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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  |  |                                                                                         
|  |  | For the Quarterly Period Ended June 30, 2002                                            
|  |  |                                                                                         
|  |  | or                                                                                      
|  |  |                                                                                         
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                         
|  |  | For the Transition Period From          to                                              

Commission File Number: 000-24931

S1 CORPORATION(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 58-2395199                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               | 
|3500 Lenox Road, Suite 200                                     |  |                                     
|Atlanta, Georgia                                               |  | 30326                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants Telephone Number, Including Area Code: (404) 923-3500

NOT APPLICABLE(Former name if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes x  No o

Shares of common stock outstanding as of August 9, 2002: 70,243,229



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TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION
|                               | Item 1  Financial Statements                                                                
|                               |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                               |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings.                                                                   
|                               | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                               | Item 6. Exhibits and Reports on Form 8-K.                                                    
|                               | SIGNATURE                                                                                    
|Certificate of CEO and CFO    



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED JUNE 30, 2002

TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION

|          |  |                                                                                                           |  |   
|--------- |  | --------------------------------------------------------------------------------------------------------- |  | --
|Item 1.   |  | Financial Statements:                                                                                     |  |   
|          |  |                                                                                                           |  |   
|          |  | Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                           |  | 3 
|          |  |                                                                                                           |  |   
|          |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2002 and 2001 |  | 4 
|          |  |                                                                                                           |  |   
|          |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001           |  | 5 
|          |  |                                                                                                           |  |   
|          |  | Notes to Condensed Consolidated Financial Statements as of June 30, 2002                                  |  | 6 
|          |  |                                                                                                           |  |   
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 15
|          |  |                                                                                                           |  |   
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 26
|          |  |                                                                                                           |  |   
|          |  | PART II  OTHER INFORMATION                                                                               |  |   
|          |  |                                                                                                           |  |   
|Item 1.   |  | Legal Proceedings                                                                                         |  | 27
|          |  |                                                                                                           |  |   
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                       |  | 27
|          |  |                                                                                                           |  |   
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                          |  | 27
|          |  |                                                                                                           |  |   
|Signature |  |                                                                                                           |  | 28

2



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##### Table of Contents






PART 1  FINANCIAL INFORMATION




Item 1 Financial Statements

S1 CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS


(IN THOUSANDS, EXCEPT SHARE DATA)


|                                                    |                                      |                           |                                            |            |         |             |            |              |         |         |  | 
|--------------------------------------------------- | ------------------------------------ | ------------------------- | ------------------------------------------ | ---------- | ------- | ----------- | ---------- | ------------ | ------- | ------- |  | 
|                                                    |                                      |                           |                                            |            |         | June 30,    |            | December 31,
|                                                    |                                      |                           |                                            |            |         | 2002        |            | 2001        
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           |                                            |            |         | (Unaudited) |            |              |         |        
|ASSETS                                             
|Current assets:                                     |                                      |                           |                                            |            |         |             |            |             
|                                                    | Cash and cash equivalents            |                           | $                                          | 123,732    |         |             | $          | 119,632      |        
|                                                    | Short-term investments               |                           |                                            | 23,088     |         |             |            | 28,818       |        
|                                                    | Accounts receivable, net             |                           |                                            | 62,033     |         |             |            | 56,502       |        
|                                                    | Prepaid expenses                     |                           |                                            | 6,036      |         |             |            | 3,906        |        
|                                                    | Other current assets                 |                           |                                            | 3,144      |         |             |            | 3,996        |        
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      | Total current assets      |                                            |            | 218,033 |             |            |              | 212,854 |        
|Property and equipment, net                         |                                      |                           | 37,372                                     |            |         |             | 41,253     |             
|Intangible assets, net                              |                                      |                           | 24,963                                     |            |         |             | 31,500     |             
|Goodwill, net                                       |                                      |                           | 108,888                                    |            |         |             | 79,723     |             
|Other assets                                        |                                      |                           | 9,347                                      |            |         |             | 6,707      |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    | Total assets                         |                           | $                                          | 398,603    |         |             | $          | 372,037      |        
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY               
|                                                    |                                      |                           |                                            |            |         |             |            |             
|Current liabilities:                                |                                      |                           |                                            |            |         |             |            |             
|                                                    | Accounts payable                     |                           | $                                          | 12,620     |         |             | $          | 4,617        |        
|                                                    | Accrued compensation and benefits    |                           |                                            | 15,888     |         |             |            | 19,884       |        
|                                                    | Accrued restructuring                |                           |                                            | 3,763      |         |             |            | 5,165        |        
|                                                    | Accrued other expenses               |                           |                                            | 23,853     |         |             |            | 19,937       |        
|                                                    | Deferred revenues                    |                           |                                            | 34,252     |         |             |            | 27,499       |        
|                                                    | Capital lease obligation             |                           |                                            | 4,473      |         |             |            | 5,925        |        
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      | Total current liabilities |                                            |            | 94,849  |             |            |              | 83,027  |        
|Deferred revenues                                   |                                      |                           | 3,470                                      |            |         |             | 288        |             
|Capital lease obligation, excluding current portion |                                      |                           | 342                                        |            |         |             | 1,450      |             
|Deferred income tax liability                       |                                      |                           | 2,537                                      |            |         |             | 5,615      |             
|Accrued restructuring, excluding current portion    |                                      |                           | 5,580                                      |            |         |             | 6,189      |             
|Other liabilities                                   |                                      |                           | 914                                        |            |         |             | 850        |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      | Total liabilities         |                                            |            | 107,692 |             |            |              | 97,419  |        
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|Stockholders equity:                               |                                      |                           |                                            |            |         |             |            |             
|                                                    | Preferred stock                      |                           |                                            | 18,328     |         |             |            | 241,975      |        
|                                                    | Common stock                         |                           |                                            | 709        |         |             |            | 614          |        
|                                                    | Additional paid-in capital           |                           |                                            | 1,894,889  |         |             |            | 1,640,972    |        
|                                                    | Accumulated deficit                  |                           |                                            | (1,619,501 | )       |             |            | (1,607,148   | )      
|                                                    | Accumulated other comprehensive loss |                           |                                            | (3,514     | )       |             |            | (1,795       | )      
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           | Total stockholders equity                 |            |         | 290,911     |            |              |         | 274,618 | 
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           | Total liabilities and stockholders equity |            | $       | 398,603     |            |              | $       | 372,037 | 
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|Preferred shares issued and outstanding             |                                      |                           | 1,398,244                                  |            |         |             | 1,635,744  |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|                                                    |                                      |                           |                                            |            |         |             |            |             
|Common shares issued and outstanding                |                                      |                           | 70,902,663                                 |            |         |             | 61,444,554 |             
|                                                    |                                      |                           |                                            |            |         |             |            |             

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |        |         |         |  
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------------- | ------ | ------------------ | ------ | ---------------- | ------ | ------- | ------- | ---------- | ------ | ------- | ------- | ---------- | ------ | ------- | ------- | -
|                                            |                                                                                                                                                                                                                                  |                          |                |        | Three Months Ended |        | Six Months Ended
|                                            |                                                                                                                                                                                                                                  |                          |                |        | June 30,           |        | June 30,        
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                 
|                                            |                                                                                                                                                                                                                                  |                          |                |        | 2002               |        | 2001             |        | 2002    |         | 2001      
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |           
|Revenues:                                   |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            | Software licenses                                                                                                                                                                                                                |                          | $              | 25,061 |                    |        | $                | 17,329 |         |         | $          | 46,230 |         |         | $          | 31,135 |        
|                                            | Support and maintenance                                                                                                                                                                                                          |                          |                | 14,503 |                    |        |                  | 8,627  |         |         |            | 29,545 |         |         |            | 17,672 |        
|                                            | Professional services                                                                                                                                                                                                            |                          |                | 24,861 |                    |        |                  | 27,786 |         |         |            | 49,679 |         |         |            | 57,347 |        
|                                            | Data center                                                                                                                                                                                                                      |                          |                | 10,569 |                    |        |                  | 11,857 |         |         |            | 21,677 |         |         |            | 22,095 |        
|                                            | Other                                                                                                                                                                                                                            |                          |                | 316    |                    |        |                  | 493    |         |         |            | 749    |         |         |            | 948    |        
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  | Total revenues           |                |        | 75,310             |        |                  |        | 66,092  |         |            |        | 147,880 |         |            |        | 129,197 |        
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|Operating Expenses:                         |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            | Cost of software licenses                                                                                                                                                                                                        |                          |                | 1,545  |                    |        |                  | 1,128  |         |         |            | 2,758  |         |         |            | 2,505  |        
|                                            | Cost of professional services, support and maintenance                                                                                                                                                                           |                          |                | 22,678 |                    |        |                  | 21,098 |         |         |            | 43,939 |         |         |            | 48,286 |        
|                                            | Cost of data center                                                                                                                                                                                                              |                          |                | 5,665  |                    |        |                  | 6,306  |         |         |            | 10,871 |         |         |            | 13,056 |        
|                                            | Cost of other revenue                                                                                                                                                                                                            |                          |                | 302    |                    |        |                  | 298    |         |         |            | 582    |         |         |            | 658    |        
|                                            | Selling and marketing                                                                                                                                                                                                            |                          |                | 15,122 |                    |        |                  | 13,084 |         |         |            | 28,639 |         |         |            | 24,906 |        
|                                            | Product development                                                                                                                                                                                                              |                          |                | 13,076 |                    |        |                  | 13,081 |         |         |            | 25,523 |         |         |            | 25,656 |        
|                                            | General and administrative, including stock compensation
expense of $224 and $899 in the three and six months
ended June 30, 2002, respectively, and $339
and $584 in the three and six months ended
June 30, 2001, respectively |                          |                | 12,842 |                    |        |                  | 11,126 |         |         |            | 26,126 |         |         |            | 23,959 |        
|                                            | Depreciation and amortization                                                                                                                                                                                                    |                          |                | 5,944  |                    |        |                  | 7,275  |         |         |            | 11,987 |         |         |            | 14,648 |        
|                                            | Merger related costs and restructuring charges                                                                                                                                                                                   |                          |                |       |                    |        |                  | 9,211  |         |         |            | 2,022  |         |         |            | 9,211  |        
|                                            | Acquired in-process research and development                                                                                                                                                                                     |                          |                |       |                    |        |                  |       |         |         |            | 350    |         |         |            |       |        
|                                            | Amortization of acquisition intangibles                                                                                                                                                                                          |                          |                | 4,964  |                    |        |                  | 20,405 |         |         |            | 9,696  |         |         |            | 40,811 |        
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  | Total operating expenses |                |        | 82,138             |        |                  |        | 103,012 |         |            |        | 162,493 |         |            |        | 203,696 |        
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                          | Operating loss |        |                    | (6,828 | )                |        |         | (36,920 | )          |        |         | (14,613 | )          |        |         | (74,499 | )
|Interest and other income, net              |                                                                                                                                                                                                                                  |                          | 643            |        |                    |        | 1,125            |        |         |         | 1,278      |        |         |         | 3,771      |       
|Loss on sale of subsidiaries                |                                                                                                                                                                                                                                  |                          |               |        |                    |        | (884             | )      |         |         |           |        |         |         | (53,186    | )     
|Equity interest in net loss of affiliate    |                                                                                                                                                                                                                                  |                          |               |        |                    |        | (8,598           | )      |         |         |           |        |         |         | (13,627    | )     
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                          | (6,185         | )      |                    |        | (45,277          | )      |         |         | (13,335    | )      |         |         | (137,541   | )     
|Income tax benefit                          |                                                                                                                                                                                                                                  |                          | 538            |        |                    |        | 1,689            |        |         |         | 982        |        |         |         | 1,891      |       
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|Net loss                                    |                                                                                                                                                                                                                                  | $                        | (5,647         | )      |                    | $      | (43,588          | )      |         | $       | (12,353    | )      |         | $       | (135,650   | )     
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|Basic and diluted net loss per common share |                                                                                                                                                                                                                                  | $                        | (0.08          | )      |                    | $      | (0.74            | )      |         | $       | (0.19      | )      |         | $       | (2.32      | )     
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       
|Weighted average common shares outstanding  |                                                                                                                                                                                                                                  |                          | 68,718,193     |        |                    |        | 58,628,960       |        |         |         | 65,449,413 |        |         |         | 58,403,759 |       
|                                            |                                                                                                                                                                                                                                  |                          |                |        |                    |        |                  |        |         |         |            |        |         |         |            |       

