commission, and the information is not necessarily indicative of
    beneficial ownership for any other purpose. Under such rules, beneficial
    ownership includes any shares as to which the individual has sole or
    shared voting power or investment power, as well as any shares which the
    individual has the right to acquire within 60 days of the date of this
    Prospectus through the exercise of any stock option, warrant or other
    right. The inclusion herein of such shares, however, does not constitute
    an admission that the named shareholder is a direct or indirect beneficial
    owner of such shares.
(2) Does not assume the sale of any shares of Common Stock. See "Selling
    Shareholders."
   
(3) The Hanifen Imhoff Mezzanine Fund, L.P. is a Small Business Investment
    Company licensed under the Small Business Investment Act of 1958, as
    amended. Its focus is $1.0 million to $3.0 million subordinated debt
    investments in later stage manufacturing, distribution and service
    companies. No director, officer or other principal shareholder of the
    Company is affiliated with the Hanifen Imhoff Mezzanine Fund, L.P.     
 
                                      45
<PAGE>
 
                             SELLING SHAREHOLDERS
 
  In the event that the Underwriter's over-allotment option is exercised in
full, the following shareholders (the "Selling Shareholders") will sell the
number of shares indicated below:
 
<TABLE>   
<CAPTION>
                             BENEFICIAL                     BENEFICIAL      PERCENTAGE
                           OWNERSHIP PRIOR    NUMBER OF   OWNERSHIP AFTER OWNERSHIP AFTER
                          TO OVER-ALLOTMENT    SHARES     OVER-ALLOTMENT  OVER-ALLOTMENT
NAME                          EXERCISE      BEING OFFERED    EXERCISE        EXERCISE
- ----                      ----------------- ------------- --------------- ---------------
<S>                       <C>               <C>           <C>             <C>
Sidney H. Cordier.......      1,139,402        85,660        1,053,742         15.7%
Brian R. Wilson.........      1,139,402        85,660        1,053,742         15.7%
G. Dean Booth Jr........        243,265        18,288          224,977          3.3%
Hanifen Imhoff Mezzanine
 Fund, L.P..............        724,719        63,472          661,247          9.8%
John K. Percival........        103,476        21,280           82,196          1.2%
Robert J. Newcorn.......         30,457        10,640           19,817            *
</TABLE>    
- --------
   
* Less than 1%.     
   
In the event that the Underwriter elects to exercise less than its full over-
allotment option, the number of shares being offered by the Selling
Shareholders will be reduced proportionately.     
 
                         DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
  The Company's authorized capital stock consists of (i) 50 million shares of
Common Stock, par value $.01 per share, (ii) 10 million shares of preferred
stock, par value $.01 per share. As of the date of this Prospectus an
aggregate of 4,832,502 shares of Common Stock were outstanding and held by
nine Shareholders (assuming the exercise by four holders of warrants to
purchase 927,766 shares of Common Stock). No shares of preferred stock have
been issued or are outstanding.
 
COMMON STOCK
 
  The holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of shareholders.
Subject to preferential rights with respect to any series of preferred stock
which may issued, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors on the Common Stock out
of funds legally available therefor (subject to the terms and conditions
contained in the Company's existing credit agreements with its lenders), and
in the event of a liquidation, dissolution or winding-up of the affairs of the
Company, are entitled to share equally and ratably in all remaining assets and
funds of the Company. The holders of Common Stock have no preemptive rights,
cumulative voting rights, or rights to convert shares of Common Stock into any
other securities and are not subject to future calls or assessments by the
Company. All outstanding shares of Common Stock are fully paid and non-
assessable.
 
PREFERRED STOCK
 
  The Board of Directors is authorized, subject to limitations prescribed by
law, without shareholder approval, to issue such shares of preferred stock in
one or more series. Each series of preferred stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors. No shares are issued and
outstanding as of the date hereof, and the Company has no present plans to
issue any of the preferred stock in the foreseeable future. The issuance of
the preferred stock, while providing desirable flexibility for corporate
acquisitions and other corporate purposes, could make it more difficult for
third-parties to acquire, or discourage third-parties from acquiring, a
majority of the outstanding voting stock of the Company. See "Risk Factors--
Effect of Certain Charter and Bylaw Provisions; Antitakeover Effects."
 
 
                                      46
<PAGE>
 
WARRANTS
 
  As of September 30, 1997, CPS had four outstanding warrants to purchase an
aggregate of 927,766 shares of the Common Stock at an exercise price of $.0026
per share. These warrants become exercisable upon the earlier of December 30,
1999 or the completion of an initial public offering and expire on December
29, 2004. The warrant holders have agreed to exercise all warrants upon the
effective date of this offering.
 
REGISTRATION RIGHTS OF CERTAIN HOLDERS
 
  Upon the completion of this offering, the holders of 927,766 shares of
Common Stock (the "Registrable Securities") or their transferees are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement
between the Company and the holders of the Registrable Securities. If the
Company registers any of its Common Stock either for its own account or for
the account of other security holders, the holders of Registrable Securities
are entitled to include their shares of Common Stock in the registration,
subject to the ability of the underwriters to limit the number of shares
included in the registration to not more than 10% of the offering. All
registration expenses must be borne by the Company; provided, however, that
all underwriting discounts and selling commissions applicable to the sale of
shares in connection with any registration shall be borne by the holders of
the securities registered pro rata on the basis of the number of shares of
such securities being registered.
   
REPRESENTATIVES' WARRANT     
   
  For a description of the warrant to be sold to the Representatives in
connection with this offering, see "Underwriting."     
 
CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING LIMITATIONS OF LIABILITIES
OF DIRECTORS
 
  As permitted by the Texas Business Corporation Act, the Company's Restated
Articles include a provision that eliminates the personal liability of its
directors with respect to any acts or omissions in the performance of his
duties to the full extent permitted by law. The Texas Business Corporation Act
provides that Directors will not be liable in the discharge of any duty if
they relied in good faith and with ordinary care on information, opinions,
reports, or statements, including financial statements and other financial
data, that were prepared or presented by (i) one or more officers or employees
of the Corporation, (ii) a committee of the Board of Directors of which the
Director is not a member, or (iii) anyone the Director reasonably believed to
have professional or expert knowledge.
 
  The Company's Restated Articles further provide that, if the Texas Business
Corporation Act is amended to authorize the elimination or limitation of
director liability which is greater than therein provided, then the liability
of a director of the Company will be eliminated or limited to the fullest
extent permitted by such law, as so amended.
 
  Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
 
CERTAIN CHARTER AND BYLAW PROVISIONS REGARDING CHANGE OF CONTROL
   
  Certain provisions of the Company's Articles of Incorporation, as amended
(the "Restated Articles"), may deter or frustrate a takeover attempt of the
Company that a shareholder might consider in his best interest. The Company's
Restated Articles or Bylaws, among other things, provide that (i) the annual
meeting of shareholders shall be held on such date and at such time fixed from
time to time by the Board of Directors, provided that there shall be an annual
meeting held every calendar year, (ii) any special meeting of the     
 
                                      47
<PAGE>
 
   
shareholders may be called only by the Chairman of the Board, President or
upon the affirmative vote of at least a majority of the members of the Board
of Directors, or upon the written demand of the holders of not less than 50%
of the votes entitled to be cast at a special meeting, (iii) an advance notice
procedure must be followed for nomination of directors and for other
shareholder proposals to be considered at annual shareholders' meetings, and
(iv) the Company's Board of Directors be divided into three classes, each of
which serves for different three-year periods, and for which shareholders have
no cumulative voting rights. In addition, the Company will be authorized to
issue additional shares of Common Stock and up to ten million shares of
preferred stock in one or more series, having terms fixed by the Board of
Directors without shareholder approval, including voting, dividend or
liquidation rights that could be greater than or senior to the rights of
holders of Common Stock. Shareholders will have no preemptive rights with
respect to any additional common stock or preferred stock. Issuance of
additional shares of Common Stock or new shares of preferred stock could also
be used as an antitakeover device. Except as set forth herein, the Company has
no current intentions or plans to issue additional Common Stock or issue
Preferred Stock.     
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Company's securities is American
Securities Transfer and Trust, Inc.
 
                                      48
<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
   
  Upon completion of this offering there will be 6,732,502 shares of Common
Stock outstanding. Immediately following the completion of this offering, a
total of 1,900,000 shares of Common Stock (2,185,000 shares if the
Underwriters' over-allotment is exercised in full) will be freely tradeable
without restriction. An additional 4,832,502 (4,547,502 if the Underwriters'
over-allotment option is exercised in full) shares of Common Stock may be sold
subject to the limitations of Rule 144 under the Securities Act, following
expiration of a lock-up agreements executed by the Company's directors,
executive officers, certain key employees and certain other shareholders,
which expire one year after the date of this Prospectus. Cruttenden Roth has
no present intention to release the locked-up shares prior to expiration of
the one-year period.     
 
  In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year, including
any persons who may be deemed to be an affiliate of the Company, is entitled
to sell, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of then-outstanding shares of
Common Stock or the average weekly trading volume in the Common Stock as
reported by the American Stock Exchange during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 also are subject to certain
other requirements relating to the manner of sale, notice and availability of
current public information about the Company.
 
  Affiliates may publicly sell shares not constituting restricted securities
under Rule 144 in accordance with the foregoing volume limitations and other
restrictions but without regard to the one-year holding period. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least two years, is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
 
                                      49
<PAGE>
 
                                 UNDERWRITING
   
  Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated and Josephthal & Co. Inc. are acting as Representative, have
severally agreed to purchase from the Company and the Company has agreed to
sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:     
 
<TABLE>   
<CAPTION>
                                                                       NUMBER
     UNDERWRITERS                                                     OF SHARES
     ------------                                                     ---------
     <S>                                                              <C>
     Cruttenden Roth Incorporated....................................
     Josephthal & Co. Inc. ..........................................
                                                                      ---------
       Total......................................................... 1,900,000
</TABLE>    
 
  The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company's
counsel and independent public accountants. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
   
  The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may
allow selected dealers, a concession of not more than $       per share, and
the Underwriters may allow, and such selected dealers may reallow, a
concession of not more than $    per share to other dealers. After the initial
public offering of the shares, the public offering price and other selling
terms may be changed by the Representatives. No change in such terms shall
change the amount of proceeds to be received by the Company as set forth on
the cover page of this Prospectus.     
   
  The selling shareholders have granted an option to the Underwriters,
exercisable for a period of 45 days after the date of this Prospectus, to
purchase up to an additional 285,000 shares of Common Stock at the same price
per share as the initial shares to be purchased by the Underwriters to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of Common Stock in
approximately the same proportion as set forth in the above table.     
   
  The Representatives have advised the Company that they do not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.     
   
  The Company has agreed to issue to the Representatives at the closing of
this offering five-year warrants (the "Representatives' Warrants") to purchase
up to 10% of the number of shares of Common Stock sold in this offering
(including shares sold in the event the over-allotment option is exercised in
full) at an exercise price per share equal to 120% of the initial per share
public offering price. The Representatives' Warrants are exercisable for a
period of four years beginning one year from the date of this Prospectus and
contain standard net-issuance provisions. The holders of the Representatives'
Warrants will have no voting, dividend or other shareholder rights until the
Representatives' Warrants are exercised. The terms of the Representatives'
Warrants were established as the result of negotiations between the Company
and the Representatives. If the
    
                                      50
<PAGE>
 
   
Representatives' Warrants are exercised, the Representatives may realize
additional compensation. By their terms, the Representatives' Warrants will be
restricted from sale, transfer, assignment or hypothecation, except to persons
that are officers of the Representatives. The number of shares covered by the
Representatives' Warrants and the exercise price thereof are subject to
adjustment in certain events to prevent dilution. In addition, the Company has
granted certain rights to the holders of the Representatives' Warrants to
register the Representatives' Warrants and the Common Stock underlying the
Representatives' Warrants under the Securities Act, all of which are being
registered as part of this offering.     
   
  The Company has agreed to bear all costs and expenses incurred in connection
with this offering and to reimburse the Representative up to $50,000 for its
accountable expenses (the "Accountable Expenses"). In addition, the Company
has agreed to pay the Representatives a non-accountable expense allowance
equal to 3.0% of the aggregate Price to Public (including with respect to
shares of Common Stock underlying the over-allotment option, if and to the
extent it is exercised) set forth on the front cover of this Prospectus, less
amounts paid for Accountable Expenses. To the extent that the expenses of the
Representatives are less than the non-accountable expense allowance, the
excess may be deemed to be compensation to the Representatives.     
   
  The Company, its officers, directors and warrant holders have entered into
lock-up agreements with the Representatives which provide that they will not
offer, sell or otherwise dispose of any of the Company's Common Stock for a
period of 365 days after the commencement of the offering without the prior
written consent of Cruttenden Roth. Cruttenden Roth has no present intention
to release the locked-up shares prior to expiration of the one-year period. In
addition, the Representatives shall have the right of first refusal for a
period of two years after the date of this Prospectus to be the sole
broker/dealer for any sales made under Rule 144 of the Securities Act (or
similar provisions enacted subsequent to the date of this agreement). See
"Shares Eligible for Future Sale."     
   
  Prior to this offering, there has been no established trading market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock offered hereby has been determined by negotiation between the Company
and the Representatives. Among the factors considered in such negotiations
were the preliminary demand for the Common Stock, the prevailing market and
economic conditions, the Company's results of operations, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of
comparable companies in related businesses, the current condition of the
markets in which the Company operates, and other factors deemed relevant.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial public offering price.
    
  The Underwriting Agreement provides that the Company and the selling
shareholders will indemnify the Underwriters and their controlling persons
against certain liabilities under the Securities Act or will contribute to
payments the Underwriters and their controlling persons may be required to
make in respect thereof.
 
                                 LEGAL MATTERS
 
  The law firm of Schreeder, Wheeler & Flint, LLP, Atlanta, Georgia, has acted
as counsel to the Company in connection with this offering and will render an
opinion as to the legality of the shares of Common Stock being offered hereby.
See "Certain Transactions." Summit Law Group, P.L.L.C., Seattle, Washington,
has acted as counsel to the Underwriters in connection with certain legal
matters relating to this offering.
 
                                    EXPERTS
 
  The Company's financial statements as of September 30, 1997 and December 31,
1996, and for the nine months ended September 30, 1997 and for each of the two
years in the period ended December 31, 1996 included in this Prospectus have
been so included in reliance on the report of Grant Thornton LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
 
 
                                      51
<PAGE>
 
                             AVAILABLE INFORMATION
 
  The Company has not previously been subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, accordingly, has not filed reports and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission a registration statement (the "Registration Statement")
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes part of the Registration Statement, does not contain all of
the information contained in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the shares of
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be examined without charge at, and
copies of all or part of which may be obtained at prescribed rates from, the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Electronic filings made through the Electronic Data Gathering and Retrieval
system are publicly available through the Commission's website at
"http://www.sec.gov". Statements contained in this Prospectus as to the
contents of any contract or any other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference.
 
                                      52
<PAGE>
 
                               CPS SYSTEMS, INC.
 
                   Index to Consolidated Financial Statements
 
<TABLE>
<S>                                                                          <C>
Report of Independent Certified Public Accountants.......................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
 
                                      F-1
<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
To the Board of Directors
CPS Systems, Inc.
 
  We have audited the accompanying consolidated balance sheets of CPS Systems,
Inc. and Subsidiary as of September 30, 1997 and December 31, 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the nine months ended September 30, 1997 and the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CPS Systems,
Inc. and Subsidiary as of September 30, 1997 and December 31, 1996, and the
consolidated results of its operations and its cash flows for the nine months
ended September 30, 1997 and for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
 
                                 LOGO
Atlanta, Georgia
October 31, 1997 (except for
the third
 paragraph of Note D, as to
which the
   
 date is December 3, 1997 and
the third     
   
 paragraph of Note F, as to
which the     
   
 date is January 30, 1998)
    
                                      F-2
<PAGE>
 
                        CPS SYSTEMS, INC. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                     DECEMBER 31, SEPTEMBER 30,
                                                         1996         1997
ASSETS                                               ------------ -------------
<S>                                                  <C>          <C>
CURRENT ASSETS
  Cash..............................................  $  591,698   $  337,876
  Accounts receivable, less allowance for doubtful
   accounts of $27,000 and $49,000..................   1,509,087    1,755,792
  Deferred income taxes.............................     146,000      137,000
  Inventories.......................................      91,599       66,488
  Prepaid expenses..................................      74,976      134,049
  Other current assets..............................         --        36,490
                                                      ----------   ----------
    Total current assets............................   2,413,360    2,467,695
PROPERTY AND EQUIPMENT..............................     455,633      557,184
SOFTWARE DEVELOPMENT COSTS..........................     799,438      876,909
OTHER ASSETS
  Costs in excess of net assets acquired............   2,119,675    1,976,499
  Debt issue costs..................................     241,759      180,539
  Non-compete agreements............................      83,333       20,834
  Other assets......................................      20,948       20,948
                                                      ----------   ----------
                                                       2,465,715    2,198,820
                                                      ----------   ----------
                                                      $6,134,146   $6,100,608
                                                      ==========   ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Current portion of long term debt.................  $  299,927   $  321,423
  Accounts payable..................................     403,635      588,444
  Accrued salaries, wages and payroll taxes.........     122,090          --
  Other accrued expenses............................      81,880      181,331
  Unearned revenue, current portion.................   1,025,743    1,261,025
  Income taxes payable..............................     176,904       48,370
                                                      ----------   ----------
    Total current liabilities.......................   2,110,179    2,400,593
OTHER LIABILITIES
  Long-term debt....................................   2,741,118    2,503,254
  Deferred income taxes.............................     284,000      289,000
  Unearned revenue..................................      95,551       57,602
  Other liabilities.................................      54,710       75,226
                                                      ----------   ----------
                                                       3,175,379    2,925,082
                                                      ----------   ----------
    Total liabilities...............................   5,285,558    5,325,675
PUT WARRANTS........................................     324,801      234,552
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; 3,904,736 shares issued..............      39,047       39,047
  Additional paid-in capital........................     960,953      960,953
  Accumulated deficit...............................    (476,213)    (459,619)
                                                      ----------   ----------
    Total shareholders' equity......................     523,787      540,381
                                                      ----------   ----------
                                                      $6,134,146   $6,100,608
                                                      ==========   ==========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-3
<PAGE>
 
                        CPS SYSTEMS, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                      YEAR ENDED           NINE MONTHS ENDED
                                     DECEMBER 31,            SEPTEMBER 30,
                                 ----------------------  -----------------------
                                    1995        1996        1996         1997
                                 ----------  ----------  -----------  ----------
                                                         (UNAUDITED)
<S>                              <C>         <C>         <C>          <C>
Revenue
  License fees.................. $  423,964  $1,634,835  $1,435,712   $1,795,294
  Recurring maintenance and
   service fees.................  3,906,499   3,851,308   2,871,648    2,886,676
  Product sales.................  1,594,388   2,052,148   1,571,560    2,298,786
  Other service fees............    328,262     824,486     477,125      738,294
                                 ----------  ----------  ----------   ----------
                                  6,253,113   8,362,777   6,356,045    7,719,050
                                 ----------  ----------  ----------   ----------
Cost of revenue
  Product sales.................  1,033,334   1,464,664   1,148,085    1,616,387
  Software......................    255,774     390,830     250,218      414,074
  Distribution..................     11,358      11,115       7,498       55,480
                                 ----------  ----------  ----------   ----------
                                  1,300,466   1,866,609   1,405,801    2,085,941
                                 ----------  ----------  ----------   ----------
    Gross profit................  4,952,647   6,496,168   4,950,244    5,633,109
Operating expenses
  Support and customer service..  2,276,131   2,743,217   1,978,542    2,357,732
  Selling.......................    600,979     771,470     584,324      702,234
  Research and development......    588,344     866,366     553,957    1,135,997
  General and administrative....    870,975   1,030,277     757,315      793,065
  Amortization of goodwill and
   non-compete agreements.......    346,586     346,586     269,194      265,525
                                 ----------  ----------  ----------   ----------
                                  4,683,015   5,757,916   4,143,332    5,254,553
                                 ----------  ----------  ----------   ----------
    Earnings from operations....    269,632     738,252     806,912      378,556
Interest and financing costs....    523,772     819,125     618,195      274,962
                                 ----------  ----------  ----------   ----------
    Earnings (loss) before in-
     come taxes.................   (254,140)    (80,873)    188,717      103,594
Income tax expense (benefit)....    (24,000)    165,200     218,700       87,000
                                 ----------  ----------  ----------   ----------
    Net earnings (loss)......... $ (230,140) $ (246,073) $  (29,983)  $   16,594
                                 ==========  ==========  ==========   ==========
Net earnings (loss) per common
 share.......................... $     (.06) $     (.06) $     (.01)  $      --
                                 ==========  ==========  ==========   ==========
Weighted average shares used in
 computing net earnings (loss)
 per common share...............  3,904,736   3,904,736   3,904,736    3,904,736
                                 ==========  ==========  ==========   ==========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-4
<PAGE>
 
                        CPS SYSTEMS, INC. AND SUBSIDIARY
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
                               SEPTEMBER 30, 1997
 
<TABLE>
<CAPTION>
                              COMMON STOCK
                            -----------------
                                              ADDITIONAL
                             NUMBER     PAR    PAID IN   ACCUMULATED
                            OF SHARES  VALUE   CAPITAL     DEFICIT     TOTAL
                            --------- ------- ---------- ----------- ----------
<S>                         <C>       <C>     <C>        <C>         <C>
Balance, December 31,
 1994.....................  3,904,736 $39,047  $960,953   $     --   $1,000,000
Net loss for the year.....        --      --        --     (230,140)   (230,140)
                            --------- -------  --------   ---------  ----------
Balance, December 31,
 1995.....................  3,904,736  39,047   960,953    (230,140)    769,860
Net loss for the year.....        --      --        --     (246,073)   (246,073)
                            --------- -------  --------   ---------  ----------
Balance, December 31,
 1996.....................  3,904,736  39,047   960,953    (476,213)    523,787
Net earnings for the peri-
 od.......................        --      --        --       16,594      16,594
                            --------- -------  --------   ---------  ----------
Balance, September 30,
 1997.....................  3,904,736 $39,047  $960,953   $(459,619) $  540,381
                            ========= =======  ========   =========  ==========
</TABLE>
 
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-5
<PAGE>
 
                        CPS SYSTEMS, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                       YEAR ENDED          NINE MONTHS ENDED
                                      DECEMBER 31,           SEPTEMBER 30,
                                   --------------------  ----------------------
                                     1995       1996        1996        1997
                                   ---------  ---------  -----------  ---------
                                                         (UNAUDITED)
<S>                                <C>        <C>        <C>          <C>
Cash flows from operating activi-
 ties:
  Net earnings (loss)............. $(230,140) $(246,073) $  (29,983)  $  16,594
  Adjustments to reconcile net
   loss to net cash provided by
   operating activities:
    Deferred income tax (benefit)
     expense......................   (13,000)   (16,000)      4,000      14,000
    Depreciation and amortization.   691,474    702,318     529,477     559,235
    Adjustment to put warrants....   (56,831)   271,632     203,724     (90,249)
    Loss on disposal of assets....       --         820         --          --
    Change in assets and
     liabilities, net of business
     acquired:
      Accounts receivable.........   344,670   (612,648) (1,242,967)   (217,106)
      Refundable income taxes.....  (118,134)   118,134     118,134         --
      Inventories.................   (32,407)   (58,552)    (41,646)     31,074
      Prepaid expenses............    42,423      9,480      (1,649)    (53,410)
      Other assets................    87,599        963        (169)    (12,944)
      Accounts payable............   194,359     70,476     137,691      58,277
      Accrued expenses............  (379,763)   116,488     132,969     (24,009)
      Unearned revenue............   (87,162)    (8,210)    168,441     187,694
      Income taxes payable........        --    176,904     142,204    (128,534)
      Other liabilities...........    27,356     27,354      20,515      20,516
                                   ---------  ---------  ----------   ---------
        Net cash provided by
         operating activities.....   470,444    553,086     140,741     361,138
                                   ---------  ---------  ----------   ---------
Cash flows from investing activi-
 ties:
  Purchase of property and equip-
   ment...........................  (104,758)  (209,450)   (143,684)   (216,421)
  Software development costs......  (180,428)   (41,016)    (41,016)   (185,718)
  Cash acquired in CDP acquisi-
   tion...........................       --         --          --        3,547
  Proceeds from sale of property
   and equipment..................       --       1,299         --          --
                                   ---------  ---------  ----------   ---------
        Net cash used by investing
         activities...............  (285,186)  (249,167)   (184,700)   (398,592)
                                   ---------  ---------  ----------   ---------
Cash flows from financing activi-
 ties:
  Principal payments on long-term
   debt...........................  (210,311)  (262,644)   (214,194)   (216,368)
  Other receivable................       --     165,000     165,000         --
                                   ---------  ---------  ----------   ---------
        Net cash used by financing
         activities...............  (210,311)   (97,644)    (49,194)   (216,368)
                                   ---------  ---------  ----------   ---------
Net increase (decrease) in cash...   (25,053)   206,275     (93,153)   (253,822)
Cash at beginning of period.......   410,476    385,423     385,423     591,698
                                   ---------  ---------  ----------   ---------
Cash at end of period............. $ 385,423  $ 591,698  $  292,270   $ 337,876
                                   =========  =========  ==========   =========
Supplementary Cash Flow Disclo-
 sure:
  Interest and financing costs
   paid........................... $ 465,584  $ 432,048  $  328,209   $ 337,231
  Income taxes (refunded) paid,
   net............................ $ 107,234  $(113,839) $  (51,638)  $ 201,534
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-6
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                              SEPTEMBER 30, 1997
 
NOTE A--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES
 
1.BUSINESS
 
  CPS Systems, Inc. and its wholly-owned Subsidiary, CDP Systems, Inc. (the
"Company"), engage primarily in developing, marketing, licensing and
supporting proprietary software and selling hardware and related products to
appraisal/assessment districts, tax collection agencies, municipalities and
law enforcement agencies located primarily in Texas, Oklahoma and Florida.
 