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


(IN THOUSANDS)


|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |          |         |         |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------- | ---------------- | ------ | ------- | -------- | ------- | ------- | -
|                                                             |                                                                                           |                                                                    |                                                     |         | Six Months Ended
|                                                             |                                                                                           |                                                                    |                                                     |         | June 30,        
|                                                             |                                                                                           |                                                                    |                                                     |         |                 
|                                                             |                                                                                           |                                                                    |                                                     |         | 2002             |        | 2001   
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |        
|Cash flows from operating activities:                        |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             | Net loss                                                                                  |                                                                    | $                                                   | (12,353 | )                |        | $       | (135,650 | )      
|                                                             | Adjustments to reconcile net loss to net cash provided
by (used in) operating activities: |                                                                    |                                                     |         |                  |        |         |          |        
|                                                             |                                                                                           | Depreciation and amortization including acquisition intangibles    |                                                     |         | 21,683           |        |         |          | 55,459  |        
|                                                             |                                                                                           | Acquired in-process research and development                       |                                                     |         | 350              |        |         |          |        |        
|                                                             |                                                                                           | Loss on sale of subsidiaries                                       |                                                     |         |                 |        |         |          | 53,186  |        
|                                                             |                                                                                           | Equity interest in net loss of affiliate                           |                                                     |         |                 |        |         |          | 13,627  |        
|                                                             |                                                                                           | Compensation expense for stock options                             |                                                     |         | 899              |        |         |          | 584     |        
|                                                             |                                                                                           | Provision for doubtful accounts receivable and billing adjustments |                                                     |         | 2,714            |        |         |          | 2,936   |        
|                                                             |                                                                                           | Gain on the sale of investment securities available for sale       |                                                     |         |                 |        |         |          | (931    | )      
|                                                             |                                                                                           | Benefit for deferred income taxes                                  |                                                     |         | (759             | )      |         |          | (1,769  | )      
|                                                             | Changes in assets and liabilities, excluding effects of divestitures
and acquisitions:    |                                                                    |                                                     |         |                  |        |         |          |        
|                                                             |                                                                                           | (Increase) decrease in accounts receivable                         |                                                     |         | (4,974           | )      |         |          | 16,542  |        
|                                                             |                                                                                           | (Increase) decrease in prepaid expenses and other assets           |                                                     |         | (1,098           | )      |         |          | 2,941   |        
|                                                             |                                                                                           | Increase (decrease) in accounts payable                            |                                                     |         | 6,807            |        |         |          | (6,645  | )      
|                                                             |                                                                                           | Decrease in accrued expenses and other liabilities                 |                                                     |         | (8,007           | )      |         |          | (21,256 | )      
|                                                             |                                                                                           | Increase in deferred revenues                                      |                                                     |         | 3,940            |        |         |          | 14,529  |        
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             |                                                                                           |                                                                    | Net cash provided by (used in) operating activities |         |                  | 9,202  |         |          |         | (6,447  | )
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Cash flows from investing activities:                        |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             | Net cash paid in connection with acquisitions and divestitures                            |                                                                    |                                                     | (3,943  | )                |        |         | (15,073  | )      
|                                                             | Maturities
of short-term investment securities                                            |                                                                    |                                                     | 29,812  |                  |        |         | 25,750   |        
|                                                             | Purchases
of short-term investment securities                                             |                                                                    |                                                     | (24,082 | )                |        |         | (37,108  | )      
|                                                             | Purchase of long-term certificate of deposit                                              |                                                                    |                                                     | (2,500  | )                |        |         |         |        
|                                                             | Proceeds from sales of investment securities available for sale                           |                                                                    |                                                     |        |                  |        |         | 1,044    |        
|                                                             | Purchases of property and equipment                                                       |                                                                    |                                                     | (7,304  | )                |        |         | (7,124   | )      
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             |                                                                                           |                                                                    | Net cash used in investing activities               |         |                  | (8,017 | )       |          |         | (32,511 | )
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Cash flows from financing activities:                        |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             | Proceeds from sale of common stock under employee stock purchase and
option plans         |                                                                    |                                                     | 4,570   |                  |        |         | 2,721    |        
|                                                             | Payments on capital lease obligations                                                     |                                                                    |                                                     | (2,598  | )                |        |         | (3,516   | )      
|                                                             | Payments on borrowings                                                                    |                                                                    |                                                     |        |                  |        |         | (3,822   | )      
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             |                                                                                           | Net cash provided by (used in) financing activities                |                                                     |         | 1,972            |        |         |          | (4,617  | )      
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                                    | 943                                                 |         |                  |        | (379    | )       
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Net increase (decrease) in cash and cash equivalents         |                                                                                           |                                                                    | 4,100                                               |         |                  |        | (43,954 | )       
|Cash and cash equivalents at beginning of period             |                                                                                           |                                                                    | 119,632                                             |         |                  |        | 153,505 |         
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Cash and cash equivalents at end of period                   |                                                                                           | $                                                                  | 123,732                                             |         |                  | $      | 109,551 |         
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|Non-cash investing and financing activities:                 |                                                                                           |                                                                    |                                                     |         |                  |        |         |         
|                                                             | Equity interest in affiliate received in connection with subsidiary sold                  |                                                                    | $                                                   |        |                  |        | $       | 62,900   |        
|                                                             | Conversion of preferred stock to common stock                                             |                                                                    |                                                     | 225,778 |                  |        |         |         |        
|                                                             | Acquisition of businesses through issuance of common stock                                |                                                                    |                                                     | 22,768  |                  |        |         |         |        
|                                                             | Liabilities assumed                                                                       |                                                                    |                                                     | 9,990   |                  |        |         |         |        

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)


1. BACKGROUND AND BASIS OF PRESENTATION

S1 Corporation is a global provider of enterprise software solutions for
financial organizations including banks, credit unions, insurance companies and
investment firms. Our solutions automate the channels by which financial
institutions interact with their customers. These channels target full-service
channels that support a person-to-person interaction, such as talking to a
teller in a bank branch or working with an insurance agent or a customer
support representative over the phone, and self-service channels that support
person-to-machine interactions conducted via the Internet, interactive voice
response units (IVR) or automated teller machines (ATMs). Our solutions also
support automated, or machine-to-machine, interactions. Our applications are
designed to support all of the financial institutions market segments from
retail end-users to small businesses to large corporations, as well as
financial institution employees including bank tellers, insurance agents,
contact center representatives and financial advisors. In addition, we provide
customer relationship management (CRM), wealth management and statutory
financial reporting solutions for global, national, regional and local
financial organizations. We offer account aggregation services through our
reseller relationship with our affiliate Yodlee, Inc.

Through our Edify Corporation subsidiary, we provide self-service and
assisted service applications to companies in a variety of industries,
including principally retail, transportation, telecommunications and financial
services. Because Edifys solutions are not designed specifically for financial
institutions, which is our primary strategic market, we report its operations
as a separate segment, referred to as the contact center automation segment.
In July 2002, we announced our plan to sell this business together with the
non-financial business of our recently acquired Point Holdings operations.
Following the planned divestiture of these combined businesses, all of our
remaining businesses will be focused on our strategic financial services
market.

We have prepared the accompanying unaudited condensed consolidated
financial statements pursuant to the rules and regulations of the Securities
and Exchange Commission regarding interim financial reporting. Accordingly,
they do not contain all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and should be
read in conjunction with the consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended December
31, 2001. In our opinion, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation of our
financial condition as of June 30, 2002 and our results of operations for the
three and six months ended June 30, 2002 and cash flows for the six months
ended June 30, 2002. The data in the condensed consolidated balance sheet as of
December 31, 2001 was derived from our audited consolidated balance sheet as of
December 31, 2001, as presented in our Annual Report on Form 10-K for the year
ended December 31, 2001. Certain items in the prior financial statements have
been reclassified to conform to the current presentation. The condensed
consolidated financial statements include the accounts of S1 and its wholly
owned subsidiaries after the elimination of all significant intercompany
accounts and transactions. Our operating results for the three and six months
ended June 30, 2002 are not necessarily indicative of the operating results
that may be expected for the year ending December 31, 2002.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations. The statement provides accounting and reporting standards for
recognizing obligations related to asset retirement costs associated with the
retirement of tangible long-lived assets. We are required to adopt this
statement no later than January 1, 2003 and do not expect it to have a material
impact on our consolidated financial statements.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal
years beginning after December 15, 2001. This statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. However, it retains the fundamental provisions of
SFAS No. 121 for the recognition and measurement of the impairment of
long-lived assets to be

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held and used and the measurement of long-lived assets
to be disposed of by sale. Impairment of goodwill is not included in the scope
of SFAS No. 144 and will be treated in accordance with SFAS No. 142. According
to SFAS No. 144, long-lived assets are measured at the lower of carrying amount
or fair value less cost to sell, whether reported in continuing or discontinued
operations. We adopted this statement on January 1, 2002 with no material
impact on our consolidated financial statements.

We will apply SFAS No. 144 in accounting for our planned divestiture of
our contact center automation segment. As a result, beginning with our
financial statements for the quarter ending September 30, 2002, we will:



| |  |  | present the total assets of the contact center automation
segment on one line in our consolidated balance sheets for all
periods presented, which will require a retroactive reclassification
of those assets for prior periods previously reported;                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | present the total liabilities of the contact center automation
segment on one line in our consolidated balance sheets for all
periods presented, which will require a retroactive reclassification
of those liabilities for prior periods previously reported;                                                                   
| |  |  | present the results of operations for the contact center
automation segment as discontinued operations on one line in our
consolidated statements of operations for all periods presented,
which will require a retroactive reclassification of that segments
revenues and expenses for prior periods previously reported; and
| |  |  | discontinue depreciation of fixed assets and amortization of
intangible assets associated with the contact center automation
segment;                                                                                                                                                                                            

The classification of the contact center automation segments assets and
liabilities as held for sale will continue until such time that we sell the
business, which we anticipate will happen in the next 12 months.

In November 2001, the FASBs Emerging Issues Task Force reached a
consensus on EITF Issue 01-09, Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendors Products, which is a codification
of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a
vendor to a customer or reseller of the vendors products to be a reduction in
the selling prices of the vendors product and, therefore, should be
characterized as a reduction of revenue when recognized in the vendors income
statement and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration related to a separate
identifiable benefit and the benefits fair value can be established. We
adopted EITF 01-09 effective January 1, 2002 with no material impact on our
consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. It nullifies the guidance of EITF
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). Under EITF Issue No. 94-3, an entity recognized a
liability for an exit cost on the date that the entity committed itself to an
exit plan. In this statement, the Board acknowledges that an entitys
commitment to a plan does not, by itself, create a present obligation to other
parties that meets the definition of a liability. This statement also
establishes that fair value is the objective for the initial measurement of the
liability. The provisions of this statement will be effective for exit or
disposal activities that are initiated after December 31, 2002. We will adopt
this statement as required and do not expect it to have a material impact on
our financial statements.

3. ACQUISITIONS

On February 14, 2002, we completed the acquisition of Regency Systems,
Inc., a Dallas, Texas based provider of telephone and Internet banking
applications and web design services for community and mid-market banks. The
Regency acquisition enhanced our product offering with a telephone banking
solution for community and mid-market banks and added over 1,000 customers. We
accounted for the acquisition of Regency using the purchase method of
accounting prescribed by SFAS No. 141. For accounting purposes, we treated the
acquisition as if it had occurred on February 1, 2002.
Accordingly, our consolidated results of operations for the six months
ended June 30, 2002 include five months of operating results for Regency.

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On March 27, 2002, we acquired the assets and subsidiaries of Point
Holdings, Ltd., a Dublin, Ireland based multi-channel CRM provider. The
acquisition of Point strengthened our product offering, extended our insurance
customer base and expanded our presence in Europe. We accounted for the
acquisition of Point using the purchase method of accounting prescribed by SFAS
No. 141. For accounting purposes, we treated the acquisition as if it had
occurred on March 31, 2002. Accordingly, our consolidated results of
operations for the six months ended June 30, 2002 include three months of
operating results for Point.