2.PRINCIPLES OF CONSOLIDATION
 
 The consolidated financial statements include the accounts of CPS Systems,
Inc. and its wholly-owned subsidiary, CDP Systems, Inc. All significant
intercompany transactions and balances have been eliminated.
 
3.REVENUE RECOGNITION
 
  The Company licenses its software products. 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.
 
  Other fees consist primarily of training, conversion, customization and
installation fees and are recognized as the services are provided.
 
4.INVENTORIES
 
 Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
 
5.PROPERTY AND EQUIPMENT
 
  Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Accelerated methods are utilized for income tax purposes.
 
6.SOFTWARE DEVELOPMENT COSTS
 
  In accordance with SFAS No. 86, all software development costs are charged
to expense as incurred until technological feasibility has been established
for the product. Software development costs incurred after technological
feasibility has been established are capitalized and amortized, commencing
with product release, on a straight line basis over a period of six to ten
years. Amortization of software development costs was approximately $103,000,
$116,000 and $108,000 during the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997, respectively and is included in
software cost of revenue in the accompanying consolidated statements of
operations. Software development costs are net of accumulated amortization of
approximately $219,000 and $327,000 at December 31, 1996 and September 30,
1997, respectively.
 
                                      F-7
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
7. COSTS IN EXCESS OF NET ASSETS ACQUIRED
 
  The excess acquisition cost over the fair value of net assets acquired
(goodwill) of CPS Systems, Inc. is amortized on a straight line basis over a
ten year period. Goodwill arising from the acquisition of CDP Systems is
amortized on a straight-line basis over a three year period. Accumulated
amortization of goodwill was $529,918 and $732,944 at December 31, 1996 and
September 30, 1997, respectively. Amortization of costs in excess of net
assets acquired charged to operations was $264,959 annually in 1995 and 1996
and $203,026 for the nine months ended September 30, 1997.
 
  The remaining balance of goodwill at September 30, 1997 consists of
$1,920,956 and $55,543 attributable to CPS and CDP, respectively.
 
8. DEBT ISSUE COSTS
 
  Costs incurred in connection with obtaining financing have been capitalized
and are amortized on a straight-line basis over the term of the loan
agreements, which range from four to six years. Debt issue costs are stated
net of accumulated amortization of $163,255 and $224,477 at December 31, 1996
and September 30, 1997, respectively. Amortization of debt issue costs charged
to operations was $81,627 annually in 1995 and 1996 and $62,221 for the nine
months ended September 30, 1997 and is included in interest and financing
costs in the accompanying consolidated statements of operations.
 
9. NON-COMPETE AGREEMENTS
 
  Cost of non-compete agreements have been capitalized and are amortized on a
straight line basis over the three year term of the agreements. Non-compete
agreements are net of accumulated amortization of $166,667 and $229,166 at
December 31, 1996 and September 30, 1997, respectively. Amortization of
non-compete agreements charged to operations was $83,333 annually in 1995 and
1996 and $62,500 for the nine months ended September 30, 1997.
 
10. INCOME TAXES
 
  The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for
deferred tax assets when it is more likely than not that the asset will not be
realized.
 
11. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
 
  In preparing financial statements in conformity with General Accepted
Accounting Principles ("GAAP"), management is required to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
12. LONG-LIVED ASSETS
 
  Management periodically evaluates the realizability of its property and
equipment, software development costs and intangible assets in light of
current technology, as it may relate to the Company's products, and the
current environment of its industry and markets. Management believes that no
impairment of property and equipment, software development costs and
intangible assets exists at September 30, 1997.
 
 
                                      F-8
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The Company's financial instruments include cash, cash equivalents and long-
term debt. The carrying value of cash and cash equivalents approximates fair
value due to the relatively short period to maturity of the instruments. The
carrying value of the Company's long-term obligations approximates fair value
based upon borrowing rates currently available to the Company for borrowings
with comparable maturities.
 
14. INTERIM FINANCIAL INFORMATION (UNAUDITED)
 
  The accompanying statements of operations and cash flows for the nine months
ended September 30, 1996, included herein have been prepared by the Company
and are unaudited. The information furnished in the unaudited financial
statements referred to above includes all adjustments which are, in the
opinion of management, necessary for a fair presentation of such financial
statements. These adjustments are all of a normal recurring nature.
 
15. NET EARNINGS (LOSS) PER COMMON SHARE
 
  Net earnings (loss) per share is based on the weighted average number of
common shares and common equivalent shares outstanding during the period.
 
  Common stock equivalents, regardless of their anti-dilutive impact, issued
at prices below the offering price per share during the twelve months
preceding the initial filing of the Company's Registration Statement and
through the effective date of the initial public offering of the Company's
common stock have been considered in the calculation of net earnings (loss)
per share as if outstanding since the beginning of each period presented.
 
16. RECLASSIFICATIONS
 
  Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the September 30, 1997 presentation.
 
NOTE B--ACQUISITION OF CDP SYSTEMS, INC.
 
On July 1, 1997, the Company acquired all the outstanding common stock of CDP
Systems, Inc. from Thor Concepts, Inc. (Thor) for $10 cash and the assumption
of approximately $146,000 of liabilities. Thor, which is owned by the
identical shareholders as CPS, acquired the common stock of CDP in June 1997
from the former CDP shareholders under substantially identical terms and
amounts. CDP develops automated voice response software.
 
  The acquisition of CDP has been accounted for as a purchase. Accordingly,
the purchase price was allocated to assets and liabilities based on their
estimated fair value, at the date of acquisition. Results of operations of CDP
have been included in the consolidated financial statements from the date of
acquisition. The excess purchase price over the fair value of the net assets
acquired of approximately $68,000 is being amortized on a straight-line basis
over three years. The results of operations of CDP prior to July 1, 1997 were
not material.
 
  Subsequent to September 30, 1997, certain shareholders made advances to CDP
in the amount of approximately $123,000. These advances bear interest at 8%
per annum and are payable in October 2000.
 
                                      F-9
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE C--PROPERTY AND EQUIPMENT
 
  Property and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                                      ESTIMATED
                                           DECEMBER 31, SEPTEMBER 30,  SERVICE
                                               1996         1997        LIVES
                                           ------------ ------------- ---------
   <S>                                     <C>          <C>           <C>
   Computer equipment and purchased soft-
    ware.................................   $ 562,597     $ 734,162     5 years
   Furniture and fixtures................     160,201       187,481   5-7 years
   Vehicles..............................      15,686        43,000     3 years
   Leasehold improvements................      17,194        17,194     4 years
                                            ---------     ---------   ---------
                                              755,678       981,837
   Accumulated depreciation..............     300,045       424,653
                                            ---------     ---------
                                            $ 455,633     $ 557,184
                                            =========     =========
</TABLE>
 
  Depreciation of property and equipment charged to operations was $154,121,
$151,839 and $124,243 for the years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1997, respectively.
 
NOTE D--LONG-TERM DEBT AND REVOLVING LINE OF CREDIT
 
LONG-TERM DEBT
 
  Long-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31, SEPTEMBER 30,
                                                        1996         1997
                                                    ------------ -------------
   <S>                                              <C>          <C>
   Senior term loan. Requires monthly payments of
    $32,614 including interest at prime plus 2.5%
    (effective rate of 10.5% and 10.25% at Septem-
    ber 30, 1997 and December 31, 1996, respective-
    ly). All principal and interest due December
    1998...........................................  $1,027,045   $  810,677
   Subordinated note. Requires annual principal
    payments of approximately $1,007,000 in
    December 1999 and December 2000. Interest is
    payable quarterly..............................   2,014,000    2,014,000
                                                     ----------   ----------
                                                      3,041,045    2,824,677
   Less current portion............................     299,927      321,423
                                                     ----------   ----------
                                                     $2,741,118   $2,503,254
                                                     ==========   ==========
</TABLE>
 
  In accordance with the subordination and intercreditor agreement, the
Company can make no payments on the subordinated note until all indebtedness
under the senior term loan and revolving line of credit has been repaid, with
the exception of interest payments required under the subordinated note. Each
loan is collateralized by substantially all assets of the Company.
 
  Each loan agreement contains covenants which, among other things, restrict
the payment of dividends and the level of capital expenditures, and require
the Company to maintain certain minimum financial ratios. The company was not
in compliance with certain covenants at September 30, 1997 relating to changes
in its capital structure, acquisition of subsidiaries, assumption of
indebtedness and the maintenance of a minimum current ratio and minimum debt
coverage ratios. The Company has received waivers from the lenders for these
instances of noncompliance at September 30, 1997. Additionally, the covenants
related to the maintenance of a minimum current ratio and debt coverage ratio
(the financial ratio covenants) have been restructured and the Company is in
compliance with the restructured financial ratio covenants as of September 30,
1997. Management believes that the Company will continue to be in compliance
with all loan covenants.
 
 
                                     F-10
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The senior term loan requires the payment of a monthly maintenance fee of
$4,167 through December 1998. The lender may also require additional principal
payments not to exceed fifty percent of the Company's annual excess cash
flows, as defined.
 
  In connection with the issuance of the subordinated note, CPS issued a put
warrant to purchase 724,719 shares of the Company's common stock for
approximately $.0026 per share to the note holder. Interest on this note is
payable at a stated rate of 12%. Giving effect to the issuance of the
warrants, and the put feature adjustment attributable to the warrants (see
Note G), the imputed interest rate on this note was 11.1%, 23.8% and 8.6% for
the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1997, respectively.
 
  Maturities of long-term debt are as follows:
 
<TABLE>
   <S>                                                               <C>
   Year ending September 30,
   1998............................................................. $  321,423
   1999.............................................................    489,254
   2000.............................................................    975,725
   2001.............................................................  1,038,275
                                                                     ----------
                                                                     $2,824,677
                                                                     ==========
</TABLE>
 
REVOLVING LINE OF CREDIT
 
  The Company executed a revolving line of credit agreement with the senior
lender which provides for maximum borrowings of $1,000,000. Borrowings are
restricted to 70% of eligible accounts receivable. Interest is payable monthly
at the prime rate plus 2%. The agreement is collateralized by substantially
all assets of the Company. The provisions of the agreement contain covenants
identical to those of the senior term loan. No amounts were outstanding under
this revolving line of credit at December 31, 1996 or September 30, 1997.
 
NOTE E--INCOME TAXES
 
  The income tax provision consisted of the following:
 
<TABLE>
<CAPTION>
                                                  YEAR ENDED        NINE MONTHS
                                                 DECEMBER 31,          ENDED
                                               ------------------  SEPTEMBER 30,
                                                 1995      1996        1997
                                               --------  --------  -------------
   <S>                                         <C>       <C>       <C>
   Current expense (benefit).................. $(11,000) $181,200     $73,000
   Deferred expense (benefit).................  (13,000)  (16,000)     14,000
                                               --------  --------     -------
                                               $(24,000) $165,200     $87,000
                                               ========  ========     =======
</TABLE>
 
                                     F-11
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company's temporary differences result in a deferred income tax
liability, summarized as follows:
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31, SEPTEMBER 30,
                                                          1996         1997
                                                      ------------ -------------
   <S>                                                <C>          <C>
   Deferred tax liabilities:
     Capitalized software costs......................   $303,800     $333,200
     Depreciation....................................     30,100       25,800
     Other...........................................      1,000          --
                                                        --------     --------
       Gross deferred tax liability..................    334,900      359,000
                                                        --------     --------
   Deferred tax assets:
     Unearned revenue................................    129,400      111,700
     Amortization of intangible assets...............     50,700       69,700
     Accruals and allowances.........................     16,800       25,600
                                                        --------     --------
                                                         196,900      207,000
                                                        --------     --------
       Net deferred tax liability....................   $138,000     $152,000
                                                        ========     ========
</TABLE>
 
  The net deferred tax liability is classified in the accompanying balance
sheets as follows:
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31, SEPTEMBER 30,
                                                          1996         1997
                                                      ------------ -------------
   <S>                                                <C>          <C>
   Current deferred tax asset........................  $(146,000)    $(137,000)
   Long-term deferred tax liability..................    284,000       289,000
                                                       ---------     ---------
   Net deferred tax liability........................  $ 138,000     $ 152,000
                                                       =========     =========
</TABLE>
 
  The provision for income taxes differs from the amount of income tax
determined by applying the applicable federal rates due to the following:
 
<TABLE>
<CAPTION>
                                                YEAR ENDED        NINE MONTHS
                                               DECEMBER 31,          ENDED
                                             ------------------  SEPTEMBER 30,
                                               1995      1996        1997
                                             --------  --------  -------------
   <S>                                       <C>       <C>       <C>
   Tax expense (benefit) at applicable fed-
    eral rate of 34%........................ $(86,400) $(27,500)    $35,200
   State tax expense (benefit), net.........  (12,400)   14,500      10,100
   Non deductible amortization of goodwill..   90,100    90,100      67,600
   Non deductible (non taxable) warrant ac-
    cretion.................................  (19,300)   92,400     (23,000)
   Other non deductible items...............    4,000    15,200      14,100
   Tax credits..............................      --    (19,500)    (17,000)
                                             --------  --------     -------
                                             $(24,000) $165,200     $87,000
                                             ========  ========     =======
</TABLE>
 
                                     F-12
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE F--COMMITMENTS AND CONTINGENCIES
 
LEASE COMMITMENTS
 
  The Company has entered into noncancelable operating lease agreements for
office space which expire at various dates through March 2001. Approximate
minimum future payments under noncancelable leases with initial or remaining
terms in excess of one year at September 30, 1997 are due as follows:
 
<TABLE>
   <S>                                                                <C>
   Year ending September 30,
   1998.............................................................. $ 195,300
   1999..............................................................   241,600
   2000..............................................................   210,600
   2001..............................................................   103,100
   2002..............................................................     4,500
                                                                      ---------
                                                                      $ 755,100
                                                                      =========
</TABLE>
 
  Rental expense for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1997 was approximately $217,000, $177,000 and
$204,000, respectively.
 
CONTINGENCIES
   
  A former employee filed a civil action in the United States District Court
for the Middle District of Florida asserting claims under federal and state
Equal Employment Opportunity laws. In January 1998, a jury found, and judgment
was entered, in favor of the Company and against the former employee. The
Court may award attorneys' fees to the former employee to be paid by the
Company. Management believes such action, if taken, would be without merit and
would appeal such action if necessary. The ultimate outcome of this
uncertainty cannot be determined at this time. Accordingly, no provision for
any liabilities that may result based on the ultimate outcome of this claim
has been made.     
 
NOTE G--WARRANTS
 
  The Company issued warrants for the purchase of 724,719 shares of common
stock in connection with the subordinated note. Additionally, warrants for the
purchase of 203,047 shares of common stock were issued in connection with
costs of obtaining financing. All warrants issued entitle the holders to
purchase common stock at an exercise price of approximately $.0026 per share
and expire in December 2004. The terms of the warrant also entitle the holders
to require the Company to purchase the warrant for cash on or after December
31, 1999, or upon an initial public offering of the Company's common stock if
earlier, for a price as defined in the warrant agreements.
 
  Upon issuance, the Company recorded the put warrants at their value as
estimated by management of $110,000. The Company is adjusting the put warrants
to the highest redemption price of the put warrants (the put feature
adjustment) in accordance with the warrant agreement, which is a formula based
on operating earnings, as defined, for the preceding twelve months,
outstanding indebtedness and cash balances. The put feature adjustments are
accrued over the period from the date of issuance to the earliest put date of
the warrants. The put feature adjustments resulted in a $271,632 charge to
earnings for the year ended December 31, 1996, and a benefit of $56,831 and
$90,249 for the years ended December 31, 1995 and nine months ended September
30, 1997, respectively. Such put feature adjustments are classified as
interest and financing costs in the accompanying statements of operations.
 
  Subsequent to September 30, 1997, all warrant holders executed agreements to
exercise all warrants into common stock upon the closing of the initial public
offering of the Company's common stock.
 
 
                                     F-13
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE H--RETIREMENT PLAN
 
  The Company has a retirement savings plan covering substantially all of its
employees. The Company matches employee contributions at a rate determined
annually by the Board of Directors. No Company contributions were made for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1997.
 
NOTE I--NEW ACCOUNTING PRONOUNCEMENTS
 
  The Financial Accounting Standards Board (FASB) has issued the following
Statements of Financial Accounting Standards (SFAS):
 
  SFAS 128, Earnings Per Share, which is effective for financial statements
for periods ending after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed.
 
  SFAS 129, Disclosure of Information about Capital Structure, which is
effective for financial statements for periods ending after December 15, 1997.
SFAS 129 requires disclosure of certain information about a Company's
securities.
 
  SFAS 130, Reporting Comprehensive Income, which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 requires companies to
include details about comprehensive income that arise during a reporting
period. Comprehensive income includes revenue, expenses, gains and losses that
bypass the income statement and are reported directly in a separate component
of equity.
 
  SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 requires companies to report information
about an entity's different types of business activities and the different
economic environments in which it operates, referred to as operating segments.
 
  Additionally, the AICPA Accounting Standards Executive Committee has issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
modifies the criteria for determining recognition of revenue and allocation of
the contract fee for contracts containing multiple elements, such as software
products, rights to upgrades and other services.
 
  Management does not expect the adoption of the Statements of Financial
Accounting Standards and SOP 97-2, referred to above, to have a material
impact on the Company's results of operations or financial condition.
 
NOTE J--SHAREHOLDERS' EQUITY
 
  On October 23, 1997, the board of directors approved the following items:
 
  A stock split of 390 to 1 was approved, effective October 23, 1997.
Additionally, the articles of incorporation were amended to authorize
50,000,000 common shares and 10,000,000 preferred shares. The board can issue
such shares of preferred stock in one or more series and shall have rights,
preferences, privileges and restrictions as determined by the board of
directors. All per share amounts and references to common and preferred stock
have been retroactively restated.
 
  The 1997 Equity Participation Plan and Employee Stock Purchase Plan (the
Plans) were adopted. The Plans provide for the issuance of stock options and
other performance awards as may be approved by the
 
                                     F-14
<PAGE>
 
                       CPS SYSTEMS, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
board of directors. 335,000 stock options were issued under this plan, pending
the successful closing of the Company's initial public offering, with an
exercise price equal to the offering per share price of the Company's common
stock offered in its initial public offering.
 
NOTE K--SIGNIFICANT CUSTOMERS
 
  Sales to two customers accounted for approximately 20% of consolidated
revenue for the nine months ended September 30, 1997, each accounting for 10%.
No single customer comprised at least 10% of consolidated revenue for the
years ended December 31, 1995 and 1996.
 
                                     F-15
<PAGE>
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
  NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
                                  -----------
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    6
Use of Proceeds...........................................................   12
Dividend Policy...........................................................   12
Dilution..................................................................   13
Capitalization............................................................   14
Selected Financial Data...................................................   15
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   16
Business .................................................................   27
Management................................................................   40
Certain Transactions......................................................   44
Principal Shareholders....................................................   45
Selling Shareholders......................................................   46
Description of Capital Stock..............................................   46
Shares Eligible for Future Sale...........................................   49
Underwriting..............................................................   50
Legal Matters.............................................................   51
Experts...................................................................   51
Available Information.....................................................   52
Index to Consolidated Financial Statements................................  F-1
</TABLE>    
 
                                  -----------
 
  UNTIL       , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                
                             1,900,000 SHARES     
 
 
                                      LOGO
[LOGO OS CPS SYSTEMS, INC. APPEARS HERE]
 
                                  COMMON STOCK
 
                               ----------------
 
                                   PROSPECTUS
 
                               ----------------
 
 
                                Cruttenden Roth
                                  Incorporated
                              
                           Josephthal & Co. Inc.     
 
 
                                        , 1998
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
  The Registrant's Restated Articles of Incorporation ("Restated Articles")
contains a provision that requires the Registrant to indemnify its directors,
officers, agents and employees to the extent permitted under Texas law. The
Registrant's Restated Articles provide that the Registrant shall indemnify its
directors, officers, employees and other agents to the fullest extent
permitted by law. The Registrant believes that indemnification under its
Restated Articles covers at least negligence and gross negligence on the part
of the indemnified parties. The Registrant's Restated Articles also require it
to maintain insurance, to the extent reasonably available and at its expense,
to protect any person entitled to indemnity thereunder against any liability
for which indemnification would be provided thereunder, whether or not the
Registrant has the power to indemnify such person against such liability under
Texas law.
 
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
  The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered:
 
<TABLE>   
<S>                                                                    <C>
Securities and Exchange Commission Registration Fee................... $  4,392
National Association of Securities Dealers, Inc. Filing Fee...........    1,949
Amex Filing Fee.......................................................   30,000
Non-accountable expense allowance * ..................................  313,500
Blue Sky Fees and Expenses * .........................................   65,000
Legal Fees and Expenses *.............................................  270,000
Accounting Fees and Expenses *........................................  110,000
Printing and Engraving Expenses *.....................................  110,000
Transfer Agent Fee *..................................................    3,000
Miscellaneous Expenses *..............................................    2,159
                                                                       --------
Total................................................................. $910,000
                                                                       ========
</TABLE>    
- --------
* Estimated for the purpose of this filing.
   
  In the event the Underwriters' over-allotment option is exercised in full,
an additional $47,025 in non-accountable expenses will be payable by the
Registrant.     
 
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
 
  None.
 
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(A) EXHIBITS
 
<TABLE>   
<CAPTION>
     NO.     DESCRIPTION
     ---     -----------
 <C>         <S>
      1.1*** Form of Underwriting Agreement
      1.2    Form of Warrant Agreement
      3.1    Restated Articles of Incorporation and all amendments thereto
      3.2    Bylaws
      4.1    Form of Common Stock Certificate
      4.2    See Exhibits 3.1 and 3.2 for provisions in the Certificate of
             Incorporation and Amended and Restated Bylaws of the Company
             defining the rights of the holders of Common Stock
</TABLE>    
 
                                     II-1
<PAGE>
 
<TABLE>   
<CAPTION>
  NO.   DESCRIPTION
  ---   -----------
 <C>    <S>
   5.1  Opinion of Schreeder, Wheeler & Flint, LLP regarding legality
  10.1  Warrant to Purchase Shares of Common Stock issued on December 29, 1994
        by the Company to Hanifen Imhoff Mezzanine Fund, L.P. granting the
        right to purchase from the Company 724,719 shares of the Company's
        Common Stock
  10.2  Warrant to Purchase Shares of Common Stock issued on December 29, 1994
        by the Company to John K. Percival granting the right to purchase from
        the Company 103,476 shares of the Company's Common Stock
  10.3  Warrant to Purchase Shares of Common Stock issued on December 29, 1994
        by the Company to Samuel E. Hudgins granting the right to purchase from
        the Company 69,114 shares of the Company's Common Stock
  10.4  Warrant to Purchase Shares of Common Stock issued on December 29, 1994
        by the Company to Robert J. Newcorn granting the right to purchase from
        the Company 30,457 shares of the Company's Common Stock
  10.5  401(k) Retirement Plan
  10.6  1997 Equity Participation Plan
  10.7  CPS Systems, Inc. Employee Stock Purchase Plan
  10.8  Standard Office Building Lease Agreement between Aetna Life Insurance
        Company and CPS Business Systems, Inc., dated February 13, 1990, as
        amended by Amendment No. 1 between Dallas Metro Real Estate Fund I,
        Aetna Life Insurance Company and CPS Systems, Inc. dated January 31,
        1995
  10.9  Term Loan Agreement dated as of December 29, 1994 between CPS
        Acquisition Corp. and Greyhound Financial Corporation**
  10.10 Term Loan Promissory Note dated December 29, 1994 in the amount of
        $1,500,000
  10.11 Guaranty and Subordination Agreement (Term Loan) dated December 29,
        1994 between CPS Systems, Inc. and Greyhound Financial Corporation**
  10.12 Form of Stock Pledge and Security Agreement (with Irrevocable Proxy)
        dated December 29, 1994 between each of the Company's Shareholders and
        Greyhound Financial Corporation**
  10.13 Assignment of contract dated December 29, 1994 between CPS Acquisition
        Corp. and Greyhound Financial Corporation**
  10.14 Stock Pledge and Security Agreement (with Irrevocable Proxy) dated
        December 29, 1994 between CPS Acquisition Corp. and Greyhound Financial
        Corporation**
  10.15 Assumption Agreement dated December 29, 1994 between CPS Systems, Inc.
        and Greyhound Financial Corporation**
  10.16 Revolver Loan and Security Agreement dated December 29, 1994 between
        CPS Systems, Inc. and Greyhound Financial Corporation**
  10.17 Revolver Loan Promissory Note dated December 29, 1994 in the amount of
        $1,000,000
  10.18 Assignment of Contracts, Intangibles, Licenses and Permits dated
        December 29, 1994 between CPS Systems, Inc. and Greyhound Financial
        Corporation**
  10.19 Guaranty and Subordination Agreement (Revolver Loan) dated December 29,
        1994 by CPS Acquisition Corp. in favor of Greyhound Financial
        Corporation**
  10.20 Subordination and Intercreditor Agreement dated December 29, 1994 among
        Greyhound Financial Corporation, Hanifen Imhoff Mezzanine Fund, L.P.,
        CPS Acquisition Corp. and CPS Systems, Inc.**
  10.21 CPS Acquisition Corp. and CPS Systems, Inc. Note Agreement dated as of
        December 29, 1994 for $2,100,000 12% Senior Subordinated Secured Note
        Due December 31, 2000
  10.22 Security Agreement (general) dated December 29, 1994 between CPS
        Systems, Inc. and Hanifen Imhoff Mezzanine Fund, L.P.
  10.23 Security Agreement (Stock) dated December 29, 1994 from Paul E. Kana to
        and for the benefit of Hanifen Imhoff Mezzanine Fund, L.P.
  10.24 Agreement for Ongoing Maintenance & Enhancement of Software Products
        entered between CPS Systems, Inc. and Majesco Software, Inc. dated
        January 1997
</TABLE>    
 
                                      II-2
<PAGE>
 
<TABLE>   
<CAPTION>
 NO.        DESCRIPTION
 ---        -----------
 <C>        <S>
   10.25    Value Added Reseller Agreement by and between CPS Systems, Inc. and
            NCR Corporation dated June 13, 1996
   10.26    Industry Remarketer Affiliate Document of Understanding by and
            between IBM Corporation and CPS Systems, Inc. dated September 12,
            1996
    10.27   Form of Lock-Up Agreement
    10.28   Employment Agreement for James K. Hoofard
    10.29   Employment Agreement for Paul E. Kana
    21.1    List of Subsidiaries
    23.1*** Consent of Independent Auditors
    23.2    Consent of Schreeder, Wheeler and Flint, LLP (see Exhibit 5.1)
    24.1    Power of Attorney (see page II-IV)
    27.1    Financial Data Schedules
</TABLE>    
- --------
  * Filed herewith.
 ** Greyhound Financial Corporation changed its name to FINOVA Capital
Corporation.
*** Amends previously filed Exhibit.
 