Under the terms of the acquisition agreements, we issued common stock and
paid cash to the sellers and paid direct acquisition costs, including
principally advisory, legal and accounting fees. The values of the common
shares were determined based on the average market price of our common shares
over the 2 day trading period before and the 2 day trading period after the
respective acquisition agreements were signed, less the estimated costs to
register the securities. We calculated the purchase price for Regency and
Point as follows (in thousands, except share data):

|                              |  |         |           |       |  |   |           | 
|----------------------------- |  | ------- | --------- | ----- |  | - | --------- | 
|                              |  | Regency |           | Point
|                              |  |         |           |      
|Acquisition date              |  |         | 2/14/2002 |       |  |   | 3/27/2002 | 
|Common shares issued          |  |         | 400,561   |       |  |   | 1,073,986 | 
|Value of common shares issued |  | $       | 6,051     |       |  | $ | 16,717    | 
|Cash consideration            |  |         | 6,478     |       |  |   | 500       | 
|Direct acquisition costs      |  |         | 70        |       |  |   | 633       | 
|                              |  |         |           |       |  |   |           | 
|Total purchase price          |  | $       | 12,599    |       |  | $ | 17,850    | 
|                              |  |         |           |       |  |   |           | 

Under the terms of the Regency acquisition agreement, if the aggregate
market value of the common stock issued to the selling shareholder, based on
the average stock price for the 10 trading days immediately preceding the
effective date of the registration statement for those shares, declined below
$5.1 million, we agreed to pay the selling shareholder the difference.
Accordingly, in May 2002, due to the decrease in our stock price, we were
required to pay the selling shareholder additional cash of $478,000 under the
terms of this arrangement. The additional payment to the selling shareholder
is reflected in the financial statements as of June 30, 2002 and the table
presented above.

The Regency business and the operations of the Point business that are
focused on financial institutions are included in the financial institutions
segment. The remaining Point operations (those that are not focused on
financial institutions) are included in the contact center automation segment.
We assigned the entire amount of goodwill stemming from the Regency acquisition
to the financial institutions segment. We allocated the goodwill associated
with the Point acquisition between the financial institutions segment and
contact center automation segment. The amounts allocated to in-process research
and development were expensed upon acquisition because technological
feasibility had not been established and no future alternative uses existed.
We expect the projects under development at the time of the acquisitions to be
completed within 12 months of the acquisition dates. Costs incurred to complete
these projects are expected to be less than $2.1 million in the aggregate.

We assigned the total purchase price to the net assets and identifiable
intangible assets of the acquired entities with the remaining amount assigned
to goodwill. The value assigned to the identifiable intangible assets was
based on an analysis performed by an independent third party as of the date of
the acquisitions. We are in the process of finalizing these valuations; thus,
the purchase price allocations are preliminary and subject to change. The
following table summarizes the preliminary estimated fair values of the assets
acquired and liabilities assumed at the acquisition date (in thousands):

|                                        |                      |   |         |        |       |   |        |        | 
|--------------------------------------- | -------------------- | - | ------- | ------ | ----- | - | ------ | ------ | 
|                                        |                      |   | Regency |        | Point
|                                        |                      |   |         |        |      
|Current assets                          |                      | $ | 1,027   |        |       | $ | 6,664  |       
|Property and equipment                  |                      |   | 250     |        |       |   | 552    |       
|Other non-current assets                |                      |   | 31      |        |       |   |       |       
|Developed technology (1)                |                      |   | 2,600   |        |       |   | 2,200  |       
|In-process research and development (2) |                      |   | 200     |        |       |   | 150    |       
|Customer relationship assets (3)        |                      |   | 3,900   |        |       |   | 1,500  |       
|Goodwill                                |                      |   | 8,611   |        |       |   | 12,754 |       
|Current liabilities                     |                      |   | (3,977  | )      |       |   | (5,970 | )     
|Non-current liabilities                 |                      |   | (43     | )      |       |   |       |       
|                                        |                      |   |         |        |       |   |        |       
|                                        | Total purchase price |   | $       | 12,599 |       |   | $      | 17,850 | 
|                                        |                      |   |         |        |       |   |        |       

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---

|(1) |  | Developed technology has an estimated useful life of five years.                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | We expensed in-process research and development immediately upon closing
the acquisitions.                                                                       
|(3) |  | Regencys customer relationship assets have an estimated useful life of
ten years and Points customer relationships have an estimated useful life
of five years.

We did not present unaudited pro forma results of the operations of S1 and
the acquired companies for the six months ended June 30, 2002 or the three and
six months ended June 30, 2001 because our pro forma results for those periods
would not be materially different from our actual results for those periods.

In May 2002, we amended the purchase agreement for Software Dynamics,
Inc., a business we acquired in September 2001. The amendment eliminated a
contingency associated with the total consideration paid for SDI. Previously,
we did not assign the full value of the series E preferred stock issued to the
sellers because of a contingency that may have required the sellers to return
up to $2.1 million of the series E preferred stock. As a result of the
amendment, the condition was removed and we reflected the full value of the
series E preferred stock issued to the sellers by increasing the reported value
of the series E preferred stock. The additional purchase price was assigned to
goodwill.

4. SHORT TERM INVESTMENTS

Short term investments consist of investments in certificates of deposit,
commercial paper and other highly liquid securities with original maturities
exceeding 90 days but less than one year. All of these investments are held to
maturity and are reported at amortized cost. We have the ability and the intent
to hold these investments to maturity. The fair value of these investments is
not significantly different from their carrying value at June 30, 2002.

Certain of our investments are made with financial institutions who are
also our customers. These investments are made at market rates in arms-length
transactions.

5. GOODWILL AND OTHER INTANGIBLE ASSETS  ADOPTION OF SFAS No. 142

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. Under these new
standards, the FASB eliminated accounting for certain mergers and acquisitions
as poolings of interests, eliminated amortization of goodwill and indefinite
life intangible assets and established new impairment measurement procedures
for goodwill. For S1, the standards became effective for all acquisitions
completed on or after June 30, 2001. Changes in financial statement treatment
for goodwill and intangible assets arising from mergers and acquisitions
completed prior to June 30, 2001 became effective January 1, 2002. We
implemented SFAS 142 on January 1, 2002 with the following effects:



| |  | We reclassified $7.0 million of unamortized assembled workforce intangible assets into goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We discontinued amortization on goodwill and assembled workforce of $64.5 million, excluding goodwill recorded for the
Software Dynamics Inc. transaction that was never subject to amortization. We estimate that the resulting reduction of
amortization expense will be approximately $55.5 million for 2002, $6.8 million for 2003 and $2.2 million for 2004.                                                                                                                                                                                                                                                 
| 
| |  | We performed a transitional goodwill impairment test as of January 1, 2002. The impairment test required us to: (1)
identify our reporting units, (2) determine the carrying value of each reporting unit by assigning assets and liabilities,
including existing goodwill and intangible assets, to those reporting units, and (3) determine the fair value of each
reporting unit. Based on the results of the transitional impairment test, we believe that the fair value of our reporting
units exceed their carrying value. Accordingly, we concluded that our goodwill was not impaired at January 1, 2002.

Following the transitional impairment test, our goodwill balances will be
subject to impairment tests using the same process described above, at least
once annually. If the carrying value of any reporting unit exceeds its fair
value in future periods, we will determine the amount of any goodwill
impairment, if any, through a detailed fair value analysis of each of the
assigned assets (excluding goodwill). If any impairment were indicated as a
result of the annual test, we would record an impairment charge as part of
income (loss) from operations.

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At June 30, 2002, our other intangible assets consisted of the following:

|                                  |  |                |        |              |  |   |         |  
|--------------------------------- |  | -------------- | ------ | ------------ |  | - | ------- | -
|                                  |  | Gross          |        | Accumulated 
|                                  |  | Carrying Value |        | Amortization
|                                  |  |                |        |             
|                                  |  | (In thousands)
|Purchased and acquired technology |  | $              | 40,752 |              |  | $ | (26,330 | )
|Customer relationships            |  |                | 30,796 |              |  |   | (20,255 | )
|Other                             |  |                | 48     |              |  |   | (48     | )
|                                  |  |                |        |              |  |   |         |  
|Total                             |  | $              | 71,596 |              |  | $ | (46,633 | )
|                                  |  |                |        |              |  |   |         |  

We recorded amortization expense of $5.0 million and $9.7 million during
the three and six months ended June 30, 2002, respectively. We estimate
aggregate amortization expense by operating segment for 2002 and the next four calendar
years to be as follows (in thousands):

|                              |  |      |        |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                              |  | 2002 |        | 2003 |  | 2004 |       | 2005 |  | 2006
|                              |  |      |        |      |  |      |       |      |  |     
|Financial institutions        |  | $    | 15,618 |      |  | $    | 3,175 |      |  | $    | 2,208 |  |  | $ | 2,208 |  |  | $ | 2,208 | 
|Contact center automation (1) |  |      | 1,517  |      |  |      |      |      |  |      |      |  |  |   |      |  |  |   |      | 



---

|(1) |  | In connection with the classification of our contact center automation
business as held-for-sale in July 2002, we discontinued amortization of
intangible assets associated with that business as required by SFAS No.
144. Accordingly, the total amortization expense for the contact
automation segment for 2002 and the next four calendar years presented
above only includes amortization expense for the six months ended June 30,
2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The changes in the carrying value of our goodwill for the six months ended
June 30, 2002 are as follows:

|                                                       |  |                |        |                |  |       |        |  |  |   |         |  
|------------------------------------------------------ |  | -------------- | ------ | -------------- |  | ----- | ------ |  |  | - | ------- | -
|                                                       |  | Financial      |        | Contact Center |  |       |        | 
|                                                       |  | Institutions   |        | Automation     |  | Total
|                                                       |  |                |        |                |  |      
|                                                       |  | (In thousands)
|Balance, January 1, 2002                               |  | $              | 70,909 |                |  | $     | 15,861 |  |  | $ | 86,770  |  
|Goodwill acquired                                      |  |                | 13,330 |                |  |       | 8,035  |  |  |   | 21,365  |  
|Purchase price adjustment for SDI                      |  |                | 2,131  |                |  |       |       |  |  |   | 2,131   |  
|Utilization of acquisition related
income tax benefits |  |                | (1,378 | )              |  |       |       |  |  |   | (1,378  | )
|                                                       |  |                |        |                |  |       |        |  |  |   |         |  
|Balance, June 30, 2002                                 |  | $              | 84,992 |                |  | $     | 23,896 |  |  | $ | 108,888 |  
|                                                       |  |                |        |                |  |       |        |  |  |   |         |  

The goodwill allocated to the contact center automation segment reflects
the estimated amount of goodwill associated with the operations of Point that
are not focused on financial institutions. The allocation of goodwill
from the Point acquisition to the
operating segments is preliminary as of the date of this report.

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The following table shows our net loss and net loss per share as adjusted
for amortization of goodwill and assembled workforce for all periods reported
in our statements of operations.

|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |       |  
|------------------------------------------ | ------------------------------------------ | - | ---------------------------------------- | ----- | ---------------- | - | ------- | ----- | ---- | - | ------- | ----- | - | - | -------- | ----- | -
|                                           |                                            |   | Three Months Ended                       |       | Six Months Ended
|                                           |                                            |   | June 30,                                 |       | June 30,        
|                                           |                                            |   |                                          |       |                 
|                                           |                                            |   | 2002                                     |       | 2001             |   | 2002    |       | 2001
|                                           |                                            |   |                                          |       |                  |   |         |       |     
|                                           |                                            |   | (In thousands, except per share amounts)
|Reported net loss                          |                                            | $ | (5,647                                   | )     |                  | $ | (43,588 | )     |      | $ | (12,353 | )     |   | $ | (135,650 | )    
|Add back: Goodwill amortization            |                                            |   |                                         |       |                  |   | 16,132  |       |      |   |        |       |   |   | 32,264   |      
|Add back: Assembled workforce amortization |                                            |   |                                         |       |                  |   | 526     |       |      |   |        |       |   |   | 1,052    |      
|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      
|Adjusted net loss                          |                                            | $ | (5,647                                   | )     |                  | $ | (26,930 | )     |      | $ | (12,353 | )     |   | $ | (102,334 | )    
|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      
|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      
|Basic and diluted net loss per share:      |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      
|                                           | Reported net loss per share                |   | $                                        | (0.08 | )                |   | $       | (0.74 | )    |   | $       | (0.19 | ) |   | $        | (2.32 | )
|                                           | Add back: Goodwill amortization            |   |                                          |      |                  |   |         | 0.27  |      |   |         |      |   |   |          | 0.55  |  
|                                           | Add back: Assembled workforce amortization |   |                                          |      |                  |   |         | 0.01  |      |   |         |      |   |   |          | 0.02  |  
|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      
|                                           | Adjusted net loss per share                |   | $                                        | (0.08 | )                |   | $       | (0.46 | )    |   | $       | (0.19 | ) |   | $        | (1.75 | )
|                                           |                                            |   |                                          |       |                  |   |         |       |      |   |         |       |   |   |          |      

6. STOCKHOLDERS EQUITY

On April 30, 2002, our series D convertible preferred stock automatically
converted into S1 common stock at a rate of 29.283 common shares for each
preferred share. Accordingly, we issued 6,954,712 shares of S1 common stock in
exchange for 237,500 shares of series D convertible preferred stock.

7. COMPREHENSIVE LOSS

The components of comprehensive loss are as follows (in thousands):

|                                                                                 |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |          |          |  
|-------------------------------------------------------------------------------- | ------------------ | - | ------------------ | ------ | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | -------- | -------- | -
|                                                                                 |                    |   | Three Months Ended |        | Six Months Ended
|                                                                                 |                    |   | June 30,           |        | June 30,        
|                                                                                 |                    |   |                    |        |                 
|                                                                                 |                    |   | 2002               |        | 2001             |   | 2002    |         | 2001
|                                                                                 |                    |   |                    |        |                  |   |         |         |     
|Net loss                                                                         |                    | $ | (5,647             | )      |                  | $ | (43,588 | )       |      | $ | (12,353 | )       |   | $ | (135,650 | )       
|Foreign currency translation adjustment                                          |                    |   | (1,076             | )      |                  |   | (880    | )       |      |   | (1,643  | )       |   |   | (3,311   | )       
|Unrealized (loss) gain on investment securities
available for sale, net of taxes |                    |   | (35                | )      |                  |   | (60     | )       |      |   | (76     | )       |   |   | 153      |         
|                                                                                 |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |          |         
|                                                                                 | Comprehensive loss |   | $                  | (6,758 | )                |   | $       | (44,528 | )    |   | $       | (14,072 | ) |   | $        | (138,808 | )
|                                                                                 |                    |   |                    |        |                  |   |         |         |      |   |         |         |   |   |          |         

8. MERGER RELATED AND RESTRUCTURING CHARGES

In connection with the acquisition of Point, we incurred merger related
costs of $3.7 million related to exit costs for certain of our European
operations during the first quarter of 2002. Under this exit plan, we will
reduce headcount, consolidate offices and dispose of redundant equipment.
Additionally, during the first quarter of 2002, we reduced merger related
accruals of $1.7 million related to the settlement of pending litigation for
less than the amount originally accrued.

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In 2000 and 2001, we approved restructuring plans to streamline our global
operations and to consolidate product development in our financial institutions
segment. As a result of the plans, we reduced our workforce and closed several
of our facilities worldwide. At various times during 2001, we determined that,
as a result of weakening conditions in the domestic real estate markets, our
original estimate of the costs to dispose of unused real estate was below the
currently anticipated costs. The restructuring reserves as of December 31,
2001 and June 30, 2002 and their utilization for the six months ended June 30,
2002 are summarized as follows:

|                           |  |                 |     |             |  |       |        |       |  |   |     |  |  |   |        |  
|-------------------------- |  | --------------- | --- | ----------- |  | ----- | ------ | ----- |  | - | --- |  |  | - | ------ | -
|                           |  | Personnel Costs |     | Lease Costs |  | Other |        | Total
|                           |  |                 |     |             |  |       |        |      
|                           |  | (In thousands) 
|Balance, December 31, 2001 |  | $               | 78  |             |  | $     | 10,716 |       |  | $ | 560 |  |  | $ | 11,354 |  
|Amounts utilized           |  |                 | (37 | )           |  |       | (1,974 | )     |  |   |    |  |  |   | (2,011 | )
|                           |  |                 |     |             |  |       |        |       |  |   |     |  |  |   |        |  
|Balance, June 30, 2002     |  | $               | 41  |             |  | $     | 8,742  |       |  | $ | 560 |  |  | $ | 9,343  |  
|                           |  |                 |     |             |  |       |        |       |  |   |     |  |  |   |        |  

We expect to make future cash expenditures, net of anticipated sublease
income, related to these restructuring activities of approximately $9.3
million, of which we anticipate to pay approximately $3.8 million within the
next twelve months.

9. SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS

We operate and manage S1 in two business segments: financial institutions
and contact center automation. The financial institutions segment develops,
markets and implements integrated, transactional and brandable enterprise
applications for financial institutions worldwide, available as in-house
solutions or solutions that can be hosted by us in one of our data centers.
Through the contact center automation segment we offer customer interaction
solutions, including: interactive voice response, voice recognition, e-mail
management, web chat navigation and collaboration and computer telephony
integration. In July 2002, we announced our plan to sell the contact center
automation business together with the non-financial business of our recently
acquired Point Holdings operations. Following the planned divestiture of these
combined businesses, all of our remaining businesses will be focused on our
strategic financial services market.

We evaluate the performance of our operating segments based on their
contribution before interest, other income (expense) and taxes, as reflected in
the tables presented below for the three and six months ended June 30, 2002 and
2001. We do not use any asset-based metrics to measure the operating
performance of our segments.

|                         |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |                |   |         |        |  |   |        |       |  |   |         |        | 
|------------------------ | --------------------------------------- | - | -------------------------------- | ------ | -------------------------------- | - | ------ | ----- | ------------ | - | ---------- | ------ | -------------- | - | ------- | ------ |  | - | ------ | ----- |  | - | ------- | ------ | 
|                         |                                         |   | Three Months Ended June 30, 2002 |        | Three Months Ended June 30, 2001
|                         |                                         |   |                                  |        |                                 
|                         |                                         |   | Financial                        |        | Contact Center                   |   |        |       |              |   | Financial  |        | Contact Center |   |         |        | 
|                         |                                         |   | Institutions                     |        | Automation                       |   | Total  |       | Institutions |   | Automation |        | Total         
|                         |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |               
|Revenues                 |                                         | $ | 62,631                           |        |                                  | $ | 12,679 |       |              | $ | 75,310     |        |                | $ | 52,305  |        |  | $ | 13,787 |       |  | $ | 66,092  |       
|Operating expenses:      |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |                |   |         |        |  |   |        |       |  |   |         |       
|                         | Direct costs                            |   |                                  | 24,695 |                                  |   |        | 5,495 |              |   |            | 30,190 |                |   |         | 25,268 |  |   |        | 3,562 |  |   |         | 28,830 | 
|                         | Selling and marketing                   |   |                                  | 10,071 |                                  |   |        | 5,051 |              |   |            | 15,122 |                |   |         | 7,113  |  |   |        | 5,971 |  |   |         | 13,084 | 
|                         | Product development                     |   |                                  | 10,575 |                                  |   |        | 2,501 |              |   |            | 13,076 |                |   |         | 10,738 |  |   |        | 2,343 |  |   |         | 13,081 | 
|                         | General and
administrative              |   |                                  | 11,397 |                                  |   |        | 1,445 |              |   |            | 12,842 |                |   |         | 9,713  |  |   |        | 1,413 |  |   |         | 11,126 | 
|                         | Depreciation and
amortization           |   |                                  | 5,437  |                                  |   |        | 507   |              |   |            | 5,944  |                |   |         | 6,611  |  |   |        | 664   |  |   |         | 7,275  | 
|                         | Merger related and
restructuring costs  |   |                                  |       |                                  |   |        |      |              |   |            |       |                |   |         | 9,211  |  |   |        |      |  |   |         | 9,211  | 
|                         | Amortization of
acquisition
intangibles |   |                                  | 4,147  |                                  |   |        | 817   |              |   |            | 4,964  |                |   |         | 15,605 |  |   |        | 4,800 |  |   |         | 20,405 | 
|                         |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |                |   |         |        |  |   |        |       |  |   |         |       
|Total operating expenses |                                         |   | 66,322                           |        |                                  |   | 15,816 |       |              |   | 82,138     |        |                |   | 84,259  |        |  |   | 18,753 |       |  |   | 103,012 |       
|                         |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |                |   |         |        |  |   |        |       |  |   |         |       
|Segment operating loss   |                                         | $ | (3,691                           | )      |                                  | $ | (3,137 | )     |              | $ | (6,828     | )      |                | $ | (31,954 | )      |  | $ | (4,966 | )     |  | $ | (36,920 | )     
|                         |                                         |   |                                  |        |                                  |   |        |       |              |   |            |        |                |   |         |        |  |   |        |       |  |   |         |       

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|                         |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        |  |   |         |        |   |   |         |        |  |  |  |  | 
|------------------------ | -------------------------------------------- | - | ------------------------------ | ------ | ------------------------------ | - | ------ | ------ | ------------ | - | ---------- | ------ | -------------- | - | ------- | ------ |  | - | ------- | ------ | - | - | ------- | ------ |  |  |  |  | 
|                         |                                              |   | Six Months Ended June 30, 2002 |        | Six Months Ended June 30, 2001 |   |        |        |             
|                         |                                              |   |                                |        |                                |   |        |        |             
|                         |                                              |   | Financial                      |        | Contact Center                 |   |        |        |              |   | Financial  |        | Contact Center |   |         |        |  |   |         |        |  
|                         |                                              |   | Institutions                   |        | Automation                     |   | Total  |        | Institutions |   | Automation |        | Total          |   |         |        | 
|                         |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        | 
|Revenues                 |                                              | $ | 123,164                        |        |                                | $ | 24,716 |        |              | $ | 147,880    |        |                | $ | 104,702 |        |  | $ | 24,495  |        |   | $ | 129,197 |        |  |  |  | 
|Operating expenses:      |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        |  |   |         |        |   |   |         |        |  |  |  | 
|                         | Direct costs                                 |   |                                | 47,888 |                                |   |        | 10,262 |              |   |            | 58,150 |                |   |         | 57,605 |  |   |         | 6,900  |   |   |         | 64,505 |  |  |  |  | 
|                         | Selling and marketing                        |   |                                | 19,329 |                                |   |        | 9,310  |              |   |            | 28,639 |                |   |         | 13,055 |  |   |         | 11,851 |   |   |         | 24,906 |  |  |  |  | 
|                         | Product development                          |   |                                | 20,638 |                                |   |        | 4,885  |              |   |            | 25,523 |                |   |         | 20,570 |  |   |         | 5,086  |   |   |         | 25,656 |  |  |  |  | 
|                         | General and administrative                   |   |                                | 23,290 |                                |   |        | 2,836  |              |   |            | 26,126 |                |   |         | 20,791 |  |   |         | 3,168  |   |   |         | 23,959 |  |  |  |  | 
|                         | Depreciation and amortization                |   |                                | 10,919 |                                |   |        | 1,068  |              |   |            | 11,987 |                |   |         | 13,326 |  |   |         | 1,322  |   |   |         | 14,648 |  |  |  |  | 
|                         | Merger related and
restructuring costs       |   |                                | 2,022  |                                |   |        |       |              |   |            | 2,022  |                |   |         | 9,411  |  |   |         | (200   | ) |   |         | 9,211  |  |  |  |  | 
|                         | Acquired in-process
research and
development |   |                                | 255    |                                |   |        | 95     |              |   |            | 350    |                |   |         |       |  |   |         |       |   |   |         |       |  |  |  |  | 
|                         | Amortization of acquisition
intangibles      |   |                                | 8,179  |                                |   |        | 1,517  |              |   |            | 9,696  |                |   |         | 31,211 |  |   |         | 9,600  |   |   |         | 40,811 |  |  |  |  | 
|                         |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        |  |   |         |        |   |   |         |        |  | 
|Total operating expenses |                                              |   | 132,520                        |        |                                |   | 29,973 |        |              |   | 162,493    |        |                |   | 165,969 |        |  |   | 37,727  |        |   |   | 203,696 |        |  |  |  | 
|                         |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        |  |   |         |        |   |   |         |        |  | 
|Segment operating loss   |                                              | $ | (9,356                         | )      |                                | $ | (5,257 | )      |              | $ | (14,613    | )      |                | $ | (61,267 | )      |  | $ | (13,232 | )      |   | $ | (74,499 | )      |  |  |  | 
|                         |                                              |   |                                |        |                                |   |        |        |              |   |            |        |                |   |         |        |  |   |         |        |   |   |         |        |  | 

Currently, we have two major customers (defined as those customers who
contribute more than 10% of total revenues) in the financial institutions
segment. We derived 27% and 39% of our total revenues in the financial
institutions segment from State Farm Mutual Automobile Insurance Company during
the six months ended June 30, 2002 and 2001, respectively.

The other major customer, Zurich Insurance Company and certain of its affiliates
or subsidiaries, accounted for 18% of our total revenues in the financial
institutions segment during the six months ended June 30, 2002. This customer
contributed less than 10% of our total revenues for the same period in 2001.
Effective April 1, 2002, we amended the terms of our arrangement with this
customer. Under the terms of the revised agreement, we will provide a
subscription license until December 31, 2003 (previously the contract expired
in 2005), data center services through December 31, 2004 and professional
services, for which we expect to receive total fees of $73.3 million. Of this
total amount, we expect to record license revenue of approximately $57.2
million ratably over the term of the subscription license. Under the
subscription license agreement, the customer is entitled to unspecified S1
products, as well as unspecified upgrades and enhancements over the term of the license.