(B) FINANCIAL STATEMENT SCHEDULES
 
  Report of Independent Auditors on Financial Statement Schedules
 
ITEM 28. UNDERTAKINGS
 
  The small business issuer will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
 
  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
 
  In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
 
  For determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the small business issuer under Rule 424(b)(1), or 497(h) under the
Securities Act will be treated as part of this Registration Statement as of
the time the Commission declares it effective.
 
  For determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus will be treated as a new
Registration Statement for the securities offered in the Registration
Statement, and the offering of the securities at that time will be treated as
the initial bona fide offering of those securities.
 
                                     II-3
<PAGE>
 
                                  SIGNATURES
   
  In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
Amendment No. 3 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, on February 13, 1998.     
 
                                          CPS SYSTEMS, INC.
 
                                          By  /s/ Paul E. Kana,
                                          _____________________________________
                                                      Paul E. Kana,
                                          Chairman and Chief Executive Officer
   
  Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities indicated below on February 13, 1998.     
 
<TABLE>
<CAPTION>
             SIGNATURE                           TITLE
             ---------                           -----
 
<S>                                  <C>                           <C>
         /s/ Paul E. Kana            Chairman of the Board and
____________________________________ Chief Executive Officer
            Paul E. Kana             (Principal Executive
                                     Officer)
 
        /*/ Kevin L. Figge           Chief Financial Officer
____________________________________ (Principal Financial Officer)
           Kevin L. Figge
 
    /s/ James K. Hoofard, Jr.        Director, President and
____________________________________ Chief Operating Officer
       James K. Hoofard, Jr.
 
        /*/ G. Dean Booth            Director and Secretary
____________________________________
            G. Dean Booth
 
      /*/ Sidney H. Cordier          Director
____________________________________
         Sidney H. Cordier
 
       /*/ Brian R. Wilson           Director
____________________________________
          Brian R. Wilson
</TABLE>
 
                                     II-4

<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                  ON SCHEDULE
 
Board of Directors
CPS Systems, Inc.
   
  In connection with our audit of the consolidated financial statements of CPS
Systems, Inc. and Subsidiary and referred to in our report dated October 31,
1997 (except for the third paragraph of Note D, as to which the date is
December 3, 1997 and the third paragraph of Note F, as to which the date is
January 30, 1998), which is included in the Prospectus constituting Part I of
this Registration Statement, we have also audited Schedule II of CPS Systems,
Inc. and Subsidiary for the nine months ended September 30, 1997 and the years
ended December 31, 1996 and 1995. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.     
 
 
Atlanta, Georgia
October 31, 1997
<PAGE>
 
                        CPS SYSTEMS, INC. AND SUBSIDIARY
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
            COLUMN A               COLUMN B   COLUMN C    COLUMN D    COLUMN E
            --------              ---------- ---------- ------------ ----------
                                             ADDITIONS
                                  BALANCE AT CHARGED TO              BALANCE AT
                                  BEGINNING  COSTS AND   DEDUCTIONS    END OF
           DESCRIPTION            OF PERIOD   EXPENSES  DESCRIBE (1)   PERIOD
           -----------            ---------- ---------- ------------ ----------
<S>                               <C>        <C>        <C>          <C>
Nine months ended September 30,
 1997
 Allowance for doubtful accounts
  receivable.....................  $27,000    $24,000     $ 2,000     $49,000
Year ended December 31, 1996
 Allowance for doubtful accounts
  receivable.....................  $40,000    $   --      $13,000     $27,000
Year ended December 31, 1995
 Allowance for doubtful accounts
  receivable.....................  $49,000    $   --      $ 9,000     $40,000
</TABLE>
- --------
(1) Bad debt write off.
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>   
<CAPTION>
    NO.     DESCRIPTION
    ---     -----------
 <C>        <S>
     1.1*** Form of Underwriting Agreement
     1.2    Form of Warrant Agreement
     3.1    Restated Articles of Incorporation and all amendments thereto
     3.2    Bylaws
     4.1    Form of Common Stock Certificate
     4.2    See Exhibits 3.1 and 3.2 for provisions in the Certificate of
            Incorporation and Amended and Restated Bylaws of the Company
            defining the rights of the holders of Common Stock
     5.1    Opinion of Schreeder, Wheeler & Flint, LLP regarding legality
    10.1    Warrant to Purchase Shares of Common Stock issued on December 29,
            1994 by the Company to Hanifen Imhoff Mezzanine Fund, L.P. granting
            the right to purchase from the Company 724,719 shares of the
            Company's Common Stock
    10.2    Warrant to Purchase Shares of Common Stock issued on December 29,
            1994 by the Company to John K. Percival granting the right to
            purchase from the Company 103,476 shares of the Company's Common
            Stock
    10.3    Warrant to Purchase Shares of Common Stock issued on December 29,
            1994 by the Company to Samuel E. Hudgins granting the right to
            purchase from the Company 69,114 shares of the Company's Common
            Stock
    10.4    Warrant to Purchase Shares of Common Stock issued on December 29,
            1994 by the Company to Robert J. Newcorn granting the right to
            purchase from the Company 30,457 shares of the Company's Common
            Stock
    10.5    401(k) Retirement Plan
    10.6    1997 Equity Participation Plan
    10.7    CPS Systems, Inc. Employee Stock Purchase Plan
    10.8    Standard Office Building Lease Agreement between Aetna Life
            Insurance Company and CPS Business Systems, Inc., dated February
            13, 1990, as amended by Amendment No. 1 between Dallas Metro Real
            Estate Fund I, Aetna Life Insurance Company and CPS Systems, Inc.
            dated January 31, 1995
    10.9    Term Loan Agreement dated as of December 29, 1994 between CPS
            Acquisition Corp. and Greyhound Financial Corporation**
   10.10    Term Loan Promissory Note dated December 29, 1994 in the amount of
            $1,500,000
   10.11    Guaranty and Subordination Agreement (Term Loan) dated December 29,
            1994 between CPS Systems, Inc. and Greyhound Financial
            Corporation**
   10.12    Form of Stock Pledge and Security Agreement (with Irrevocable
            Proxy) dated December 29, 1994 between each of the Company's
            Shareholders and Greyhound Financial Corporation**
   10.13    Assignment of contract dated December 29, 1994 between CPS
            Acquisition Corp. and Greyhound Financial Corporation**
   10.14    Stock Pledge and Security Agreement (with Irrevocable Proxy) dated
            December 29, 1994 between CPS Acquisition Corp. and Greyhound
            Financial Corporation**
   10.15    Assumption Agreement dated December 29, 1994 between CPS Systems,
            Inc. and Greyhound Financial Corporation**
   10.16    Revolver Loan and Security Agreement dated December 29, 1994
            between CPS Systems, Inc. and Greyhound Financial Corporation**
   10.17    Revolver Loan Promissory Note dated December 29, 1994 in the amount
            of $1,000,000
   10.18    Assignment of Contracts, Intangibles, Licenses and Permits dated
            December 29, 1994 between CPS Systems, Inc. and Greyhound Financial
            Corporation**
   10.19    Guaranty and Subordination Agreement (Revolver Loan) dated December
            29, 1994 by CPS Acquisition Corp. in favor of Greyhound Financial
            Corporation**
   10.20    Subordination and Intercreditor Agreement dated December 29, 1994
            among Greyhound Financial Corporation, Hanifen Imhoff Mezzanine
            Fund, L.P., CPS Acquisition Corp. and CPS Systems, Inc.**
</TABLE>    
<PAGE>
 
<TABLE>   
<CAPTION>
 NO.        DESCRIPTION
 ---        -----------
 <C>        <S>
    10.21   CPS Acquisition Corp. and CPS Systems, Inc. Note Agreement dated as
            of December 29, 1994 for $2,100,000 12% Senior Subordinated Secured
            Note Due December 31, 2000
    10.22   Security Agreement (general) dated December 29, 1994 between CPS
            Systems, Inc. and Hanifen Imhoff Mezzanine Fund, L.P.
    10.23   Security Agreement (Stock) dated December 29, 1994 from Paul E.
            Kana to and for the benefit of Hanifen Imhoff Mezzanine Fund, L.P.
    10.24   Agreement for Ongoing Maintenance & Enhancement of Software
            Products entered between CPS Systems, Inc. and Majesco Software,
            Inc. dated January 1997
    10.25   Value Added Reseller Agreement by and between CPS Systems, Inc. and
            NCR Corporation dated June 13, 1996
    10.26   Industry Remarketer Affiliate Document of Understanding by and
            between IBM Corporation and CPS Systems, Inc. dated September 12,
            1996
    10.27   Form of Lock-Up Agreement
    10.28   Employment Agreement for James K. Hoofard
    10.29   Employment Agreement for Paul E. Kana
    21.1    List of Subsidiaries
    23.1*** Consent of Independent Auditors
    23.2    Consent of Schreeder, Wheeler and Flint, LLP (see Exhibit 5.1)
    24.1    Power of Attorney (see pages II-IV)
    27.1    Financial Data Schedules
</TABLE>    
- --------
  * Filed herewith.
 ** Greyhound Financial Corporation changed its name to FINOVA Capital
Corporation.
*** Amends previously filed Exhibit.

<PAGE>
 
                                   
                                 1,900,000/1/       

                               CPS SYSTEMS, INC.

                                  COMMON STOCK


                             UNDERWRITING AGREEMENT
                             ----------------------

    
                                                                March ____, 1998
                                                                                

    
CRUTTENDEN ROTH INCORPORATED
Josephthal & Co. Inc.
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92612        

Ladies and Gentlemen:

     CPS Systems, Inc., a Texas corporation (the "Company"), addresses you as
the Representative of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:

    
     1.   Description of Shares.  The Company proposes to issue and sell
          ---------------------                                         
1,900,000 shares of its authorized and unissued Common Stock, $.01 par value per
share  (the "Firm Shares"), to the several Underwriters.  In addition, certain
shareholders of the Company listed on Schedule B hereto (the "Selling
Shareholders") propose to grant to the Underwriters an option to purchase up to
285,000 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 5 hereof.  The Company also proposes to sell to you,
individually and not in your capacity as Representative, warrants (the
"Representatives' Warrants") to purchase up to 190,000 (218,500 if the
overallotment option is exercised in full) shares of Common Stock of the Company
(the "Representatives' Warrant Stock"), which sale will be consummated in
accordance with the terms and conditions of the Representatives' Warrant
Agreement (the "Representatives' Warrant Agreement"), the form of which is filed
as an exhibit to the Registration Statement described below.  As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares.  All shares of Common Stock of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as "Common Stock."  Unless the context
otherwise requires, references herein to the "Company" include CPS Systems, Inc.
together with its subsidiaries described in the Prospectus (hereinafter
defined).        

- --------------------
  /1/ Plus an option to purchase up to 285,000 additional shares from certain 
      selling shareholders to cover over-

                                       1

<PAGE>
 
     2.   Representations, Warranties and Agreements of the Company.
          ----------------------------------------------------------

          The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:

    
               (a)     A registration statement on Form SB-2 (File No. 333-
39173) with respect to the Shares, the Representatives' Warrants and the
Representatives' Warrant Stock, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.        

               If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information previously omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
- --------------------------------------------------------------------------------
       allotments, if any.

                                       2
<PAGE>
 
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.

               (b)      The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
                                                              --------  ------- 
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.

               (c)     The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 of the Registration Statement. The Company and
each of its subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company taken as a whole; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in possession
of and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities that are material to the conduct of its business, all of which are
valid and in
                                       3
<PAGE>
 
full force and effect; the Company is not in material violation of its charter
or bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by which it or
its properties or assets may be bound; and the Company is not in violation of
any law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties or assets.

    
               (d)     The Company has full legal right, power and authority to
enter into this Agreement and the Representatives' Warrant Agreement and to
perform the transactions contemplated hereby and thereby. Each of this Agreement
and the Representatives' Warrant Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representatives' Warrant Agreement
may be limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representatives'
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not violate any provisions of the charter, bylaws or other
organizational document of the Company and will not result in a breach or
violation of any of the terms and provisions of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties or assets may be bound, or any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties or assets. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
or assets is required for the execution and delivery of this Agreement or the
Representatives' Warrant Agreement and the consummation by the Company of the
transactions herein and therein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.       

               (e)      There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) is reasonably likely to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
its properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the

                                       4
<PAGE>
 
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations or by the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules and regulations of the Commission thereunder that
have not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.

               (f)      All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of shareholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
will automatically expire upon the consummation of the transactions contemplated
on the Closing Date. No further approval or authorization of any shareholder,
the Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act, the
Rules and Regulations or under state or other securities or Blue Sky laws.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights under the Act and the Rules and
Regulations.

               (g)      Grant Thornton LLP, which has expressed its opinion with
respect to the financial statements of the Company filed with the Commission as
a part of the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations. The audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, included
in the Registration Statement and Prospectus, fairly present the financial
position and the 

                                       5
<PAGE>
 
results of operations of the Company at the respective dates and for the
respective periods to which they apply. Such financial statements of the
Company, together with the related schedules and notes, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods as certified by Grant Thornton LLP. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.

               (h)     Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
specifically disclosed or contemplated therein, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company, (ii) incurred by the Company any
transaction that is material to the Company, (iii) any obligation, direct or
contingent incurred by the Company that is material to the Company, (iv) any
change in the capital stock or outstanding indebtedness of the Company that is
material to the Company, (v) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company, or (vi) any loss or damage
(whether or not insured) to the property of the Company which has a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company.

               (i)      Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or business of
the Company, (ii) the agreements to which the Company is a party described in
the Registration Statement are valid agreements, enforceable by the Company,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased by
it, except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. Except
as set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
and as described in the Registration Statement and the Prospectus.

               (j)      The Company has timely filed all federal, state, local
and foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, is reasonably likely to be asserted against the
Company, which might have a material adverse effect on the condition
                                       6
<PAGE>
 
(financial or otherwise), earnings, operations or business of the Company, and
all tax liabilities are adequately provided for on the books of the Company.

               (k)      The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business including, but not limited to, insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; the Company
has not been refused any insurance coverage sought or applied for; and the
Company does not have any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations or business of the Company.

               (l)      To the best of Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.

               (m)      Except as disclosed in or specifically contemplated by
the Prospectus, the Company owns or possesses adequate rights to use all patent
rights, trade secrets, mask works, know-how, trademarks, copyrights, licenses,
service marks and trade names that are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent rights,
trade secrets, mask works, know-how, trademarks, copyrights, licenses, service
marks or trade names; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent rights, trade secrets, mask works, know-how,
trademarks, copyrights, licenses, service marks or trade names which, singly or
in the aggregate, in the event of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.

               (n)      The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is approved for quotation on the Nasdaq SmallCap Market,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq SmallCap Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.

               (o)      The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and

                                       7
<PAGE>
 
has in the past conducted, and intends in the future to conduct, its affairs in
such a manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.

               (p)      The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act

               (q)      The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.

               (r)      The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization in violation of law or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.

               (s)      Each officer, director and director-nominee of the
Company and each beneficial owner of the Company's Common Stock has agreed in
writing that such person will not without the prior written consent of
Cruttenden Roth Incorporated, for a period of 365 days from the date that the
Registration Statement is declared effective by the Commission (the "Lock-up
Period"), (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation, any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under the Exchange Act) by such person (collectively,
"Securities") or publicly announce the undersigned's intention to do any of the
foregoing. Furthermore, such person will also agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. In addition, such person will also agree that the Representative
shall have the right of first refusal for a period of two years after the date
the Registration Statement is declared effective to be the sole broker/dealer
for any sales made under Rule 144 of the Securities Act (or similar provisions
enacted subsequent to the date of this Agreement). The Company has provided to
counsel for the Underwriters a complete and accurate list of all shareholders of
the Company and the number and type of securities held by each shareholder. The
Company has provided to counsel for the Underwriters true, accurate and complete
copies of all of the agreements pursuant to which its officers, directors,
director-nominees and shareholders have agreed to such restrictions (the "Lock-
up Agreements"). The Company hereby represents and warrants that it will not
release any of its officers, directors or director-nominees or other

                                       8
<PAGE>
 
shareholders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Cruttenden Roth Incorporated

               (t)      Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in material compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
that are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its best knowledge, the Company is not
likely to be required to make future material capital expenditures to comply
with Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
                 -- ----                                                       
applicable state or local law.

               (u)      The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, including without limitation cash receipts,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.

               (v)      There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers,
directors or director-nominees of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.

    
               (w)      The Representatives' Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with the
Representatives' Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.       

    
               (x)      The Representatives' Warrant Stock has been duly
authorized and reserved for issuance upon the exercise of the Representatives'
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.       

                                       9
<PAGE>
 
     3.   Representations, Warranties and Covenants of the Selling Shareholders.
          --------------------------------------------------------------------- 

               Each of the Selling Shareholders severally, and not jointly,
represents and warrants to, and agrees with, the several Underwriters that:

               (a)      Such Selling Shareholder has, and on the Closing Date
and on any later date on which the Option Shares are to be purchased will have,
good and marketable title to the Shares proposed to be sold by such Selling
Shareholder hereunder on such closing date and full right, power and authority
to enter into this Agreement and to sell, assign, transfer and deliver such
Option Shares hereunder, free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and claims whatsoever,
other than pursuant to this Agreement and the Shareholders' Agreement (as
defined below); and upon delivery of and payment for such Shares hereunder, the
Underwriters will acquire good and marketable title thereto, free and clear of
all liens, encumbrances, equities, claims, restrictions, security interests,
voting trusts or other defects of title whatsoever.

               (b)      Such Selling Shareholder has executed and delivered a
Power of Attorney and caused to be executed and delivered on his behalf a
Custody Agreement (hereinafter collectively referred to as the "Shareholders'
Agreement") and in connection herewith such Selling Shareholder further
represents, warrants and agrees that such Selling Shareholder has deposited in
custody, under the Shareholders' Agreement, with the agent named therein (the
"Agent") as custodian, certificates in negotiable form for the Shares or
warrants to purchase the Shares to be sold hereunder by such Selling
Shareholder, for the purpose of further delivery pursuant to this Agreement.
Such Selling Shareholder agrees that the Shares or warrants to purchase the
Shares to be sold by such Selling Shareholder on deposit with the Agent are
subject to the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement or in the Shareholders' Agreement, by any
act of such Selling Shareholder, by operation of law, by the death or incapacity
of such Selling Shareholder or by the occurrence of any other event. If the
Selling Shareholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Shares hereunder, the documents
evidencing Shares or warrants to purchase the Shares then on deposit with the
Agent shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement and the Shareholders' Agreement as if such death,
incapacity or other event had not occurred, regardless of whether or not the
Agent shall have received notice thereof. This Agreement and the Shareholders'
Agreement have been duly executed and delivered by or on behalf of such Selling
Shareholder and the form of such Shareholders' Agreement has been delivered to
you.

               (c)      The performance of this Agreement and the Shareholders'
Agree ment and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling Shareholder of
any of the terms or provisions of, or constitute a default by such Selling
Shareholder under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Shareholder is a party or by which such Selling
Shareholder or any of its

                                       10
<PAGE>
 
properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties, other than breaches or violations
which do not adversely affect such Selling Shareholder's ability to perform
under this Agreement or the Shareholders' Agreement.

               (d)      Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares, except usual and customary market maker and brokerage
transactions up to two business days prior to the offering contemplated hereby
in each case in accordance with applicable Commission regulations.

               (e)      To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, are made in reliance upon and in conformity
with written information furnished to the Company by such Selling Shareholder
specifically for use therein, such Preliminary Prospectus and the Registration
Statement did, and the Prospectus and any further amendments or supplements to
the Registration Statement and the Prospectus will, when they become effective
or are filed with the Commission, as the case may be, not contain any untrue
statement of material fact or omit any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made.

               (f)      To the best of its knowledge, such Selling Shareholder
is not aware that any of the representations and warranties set forth in Section
2 above is untrue or inaccurate in any material respect.

     4.        Representation, Warranties and Agreements of the Underwriters.
               ------------------------------------------------------------- 
The information set forth in the last paragraph on the front cover page (insofar
as such information relates to the Underwriters), in the first paragraph on page
2, concerning stabilization and over-allotment by the Underwriters, and in third
and eighth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

     5.        Purchase, Sale and Delivery of Shares.  On the basis of the
               -------------------------------------                      
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth.  The obligation of
each Underwriter to the Company 

                                       11
<PAGE>
 
shall be to purchase from the Company that number of Firm Shares which is set
forth opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 11).

    
               Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 5 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn until the day following the date of its delivery to the
Company) at the offices of the Representatives or such other place as may be
agreed upon among the Representatives and the Company, at 7:00 A.M., California
time, on the third (3rd) full business day following the first day that Shares
are traded (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 11 hereof), such time and date of payment and
delivery being herein called the "Closing Date."  The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date.  If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representative.

               It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.

               On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Selling Shareholders hereby grant to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase, in the respective
amounts set forth on the Schedule B, up to an aggregate of 285,000 Option Shares
at the purchase price per share for the Firm Shares set forth in this Section 5.
Such option may be exercised by the Representatives on behalf of the several
Underwriters on one or more occasions in whole or in part during the forty-five
(45) day period after the date on which the Firm Shares are initially offered to
the public, by giving written notice to the Company and the Agent. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased as the number of Firm Shares purchased by such Underwriter (set forth
in Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.       

                                       12
<PAGE>
 
     
               Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 5 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Agent (and the Agent
agrees not to deposit any such check in the bank on which it is drawn until the
day following the date of its delivery). Such delivery and payment shall take
place at the offices of the Representatives, or at such other place as may be
agreed upon by the Representatives and the Agent (i) on the Closing Date, if
written notice of the exercise of such option is received by the Agent at least
three (3) full business days prior to the Closing Date, or (ii) on a date which
shall not be later than the fifth (5th) full business day following the date the
Agent receives written notice of the exercise of such option, if such notice is
received by the Agent less than three (3) full business days prior to the
Closing Date.     
    
               To the extent that the option is not exercised for the entire
285,000 Option Shares, the number of Option Shares to be sold by each Selling
Shareholder shall be that number which bears the same relationship to the
aggregate number of Option Shares being purchased as the maximum number of
Option Shares being sold by each Selling Shareholder bears to 285,000.     
    
               The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for inspection at least two (2) full business days prior to
the date of payment and delivery and will be in such names and denominations as
you may request, such request to be made at least three (3) full business days
prior to such date of payment and delivery. If the Representatives so elect,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts at The Depository Trust Company designated by the
Representative.     
    
               It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.     

               Upon exercise of any option provided for in this Section 5, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the 

                                       13
<PAGE>
 
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the compliance with any of the
conditions herein contained in each case in all material respects.

               After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 13 hereof) of the Firm Shares at an initial public offering
price of $_____ per share.  After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.

     6.        Further Agreements of the Company.  The Company agrees with the
               ---------------------------------                              
several Underwriters that:

               (a)      The Company will use best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit

                                       14
<PAGE>
 
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations and
the rules and regulations of the Commission thereunder and the provisions of
this Agreement.

               (b)      The Company will advise you promptly after it shall
received notice or obtained knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.

               (c)      The Company will use reasonable efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.

               (d)      The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act (three of which will
include all exhibits) all in such quantities as you may from time to time
reasonably request.

               (e)      The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the forty-
fifth (45th) day following the end of the fiscal quarter first occurring after
the first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.

               (f)      During a period of five (5) years after the date hereof
and for so long as the Company is subject to Section 13 or 15 of the Exchange
Act, the Company will furnish to its shareholders as soon as practicable after
the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and

                                       15
<PAGE>
 
will furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company, and (vi) any additional
information of a public nature concerning the Company or its business which you
may reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary that is not so consolidated.

               (g)     The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.

               (h)      The Company will maintain a transfer agent and a
registrar (which may be the same entity) for its Common Stock.