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10. NET LOSS PER COMMON SHARE

We calculate basic net loss per common share as the loss available to
common stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and resulted in additional
common stock that would share in the earnings of S1. Because of our net losses,
the issuance of additional shares of common stock through the exercise of stock
options or stock warrants or upon the conversion of preferred stock would have
an anti-dilutive effect on our net loss per share. The total number of common
shares that would have been included in our computation of diluted loss per
share if they had been dilutive is as follows (in thousands):

|                                                     |                                             |  |                    |        |                  |  |        |        |      |  |        |        |  |  |        |        | 
|---------------------------------------------------- | ------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|                                                     |                                             |  | Three Months Ended |        | Six Months Ended
|                                                     |                                             |  | June 30,           |        | June 30,        
|                                                     |                                             |  |                    |        |                 
|                                                     |                                             |  | 2002               |        | 2001             |  | 2002   |        | 2001
|                                                     |                                             |  |                    |        |                  |  |        |        |     
|Weighted average common shares outstanding           |                                             |  | 68,718             |        |                  |  | 58,629 |        |      |  | 65,449 |        |  |  | 58,404 |       
|Weighted average effect of common stock equivalents: |                                             |  |                    |        |                  |  |        |        |      |  |        |        |  |  |        |       
|                                                     | Convertible preferred stock                 |  |                    | 3,815  |                  |  |        | 8,215  |      |  |        | 6,231  |  |  |        | 8,215  | 
|                                                     | Stock options                               |  |                    | 2,799  |                  |  |        | 3,990  |      |  |        | 4,806  |  |  |        | 3,498  | 
|                                                     |                                             |  |                    |        |                  |  |        |        |      |  |        |        |  |  |        |       
|                                                     | Weighted average diluted shares outstanding |  |                    | 75,332 |                  |  |        | 70,834 |      |  |        | 76,485 |  |  |        | 70,117 | 
|                                                     |                                             |  |                    |        |                  |  |        |        |      |  |        |        |  |  |        |       

11. SUBSEQUENT EVENTS

On July 30, 2002, we announced our intent to pursue the sale of our
contact center automation assets, composed primarily of our Edify Corporation
subsidiary and the non-financial assets of the acquired Point business.
Beginning in the third quarter, we will account for this business as held for
sale and present its results as discontinued operations according to the
provisions of SFAS No. 144.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. This program has been and will continue to be funded from
available cash and short-term investments. Through August 14, 2002, we
repurchased 832,500 shares of our common stock for $3.6 million under this
program.

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Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report contains forward-looking statements and information
relating to our subsidiaries and us. The words believes, expects, may,
will, should, projects, contemplates, anticipates, forecasts,
intends or similar terminology identify forward-looking statements. These
statements are based on the beliefs of management as well as assumptions made
using information currently available to management. Because these statements
reflect the current views of management concerning future events, they involve
risks, uncertainties and assumptions. Therefore, actual results may differ
significantly from the results discussed in the forward-looking statements. You
are urged to read the risk factors described in our Annual Report on Form 10-K
for the year ended December 31, 2001, as filed with the Securities and Exchange
Commission. Except as required by law, we undertake no obligation to update
publicly any forward-looking statement for any reason, even if new information
becomes available.

The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes appearing elsewhere
herein and in our Annual Report on Form 10-K for the year ended December 31,
2001.

Overview

We derive a significant portion of our revenues from licensing our
solutions and providing professional services. We generate recurring data
center revenues by charging our data center customers a monthly fixed fee or a
fee based on the number of their end users who use the solutions we provide,
subject to a minimum charge. We also generate recurring revenues by charging
our customers a periodic fee for maintenance.

In our financial institutions segment, we generate revenues from two
principal product groups: Enterprise (or multi-channel) financial solutions and
legacy (or single channel) financial solutions. We define Enterprise revenue as
those fees that we earn from sales of our recently released Enterprise
applications, such as Personal Banking 1.0 or Business Banking 1.0, as well as
fees that we earn from customers who have signed an Enterprise agreement. Revenues
from single channel financial solutions represent fees that we earn from
customers who only use one of our channel solutions. Our strategy is to upgrade
all of our customers to the Enterprise platform and cross sell and up sell
additional channel applications to our installed base of customers to migrate
them to an Enterprise solution. During the three months and six months ended
June 30, 2002, we recorded revenue of $7.1 million and $9.5 million,
respectively, from our Enterprise solutions. In future periods, we expect
revenues from our Enterprise solutions to increase as a percentage of our total
revenues.

Currently, we have two major customers (defined as those who contribute
more than 10% of total revenues) in the financial institutions segment.
Revenues from a major customer in the United States were 27% and 40% of our
total revenues in the financial institutions segment during the three months
ended June 30, 2002 and 2001, respectively, and 27% and 39% for the six months
ended June 30, 2002 and 2001, respectively. The revenue from this customer for
the three-month and six-month periods ended June 30, 2002 decreased $4.0
million and $7.6 million from the same periods in 2001 due to a decrease in
co-development projects performed for that customer in 2002. We expect that
co-development revenues from this major customer will continue to decrease in
future periods. Co-development revenue is a component of professional services
revenues in our statements of operations.

The other major customer, a European financial institution, accounted for
16% and 18% of our total revenues in the financial institutions segment during
the three months and six months ended June 30, 2002, respectively. This
customer contributed less than 10% of our total revenues for the same
periods in
2001. Effective April 1, 2002, we amended the terms of our arrangement with
this customer. Under the terms of the revised agreement, we will provide a
subscription license until December 31, 2003 (previously the contract expired
in 2005), data center services through December 31, 2004 and professional
services, for which we expect to receive total fees of $73.3 million. Of this
total amount, we expect to record license revenue of approximately $57.2
million over the term of the subscription license.

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Our results of operations and cash flows during the three and six months
ended June 30, 2002 were affected by the results of operations from acquired
businesses, including Software Dynamics, Inc. (September 2001), Regency
Systems, Inc. (February 2002) and the assets and subsidiaries of Point
Holdings, Ltd. (March 2002). Revenues and expenses from the operations of these
acquired businesses were included in our current year operations from their
respective dates of acquisition. Our prior year results do not include results
of operations for these acquired businesses. During the three months and six
months ended June 30, 2002, we recorded total revenues of $15.0 million and
$21.9 million in these acquired businesses. We believe that the results
achieved in the acquired businesses significantly exceed that which they would
have achieved on a stand-alone basis. We made these acquisitions because the
acquired products and technologies are integral to our Enterprise suite of
applications. We have been able to cross sell existing S1 offerings into the
acquired customer base and acquired product offerings into our existing
customer base. Furthermore, we believe that we have been able to leverage our
combined resources to increase the sales opportunities for these acquired
products, especially those of SDI, whose revenues increased approximately 46%
and 35% during the three months and six months ended June 30, 2002 over the
same periods in 2001, respectively. You should also read our discussion of
Acquisitions below and in Note 3 to our condensed consolidated financial
statements.

In addition, our results of operations were affected by the adoption of a
new accounting principle, Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets. Effective January 1, 2002, we stopped
amortizing goodwill and assembled workforce. Amortization of these intangible
assets is included in our prior year results. Retroactive application of this
new accounting treatment is prohibited by SFAS 142. However, pro forma results
for our prior periods are presented in Note 5 to our condensed
consolidated financial statements giving effect to the accounting change as if
it were applicable to those prior periods.

During the six months ended June 30, 2002, we continued our transition to
a new business focus and a new market  multi-channel integrated applications.
During March 2002, we released for general availability the first two
applications to be deployed on the Enterprise Platform: S1 Personal Banking 1.0
and S1 Business Banking 1.0. Recently, we completed implementation and moved
into live production with our first Enterprise customer.

We are continually reviewing our cost structure on a worldwide basis and
look for additional ways to streamline our operations. In the second and third
quarters of 2002, we realigned our resources domestically and
internationally in both the financial institutions and contact center
automation segments to match costs with expected revenues. Before the additional personnel from
acquisitions, we reduced our headcount by approximately 100 people in all areas
of our business.

During July 2002, we realigned our product
development organization to be more efficient. The realignment effort included
creating six centers of excellence throughout the world: four in the United
States, one in Europe and one in Asia. We will continue to consolidate domain
expertise in these locations taking into consideration the skills of the local
development organization and the local workforce and the skills of the product
development workforce added through our recent acquisitions of Regency and
Point.

In July 2002, we announced our intent to pursue the sale of our contact
center automation assets, composed of our Edify Corporation subsidiary and the
non-financial assets of our recently acquired Point business. Beginning in the
third quarter, we will account for these combined businesses as held for sale
and present their combined results under discontinued operations. You should
read Note 2 to our condensed consolidated financial statements for a more
complete description of the accounting treatment that will be applied to the
contact center automation segment in the third quarter.

Acquisitions

In March 2002, we acquired the assets and subsidiaries of Point Holdings,
Ltd., a Dublin, Ireland based multi-channel CRM application provider. In
February 2002, we acquired Regency Systems, Inc., a Dallas, Texas based
provider of telephone and Internet banking applications and web design services
for community and mid-market banks. We accounted for these acquisitions using
the purchase method of accounting with the excess of the purchase price over
the estimated fair value of the net assets (liabilities) recorded as goodwill.
Other intangible assets include developed technology and customer base.
Additionally, for each acquisition, we allocated a portion of the purchase
price to in-process research and development, which was expensed immediately
upon closing of the acquisition during the quarter ended March 31, 2002.

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The consolidated financial statements include the results of operations
for the acquired companies from the date of acquisition, which for accounting
purposes was February 1, 2002 for Regency and March 31, 2002 for Point. Regency
is part of our financial institutions segment. Point operations related to
financial institution customers have been included in the financial
institutions segment. The remaining Point operations have been included in the
contact center automation segment.

Comparison of the Three Months Ended June 30, 2002 and 2001

The following table presents selected financial data for our operating
segments for the three months ended June 30, 2002 and 2001. We evaluate the
performance of our operating segments based on their contribution before
interest, other income (expense) and taxes. The results of the financial
institutions segment (FI) for the three months ended June 30, 2002 include the
acquired operations of SDI, Regency and the financial institution business of
Point, hereafter referred to as the acquired FI businesses.

Selected Financial Data
(dollars in thousands)

|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |        |        | 
|------------------------- | ------------------------------------------------- | -------------- | ------ | -------------------------------- | ------ | -------------------------------- | ------ | ----- | ------ | ------------ | ------ | ---------- | ------ | -------------- | ------- | ------ | ------ | - | ------ | ----- | ------ | - | ------- | ------ | ------ | 
|                          |                                                   |                |        | Three Months Ended June 30, 2002 |        | Three Months Ended June 30, 2001
|                          |                                                   |                |        |                                  |        |                                 
|                          |                                                   |                |        | Financial                        |        | Contact Center                   |        |       |        |              |        | Financial  |        | Contact Center |         |        |        |  
|                          |                                                   |                |        | Institutions                     |        | Automation                       |        | Total |        | Institutions |        | Automation |        | Total         
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |               
|Revenues                  |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          | Software licenses                                 |                | $      | 19,548                           |        |                                  | $      | 5,513 |        |              | $      | 25,061     |        |                | $       | 9,339  |        |   | $      | 7,990 |        |   | $       | 17,329 |       
|                          | Support and maintenance                           |                |        | 9,613                            |        |                                  |        | 4,890 |        |              |        | 14,503     |        |                |         | 5,517  |        |   |        | 3,110 |        |   |         | 8,627  |       
|                          | Professional services                             |                |        | 22,585                           |        |                                  |        | 2,276 |        |              |        | 24,861     |        |                |         | 25,099 |        |   |        | 2,687 |        |   |         | 27,786 |       
|                          | Data center                                       |                |        | 10,569                           |        |                                  |        |      |        |              |        | 10,569     |        |                |         | 11,857 |        |   |        |      |        |   |         | 11,857 |       
|                          | Other                                             |                |        | 316                              |        |                                  |        |      |        |              |        | 316        |        |                |         | 493    |        |   |        |      |        |   |         | 493    |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          |                                                   | Total revenues |        |                                  | 62,631 |                                  |        |       | 12,679 |              |        |            | 75,310 |                |         |        | 52,305 |   |        |       | 13,787 |   |         |        | 66,092 | 
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Direct costs:             |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          | Software licenses                                 |                |        | 47                               |        |                                  |        | 1,498 |        |              |        | 1,545      |        |                |         | 220    |        |   |        | 908   |        |   |         | 1,128  |       
|                          | Support and maintenance and
professional services |                |        | 18,681                           |        |                                  |        | 3,997 |        |              |        | 22,678     |        |                |         | 18,444 |        |   |        | 2,654 |        |   |         | 21,098 |       
|                          | Data center                                       |                |        | 5,665                            |        |                                  |        |      |        |              |        | 5,665      |        |                |         | 6,306  |        |   |        |      |        |   |         | 6,306  |       
|                          | Other                                             |                |        | 302                              |        |                                  |        |      |        |              |        | 302        |        |                |         | 298    |        |   |        |      |        |   |         | 298    |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          | Total direct costs                                |                |        | 24,695                           |        |                                  |        | 5,495 |        |              |        | 30,190     |        |                |         | 25,268 |        |   |        | 3,562 |        |   |         | 28,830 |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Operating expenses:       |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          | Selling and marketing                             |                |        | 10,071                           |        |                                  |        | 5,051 |        |              |        | 15,122     |        |                |         | 7,113  |        |   |        | 5,971 |        |   |         | 13,084 |       
|                          | Product development                               |                |        | 10,575                           |        |                                  |        | 2,501 |        |              |        | 13,076     |        |                |         | 10,738 |        |   |        | 2,343 |        |   |         | 13,081 |       
|                          | General and administrative                        |                |        | 11,397                           |        |                                  |        | 1,445 |        |              |        | 12,842     |        |                |         | 9,713  |        |   |        | 1,413 |        |   |         | 11,126 |       
|                          | Depreciation and amortization                     |                |        | 5,437                            |        |                                  |        | 507   |        |              |        | 5,944      |        |                |         | 6,611  |        |   |        | 664   |        |   |         | 7,275  |       
|                          | Merger
related costs and restructuring charges    |                |        |                                 |        |                                  |        |      |        |              |        |           |        |                |         | 9,211  |        |   |        |      |        |   |         | 9,211  |       
|                          | Amortization of acquisition intangibles           |                |        | 4,147                            |        |                                  |        | 817   |        |              |        | 4,964      |        |                |         | 15,605 |        |   |        | 4,800 |        |   |         | 20,405 |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Total operating expenses  |                                                   |                | 41,627 |                                  |        |                                  | 10,321 |       |        |              | 51,948 |            |        |                | 58,991  |        |        |   | 15,191 |       |        |   | 74,182  |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Segment operating loss    |                                                   | $              | (3,691 | )                                |        | $                                | (3,137 | )     |        | $            | (6,828 | )          |        | $              | (31,954 | )      |        | $ | (4,966 | )     |        | $ | (36,920 | )     
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Gross margin percentages: |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|                          | Software licenses                                 |                |        | 100                              | %      |                                  |        | 73    | %      |              |        | 94         | %      |                |         | 98     | %      |   |        | 89    | %      |   |         | 93     | %     
|                          | Support and maintenance and
professional services |                |        | 42                               | %      |                                  |        | 44    | %      |              |        | 42         | %      |                |         | 40     | %      |   |        | 54    | %      |   |         | 42     | %     
|                          | Data center                                       |                |        | 46                               | %      |                                  |        |      |        |              |        | 46         | %      |                |         | 47     | %      |   |        |      |        |   |         | 47     | %     
|                          | Other                                             |                |        | 4                                | %      |                                  |        |      |        |              |        | 4          | %      |                |         | 40     | %      |   |        |      |        |   |         | 40     | %     
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       
|Total gross margin        |                                                   |                | 61     | %                                |        |                                  | 57     | %     |        |              | 60     | %          |        |                | 52      | %      |        |   | 74     | %     |        |   | 56      | %     
|                          |                                                   |                |        |                                  |        |                                  |        |       |        |              |        |            |        |                |         |        |        |   |        |       |        |   |         |       

Revenues.Total revenues increased by $9.2 million to $75.3 million for
the three months ended June 30, 2002
compared to $66.1 million for the same period in 2001, an increase of 14%. The
increase in total revenues resulted from a $10.3 million increase in our
financial institutions segment, offset by a $1.1 million decrease in our
contact center automation segment.

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Software license
revenues in our financial institutions segment were $19.5
million for the three months ended June 30, 2002, an increase of $10.2 million
from the same period in 2001. Although most of our license revenue has to be
replaced each period, license revenue earned from our major customer in Europe
comprised $8.2 million of our license revenue during the three months ended June
30, 2002. This revenue comes from a subscription license which will
continue through
December 2003. Enterprise license revenues for the quarter were $4.3 million.
Single channel licenses comprise the remainder of the license
revenues. License revenues
generated from products from the acquired FI businesses, which are included in
both Enterprise and single point solutions totaled $5.6 million.

Support and maintenance revenues in our financial institutions segment
were $9.6 million for the three months ended June 30, 2002, an increase of $4.1
million from the same period in 2001. The increase is primarily attributable
to support and maintenance fees earned from the acquired FI businesses.

Professional services revenues in our financial institutions segment were
$22.6 million for the three months ended June 30, 2002, a decrease of $2.5
million from the same period in 2001. This decrease is principally attributable
to the decrease in professional services revenues from co-development projects
for our major US customer previously described in this report, partially offset
by increases from the acquired businesses. In future periods, we expect
professional services revenues to become a smaller percentage of total revenues
as large projects are completed and as we move towards a more packaged
Enterprise solution which requires less customization than our legacy products.

Data center revenues were $10.6 million for the three months ended June
30, 2002, a decrease of $1.3 million from the same period in 2001. The decrease
in data center revenue was primarily due to the loss of several large data
center customers, offset by an increase in the number of community
and mid-sized financial institutions utilizing S1 solutions in our
data centers. Although we expect a larger percentage of our community
and mid-sized financial institution customers to choose one of our
data center solutions, we believe that the impact of expected large financial
institution customer departures during 2002 will result in a decrease in data
center revenue as compared with 2001. We expect that additional large financial
institution customers will move their Internet banking platforms to one of our
in-house solutions. As those transitions are made, we expect the to replace
these data center revenue streams with software license fees and support and
maintenance fees. The acquired FI businesses do not have a data center
solution; accordingly, there was no data center revenue from the acquired FI
businesses during the three months ended June 30, 2002.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. Other revenue
fluctuates based on the mix of products and services sold.

Revenues in our contact center automation segment decreased $1.1 million
during the three months ended June 30, 2002 from $13.8 million for the same
period in 2001. The decrease is comprised of a $4.0 million decrease in revenue
from the Edify business offset by $2.9 million of revenue from the
non-financial customers of our recently acquired Point business. The decrease
in Edify revenues (principally license and professional services) resulted from
poor economic conditions in the primary markets that we have focused our Edify
products  telecommunications, travel and retail.

Direct Costs and Gross Margins.Direct costs increased by $1.4 million to
$30.2 million for the three months ended June 30, 2002 from $28.8 million for
the three months ended June 30, 2001, an increase of 5%. Overall gross margins
were 60% and 56% for the three months ended June 30, 2002 and 2001,
respectively. Direct costs exclude charges for depreciation and amortization
of property and equipment.

Our financial institutions segment direct costs decreased slightly to
$24.7 million for the three months ended June 30, 2002 from $25.3 million for
same period in 2001. Gross margins for the financial institutions segment were
61% and 52% for the three months ended June 30, 2002 and 2001, respectively.
The overall decrease in direct costs and corresponding increase in gross
margins are primarily the result of reductions in employee headcount and higher
cost outside contractors, and reduced facilities costs resulting from the
consolidation of offices, offset by the added costs of the acquired FI
businesses.

Gross margins for our contact center automation segment decreased to 57%
for the quarter ended June 30, 2002 from 74% for the prior year period. This
decrease resulted from reduced license revenues as a percentage of the total as
well as decreases in both license and services margins due to product mix and
competitive pricing pressure.

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Direct costs of software licenses for our contact center automation
segment consist of third-party software used in the products. Fluctuations in
this cost result from changes in the mix of products sold during a particular
period, which include third party software components.

Cost of software licenses for our financial institution software products
are generally minimal because we internally develop most of the software
components, the cost of which is reflected in product development expense as it
is incurred. We anticipate that cost of software licenses will increase in
future periods as we license and install more of our new Enterprise products because these
products include some software components that we license from third parties.
However, cost of software licenses will continue to vary with the mix of
products sold.

Costs of professional services, support and maintenance consist primarily
of personnel and related infrastructure costs. Direct costs associated with
professional services, support and maintenance were $22.7 million for the three
months ended June 30, 2002, an increase of $1.6 million from the same period in
2001. The increase resulted from the added costs of the acquired businesses,
offset by reductions in professional services headcount, outside contractors
and associated facilities costs.

Costs of data center consist of personnel costs, facility costs and
related infrastructure costs to support our data center business. Direct data
center costs decreased $641,000 to $5.7 million for the three months ended June
30, 2002 from $6.3 million for the three months ended June 30, 2001. The
decrease is primarily the result of reductions in personnel, outside
contractors and purchases of non-capital equipment.

Selling and Marketing Expenses.Total selling and marketing expenses
increased by $2.0 million to $15.1 million for the three months ended June 30,
2002 from $13.1 million for the three months ended June 30, 2001. This increase
is primarily attributable to the added costs of the acquired businesses.

Product Development Expenses.Total product development expenses remained
flat at $13.1 million for the three months ended June 30, 2002 and 2001. Cost
savings achieved from realignment of our product development organization in
2001, including replacing outside contractors in our domestic operations with
lower cost offshore contractors, were offset by the added costs of the acquired
businesses. Historically we have not capitalized software development costs
because of the insignificant amount of costs incurred between technological
feasibility and general customer release; however, we may be required to
capitalize certain software development costs in the future.

General and Administrative Expenses.General and administrative expenses
increased by $1.7 million to $12.8 million for the three months ended June 30,
2002 from $11.1 million for the three months ended June 30, 2001. As a
percentage of revenues, general and administrative expenses remained constant
at 17% for the three months ended June 30, 2002 and 2001. The increase in
general and administrative expenses resulted principally from the added costs
of the acquired businesses.

Depreciation and Amortization.Depreciation and amortization decreased to
$5.9 million for the three months ended June 30, 2002 from $7.3 million for the
three months ended June 30, 2001, due to reductions in capital expenditures
during recent periods as compared with those made in 1999 and 2000. A
significant portion of those items that we bought in 1999 and 2000, especially
those related to the build-out of our global data centers, became fully
depreciated by the end of 2001. This decrease was offset partially by the
added costs of the acquired businesses.

We discontinued
depreciation and amortization of fixed assets for the contact center
automation segment in July 2002, as required for assets held for sale.

Merger Related Costs and Restructuring Charges.During the three months
ended June 30, 2001, we approved a restructuring plan related to the
streamlining of our European operations. In connection with this plan, we
reduced our European workforce by approximately 77 people and consolidated most
of our European operations into two locations. As a result, we recorded a
charge of $5.6 million for the estimated costs associated with the
restructuring plan. During the same period in the prior year, as a result of a
softening in the domestic real estate markets, we determined our original
estimate of
costs to dispose of our unused real estate was below the currently
anticipated costs. Accordingly, we recorded a charge of $3.6 million to
increase our restructuring reserves that were previously established.

Amortization of Acquisition Intangibles.Amortization of acquisition intangible assets decreased $15.4 million to $5.0
million for the three months ended June 30, 2002 from $20.4 million for the
three months ended June 30, 2001. In connection with the adoption of SFAS No.
142, Goodwill and Other Intangible Assets on

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January 1, 2002, we stopped
recording amortization expense on goodwill and assembled workforce. This
reduced our amortization expense for the three months ended June 30, 2002 by
approximately $15.5 million. Otherwise the expiration of amortized assets was
completely offset by additional amortization associated with the other
intangible assets of the acquired businesses. We discontinued
amortization of acquisition intangibles for the contact
center automation segment in July 2002, as required for assets held
for sale.

Interest and Other Income, Net.Interest and other
income was $643,000 for the three months ended June 30, 2002, a decrease of
$482,000 from the three months ended June 30, 2001. Interest and investment
income decreased during the three months ended June 30, 2002 due principally to
a decrease in interest rates from the prior year period.

Loss on Sale of Subsidiaries and Equity Interest in Net Loss of Affiliate.
During the three months ended June 30, 2001, we recorded a non-cash charge of
$8.6 million based on our equity interest in the net loss of Yodlee and the
amortization of the underlying intangible assets. In the fourth quarter of
2001, we wrote down our equity investment in Yodlee to $1.0 million after which
time we are not required to record our share of Yodlees net losses.

During the three
months ended June 30, 2001, we recorded a charge of $884,000 in connection with the sale of our subsidiary Write! N.V.

Income Tax Benefit.We recorded an income tax benefit of $538,000 during
the three months ended June 30, 2002 compared to $1.7 million for the three
months ended June 30, 2001. The income tax benefit resulted from the
amortization of intangible assets acquired in the acquisition of FICS offset by
foreign income tax expense incurred in certain European countries. The decrease
in the benefit is principally attributable to increases in taxable foreign
income.

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Comparison of the Six Months Ended June 30, 2002 and 2001

The following table presents selected financial data for our operating
segments for the six months ended June 30, 2002 and 2001. We evaluate the
performance of our operating segments based on their contribution before
interest, other income (expense) and taxes.

Selected Financial Data
(dollars in thousands)

|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |        |         | 
|------------------------- | ------------------------------------------------- | -------------- | ------ | ------------------------------ | ------- | ------------------------------ | ------ | ------ | ------ | ------------ | ------- | ---------- | ------- | -------------- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------- | 
|                          |                                                   |                |        | Six Months Ended June 30, 2002 |         | Six Months Ended June 30, 2001
|                          |                                                   |                |        |                                |         |                               
|                          |                                                   |                |        | Financial                      |         | Contact Center                 |        |        |        |              |         | Financial  |         | Contact Center |         |        |         |  
|                          |                                                   |                |        | Institutions                   |         | Automation                     |        | Total  |        | Institutions |         | Automation |         | Total         
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |               
|Revenues                  |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          | Software licenses                                 |                | $      | 35,169                         |         |                                | $      | 11,061 |        |              | $       | 46,230     |         |                | $       | 17,440 |         |   | $       | 13,695 |        |   | $       | 31,135 |        
|                          | Support and maintenance                           |                |        | 20,216                         |         |                                |        | 9,329  |        |              |         | 29,545     |         |                |         | 11,286 |         |   |         | 6,386  |        |   |         | 17,672 |        
|                          | Professional services                             |                |        | 45,353                         |         |                                |        | 4,326  |        |              |         | 49,679     |         |                |         | 52,933 |         |   |         | 4,414  |        |   |         | 57,347 |        
|                          | Data center                                       |                |        | 21,677                         |         |                                |        |       |        |              |         | 21,677     |         |                |         | 22,095 |         |   |         |       |        |   |         | 22,095 |        
|                          | Other                                             |                |        | 749                            |         |                                |        |       |        |              |         | 749        |         |                |         | 948    |         |   |         |       |        |   |         | 948    |        
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          |                                                   | Total revenues |        |                                | 123,164 |                                |        |        | 24,716 |              |         |            | 147,880 |                |         |        | 104,702 |   |         |        | 24,495 |   |         |        | 129,197 | 
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Direct costs:             |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          | Software licenses                                 |                |        | 49                             |         |                                |        | 2,709  |        |              |         | 2,758      |         |                |         | 390    |         |   |         | 2,115  |        |   |         | 2,505  |        
|                          | Support and maintenance and
professional services |                |        | 36,386                         |         |                                |        | 7,553  |        |              |         | 43,939     |         |                |         | 43,501 |         |   |         | 4,785  |        |   |         | 48,286 |        
|                          | Data center                                       |                |        | 10,871                         |         |                                |        |       |        |              |         | 10,871     |         |                |         | 13,056 |         |   |         |       |        |   |         | 13,056 |        
|                          | Other                                             |                |        | 582                            |         |                                |        |       |        |              |         | 582        |         |                |         | 658    |         |   |         |       |        |   |         | 658    |        
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          | Total direct costs                                |                |        | 47,888                         |         |                                |        | 10,262 |        |              |         | 58,150     |         |                |         | 57,605 |         |   |         | 6,900  |        |   |         | 64,505 |        
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Operating expenses:       |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          | Selling and marketing                             |                |        | 19,329                         |         |                                |        | 9,310  |        |              |         | 28,639     |         |                |         | 13,055 |         |   |         | 11,851 |        |   |         | 24,906 |        
|                          | Product development                               |                |        | 20,638                         |         |                                |        | 4,885  |        |              |         | 25,523     |         |                |         | 20,570 |         |   |         | 5,086  |        |   |         | 25,656 |        
|                          | General and administrative                        |                |        | 23,290                         |         |                                |        | 2,836  |        |              |         | 26,126     |         |                |         | 20,791 |         |   |         | 3,168  |        |   |         | 23,959 |        
|                          | Depreciation and amortization                     |                |        | 10,919                         |         |                                |        | 1,068  |        |              |         | 11,987     |         |                |         | 13,326 |         |   |         | 1,322  |        |   |         | 14,648 |        
|                          | Merger
related costs and restructuring charges    |                |        | 2,022                          |         |                                |        |       |        |              |         | 2,022      |         |                |         | 9,411  |         |   |         | (200   | )      |   |         | 9,211  |        
|                          | Acquired in-process research and
development      |                |        | 255                            |         |                                |        | 95     |        |              |         | 350        |         |                |         |       |         |   |         |       |        |   |         |       |        
|                          | Amortization of acquisition intangibles           |                |        | 8,179                          |         |                                |        | 1,517  |        |              |         | 9,696      |         |                |         | 31,211 |         |   |         | 9,600  |        |   |         | 40,811 |        
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Total operating expenses  |                                                   |                | 84,632 |                                |         |                                | 19,711 |        |        |              | 104,343 |            |         |                | 108,364 |        |         |   | 30,827  |        |        |   | 139,191 |       
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Segment operating loss    |                                                   | $              | (9,356 | )                              |         | $                              | (5,257 | )      |        | $            | (14,613 | )          |         | $              | (61,267 | )      |         | $ | (13,232 | )      |        | $ | (74,499 | )     
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Gross margin percentages: |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|                          | Software licenses                                 |                |        | 100                            | %       |                                |        | 76     | %      |              |         | 94         | %       |                |         | 98     | %       |   |         | 85     | %      |   |         | 92     | %      
|                          | Support and maintenance and
professional services |                |        | 45                             | %       |                                |        | 45     | %      |              |         | 45         | %       |                |         | 32     | %       |   |         | 56     | %      |   |         | 36     | %      
|                          | Data center                                       |                |        | 50                             | %       |                                |        |       |        |              |         | 50         | %       |                |         | 41     | %       |   |         |       |        |   |         | 41     | %      
|                          | Other                                             |                |        | 22                             | %       |                                |        |       |        |              |         | 22         | %       |                |         | 31     | %       |   |         |       |        |   |         | 31     | %      
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       
|Total gross margin        |                                                   |                | 61     | %                              |         |                                | 58     | %      |        |              | 61      | %          |         |                | 45      | %      |         |   | 72      | %      |        |   | 50      | %     
|                          |                                                   |                |        |                                |         |                                |        |        |        |              |         |            |         |                |         |        |         |   |         |        |        |   |         |       

Revenues.Total revenues increased by $18.7 million to $147.9 million for
the six months ended June 30, 2002 from $129.2 million for the same period in
2001, an increase of 14%. The increase in total revenues resulted from a $18.5
million increase in our financial institutions segment and a $221,000 increase
in our contact center automation segment.

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Software license revenues in our financial institutions segment were $35.2
million for the six months ended June 30, 2002, an increase of $17.7 million
from the same period in 2001. Although most of our license revenue has to be
replaced each period, license revenue earned from our major customer in Europe
comprised $15.4 million of our license revenue during the six months ended June
30, 2002. This revenue comes from a subscription license which will
continue through
December 2003. Enterprise license revenues for the quarter were $5.9 million.
Single channel licenses comprise the remainder of the license
revenues. License revenues
generated from products from the acquired FI businesses, which are included in
both Enterprise and single point solutions totaled $6.7 million.

Support and maintenance revenues in our financial institutions segment
were $20.2 million for the six months ended June 30, 2002, an increase of $8.9
million from the same period in 2001. The increase is primarily attributable
to support and maintenance fees earned from the acquired businesses.

Professional services revenues in our financial institutions segment were
$45.4 million for the six months ended June 30, 2002, a decrease of $7.6
million from the same period in 2001. This decrease is principally attributable
to the decrease in professional services revenues from co-development projects
for our major US customer previously described in this report, partially offset
by increases from the acquired businesses.

Data center revenues were $21.7 million for the six months ended June 30,
2002, a decrease of approximately $418,000 from the same period in 2001. The
decrease in data center revenue was primarily due to the loss of several large
data center customers, offset by an increase in the number of
community and mid-sized financial institutions utilizing S1 solutions in our
data centers. The acquired FI businesses do not have a data center solution,
accordingly there was no data center revenue from the acquired FI businesses
during the six months ended June 30, 2002.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. Other revenue
fluctuates based on the mix of products and services sold.

Revenues in our contact center automation segment increased approximately
$221,000 during the six months ended June 30, 2002 from $24.5 million for the
same period in 2001. The increase resulted from $2.9 million of revenue from
the non-financial customers of our recently acquired Point business, offset by
a $2.7 million decrease in revenue from
the Edify business. The decrease in Edify revenues (principally license
and professional services) resulted from poor economic conditions in the
primary markets that we have focused our Edify products 
telecommunications, travel and
retail.

Direct Costs and Gross Margins.Direct costs decreased by $6.3 million to
$58.2 million for the six months ended June 30, 2002 from $64.5 million for the
six months ended June 30, 2001, a decrease of 10%. Overall gross margins were
61% and 50% for the six months ended June 30, 2002 and 2001, respectively. Cost
of revenues excludes charges for depreciation and amortization of property and
equipment.

Our financial institutions segment direct costs decreased to $47.9 million
for the six months ended June 30, 2002 from $57.6 million for the same period
of 2001. Gross margins were 61% and 45% for the six months ended June 30, 2002
and 2001, respectively. The overall decrease in direct costs and corresponding
increase in gross margins are primarily the result of reductions in employee
headcount and higher cost outside contractors, and reduced facilities costs
resulting from the consolidation of offices, offset by the added costs of the
acquired FI businesses.

Gross margins for our contact center automation segment decreased to 58%
for the six months June 30, 2002 from 72% for the prior year period. This
decrease resulted from reduced license revenues as a percentage of the total as
well as decreases in both license and services margins due to product mix and
competitive pricing pressure.

Direct costs of software licenses for our contact center automation
segment consist of third-party software used in the products. Fluctuations in
this cost result from changes in the mix of products sold during a particular
period, which include third party software components.

Cost of software licenses for our financial institution software products
are generally minimal because we internally develop most of the software
components, the cost of which is reflected in product development expense as it
is incurred. We anticipate that cost of software licenses will increase in
future periods as we license and install more of our new Enterprise products because these
products include some software components that we license from third
parties, however, cost of software licenses will continue to vary with the mix of
products sold.

Costs of professional services, support and maintenance consist primarily
of personnel and related infrastructure costs. Direct costs associated with
professional services, support and maintenance was $43.9 million for the six
months ended June 30, 2002, a decrease of $4.4 million from the same period in
2001. This decrease is primarily a result of reductions in

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professional
services headcount, outside contractors and associated facilities costs to a
level that is more closely aligned with the projects and services under
contract, offset by the added costs of the acquired businesses.

Costs of data center consist of personnel costs, facility costs and
related infrastructure costs to support our data center business. Direct data
center costs decreased $2.2 million to $10.9 million for the six months ended
June 30, 2002 from $13.1 million for the same period in 2001. The decrease is
primarily the result of reductions in personnel, outside contractors and
purchases of non-capital equipment.

Selling and Marketing Expenses.Total selling and marketing expenses
increased by $3.7 million to $28.6 million for the six months ended June 30,
2002 from $24.9 million for the same period in 2001. This increase is primarily
attributable to the added costs of the acquired businesses.

Product Development Expenses.Total product development expenses decreased
slightly by $133,000 to $25.5 million for the six months ended June 30, 2002
from $25.6 million for the six months ended June 30, 2001. Cost savings
achieved from replacing outside contractors in our domestic operations with
lower cost offshore contractors were offset by the added costs of the acquired
businesses. Historically we have not capitalized software development costs
because of the insignificant amount of costs incurred between technological
feasibility and general customer release; however, we may be required to
capitalize certain software development costs in the future.

General and Administrative Expenses.General and administrative expenses
increased by $2.1 million to $26.1 million for the six months ended June 30,
2002 from $24.0 million for the same period in 2001. As a percentage of
revenues, general and administrative expenses decreased to 18% for the six
months ended June 30, 2002 from 19% for the same period in 2001. The increase
in general and administrative expenses resulted principally from the added
costs of the acquired businesses.

Depreciation and Amortization.Depreciation and amortization decreased
$2.6 million to $12.0 million for the six months ended June 30, 2002 from $14.6
million for the six months ended June 30, 2001, due to reductions in capital
expenditures during recent periods as compared with those made in 1999 and
2000. A significant portion of those items that we bought in 1999 and 2000,
especially those related to the build-out of our global data centers, became
fully depreciated by the end of 2001. This decrease was offset partially by
the added costs of the acquired businesses.

Merger Related Costs and Restructuring Charges.During the six months
ended June 30, 2002, we incurred merger related costs of $3.7 million in
connection with the acquisition of Point. These costs, incurred in connection
with our plan to reorganize certain of our European operations, include
headcount reduction, consolidation of S1 and acquired Point office facilities
and disposal of redundant or obsolete computer equipment. This merger related
restructuring charge was offset partially by a $1.7 million decrease in
reserves for legal claims, which was established in connection with our
acquisition of FICS Group, N.V. in November 1999. We were able to resolve this
legal matter during the first quarter of 2002 for less than previously
estimated amounts.

During the first half of 2001, we approved a restructuring plan related to
the streamlining of our European operations and recorded a charge of $5.6
million for the estimated costs associated with the restructuring plan. Also in
the first half of 2001, as a result of a softening in the domestic real estate
markets, we determined our original estimate of costs to dispose of our unused
real estate was below the currently anticipated costs. Accordingly, we recorded
a charge of $3.6 million to increase our restructuring reserves that were
previously established during the fourth quarter of 2000.

Acquired In-process Research and Development.In connection with the
purchase price allocation for the Regency and Point acquisitions during the six
months ended June 30, 2002, we allocated $350,000 to acquired in-process
research and development, which we expensed immediately in accordance with
the applicable accounting rules.

Amortization of Acquisition Intangibles.Amortization of acquisition intangible assets decreased $31.1 million to $9.7
million for the six months ended June 30, 2002 from $40.8 million for the six
months
ended June 30, 2001. In connection with the adoption of SFAS No. 142,
Goodwill and Other Intangible Assets on January 1, 2002, we ceased recording
amortization expense on goodwill and assembled workforce. This reduced our
amortization expense for the six months ended June 30, 2002 by approximately
$30.9 million. Otherwise the expiration of

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amortized assets was completely
offset by additional amortization associated with the other intangible assets
of the acquired businesses.

Interest and Other Income, Net.Interest and other
income was $1.3 million for the six months ended June 30, 2002, a decrease of
$2.5 million from the six months ended June 30, 2001. During the six months
ended June 30, 2001, we recorded a gain of $931,000 on the sale of investment
securities available for sale. Additionally, interest income
decreased during the six months ended June 30, 2002 due to a decrease in
average cash to invest and a decrease in interest rates from the prior year
period.

Loss on Sale of Subsidiaries and Equity Interest in Net Loss of Affiliate.
On January 16, 2001, we sold our VerticalOne subsidiary to Yodlee, Inc. in a
stock-for-stock transaction in which we received an ownership interest of
approximately 33% in Yodlee. In connection with this transaction, we recorded a
loss on sale of $52.3 million, which represented the difference between the
carrying value of VerticalOne and the appraised value of our interest in
Yodlee. During the six months ended June 30, 2001, we recorded non-cash charges
of $13.6 million based on our equity interest in the net loss of the affiliate
and amortization of the underlying intangible assets. In the fourth quarter of
2002, we wrote down our equity investment in Yodlee to $1.0 million after which
time we are not required to record our share of Yodlees net
losses.

During the six months ended June 30, 2001, we recorded a charge of $0.8
million in connection with the sale of our subsidiary Write! N.V.

Income Tax Benefit.We recorded an income tax benefit of $1.0 million
during the six months ended June 30, 2002 compared to $1.9 million for the six
months ended June 30, 2001. The income tax benefit resulted from the
amortization of intangible assets acquired in the acquisition of FICS offset by
foreign income tax expense incurred in certain European countries. The decrease
in the benefit is principally attributable to increases in taxable foreign
income.

Liquidity and Capital Resources

The following tables show information about our cash flows during the six
months ended June 30, 2002 and 2001 and selected balance sheet data as of June
30, 2002 and December 31, 2001:

|                                                      |                                                    |   |                           |        |      |   |         |         |  
|----------------------------------------------------- | -------------------------------------------------- | - | ------------------------- | ------ | ---- | - | ------- | ------- | -
|                                                      |                                                    |   | Six Months Ended June 30,
|                                                      |                                                    |   |                          
|                                                      |                                                    |   | 2002                      |        | 2001
|                                                      |                                                    |   |                           |        |     
|                                                      |                                                    |   | (In thousands)           
|Net cash provided by (used in) operating activities   |                                                    |   |                           |        |      |   |         |        
|                                                      | before changes in operating assets and liabilities |   | $                         | 12,354 |      |   | $       | (12,558 | )
|Change in operating assets and liabilities            |                                                    |   | (3,332                    | )      |      |   | 6,111   |        
|                                                      |                                                    |   |                           |        |      |   |         |        
|Net cash provided by (used in) operating activities   |                                                    |   | 9,202                     |        |      |   | (6,447  | )      
|Net cash used in investing activities                 |                                                    |   | (8,017                    | )      |      |   | (32,511 | )      
|Net cash provided by (used in) financing activities   |                                                    |   | 1,972                     |        |      |   | (4,617  | )      
|Effect of exchange rates on cash and cash equivalents |                                                    |   | 943                       |        |      |   | (379    | )      
|                                                      |                                                    |   |                           |        |      |   |         |        
|Net increase (decrease) in cash and cash equivalents  |                                                    | $ | 4,100                     |        |      | $ | (43,954 | )      
|                                                      |                                                    |   |                           |        |      |   |         |        

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|                                             |  |                |         |                   |  |   |         | 
|-------------------------------------------- |  | -------------- | ------- | ----------------- |  | - | ------- | 
|                                             |  | As of         
|                                             |  |               
|                                             |  | June 30, 2002  |         | December 31, 2001
|                                             |  |                |         |                  
|                                             |  | (In thousands)
|Cash and cash equivalents                    |  | $              | 123,732 |                   |  | $ | 119,632 | 
|Short term investments                       |  |                | 23,088  |                   |  |   | 28,818  | 
|Working capital                              |  |                | 123,184 |                   |  |   | 129,827 | 
|Working capital, excluding deferred revenues |  |                | 157,436 |                   |  |   | 157,326 | 
|Total assets                                 |  |                | 398,603 |                   |  |   | 372,037 | 
|Total stockholders equity                   |  |                | 290,911 |                   |  |   | 274,618 | 

Operating Activities.During the six months ended June 30, 2002, cash
provided by operations was $9.2 million compared to cash used in operations of
$6.4 million for the six months ended June 30, 2001. The improvement in net
cash flows from operating activities generally reflects the decrease in our net
loss offset in part by the effects of changes in operating assets and
liabilities. Changes in operating assets and liabilities, especially trade
accounts receivable, trade accounts payable and accrued expenses, are generally
the result of timing differences between the collection of fees billed and
payment of operating expenses.

Although we recorded a net loss of $12.4 million for the six months ended
June 30, 2002, a significant portion of our operating expenses were associated
with non-cash items including $21.7 million of depreciation and amortization
expense, including acquisition intangibles. Furthermore, during the six months
ended June 30, 2002, we have continued to focus on activities to reduce our
operating costs as a percentage of our total revenues.

The change in
operating assets and liabilities of ($3.3) million was
primarily due to a $4.9 million increase in accounts receivable, a $1.1 million
increase in other assets and a decrease in accounts payable and accrued
expenses of $1.2 million as a result of the timing of payments offset in part
by an increase in deferred revenues.

Cash used in operations for the six months ended June 30, 2001 included
the effects of:



| |  |  | our net loss for the period of
$135.7 million offset by non-cash charges of approximately $123.1 million;
| | - |  | ---------------------------------------------------------------------------------------------------------
| |  |  | a decrease in accounts receivable of $16.5 million; and                                                  
| |  |  | a reduction of accounts
payable and accrued expenses of $27.9 million.                                   

Investing Activities.Cash used in investing activities was $8.0 million
for the six months ended June 30, 2002 compared to $32.5 million in the
comparable period of 2001.

In the first half of 2002, we:



| |  |  | purchased $7.3 million of property and equipment;                                                 
| | - |  | --------------------------------------------------------------------------------------------------
| |  |  | paid $3.9 million, net of cash received, in connection with the acquisitions of Regency and Point;
| |  |  | invested $2.5 million in a long-term (greater than one year) certificate of deposit; and          
| |  |  | moved a net amount of $5.7 million from short-term investments to cash and cash equivalents.      

In the first half of 2001, we:



| |  |  | sold our VerticalOne subsidiary, including $15.0 million in cash;                                
| | - |  | -------------------------------------------------------------------------------------------------
| |  |  | moved a net amount of $11.4 million from cash and cash equivalents to short-term investments; and
| |  |  | purchased $7.1 million of property and equipment.                                                

Financing Activities.Cash provided by financing activities was $2.0
million for the six months ended June 30, 2002 compared to cash used in
financing activities of $4.6 million in the six months ended June 30, 2001.

In the first half of 2002 and 2001, respectively, we received $4.6 million
and $2.7 million from the sale of common
stock under our employee stock plans. We paid $2.6 million and $3.5
million for capital lease obligations in the six months

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ended June 30, 2002 and
2001, respectively. During the first six months of 2001, we repaid $3.8 million
borrowed under various credit arrangements.

In 2001, we entered into an arrangement for a $10.0 million secured line
of credit with a bank. At June 30, 2002, we had no outstanding borrowings and
the full $10.0 million was available for borrowing under the secured line of
credit.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. This program has been and will continue to be funded from
available cash. Through August 14, 2002, we repurchased 832,500 shares of our
common stock for $3.6 million under this program.

We believe that our expected cash flows from operations together with our
existing cash and short term investments will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
issue debt securities or establish an additional credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. The addition of indebtedness would result in
increased fixed obligations and could result in operating covenants that would
restrict our operations. We cannot assure you that financing will be available
in amounts or on terms acceptable to us, if at all.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002, landmark legislation on accounting reform and corporate governance.
Although much of the implications of the Act are still being assessed, we do no anticipate any
significant changes in the operations of, and reporting by, the Company as a
result of the Act. Written certifications for this quarterly report on Form
10-Q by the chief executive officer and chief financial officer are filed as
Exhibit 99.1.




Item 3.Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk were included
in Item 7A of the Companys 2001 Annual Report on Form 10-K. There have been no
significant changes in our market risk from December 31, 2001.

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PART II  OTHER INFORMATION




Item 1.Legal Proceedings.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There is no material pending legal proceeding, other than routine
litigation incidental to our business, to which S1 or its
subsidiaries are a party or of which any of our property is the
subject.




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



|(a) |  | S1s 2002 annual meeting of shareholders was held on May 23, 2002.                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | David C. Hodgson was re-elected as director at the 2002 annual meeting.
Continuing directors include Jaime W. Ellertson, James S. Mahan, III, M.
Douglas Ivester and Howard J. Runnion, Jr.                                                                                                     
|   
|(c) |  | The election of one director for a three-year term was voted on and
approved by S1s shareholders at the 2002 annual meeting of shareholders
held on May 23, 2002. David C. Hodgson received 55,227,413 votes for
election, 683,613 votes to withhold authority to vote and no broker
non-votes.
|   
|(d) |  | Not applicable.                                                                                                                                                                                                                                                                                 




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



|(a) |  | Exhibits                                                                                                                                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 99.1  Certificate of Chief Executive Officer and Chief Financial Officer                                                                                                                                             
|   
|(b) |  | Reports on Form 8-K.                                                                                                                                                                                                 
|   
|    |  | S1 filed the following Current Reports on Form 8-K with the
Securities and Exchange Commission (the SEC) during the quarter
ended June 30, 2002:                                                                   
|   
|    |  | Current Report on Form 8-K filed with the SEC on April 19, 2002
(date of report April 19, 2002) (regarding a press release
announcing the date and time for S1s 2002 Annual Meeting of
Shareholders).               
|   
|    |  | Current Report on Form 8-K filed with the SEC on May 1, 2002
(date of report May 1, 2002) (regarding a press release and an
analyst conference call related to first quarter 2002 results and S1
and its operations).
|   
|    |  | Current Report on Form 8-K filed with the SEC on June 20, 2002
(date of report June 20, 2002) (regarding a press release announcing
an agreement with Synovus Financial Corporation).                                

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of August 14, 2002.

| |  |                |  |                                 
| |  | -------------- |  | --------------------------------
| |  | S1 CORPORATION
| |  |                |  |                                 
| |  |                |  |                                 
| |  | By:            |  | /s/ Matthew Hale                
| |  |                |  |                                 
| |  |                |  | Matthew Hale                    
| |  |                |  | Chief Financial Officer         
| |  |                |  | (Principal Financial Officer and
| |  |                |  | Principal Accounting Officer)   

28