               (i)      The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.

    
               (j)      If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 12(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 12(b)(i),
and, in the judgment of the Representatives, a public offering price of $5.00 or
more per share is available, then the Company shall pay the Representative an
amount equal to one and one half percent (1.5%) of the gross amount of the
proposed offering (assuming a $5.00 per share price) less any amounts previously
paid to the Representatives.       

               (k)      If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
if reasonably requested by you, forthwith prepare, and, if permitted by law,
disseminate a press

                                       16
<PAGE>
 
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.

    
               (l) During the Lock-up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly or indirectly, any Securities other than (i) the sale of the Firm
Shares and the Option Shares hereunder and, (ii) the Company's issuance of
options or Common Stock under the Company's presently authorized stock option
plans or restricted stock plans (collectively, the "Option Plans").       

     7.        Expenses.
               -------- 

               (a)     The Company agrees with each Underwriter that:

                   (i)     The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel and accountants for the
Company; the fees and disbursements of counsel for the several Underwriters, all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of counsel for the Underwriters related to such qualification);
the Company's road show costs and expenses, the cost of preparing bound volumes
of the documents relating to the public offering of Common Stock contemplated
hereby; and all other expenses directly incurred by the Company in connection
with the performance of its obligations hereunder.

    
                   (ii)     To the extent that the Representatives' accountable
expenses (including without limitation, travel expenses) exceed $20,000 (which
amount has previously been advanced to the Representatives by the Company), the
Company shall reimburse the Representatives on the Closing Date up to an
additional $30,000 (exclusive of the Representatives' legal expenses) for such
accountable expenses.

                   (iii)    In addition to its other obligations under Section
7(a)(i) hereof, if the Shares are sold pursuant to this Agreement, the Company
will pay to the Representatives a nonaccountable expense allowance equal to 3.0%
of the aggregate sales price of the Shares to the public.  This nonaccountable
expense allowance with respect to the Firm Shares       

                                       17
<PAGE>
 
    
shall be paid to you on the Closing Date and the nonaccountable expense
allowance with respect to the Option Shares shall be paid to you on the closing
of the sale to you of such Option Shares. The $20,000 previously paid to the
Representative by the Company and any amount owed to the Representatives
pursuant to Section 7(a)(ii) hereof shall be credited against this
nonaccountable expense allowance.       

                   (iv)     In addition to its other obligations under Section 9
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 9(a) hereof, it will reimburse the Underwriters and Selling
Shareholders, as the case may be, on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) listed from time to time in
The Wall Street Journal which represents the base rate on corporate loans posted
by a substantial majority of the nation's five (5) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.

               (b)      In addition to their other obligations under Section
9(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 9(b) hereof, they will reimburse the
Company and Selling Shareholders, as the case may be, on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
shall promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request

               (c)      It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
7(a)(iv) and 7(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD
in 

                                       18
<PAGE>
 
Orange County, California (or as close geographically to Orange County,
California as is reasonably practical). Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 7(a)(iv) and 7(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 9(a) and 9(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 9(d) hereof.

     8.   Conditions of Underwriters' Obligations.  The obligations of the
          ---------------------------------------                         
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the performance by the
Company of its obligations hereunder and to the following additional conditions:

          (a) The Registration Statement shall have become effective not later
than 2:00 P.M., California time, on the date of this Agreement, or such later
date as shall be consented to in writing by you; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.

          (b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issuance, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such documents and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.

          (c) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock of the Company other than
pursuant to the exercise of outstanding options and warrants disclosed in the
Prospectus or any material change in the indebtedness of the Company, (ii)
except as set forth or contemplated by the Registration Statement or the
Prospectus, no material verbal or written agreement or other transaction shall
have been entered into by the Company, which is not in the ordinary course of
business, (iii) no loss or damage (whether or not insured) to the property of
the Company shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business, results of 

                                       19
<PAGE>
 
    
operations or prospects of the Company, (iv) no legal or governmental action,
suit or proceeding affecting the Company which is material to the Company or
which affects or may affect the transactions contemplated by this Agreement
shall have been instituted or threatened and (v) there shall not have been any
material change in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company which makes it impractical or
inadvisable in the judgment of the Representatives to proceed with public
offering or purchase the Common Shares as contemplated hereby.       

          (d) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, an opinion of
Schreeder, Wheeler, Flint, counsel for the Company, dated the Closing Date or
such later date on which Option Shares are purchased, addressed to the
Underwriters (and stating that it may be relied upon by Underwriters' Counsel in
rendering its opinion pursuant to Section 8 (d) of this Agreement) and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:

                    (i)   The Company and each of its subsidiaries has been duly
          incorporated and is validly existing and in good standing under the
          laws of the jurisdiction of its incorporation;

                    (ii)  The Company and each of its subsidiaries has full
          corporate power and authority to own, lease and operate its properties
          and to conduct its business as described in the Registration
          Statement;

                    (iii) The Company and each of its subsidiaries is duly
          qualified to do business as a foreign corporation and is in good
          standing in each jurisdiction, if any, in which the ownership or
          leasing of its properties or the conduct of its business requires such
          qualification, except where the failure to be so qualified or be in
          good standing would not have a material adverse effect on the
          condition (financial or otherwise), earnings, operations or business
          of the Company taken as a whole.  To such counsel's knowledge, Company
          has no subsidiaries or other than as listed in Exhibit 21 to the
          Registration Statement;

                    (iv)  The authorized, issued and outstanding capital stock
          of the Company is as set forth in the Prospectus under the caption
          "Capitalization"; all outstanding shares of capital stock of the
          Company have been duly and validly issued and are fully paid and
          nonassessable, and, to such counsel's knowledge, have not been issued
          in violation of or subject to any preemptive right, co-sale right,
          registration right, right of first refusal or other similar right;
          without limiting the foregoing, to such counsel's knowledge, there are
          no preemptive or other rights to subscribe for or purchase any of the
          Shares;

                                       20
<PAGE>
 
                    (v)    The certificates evidencing the Shares to be
          delivered hereunder are in due and proper form under Texas law and
          when duly countersigned by the Company's transfer agent and registrar
          and delivered to you against payment of the agreed compensation in
          accordance with this Agreement, the Firm Shares and the Option Shares,
          represented thereby will be duly and validly issued and fully paid and
          nonassessable, and will not have been issued in violation of or
          subject to any preemptive right, co-sale right, registration right,
          right of first refusal or other similar right of shareholders and will
          conform in all respects to the description thereof in the Registration
          Statement;

                    (vi)   the Company has the corporate power and authority to
          enter into this Agreement and to issue, sell and deliver to the
          Underwriters the Shares to be issued and sold by it hereunder;

    
                    (vii)  The Company has the corporate power and authority to
          enter into the Representatives' Warrant Agreement and to issue, sell
          and deliver to the Representative the Representatives' Warrants to be
          issued and sold by it thereunder;

                    (viii) Each of this Agreement, the Representatives'
          Warrant Agreement and the Representatives' Warrants has been duly
          authorized by all necessary corporate action on the part of the
          Company and has been duly executed and delivered by the Company and,
          assuming due authorization, execution and delivery by you, is a valid
          and binding agreement of the Company, enforceable in accordance with
          its terms, except insofar as indemnification provisions may be limited
          by applicable law and to which counsel need not express any opinion
          and except as enforceability may be limited by bankruptcy, insolvency,
          reorganization, moratorium or similar laws relating to or affecting
          creditors' rights generally or by general equitable principles;       

                    (ix)   The Registration Statement has become effective under
          the Act and, to such counsel's knowledge, no stop order suspending the
          effectiveness of the Registration Statement has been issued and no
          proceedings for that purpose have been instituted or are pending or
          threatened under the Act;

                    (x)    The Registration Statement and the Prospectus, and
          each amendment or supplement thereto (other than the financial
          statements and schedules included in the Registration Statement as to
          which such counsel need express no opinion), as of the effective date
          of the Registration Statement, complied as to form in all material
          respects with the requirements of the Act and the applicable Rules and
          Regulations;

                                       21
<PAGE>
 
                    (xi) The statements in the Registration Statement and
          Prospectus under the captions "Management," "Certain Transactions,"
          "Description of Capital Stock" and "Shares Eligible For Future Sale,"
          and in the Registration Statement in Items 24 and 26 insofar as they
          constitute matters of law or legal conclusions or are descriptions of
          contracts, agreements or other documents are accurate and complete in
          all material respects and fairly present the information contained
          herein;

                    (xii)     The description in the Registration Statement and
          the Prospectus of the charter and bylaws of the Company and of
          statutes are accurate and fairly present the information required to
          be presented by the Act and the applicable Rules and Regulations and
          the Company is not in violation of its charter or bylaws, or other
          organizational documents;

                    (xiii)    To such counsel's knowledge, there are no
          agreements, contracts, leases or documents to which the Company is a
          party of a character required to be described or referred to in the
          Registration Statement or Prospectus or to be filed as an exhibit to
          the Registration Statement that are not described or referred to
          therein or filed as required;

    
                    (xiv)  The execution and delivery of this Agreement and the
          Representatives' Warrant Agreement and the performance by the Company
          of its obligations hereunder and thereunder will not (a) result in any
          violation of the Company's charter, bylaws or other organizational
          documents, or (b) result in a material breach or violation of any of
          the terms and provisions of, or constitute a material default under,
          any material bond, debenture, note or other evidence of indebtedness,
          or under any material lease, contract, indenture, mortgage, deed of
          trust, loan agreement, joint venture or other agreement or instrument
          to which the Company is a party or by which its properties are bound,
          or any applicable statute, rule or regulation known to such counsel
          or, to such counsel's knowledge, any order, writ or decree of any
          court, government or governmental agency or body having jurisdiction
          over the Company or over any of its properties or operations;

                    (xv)   To counsel's best knowledge, no consent, approval,
          authorization or order of or qualification with any court, government
          or governmental agency or body having jurisdiction over the Company or
          over any of its properties or operations is necessary in connection
          with the consummation by the Company of the transactions contemplated
          in this Agreement and the Representatives' Warrant Agreement, except
          such as have been obtained under the Act or such as may be required
          under state or other securities or Blue Sky laws in connection with
          the purchase and the distribution of the Shares by the Underwriters;
               

                                       22
<PAGE>
 
                    (xvi)   To such counsel's knowledge, there are no legal or
          governmental proceedings pending or threatened against the Company of
          a character required to be disclosed in the Registration Statement or
          the Prospectus by the Act or the Rules and Regulations or by the
          Exchange Act or the applicable rules and regulations of the Commission
          thereunder, other than those described therein;

    
                    (xvii)  The Representatives' Warrants have been duly and
          validly authorized by the Company and upon delivery to you in
          accordance with the Representatives' Warrant Agreement will be duly
          issued and legal, valid and binding obligations of the Company;

                    (xviii) The Representatives' Warrant Stock to be issued by
          the Company pursuant to the terms of the Representatives' Warrant has
          been duly authorized and, upon issuance and delivery against payment
          therefor in accordance with the terms of the Representatives' Warrant
          Agreement, will be duly and validly issued and fully paid and
          nonassessable, and to such counsel's knowledge, will not have been
          issued in violation of or subject to any preemptive right, co-sale
          right, registration right, right of first refusal or other similar
          right of shareholders;       

                    (xix)   To such counsel's knowledge, no holders of Common
          Stock or other securities of the Company have registration rights with
          respect to securities of the Company that have not been waived; and

                    (xx)    The offer and sale of all securities of the Company
          made within the last three years as set forth in Item 15 of the
          Registration Statement were exempt from the registration requirements
          of the Securities Act, pursuant to the provisions set forth in such
          Item, and from the registration or qualification requirements of all
          relevant state securities laws.

                    (xxi)   The Company has satisfied the conditions for use of
          Form SB-2 as set forth in the General Instructions thereto.

                    (xxii)  No transfer taxes are required to be paid in
          connection with the sale and delivery of the Shares to the
          Underwriters.

    
             In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel that leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are
     

                                       23
<PAGE>
 
purchased, the Registration Statement and any amendment or supplement thereto,
when such documents became effective or were filed with the Commission (other
than the financial statements and supporting schedules included in the
Registration Statement as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the Option
Shares are purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

          Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company, and of government officials, in which case its opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.

          (e)            You shall have received on the date on which any Option
Shares are purchased an opinion or opinions of counsel for the Selling
Shareholders, addressed to the Underwriters and stating that it may be relied
upon by Underwriters' Counsel in rendering its opinion pursuant to Section 8(f)
and dated the date on which any Option Shares are purchased, to the effect that:

                         (1) To the best of such counsel's knowledge, this
               Agreement and the Shareholders' Agreement have been duly
               authorized, executed and delivered by or on behalf of each of the
               Selling Shareholders; the Agent has been duly and validly
               authorized to act as the custodian of the Shares and, where
               applicable, warrants to purchase the Shares, to be sold by each
               such Selling Shareholder; and the performance of this Agreement
               and the Shareholders' Agreement and the consummation of the
               transactions herein contemplated by the Selling Shareholders will
               not result in a breach of, or constitute a default under, any
               indenture, mortgage, deed of trust, trust (constructive or
               other), loan agreement, lease, franchise, license or other
               agreement or instrument to which any of the Selling Shareholders
               is a party or by which any of the Selling Shareholders or any of
               their properties may be bound, or violate any statute, judgment,
               decree, order, rule or regulation known to such counsel of any
               court or governmental body having jurisdiction over any of the
               Selling Shareholders or any of their properties; and to the best
               of such counsel's knowledge, no approval, authorization, order or
               consent of any court, regulatory body, administrative agency or
               other governmental body is required for the execution and
               delivery of this Agreement or the Shareholders' Agreement or the
               consummation by the 

                                       24
<PAGE>
 
               Selling Shareholders of the transactions contemplated by this
               Agreement, except such as have been obtained and are in full
               force and effect under the Act and such as may be required under
               the rules of the NASD and applicable Blue Sky laws;

                         (2) To the best of such counsel's knowledge, the
               Selling Shareholders have full right, power and authority to
               enter into this Agreement and the Shareholders' Agreement and to
               sell, transfer and deliver the Shares to be sold on such closing
               date by such Selling Shareholders and good and marketable title
               to such Shares so sold, free and clear of all liens,
               encumbrances, equities, claims, restrictions, security interests,
               voting trusts, or other defects of title whatsoever, has been
               transferred to the Underwriters (whom counsel may assume to be
               bona fide purchasers) who have purchased such Shares hereunder;

                         (3) To the best of such counsel's knowledge, this
               Agreement and the Shareholders' Agreement are valid and binding
               agreements of each of the Selling Shareholders in accordance with
               their terms except as enforceability may be limited by general
               equitable principles, bankruptcy, insolvency, reorganization,
               moratorium or other laws affecting creditors' rights generally
               and except with respect to those provisions relating to
               indemnities or contributions for liabilities under the Act, as to
               which no opinion need be expressed; and

                         (4) No transfer taxes are required to be paid in
               connection with the sale and delivery of the Shares to the
               Underwriters here under.

               (f) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, an opinion of
Summit Law Group PLLC in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.

               (g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Grant Thornton LLP, addressed to the Company and the Underwriters, dated
the Closing Date or such later date on which Option Shares are purchased, as the
case may be, confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original

                                       25
<PAGE>
 
Letter"), but carried out to a date not more than three (3) business days prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations or business of the
Company from that set forth in the Registration Statement or Prospectus, which,
in your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. The Original Letter from Grant
Thornton LLP shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth its opinion with respect to its examination of
the balance sheets of the Company as of September 30, 1997, and December 31,
1996 and related statements of operations, shareholders' equity, and cash flows
for the years ended December 31, 1995 and 1996, and (iii) address other matters
agreed upon by Grant Thornton LLP and you. In addition, you shall have received
from Grant Thornton LLP a letter addressed to the Company and made available to
you for the use of the Underwriters stating that its review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of its examination of the Company's financial statements
as of September 30, 1997, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.

               (h) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the President and Chief
Financial Officer of the Company, to the effect that, and you shall be satisfied
that:

                    (i)    The representations and warranties of the Company in
          this Agreement are true and correct, as if made on and as of the
          Closing Date or any later date on which Option Shares are to be
          purchased, as the case may be, and the Company has complied, in all
          material aspects, with all the agreements and satisfied all the
          conditions on its part to be performed or satisfied, in all material
          respects, at or prior to the Closing Date or any later date on which
          Option Shares are to be purchased, as the case may be;

                    (ii)   No stop order suspending the effectiveness of the
          Registration Statement has been issued and no proceedings for that
          purpose have been instituted or, to their knowledge, are pending or
          threatened under the Act;

                                       26
<PAGE>
 
                    (iii)  When the Registration Statement became effective and
          at all times subsequent thereto up to the delivery of such
          certificate, the Registration Statement and the Prospectus, and any
          amendments or supplements thereto, contained all material information
          required to be included therein by the Act and the Rules and
          Regulations or the Exchange Act and the applicable rules and
          regulations of the Commission thereunder, as the case may be, and in
          all material respects conformed to the requirements of the Act and the
          Rules and Regulations or the Exchange Act and the applicable rules and
          regulations of the Commission thereunder, as the case may be, the
          Registration Statement, and any amendment or supplement thereto, did
          not and does not include any untrue statement of a material fact or
          omit to state a material fact required to be stated therein or
          necessary to make the statements therein not misleading, the
          Prospectus, and any amendment or supplement thereto, did not and does
          not include any untrue statement of a material fact or omit to state a
          material fact necessary to make the statements therein, in the light
          of the circumstances under which they were made, not misleading, and,
          since the effective date of the Registration Statement, there has
          occurred no event required to be set forth in an amended or
          supplemented Prospectus that has not been so set forth; and

                    (iv)   Subsequent to the respective dates as of which
          information is given in the Registration Statement and Prospectus,
          there has not been (a) any material adverse change in the condition
          (financial or otherwise), earnings, operations or business of the
          Company, (b) any transaction that is material to the Company, (c) any
          obligation, direct or contingent incurred by the Company, that is
          material to the Company, (d) any change in the capital stock or
          outstanding indebtedness of the Company, (e) any dividend or
          distribution of any kind declared, paid or made on the capital stock
          of the Company, or (f) any loss or damage (whether or not insured) to
          the property of the Company which has a material adverse effect on the
          condition (financial or otherwise), earnings, operations or business
          of the Company.

              (i) The Company shall have obtained and delivered to you an
agreement from each officer, director and director-nominee of the Company, and
each beneficial owner of five percent or more of the Common Stock immediately
after the offering contemplated hereby, in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Cruttenden Roth
Incorporated. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the

                                       27
<PAGE>
 
Lock-up Period, even if such Securities would be disposed of by someone other
than the such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.

          (j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request, including certificates of
officers of the Company as to the accuracy of the representations and warranties
of the Company, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.

          (k) The Representatives' Warrant Agreement shall have been entered
into by the Company and you, and the Representatives' Warrants shall have been
issued and sold to you pursuant thereto.

          All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel.  The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.

     9.   Indemnification and Contribution.
          -------------------------------- 

          (a) The Company and each of the Selling Shareholders severally agrees
to indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject (including, without limitation, in its capacity as an Underwriter or as
a "qualified independent underwriter" within the meaning of Schedule E of the
Bylaws of the NASD), under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) with respect to the Company, any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or any failure of the Company to perform its obligations hereunder or
under law, (ii) with respect to each of the Selling Shareholders, arise out of
or are based in whole or in part on any inaccuracy in the representations and
warranties of such Selling Shareholder contained herein or any failure of such
Selling Shareholder to perform its obligations hereunder or under law, (iii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (but, with respect to each of the Selling Shareholder only to 

                                       28
<PAGE>
 
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished by such Selling Shareholder, in its capacity as such, to
the Company or the Underwriters, directly or through such Selling Shareholders'
representatives, specifically for inclusion therein) and agrees to reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that neither the Company nor any Selling
                     --------  -------
Shareholder shall be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
as described in Section 4 hereof, and, provided further, that the indemnity
                                       -------- -------
agreement provided in this Section 9(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy of
the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 6(d)
hereof.

          The indemnity agreement in this Section 9(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.

          (b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and the Selling Shareholders against any losses,
claims, damages or liabilities, joint or several, to which the Company may
become subject under the Act or otherwise, specifically including, but not
limited to, losses, claims, damages or liabilities, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company as described in Section 4 hereof, and agrees to
reimburse the Company and the Selling Shareholders for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action.

                                       29
<PAGE>
 
          The indemnity agreement in this Section 9(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company and each person, if any, who controls the Company or any of the Selling
Shareholders within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.

          (c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 9, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 9.  In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
                   --------  -------                                           
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party which pose a
conflict of interest for such counsel, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties.  Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 9(a)
or 9(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.  In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
                                                        --------          
consent shall not be unreasonably withheld.  No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional 

                                       30
<PAGE>
 
release of such indemnified party from all liability on claims that are the
subject matter of such indemnification.

          (d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 9
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
- --------  -------                                                             
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.  The contribution agreement in this Section 9(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.

          (e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.  The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 9, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 9 and further agree not to attempt to
assert any such defense.

     10.  Representations, Warranties, Covenants and Agreements to Survive
          ----------------------------------------------------------------
Delivery.  All representations, warranties, covenants and agreements of the
- --------                                                                   
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Sections 7
and 9 and hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any controlling
person within the meaning of the Act or the Exchange Act, or by or on behalf of
the Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.

                                       31
<PAGE>
 
     11.       Substitution of Underwriters.  If any Underwriter or Underwriters
               ----------------------------                                     
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.

          If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase.  If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company.  If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase.  If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 11, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation.  If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.

          In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 11, the Company shall not be liable to any
Underwriter (except as provided in Sections 7 and 9 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter

                                       32
<PAGE>
 
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 7 and 9 hereof).

          The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.

     12.  Effective Date of this Agreement and Termination.
          ------------------------------------------------ 

          (a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., California time, on the second full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective.  The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur.  By giving notice as set
forth in Section 13 before the time this Agreement becomes effective, you, as
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 6(j), 7 and 9 hereof.

          (b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are purchased, as the case may be, (i) if the Company shall
have failed, refused or been unable to perform any agreement on its part to be
performed, or (ii) because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (iii) if additional material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iv) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (v) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (vi) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public

                                       33
<PAGE>
 
offering of the Shares as contemplated by the Prospectus. Any termination
pursuant to any of subparagraphs (ii) through (vi) above shall be without
liability of any party to any other party except as provided in Sections 7 and 9
hereof. In the event of termination pursuant to subparagraph (i) above, the
Company shall also remain obligated to pay costs and expenses pursuant to
Sections 6(j), 7 and 9 hereof.

          If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter.  If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.

     13.       Notices.  All notices or communications hereunder, except as
               -------                                                     
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von
Karman, Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: James Stearns; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to 3400 Carlisle Suite 500, Dallas, TX, telecopier number (214) 855-
5277, Attention: Ken Hoofardff.

     14.       Parties.  This Agreement shall inure to the benefit of and be
               -------                                                      
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns.  Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 9 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.  The Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof.

          In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you on behalf of each of the several Underwriters.

     15.       Applicable Law.  This Agreement shall be governed by, and
               --------------                                           
construed in accordance with, the laws of the State of California.

                                       34
<PAGE>
 
     16.       Counterparts.  This Agreement may be signed in several
               ------------                                          
counterparts, each of which will constitute an original.

          If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.

                                 Very truly yours,

                                 CPS SYSTEMS, INC.


                                 By:
                                     ----------------------------------
                                 Name:
                                      ---------------------------------
                                 Title:
                                        -------------------------------

                                 SELLING SHAREHOLDERS
 
 
                                 By:
                                    -----------------------------------
                                    Attorney-in-fact

Accepted as of the date first above written:
 
CRUTTENDEN ROTH INCORPORATED
 
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.

By:  CRUTTENDEN ROTH INCORPORATED


     By:
        ---------------------------
        Name:
             ----------------------
        Title:
              ---------------------


JOSEPHTHAL & CO. INC.       
 
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.

By:  JOSEPHTHAL & CO. INC.       


     By:
        ---------------------------
        Name:
             ----------------------
        Title:
              ---------------------







                                       35
<PAGE>
 
                                   SCHEDULE A


<TABLE>
<CAPTION>
                                                                    Number of
                                                                   Firm Shares
                                                                      To Be
Underwriters                                                        Purchased
- -----------                                                        ----------
<S>                                                                <C>
Cruttenden Roth Incorporated...................................
Josephthal & Co. Inc...........................................
                                               
                                               
                                               
                                                                 -------------
                                               
  Total........................................................
                                                                 =============
</TABLE>

                                       36
<PAGE>
 
                                   SCHEDULE B


<TABLE> 
<CAPTION> 
Selling Shareholders                                    Number of Option Shares
- --------------------                                    -----------------------
<S>                                                     <C>  
Sidney H. Cordier                                                85,660
Brian R. Wilson                                                  85,660
Hanifen Imhoff Mezzanine Fund, L.P.                              63,472
John K. Percival                                                 21,280
Robert J. Newcorn                                                10,640
G. Dean Booth                                                    18,288
 
</TABLE>

                                       37

<PAGE>
 

                                                                    EXHIBIT 23.1

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated October 31, 1997 (except for the third
paragraph of Note D, as to which the date is December 3, 1997) accompanying the
consolidated financial statements and schedule of CPS Systems, Inc. and
subsidiary contained in the Form SB-2, Registration Statement under the
Securities Act of 1933 (the "Registration Statement") and in the Prospectus
which forms a part of that Registration Statement. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".


/s/ Grant Thornton, LLP
- ----------------------
 Grant Thornton, LLP

Atlanta, Georgia
February 13, 1998






© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission