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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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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 March 31, 2003

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

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

Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No o

Shares
of common stock outstanding as of May 14, 2003: 69,358,574



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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                           
|                                                   | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION                       
|                                                   | Item 1. Legal Proceedings.                                                                   
|                                                   | Item 6. Exhibits and Reports on Form 8-K.                                                    
|                                                   | SIGNATURE                                                                                    
|10-Q Certification                                
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO & CFO



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S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED MARCH 31, 2003

TABLE OF CONTENTS

|          |  |                                                                                                    |  |   
|--------- |  | -------------------------------------------------------------------------------------------------- |  | --
|          |  | PART I  FINANCIAL INFORMATION                                                                     |  |   
|Item 1.   |  | Financial Statements:                                                                              |  |   
|          |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                   |  | 3 
|          |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003
and 2002 |  | 4 
|          |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003
and 2002 |  | 5 
|          |  | Notes to Condensed Consolidated Financial Statements as of March 31, 2003                          |  | 6 
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 14
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 20
|Item 4.   |  | Controls and Procedures                                                                            |  | 20
|          |  | PART II  OTHER INFORMATION                                                                        |  |   
|Item 1.   |  | Legal Proceedings                                                                                  |  | 21
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                   |  | 21
|Signature |  | 22                                                                                                

2



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PART 1  FINANCIAL INFORMATION

Item 1 Financial Statements

S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)

|                                        |                                                     |              |                           |                                            |         |           |            |              |         |         |         | 
|--------------------------------------- | --------------------------------------------------- | ------------ | ------------------------- | ------------------------------------------ | ------- | --------- | ---------- | ------------ | ------- | ------- | ------- | 
|                                        |                                                     |              |                           |                                            |         | March 31, |            | December 31,
|                                        |                                                     |              |                           |                                            |         | 2003      |            | 2002        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              |                           | ASSETS                                     |         |           |            |              |         |         |         | 
|Current assets:                         |                                                     |              |                           |                                            |         |           |            |             
|                                        | Cash and cash equivalents                           |              | $                         | 125,772                                    |         |           | $          | 127,842      |        
|                                        | Short-term investments                              |              |                           | 4,504                                      |         |           |            | 14,843       |        
|                                        | Accounts receivable, net                            |              |                           | 62,057                                     |         |           |            | 54,815       |        
|                                        | Prepaid expenses                                    |              |                           | 8,217                                      |         |           |            | 7,601        |        
|                                        | Other current assets                                |              |                           | 5,440                                      |         |           |            | 7,232        |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              | Total current assets      |                                            |         | 205,990   |            |              |         | 212,333 |        
|                                        | Property and equipment, net                         |              |                           | 24,580                                     |         |           |            | 30,626       |        
|                                        | Intangible assets, net                              |              |                           | 14,486                                     |         |           |            | 17,585       |        
|                                        | Goodwill, net                                       |              |                           | 94,851                                     |         |           |            | 106,971      |        
|                                        | Other assets                                        |              |                           | 9,969                                      |         |           |            | 9,459        |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     | Total assets |                           | $                                          | 349,876 |           |            | $            | 376,974 |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              |                           | LIABILITIES AND STOCKHOLDERS EQUITY       |         |           |            |              |         |         |         | 
|Current liabilities:                    |                                                     |              |                           |                                            |         |           |            |             
|                                        | Accounts payable                                    |              | $                         | 9,656                                      |         |           | $          | 13,354       |        
|                                        | Accrued compensation and benefits                   |              |                           | 10,693                                     |         |           |            | 11,710       |        
|                                        | Accrued restructuring                               |              |                           | 6,945                                      |         |           |            | 2,665        |        
|                                        | Accrued other expenses                              |              |                           | 23,454                                     |         |           |            | 21,742       |        
|                                        | Deferred revenues                                   |              |                           | 41,510                                     |         |           |            | 40,305       |        
|                                        | Current portion of capital lease obligation         |              |                           | 380                                        |         |           |            | 1,693        |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              | Total current liabilities |                                            |         | 92,638    |            |              |         | 91,469  |        
|                                        | Capital lease obligation, excluding current portion |              |                           | 128                                        |         |           |            | 185          |        
|                                        | Accrued restructuring, excluding current portion    |              |                           | 5,153                                      |         |           |            | 4,445        |        
|                                        | Other liabilities                                   |              |                           | 1,475                                      |         |           |            | 1,114        |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              | Total liabilities         |                                            |         | 99,394    |            |              |         | 97,213  |        
|                                        |                                                     |              |                           |                                            |         |           |            |             
|Stockholders equity:                   |                                                     |              |                           |                                            |         |           |            |             
|                                        | Preferred stock                                     |              |                           | 18,328                                     |         |           |            | 18,328       |        
|                                        | Common stock                                        |              |                           | 713                                        |         |           |            | 713          |        
|                                        | Additional paid-in capital                          |              |                           | 1,896,696                                  |         |           |            | 1,896,111    |        
|                                        | Common stock held in treasury  at cost             |              |                           | (10,000                                    | )       |           |            | (9,250       | )      
|                                        | Accumulated deficit                                 |              |                           | (1,652,834                                 | )       |           |            | (1,623,545   | )      
|                                        | Accumulated other comprehensive loss                |              |                           | (2,421                                     | )       |           |            | (2,596       | )      
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              |                           | Total stockholders equity                 |         |           | 250,482    |              |         |         | 279,761 | 
|                                        |                                                     |              |                           |                                            |         |           |            |             
|                                        |                                                     |              |                           | Total liabilities and stockholders equity |         | $         | 349,876    |              |         | $       | 376,974 | 
|                                        |                                                     |              |                           |                                            |         |           |            |             
|Preferred shares issued and outstanding |                                                     |              | 1,398,214                 |                                            |         |           | 1,398,214  |             
|                                        |                                                     |              |                           |                                            |         |           |            |             
|Common shares issued and outstanding    |                                                     |              | 71,345,386                |                                            |         |           | 71,259,901 |             
|                                        |                                                     |              |                           |                                            |         |           |            |             
|Common stock held in treasury           |                                                     |              | 2,051,862                 |                                            |         |           | 1,906,300  |             
|                                        |                                                     |              |                           |                                            |         |           |            |             

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
|                                            |                                                                                                                  |                                |                          |                |         | March 31,         
|                                            |                                                                                                                  |                                |                          |                |         |                   
|                                            |                                                                                                                  |                                |                          |                |         | 2003               |            | 2002  
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|Revenues:                                   |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            | Software licenses                                                                                                |                                | $                        | 14,966         |         |                    | $          | 21,169 |       
|                                            | Support and maintenance                                                                                          |                                |                          | 15,442         |         |                    |            | 15,042 |       
|                                            | Professional services                                                                                            |                                |                          | 23,278         |         |                    |            | 24,818 |       
|                                            | Data center                                                                                                      |                                |                          | 11,761         |         |                    |            | 11,108 |       
|                                            | Other                                                                                                            |                                |                          | 215            |         |                    |            | 433    |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            |                                                                                                                  |                                | Total revenues           |                |         | 65,662             |            |        |        | 72,570 |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|Operating expenses:                         |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            | Cost of software licenses                                                                                        |                                |                          | 844            |         |                    |            | 1,213  |       
|                                            | Cost of professional services, support and maintenance                                                           |                                |                          | 25,392         |         |                    |            | 22,530 |       
|                                            | Cost of data center                                                                                              |                                |                          | 6,726          |         |                    |            | 5,462  |       
|                                            | Cost of other revenue                                                                                            |                                |                          | 156            |         |                    |            | 280    |       
|                                            | Selling and marketing                                                                                            |                                |                          | 11,530         |         |                    |            | 13,962 |       
|                                            | Product development                                                                                              |                                |                          | 12,305         |         |                    |            | 13,718 |       
|                                            | General and administrative, including stock compensation
expense of $211 and $675 in 2003 and 2002, respectively |                                |                          | 9,227          |         |                    |            | 10,043 |       
|                                            | Depreciation                                                                                                     |                                |                          | 5,735          |         |                    |            | 6,043  |       
|                                            | Merger related costs and restructuring charges                                                                   |                                |                          | 8,094          |         |                    |            | 2,022  |       
|                                            | Acquired in-process research and development                                                                     |                                |                          |               |         |                    |            | 350    |       
|                                            | Amortization of other intangible assets and goodwill
impairment                                                  |                                |                          | 15,069         |         |                    |            | 4,732  |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            |                                                                                                                  |                                | Total operating expenses |                |         | 95,078             |            |        |        | 80,355 |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            |                                                                                                                  |                                |                          | Operating loss |         |                    | (29,416    | )      |        |        | (7,785 | )
|Interest and other income, net              |                                                                                                                  |                                | 246                      |                |         |                    | 635        |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|                                            |                                                                                                                  | Loss before income tax benefit |                          |                | (29,170 | )                  |            |        | (7,150 | )     
|Income tax (expense) benefit                |                                                                                                                  |                                | (119                     | )              |         |                    | 444        |       
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|Net loss                                    |                                                                                                                  | $                              | (29,289                  | )              |         | $                  | (6,706     | )     
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|Basic and diluted net loss per common share |                                                                                                                  | $                              | (0.42                    | )              |         | $                  | (0.11      | )     
|                                            |                                                                                                                  |                                |                          |                |         |                    |            |       
|Weighted average common shares outstanding  |                                                                                                                  |                                | 69,247,674               |                |         |                    | 62,144,480 |       

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)

|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |         |        |        |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------- | ------------------ | ------ | ------- | ------- | ------ | ------ | -
|                                                             |                                                                                   |                                                                    |                                                     |         | Three Months Ended
|                                                             |                                                                                   |                                                                    |                                                     |         | March 31,         
|                                                             |                                                                                   |                                                                    |                                                     |         |                   
|                                                             |                                                                                   |                                                                    |                                                     |         | 2003               |        | 2002   
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |        
|Cash flows from operating activities:                        |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             | Net loss                                                                          |                                                                    | $                                                   | (29,289 | )                  |        | $       | (6,706  | )     
|                                                             | Adjustments to reconcile net loss to net cash provided by operating activities:   |                                                                    |                                                     |         |                    |        |         |         |       
|                                                             |                                                                                   | Depreciation,
amortization and goodwill impairment charge          |                                                     |         | 20,804             |        |         |         | 10,775 |       
|                                                             |                                                                                   | Loss on disposal of property and equipment                         |                                                     |         | 1,535              |        |         |         |       |       
|                                                             |                                                                                   | Acquired in-process research and development                       |                                                     |         |                   |        |         |         | 350    |       
|                                                             |                                                                                   | Compensation expense for stock options                             |                                                     |         | 211                |        |         |         | 675    |       
|                                                             |                                                                                   | Provision for doubtful accounts receivable and billing adjustments |                                                     |         | 2,576              |        |         |         | 1,583  |       
|                                                             |                                                                                   | Benefit for deferred income taxes                                  |                                                     |         |                   |        |         |         | (751   | )     
|                                                             |                                                                                   | Other                                                              |                                                     |         | 410                |        |         |         |       |       
|                                                             | Changes in assets and liabilities, excluding effects of acquisitions:             |                                                                    |                                                     |         |                    |        |         |         |       
|                                                             |                                                                                   | Increase in accounts receivable                                    |                                                     |         | (9,818             | )      |         |         | (4,569 | )     
|                                                             |                                                                                   | Decrease in prepaid expenses and other assets                      |                                                     |         | 393                |        |         |         | 360    |       
|                                                             |                                                                                   | (Decrease) increase in accounts payable                            |                                                     |         | (3,929             | )      |         |         | 1,847  |       
|                                                             |                                                                                   | Increase (decrease) in accrued expenses and other liabilities      |                                                     |         | 5,580              |        |         |         | (7,144 | )     
|                                                             |                                                                                   | Increase in deferred revenues                                      |                                                     |         | 1,647              |        |         |         | 5,907  |       
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             |                                                                                   |                                                                    | Net cash (used in) provided by operating activities |         |                    | (9,880 | )       |         |        | 2,327  |  
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Cash flows from investing activities:                        |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             | Net cash paid in connection with acquisitions                                     |                                                                    |                                                     |        |                    |        |         | (3,465  | )     
|                                                             | Maturities of short-term investment securities                                    |                                                                    |                                                     | 12,343  |                    |        |         | 12,860  |       
|                                                             | Purchases of short-term investment securities                                     |                                                                    |                                                     | (2,004  | )                  |        |         | (15,568 | )     
|                                                             | Purchases of property, equipment and technology                                   |                                                                    |                                                     | (655    | )                  |        |         | (2,055  | )     
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             |                                                                                   |                                                                    | Net cash provided by (used in) investing activities |         |                    | 9,684  |         |         |        | (8,228 | )
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Cash flows from financing activities:                        |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             | Proceeds from sale of common stock under employee stock purchase and
option plans |                                                                    |                                                     | 374     |                    |        |         | 3,940   |       
|                                                             | Payments on capital lease obligations                                             |                                                                    |                                                     | (1,939  | )                  |        |         | (858    | )     
|                                                             | Repurchase of common stock held in treasury                                       |                                                                    |                                                     | (750    | )                  |        |         |        |       
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             |                                                                                   | Net cash (used in) provided by financing activities                |                                                     |         | (2,315             | )      |         |         | 3,082  |       
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                                    | 441                                                 |         |                    |        | (125    | )      
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Net decrease in cash and cash equivalents                    |                                                                                   |                                                                    | (2,070                                              | )       |                    |        | (2,944  | )      
|Cash and cash equivalents at beginning of period             |                                                                                   |                                                                    | 127,842                                             |         |                    |        | 119,632 |        
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Cash and cash equivalents at end of period                   |                                                                                   | $                                                                  | 125,772                                             |         |                    | $      | 116,688 |        
|                                                             |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|Noncash investing and financing activities:                  |                                                                                   |                                                                    |                                                     |         |                    |        |         |        
|                                                             | Property and equipment acquired through leases                                    |                                                                    |                                                     | 569     |                    |        |         |        |       
|                                                             | Effects of acquisitions:                                                          |                                                                    |                                                     |         |                    |        |         |         |       
|                                                             |                                                                                   |                                                                    | Issuance of common stock to acquire businesses      |         |                    |       |         |         |        | 22,767 |  
|                                                             |                                                                                   |                                                                    | Liabilities assumed                                 |         |                    |       |         |         |        | 10,002 |  

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 provider of global enterprise software solutions for
more than 4,000 financial organizations including banks, credit unions,
investment firms and insurance companies. Our solutions automate the channels
by which financial institutions interact with their customers. Our objective is
to be the leading global provider of integrated enterprise solutions that
enable financial institutions to improve the way they service their customers
by integrating all delivery channels expanding the total financial relationship
and increasing profits. We sell our solutions to small, mid-sized and large
financial organizations in three geographic regions: (i) the Americas region,
(ii) the Europe, Middle East and Africa region (EMEA) and (iii) the
Asia-Pacific and Japan (APJ) region. We refer to our core business segment as
the Financial Institutions business.

Through Edify Corporation and its subsidiaries, we provide a variety of
customer relationship management (CRM) applications that allow organizations in
various industries to automate, integrate, personalize and analyze interactions
with customers across touch points such as phone, web, wireless, email, fax and
kiosk. In July 2002, we combined this business together with the non-financial
institutions business of Point Information Systems, a CRM application
provider that we acquired in March 2002, collectively referred to as the
Edify business segment.

S1 is headquartered in Atlanta, Georgia, USA, with additional domestic
offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas;
Dallas, Texas; New York, New York, West Hills, California and Santa Clara,
California; and additional international offices in Brussels, Dublin, Hong
Kong, Lisbon, London, Luxembourg, Madrid, Melbourne, Munich, Paris, Rotterdam
and Sydney. S1 is incorporated in Delaware.

We accounted for the Edify business assets and liabilities as held for
sale for the period from July 1, 2002 until April 2003, at which time we
determined that we would not be able to sell the Edify business on terms that
were agreeable to us before June 30, 2003. The accompanying financial statements reflect the Edify business as a part
of our continuing operations for all periods presented. As a result, we have:



| |  |  | reclassified the assets and liabilities of the Edify business from assets
held for sale and liabilities of business held for sale as of December
31, 2002 and March 31, 2003 in our condensed consolidated balance sheet;                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | presented the results of operations for the Edify business as a
segment of continuing operations in our consolidated statements of
operations for all periods presented, which required a retroactive
reclassification of revenues and expenses for prior periods previously
reported; and          
|
| |  |  | recorded depreciation expense of $0.3 million on the fixed assets of
the Edify business and amortization expense of $1.7 million for other
intangible assets associated with the Edify business for the nine-month
period from July 1, 2002 through March 31, 2003 during the first quarter
of 2003.

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, 2002. 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 March 31, 2003 and our results of operations for the
three months ended March 31, 2003 and cash flows for the three months ended
March 31, 2003. The data in the condensed consolidated balance sheet as of
December 31, 2002 was derived from our audited consolidated balance sheet as of
December 31, 2002, as presented in our Annual Report on Form 10-K for the year
ended December 31, 2002. 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

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months ended
March 31, 2003 are not necessarily indicative of the operating results that may
be expected for the year ending December 31, 2003.

2.     SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies

Our significant accounting policies are included in the Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended December 31, 2002. Below are significant changes to our accounting
policies.

During December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of SFAS No.
123. SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. This statement also amends the disclosure requirements of SFAS
No. 123 and Accounting Principles Board Opinion No. 28, Interim Financial
Reporting, to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We
implemented SFAS No. 148 effective January 1, 2003 regarding disclosure
requirements for condensed financial statements for interim periods. At this
time, we do not anticipate making a voluntary change to the fair value based
method of accounting for stock-based employee compensation.

We account for our stock option plans in accordance with the provisions of
APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations and comply with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation and SFAS No. 148. As such, we record
compensation expense on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. Additionally, if a
modification is made to an existing grant, any related compensation expense is
calculated on the date both parties accept the modification and recorded on the
date the modification becomes effective. Otherwise, we do not record stock
compensation expense when we grant stock options to S1 employees.

In the three months ended March 31, 2003 and 2002, we recognized
compensation expense of approximately $0.2 million and $0.7 million, respectively,
relating to stock options granted with exercise prices less than the market
price on the date of grant. Had we determined compensation expense based on the
fair value at the grant date for our stock options and stock purchase rights
under SFAS No. 123, our net loss would have increased to the unaudited pro
forma amounts indicated below:

|                                                                                                                                            |             |   |                              |       |      |   |         |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ---------------------------- | ----- | ---- | - | ------- | ----- | -
|                                                                                                                                            |             |   | Three Months Ended March 31,
|                                                                                                                                            |             |   |                             
|                                                                                                                                            |             |   | 2003                         |       | 2002
|                                                                                                                                            |             |   |                              |       |     
|Net loss, as reported                                                                                                                       |             | $ | (29,289                      | )     |      | $ | (6,706  | )    
|Add:
Stock-based employee compensation expense included in reported net
loss, net of related tax effects                                    |             |   | 211                          |       |      |   | 675     |      
|Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects |             |   | (27,359                      | )     |      |   | (31,787 | )    
|                                                                                                                                            |             |   |                              |       |      |   |         |      
|Pro forma net loss                                                                                                                          |             | $ | (56,437                      | )     |      | $ | (37,818 | )    
|                                                                                                                                            |             |   |                              |       |      |   |         |      
|Basic and diluted net loss per common share:                                                                                                |             |   |                              |       |      |   |         |      
|                                                                                                                                            | As reported |   | $                            | (0.42 | )    |   | $       | (0.11 | )
|                                                                                                                                            | Pro forma   |   |                              | (0.81 | )    |   |         | (0.61 | )

The effect of applying SFAS No. 123 for providing these pro forma
disclosures is not necessarily representative of the effects on reported net
income (loss) in future periods.

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The fair value of our stock-based option awards to employees was estimated
assuming no expected dividends and the following weighted-average assumptions:

|                        |  |          |       |          |  |  |       |  
|----------------------- |  | -------- | ----- | -------- |  |  | ----- | -
|                        |  | 2003     |       | 2002    
|                        |  |          |       |         
|Expected volatility     |  |          | 114.4 | %        |  |  | 115.7 | %
|Risk-free interest rate |  |          | 2.9   | %        |  |  | 3.8   | %
|Expected life           |  | 4.6years |       | 4.5years

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS 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 adopted this
statement effective January 1, 2003 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
Emerging Issues Task Force 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 a
fter December 31, 2002. We applied the provisions of this Statement in
accounting for our restructuring activities during the three months ended March
31, 2003. See Note 6 for a discussion of our restructuring activities.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. We are
currently evaluating the effect that the adoption of EITF Issue No. 00-21 will
have on our results of operations and financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which clarifies disclosure, recognition
and measurement requirements related to certain guarantees. The disclosure
requirements are effective for financial statements issued after December 15,
2002 and the recognition and measurement requirements are effective on a
prospective basis for guarantees issued or modified after December 31, 2002. We
typically grant our customers a warranty that guarantees that our product will
substantially conform to our current specifications for 90 days from the
delivery date. We also indemnify our customers from third party claims of
intellectual property infringement relating to the use of our products.
Historically, costs related to these guarantees have not been significant and
we are unable to estimate the potential impact of these guarantees on our
future results of operations.

3.     GOODWILL AND OTHER INTANGIBLE ASSETS

At March 31, 2003, our other intangible assets consisted of the following:

|                                  |  |                |        |              |  |   |         |  
|--------------------------------- |  | -------------- | ------ | ------------ |  | - | ------- | -
|                                  |  | Gross          |        | Accumulated 
|                                  |  | Carrying Value |        | Amortization
|                                  |  |                |        |             
|                                  |  | (In thousands)
|Purchased and acquired technology |  | $              | 21,896 |              |  | $ | (13,660 | )
|Customer relationships            |  |                | 10,220 |              |  |   | (3,970  | )
|                                  |  |                |        |              |  |   |         |  
|Total                             |  | $              | 32,116 |              |  | $ | (17,630 | )
|                                  |  |                |        |              |  |   |         |  

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We recorded amortization expense of $4.7 million and $3.4 million during
the three months ended March 31, 2002 and 2003, respectively. We estimate
aggregate amortization expense for 2003 and the next four calendar years to be
as follows (in thousands):

|                                        |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                        |  | 2003 |       | 2004 |  | 2005 |       | 2006 |  | 2007
|                                        |  |      |       |      |  |      |       |      |  |     
|Financial institutions business segment |  | $    | 3,548 |      |  | $    | 2,554 |      |  | $    | 2,554 |  |  | $ | 2,554 |  |  | $ | 1,477 | 
|Edify business segment                  |  |      | 225   |      |  |      | 75    |      |  |      |      |  |  |   |      |  |  |   |      | 

The changes in the carrying value of our goodwill for the three months
ended March 31, 2003 are as follows:

|                                                            |  |              |        |       |  |                |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------ | ------ | ----- |  | -------------- | ------- | - |  | - | ------- | -
|                                                            |  | Financial    |        |       |  |                |         |   |  |  
|                                                            |  | Institutions |        | Edify |  | Total         
|                                                            |  |              |        |       |  |               
|                                                            |  |              |        |       |  | (In thousands) |         |   |  |  
|Balance, January 1, 2003                                    |  | $            | 89,640 |       |  | $              | 17,331  |   |  | $ | 106,971 |  
|Adjustments to goodwill for pre-acquisition
tax liabilities |  |              | (410   | )     |  |                |        |   |  |   | (410    | )
|Impairment of goodwill                                      |  |              |       |       |  |                | (11,710 | ) |  |   | (11,710 | )
|                                                            |  |              |        |       |  |                |         |   |  |   |         |  
|Balance, March 31, 2003                                     |  | $            | 89,230 |       |  | $              | 5,621   |   |  | $ | 94,851  |  
|                                                            |  |              |        |       |  |                |         |   |  |   |         |  

In April 2003, we terminated our efforts to divest the Edify business. We
considered our inability to sell the Edify business on terms that were
acceptable to us a triggering event under SFAS No. 142 and 144 that required us to
perform a current assessment of the carrying value of the Edify business.
Based on our current analysis of fair value for the Edify business, including
estimates we based on discounted future cash flows, market valuations of
comparable businesses and offers from potential buyers, we concluded that the
fair value of the Edify business was less than its carrying value. Accordingly,
we allocated our estimate of fair value for the unit to the existing assets and
liabilities of the Edify business as of March 31, 2003, resulting in a goodwill
impairment charge of $11.7 million and accelerated amortization on other
intangible assets (developed technology and customer base) and purchased
software of $1.2 million and $0.5 million, respectively.

4.     STOCKHOLDERS EQUITY

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. We completed this program in January 2003. As of March 31,
2003, we hold 2,051,862 shares of our common stock in treasury at a cost of
$10.0 million.

5.     COMPREHENSIVE LOSS

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

|                                                                          |                    |   |                    |         |      |   |        |        |  
|------------------------------------------------------------------------- | ------------------ | - | ------------------ | ------- | ---- | - | ------ | ------ | -
|                                                                          |                    |   | Three Months Ended
|                                                                          |                    |   | March 31,         
|                                                                          |                    |   |                   
|                                                                          |                    |   | 2003               |         | 2002
|                                                                          |                    |   |                    |         |     
|Net loss                                                                  |                    | $ | (29,289            | )       |      | $ | (6,706 | )     
|Foreign currency translation adjustment                                   |                    |   | 210                |         |      |   | (567   | )     
|Unrealized loss on investment securities
available for sale, net of taxes |                    |   | (35                | )       |      |   | (41    | )     
|                                                                          |                    |   |                    |         |      |   |        |       
|                                                                          | Comprehensive loss |   | $                  | (29,114 | )    |   | $      | (7,314 | )
|                                                                          |                    |   |                    |         |      |   |        |       

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6.     MERGER RELATED
COSTS AND RESTRUCTURING CHARGES



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Components of merger related and restructuring costs are as follows (in
thousands):

|                      |  |                    |       |      |  |   |       | 
|--------------------- |  | ------------------ | ----- | ---- |  | - | ----- | 
|                      |  | Three Months Ended
|                      |  | March 31,         
|                      |  |                   
|                      |  | 2003               |       | 2002
|                      |  |                    |       |     
|Merger related costs  |  | $                  | (483  | )    |  | $ | 2,022 | 
|Restructuring charges |  |                    | 8,577 |      |  |   |      | 
|                      |  |                    |       |      |  |   |       | 
|                      |  | $                  | 8,094 |      |  | $ | 2,022 | 
|                      |  |                    |       |      |  |   |       | 

During the three months ended March 31 2002, we incurred merger related
costs of $3.7 million in connection with the acquisition of the
assets and subsidiaries of Point Holdings, Ltd. 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 charge was partially offset 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.

During the three months ended March 31, 2003, we began consolidating our
U.K. data center operations into our global hosting center in Atlanta,
resulting in restructuring charges of $2.3 million comprised of accelerated depreciation of
assets, severance costs and other related costs. In addition, we
provided $6.3 million for
losses on unused office facilities vacated as a result of cost alignment
activities and recorded other restructuring charges including severance
associated with a work force reduction in our financial institutions and Edify
business operations as well as other corporate charges. In total, we reduced
our workforce by approximately 80 people. Additionally, we decreased our
reserve for legal claims by $0.5 million, 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 2003 for less than
previously estimated.

The restructuring reserves as of December 31, 2002 and March 31, 2003 and
their utilization for the three months ended March 31, 2003 are summarized as
follows:

|                           |  |                 |        |             |  |                |       |       |  |   |        |   |  |   |        |  
|-------------------------- |  | --------------- | ------ | ----------- |  | -------------- | ----- | ----- |  | - | ------ | - |  | - | ------ | -
|                           |  | Personnel Costs |        | Lease Costs |  | Other          |       | Total
|                           |  |                 |        |             |  |                |       |      
|                           |  |                 |        |             |  | (In thousands) |       |       |  |  
|Balance, December 31, 2002 |  | $               | 78     |             |  | $              | 6,724 |       |  | $ | 308    |   |  | $ | 7,110  |  
|Restructuring charge       |  |                 | 2,213  |             |  |                | 2,793 |       |  |   | 3,571  |   |  |   | 8,577  |  
|Amounts utilized           |  |                 | (1,210 | )           |  |                | (661  | )     |  |   | (1,718 | ) |  |   | (3,589 | )
|                           |  |                 |        |             |  |                |       |       |  |   |        |   |  |   |        |  
|Balance, March 31, 2003    |  | $               | 1,081  |             |  | $              | 8,856 |       |  | $ | 2,161  |   |  | $ | 12,098 |  
|                           |  |                 |        |             |  |                |       |       |  |   |        |   |  |   |        |  

We expect to make future cash expenditures, net of anticipated sublease
income, related to these restructuring activities of approximately $10.5
million, of which we anticipate to pay approximately $5.3 million within the
next twelve months.

7.     CONTINGENCIES

Except as noted below, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the business, to which S1,
or any of its subsidiaries is a party or which their property is subject.



| |  |  | S1 Corporation and its
subsidiary Davidge Data Systems, Inc. are involved
in litigation with Scottrade, Inc. and an affiliate company, Computer
Research, Inc., relating to a software development project. The action
was initially filed in March 2002 in the U.S. District Court for the
Eastern District of Missouri. The plaintiffs filed amended
complaints in November of 2002 and January of 2003. The plaintiffs have
made a claim for a refund of all amounts
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | paid to S1 and Davidge as well as
all damages flowing from the dispute, including service bureau expenses
incurred because of the allege failure to perform, the sum of which could
exceed a million dollars. S1 and Davidge have filed a counterclaim for
unpaid amounts under the contract. We believe the plaintiffs claims are
not meritorious and intend to vigorously defend the suit.                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of America
Corporation and Bank of America National Association. We believe that
the plaintiffs claims are not meritorious and intend to vigorously
defend the suit.

While we do not believe that any of the above matters or any other pending
litigation will be material to our financial position or results of operations,
there can be no assurance on the ultimate outcome of these matters.

8.     SEGMENT REPORTING AND MAJOR CUSTOMERS

We operate and manage S1 in two business segments: financial institutions
and the Edify business. The financial institutions segment develops, markets
and implements integrated, transactional and brandable enterprise applications
for financial institutions worldwide, available as an in-house or
hosted solution. The Edify
business segment provides a variety of CRM applications that allow
organizations in various industries to automate, integrate, personalize and
analyze interactions with customers across touch points such as phone, web,
wireless, email, fax and kiosk.

We evaluate the performance of our operating segments based on their
contribution before interest, other income (expense) and income taxes, as
reflected in the tables presented below for the three months ended March 31,
2003 and 2002. We do not use any asset-based metrics to measure the operating
performance of our segments.

|                         |                                                                 |   |                                   |        |       |   |              |        |       |   |      |      |   |   |         |        | 
|------------------------ | --------------------------------------------------------------- | - | --------------------------------- | ------ | ----- | - | ------------ | ------ | ----- | - | ---- | ---- | - | - | ------- | ------ | 
|                         |                                                                 |   | Three Months Ended March 31, 2003
|                         |                                                                 |   |                                  
|                         |                                                                 |   | Financial                         |        |       |   |              |        |       |   |      |      |   |   |        
|                         |                                                                 |   | Institutions                      |        | Edify |   | Eliminations |        | Total
|                         |                                                                 |   |                                   |        |       |   |              |        |      
|Revenues                 |                                                                 | $ | 59,242                            |        |       | $ | 7,245        |        |       | $ | (825 | )    |   | $ | 65,662  |       
|Operating expenses:      |                                                                 |   |                                   |        |       |   |              |        |       |   |      |      |   |   |         |       
|                         | Direct costs                                                    |   |                                   | 29,004 |       |   |              | 4,939  |       |   |      | (825 | ) |   |         | 33,118 | 
|                         | Selling and marketing                                           |   |                                   | 7,777  |       |   |              | 3,753  |       |   |      |     |   |   |         | 11,530 | 
|                         | Product development                                             |   |                                   | 10,643 |       |   |              | 1,662  |       |   |      |     |   |   |         | 12,305 | 
|                         | General and administrative                                      |   |                                   | 7,567  |       |   |              | 1,660  |       |   |      |     |   |   |         | 9,227  | 
|                         | Depreciation                                                    |   |                                   | 5,406  |       |   |              | 329    |       |   |      |     |   |   |         | 5,735  | 
|                         | Merger
related costs and restructuring charges                  |   |                                   | 7,215  |       |   |              | 879    |       |   |      |     |   |   |         | 8,094  | 
|                         | Amortization
of other intangible assets and goodwill impairment |   |                                   | 1,631  |       |   |              | 13,438 |       |   |      |     |   |   |         | 15,069 | 
|                         |                                                                 |   |                                   |        |       |   |              |        |       |   |      |      |   |   |         |       
|Total operating expenses |                                                                 |   | 69,243                            |        |       |   | 26,660       |        |       |   | (825 | )    |   |   | 95,078  |       
|                         |                                                                 |   |                                   |        |       |   |              |        |       |   |      |      |   |   |         |       
|Segment operating loss   |                                                                 | $ | (10,001                           | )      |       | $ | (19,415      | )      |       |   |     |      |   | $ | (29,416 | )     
|                         |                                                                 |   |                                   |        |       |   |              |        |       |   |      |      |   |   |         |       

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|                         |                                                                 |   |                                   |        |       |   |              |       |       |   |      |      |   |   |        |        | 
|------------------------ | --------------------------------------------------------------- | - | --------------------------------- | ------ | ----- | - | ------------ | ----- | ----- | - | ---- | ---- | - | - | ------ | ------ | 
|                         |                                                                 |   | Three Months Ended March 31, 2002
|                         |                                                                 |   |                                  
|                         |                                                                 |   | Financial                         |        |       |   |              |       |       |   |      |      |   |   |       
|                         |                                                                 |   | Institutions                      |        | Edify |   | Eliminations |       | Total
|                         |                                                                 |   |                                   |        |       |   |              |       |      
|Revenues                 |                                                                 | $ | 61,764                            |        |       | $ | 11,688       |       |       | $ | (882 | )    |   | $ | 72,570 |       
|Operating expenses:      |                                                                 |   |                                   |        |       |   |              |       |       |   |      |      |   |   |        |       
|                         | Direct costs                                                    |   |                                   | 25,600 |       |   |              | 4,767 |       |   |      | (882 | ) |   |        | 29,485 | 
|                         | Selling and marketing                                           |   |                                   | 9,703  |       |   |              | 4,259 |       |   |      |     |   |   |        | 13,962 | 
|                         | Product development                                             |   |                                   | 11,334 |       |   |              | 2,384 |       |   |      |     |   |   |        | 13,718 | 
|                         | General and administrative                                      |   |                                   | 8,652  |       |   |              | 1,391 |       |   |      |     |   |   |        | 10,043 | 
|                         | Depreciation                                                    |   |                                   | 5,482  |       |   |              | 561   |       |   |      |     |   |   |        | 6,043  | 
|                         | Merger
related costs and restructuring charges                  |   |                                   | 2,022  |       |   |              |      |       |   |      |     |   |   |        | 2,022  | 
|                         | Acquired in-process research and development                    |   |                                   | 350    |       |   |              |      |       |   |      |     |   |   |        | 350    | 
|                         | Amortization
of other intangible assets and goodwill impairment |   |                                   | 4,032  |       |   |              | 700   |       |   |      |     |   |   |        | 4,732  | 
|                         |                                                                 |   |                                   |        |       |   |              |       |       |   |      |      |   |   |        |       
|Total operating expenses |                                                                 |   | 67,175                            |        |       |   | 14,062       |       |       |   | (882 | )    |   |   | 80,355 |       
|                         |                                                                 |   |                                   |        |       |   |              |       |       |   |      |      |   |   |        |       
|Segment operating loss   |                                                                 | $ | (5,411                            | )      |       | $ | (2,374       | )     |       |   |     |      |   | $ | (7,785 | )     
|                         |                                                                 |   |                                   |        |       |   |              |       |       |   |      |      |   |   |        |       

Currently, we have two major customers in the financial institutions
segment (defined as those customers who individually contribute more than 10%
of total revenues). We derived 24% and 27% of our financial institutions
segment revenues from State Farm Mutual Automobile Insurance Company during the
three months ended March 31, 2003 and 2002, respectively.

The other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 18% and 20% of our revenues from the
financial institutions segment during the three months ended March 31, 2003 and
2002, respectively.

In March 2003, we amended the terms of our data center arrangement with
Zurich to shorten the term over which revenue will be recognized and payments
received. Revenue
from the data center contract, which would have been recognized ratably
throughout 2003 and 2004,
will be recognized in the first six months of 2003. Associated direct costs
will be accelerated over that same period as well.

During the three months ended March 31, 2003, we reported data center
revenue of $2.8 million for data center services provided to Zurich. We expect
to report data center revenue of $5.9 million for data center services
provided to Zurich during the quarter ending June 30, 2003. Under the
terms of the amended agreement, we expect to receive all of the data center
payments from Zurich by
July 31, 2003. We do not expect to report any data center revenue for Zurich
after the quarter ending June 30, 2003. Total costs associated with
Zurich were approximately $1.4 million, including costs of good
sold and depreciation and do not include any allocation of management
or administration expenses, during the three months ended March 31,
2003. We expect
total costs associated with Zurich to be
approximately $1.2 million during the
quarter ending June 30, 2003.

Our subscription license and professional services components of our
arrangement with Zurich were not affected by the data center contract
amendment. We are recognizing $8.2 million of subscription
licenses each quarter
through December 31, 2003 at which time the subscription license will terminate
with no further expected revenue. Costs associated with this subscription
license are limited to costs to bill and administer the contract monthly.

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9.     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
|                                                     |                                             |  | March 31,         
|                                                     |                                             |  |                   
|                                                     |                                             |  | 2003               |        | 2002
|                                                     |                                             |  |                    |        |     
|Weighted average common shares outstanding           |                                             |  | 69,248             |        |      |  | 62,144 |       
|Weighted average effect of common stock equivalents: |                                             |  |                    |        |      |  |        |       
|                                                     | Convertible preferred stock                 |  |                    | 1,719  |      |  |        | 8,542  | 
|                                                     | Stock options                               |  |                    | 951    |      |  |        | 6,788  | 
|                                                     |                                             |  |                    |        |      |  |        |       
|                                                     | Weighted average diluted shares outstanding |  |                    | 71,918 |      |  |        | 77,474 | 
|                                                     |                                             |  |                    |        |      |  |        |       

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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, 2002, 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,
2002.

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. We operate and manage S1 in two
business segments: financial institutions and the Edify business.

Within our financial institutions business, we generate revenues from two
principal product groups: S1 Enterprise (or multi-channel) financial solutions
and single channel solutions. We define S1 Enterprise
revenue as those fees that we earn from sales of our S1
Enterprise applications, such as S1 Personal Banking or S1 Business Banking, as
well as fees that we earn from customers who have signed an S1 Enterprise
agreement. Revenues from non-S1 Enterprise single channel financial solutions
represent fees that we earn from customers who only use one of our legacy
channel solutions. Our strategy is to upgrade a significant number of our
customers to the S1 Enterprise platform and cross sell and/or up sell
additional channel applications to our installed base of customers to migrate
them to an S1 Enterprise solution. During the three months ended March 31,
2003 and 2002, we recorded revenue of $15.4 million and $2.4 million,
respectively, from our S1 Enterprise solutions. In future periods, we expect
revenues from our S1 Enterprise solutions to increase as a percentage of our
total revenues.

We sell our solutions to small, mid-sized and large financial
organizations in three geographic regions: (i) the Americas region, (ii) the
Europe, Middle East and Africa region (EMEA) and (iii) the Asia-Pacific and
Japan (APJ) region. Our S1 Enterprise solutions target banks, credit unions and
insurance companies in the Americas region and banks and credit unions in the
EMEA and APJ regions. We earned a significant portion of our revenues and
profits in 2003 and 2002 from two large financial institution customers. In
connection with our acquisitions of Software Dynamics, Inc.
(September 2001), Regency Systems, Inc. (February 2002) and the
assets and subsidiaries of Point Holdings, Ltd., (March 2002), we have
significantly increased the number of our financial institution customers to
over 4,000. Most of these financial institution customers are mid-sized and
regional financial institutions. As a result, we expect that a greater
percentage of our future revenues will be earned from mid-sized and regional
financial institutions. While we expect to generate a considerably higher
number of contracts each year from small to mid-sized financial institutions,
the average contract value and, therefore, margin contribution from each such
contract will be significantly lower than the contracts from the two large
financial institution customers.

Currently, we have two major customers (defined as those who individually
contribute more than 10% of total revenues) in the financial institutions
segment. Revenues from State Farm Mutual Automobile Insurance Company were 24%
and 27% of our financial institution revenues during the three months ended
March 31, 2003 and 2002, respectively. The revenue from State Farm for the
three-month period ended March 31, 2003 decreased $2.5 million from the same
period in 2002 due to a decrease in projects performed for them in 2003. We
expect that professional services revenues from State Farm will continue to
decrease throughout fiscal 2003. Revenues from State Farm accounted for 21%
and 23% of our total revenues during the three months ended March 31, 2003 and
2002, respectively.

Zurich Insurance Company and certain of its affiliates or subsidiaries,
accounted for 18% and 20% of our revenues from our financial institutions
segment during the three months ended March 31, 2003 and 2002, respectively.
Revenues

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from Zurich accounted for 17% of our total revenues during both of the
three-month periods ending March 31, 2003 and 2002.

In March 2003, we amended the terms of our data center arrangement with
Zurich to shorten the term over which services will be provided and payments
received associated with the provision of data center services by S1. Revenue
from the data center contract, which would have been recognized ratably
throughout 2003 and 2004 under the previously amended terms of the agreement,
will be recognized in the first six months of 2003. Associated direct costs
will be accelerated over that same period as well.

During the three months ended March 31, 2003, we reported data center
revenue of $2.8 million for data center services provided to Zurich. We expect
to report data center revenue of $5.9 million for data center services
provided to Zurich during the quarter ending June 30, 2003. We do not expect to
report any data center revenue for Zurich after the quarter ending June 30,
2003. Total costs associated with Zurich were approximately $1.4
million, including costs of goods sold and depreciation and do not
include any allocation of management or administration expenses, during the
three months ended March 31, 2003. These costs do not include costs associated
with the close of our U.K. data center facility. The closure of our U.K. data center was
directly affected by the early completion of the data center contract. The
costs are recorded as restructuring costs in the first and second quarter of
2003.

Through the Edify business unit, we provide a variety of CRM applications
that allow organizations in various industries to automate, integrate,
personalize and analyze interactions with customers across touch points such as
phone, web, wireless, email, fax and kiosk.

We continually review our cost structure on a worldwide basis and consider
additional ways to streamline our operations. During the three months ended
March 31, 2003, we began consolidating our U.K. data center operations into our
global hosting center in Atlanta, resulting in restructuring charges
of $2.3 million comprised
of accelerated depreciation of assets, employee severance and other related costs. In
addition, we provided $6.3 million for losses on unused office
facilities, employee severance and other costs associated with a work force reduction in our
financial institutions and Edify business operations. During the remainder of 2003, we expect to reduce our annual
operating expenses by as much as $35 million in order to align our cost
structure with our anticipated revenues.

Comparison of the Three Months Ended March 31, 2003 and 2002

Revenues.The following table sets forth our revenue data for the three
months ended March 31, 2003 and 2002.

|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |        |        | 
|----------------------------- | ---------------- | ------------------------------ | - | -------- | ------ | ----------- | - | ------------ | ------ | ----------- | - | ------ | ------ | ----- | - | ------ | ------ |  | - | --- | --- |  | - | ------ | ------ | 
|                              |                  |                                |   | Software |        | Support and |   | Professional |        |             |   |        |        |       |   |        |        |  |   |    
|                              |                  |                                |   | Licenses |        | Maintenance |   | Services     |        | Data Center |   | Other  |        | Total
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |      
|Quarter Ended March 31, 2003: |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              | Core FI business |                                | $ | 6,196    |        |             | $ | 11,640       |        |             | $ | 21,254 |        |       | $ | 9,009  |        |  | $ | 215 |     |  | $ | 48,314 |       
|                              | Zurich           |                                |   | 8,176    |        |             |   |             |        |             |   |       |        |       |   | 2,752  |        |  |   |    |     |  |   | 10,928 |       
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              |                  | Financial Institutions Segment |   |          | 14,372 |             |   |              | 11,640 |             |   |        | 21,254 |       |   |        | 11,761 |  |   |     | 215 |  |   |        | 59,242 | 
|                              | Edify            |                                |   | 845      |        |             |   | 4,322        |        |             |   | 2,078  |        |       |   |       |        |  |   |    |     |  |   | 7,245  |       
|                              | Eliminations     |                                |   | (251     | )      |             |   | (520         | )      |             |   | (54    | )      |       |   |       |        |  |   |    |     |  |   | (825   | )     
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              | Total            |                                | $ | 14,966   |        |             | $ | 15,442       |        |             | $ | 23,278 |        |       | $ | 11,761 |        |  | $ | 215 |     |  | $ | 65,662 |       
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|Quarter Ended March 31, 2002: |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              | Core FI business |                                | $ | 8,365    |        |             | $ | 9,421        |        |             | $ | 21,856 |        |       | $ | 9,189  |        |  | $ | 433 |     |  | $ | 49,264 |       
|                              | Zurich           |                                |   | 7,256    |        |             |   | 1,745        |        |             |   | 1,580  |        |       |   | 1,919  |        |  |   |    |     |  |   | 12,500 |       
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              |                  | Financial Institutions Segment |   |          | 15,621 |             |   |              | 11,166 |             |   |        | 23,436 |       |   |        | 11,108 |  |   |     | 433 |  |   |        | 61,764 | 
|                              | Edify            |                                |   | 5,548    |        |             |   | 4,158        |        |             |   | 1,982  |        |       |   |       |        |  |   |    |     |  |   | 11,688 |       
|                              | Eliminations     |                                |   |         |        |             |   | (282         | )      |             |   | (600   | )      |       |   |       |        |  |   |    |     |  |   | (882   | )     
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                              | Total            |                                | $ | 21,169   |        |             | $ | 15,042       |        |             | $ | 24,818 |        |       | $ | 11,108 |        |  | $ | 433 |     |  | $ | 72,570 |       
|                              |                  |                                |   |          |        |             |   |              |        |             |   |        |        |       |   |        |        |  |   |     |     |  |   |       

Total revenues decreased by $6.9 million to $65.7 million for the three
months ended March 31, 2003 compared to $72.6 million for the same period in
2002, a decrease of 10%. Our financial institutions segment earned revenues of
$59.2

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million for the quarter ended March 31, 2003 compared with $61.8 million
for the same period in 2002. Revenues for our Edify business were $7.2 million
for the three months ended March 31, 2003 compared with $11.7 million for the
same period in 2002. In 2003, we expect to record total revenue from
Zurich of approximately $43.0 million, including license revenue
of approximately $32.8 million, data center revenue of
approximately $8.7 million and professional services revenue of
$1.5 million. We do not expect to earn any revenue from Zurich
after December 31, 2003. We do not expect revenue growth from
our base financial institutions business to replace the lost Zurich
revenue. As a result, we expect revenues to be lower in 2003.

Software license revenues for our financial institutions segment were
$14.4 million for the three months ended March 31, 2003, a decrease of $1.2
million from the same period in 2002. Although most of our license revenue has
to be replaced each period, license revenue earned from Zurich comprised $8.2
million of our license revenue during the three months ended March 31, 2003 as
compared to $7.3 million in the three months ended March 31, 2002. This revenue
comes from a subscription license, which will continue through December 2003.

Software license revenue of $0.8 million for our Edify business decreased
$4.7 million from the same period in 2002. This decrease resulted from
recording a provision of $1.4 million for billing adjustments, poor economic
conditions in the primary markets served by Edify (telecommunications, travel
and retail) and the distraction of management while the business was
held for sale. We expect license revenues for our Edify business to increase
consistent with seasonal trends and overall market conditions.

Support and maintenance revenues for our financial institutions segment
were $11.6 million for the three months ended March 31, 2003 as compared to
$11.2 million for the same period in 2002. The increase is primarily
attributable to support and maintenance fees earned from customers who
purchased licenses during 2002, offset in part by a decrease in Zurich support
and maintenance fees.

Support and maintenance revenues for the Edify business were $4.3 million
for the three months ended March 31, 2003, an increase of $0.2 million from the
same period in 2002. We expect support and maintenance revenues for our Edify
business to increase consistent with seasonal and market trends over the remainder of
2003.

Professional services revenues for our financial institutions segment were
$21.3 million for the three months ended March 31, 2003, a decrease of $2.2
million from the same period in 2002. This decrease is principally attributable
to the decrease in professional services revenues from State Farm. We expect
professional services revenue to decrease for the remainder of 2003 related to
the completion of several projects for State Farm.

The Edify business recorded $2.1 million for professional services earned
during the first quarter of 2003, this compares to $2.0 million for the first
quarter of 2002. We expect professional services to remain stable or decrease
slightly for the remainder of 2003, as revenues from new projects should
replace those lost to the completion of current projects.

Data
center revenues were $11.8 million
for the three months ended March
31, 2003, an increase of $0.7 million from the same period in 2002. The
increase resulted from the acceleration of revenue from Zurich,
offset by decreases from the attrition of other large customers.
Several large
financial institution customers have moved their Internet banking solutions in
house either on our S1 Enterprise platform or on a competitors platform. In
addition, some have shut down their internet applications entirely. As some of
our customers transferred their S1 applications in house, we were able to
replace a portion of these data center revenue streams with software license
fees and support and maintenance fees. We believe this transition will
slow down by the end of 2003.
When this transition is complete, we expect data center revenues to
be at least $7.5 million per quarter. We continue to
increase the number of community and mid-sized financial institutions
utilizing S1 solutions in our data center.
As we add new hosted customers on
our S1 Enterprise products, we expect data center revenues to increase in 2004.

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.

Direct Costs and Gross Margins.Direct costs increased by $3.6 million to
$33.1 million for the three months ended March 31, 2003 from the same period in
2002. Overall gross margins were 50% and 59% for the three months ended March
31, 2003 and 2002, respectively. The overall increase in direct costs and
corresponding decrease in gross margins
are primarily due to an increase in professional services costs, as
discussed below, offset in part by the reductions in employee headcount and
higher cost outside contractors, and reduced facilities costs resulting from
the consolidation of offices.

Direct costs exclude charges for depreciation and amortization of property
and equipment.

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Cost of software licenses for our products sold in our financial
institution segment 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 the cost of software licenses
will increase in future periods as we license and install more of our new S1
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. The overall decrease
in cost of software licenses is due to the decrease in third party fees
paid to Edify vendors as a result of the decrease in Edify
product sales.

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 $25.4 million for the three
months ended March 31, 2003, an increase from $22.5 million for the same period
in 2002. The increase resulted from an accrual of $3.7 million for the
estimated future costs to complete service projects where our expected costs
will exceed the contractual revenues. This was offset in part by cost savings
measures implemented during the second half of 2002 including reductions in
employee headcount, outside contractors and 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 increased $1.2 million to $6.7 million for the three months ended
March 31, 2003 from $5.5 million for same period in 2002. The increase is
primarily the result of the acceleration of costs related to the
amendment of
the Zurich contract in our U.K. data center and the transfer of remaining business
from the U.K. to our global hosting center in Atlanta, Georgia.

Selling and Marketing Expenses.Total selling and marketing expenses
decreased by $2.5 million to $11.5 million for the three months ended March 31,
2003 from $14.0 million for the same period in 2002. This decrease is primarily
attributable to reduced sales and marketing headcount resulting in a decrease
in compensation expense, other payroll related costs and benefits and travel
and entertainment expenses.

Product Development Expenses.Total product development expenses decreased
by $1.4 million to $12.3 million for the three months ended March 31, 2003 from
$13.7 million for the same period in 2002. We achieved cost savings from the
realignment of our product development organization in 2002, including
replacing outside contractors in our domestic operations with lower cost
offshore contractors. 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
decreased by $0.8 million to $9.2 million for the three months ended March 31,
2003 from $10.0 million for the same period in 2002. As a percentage of
revenues, general and administrative expenses were 14% for the three months
ended March 31, 2003 and 2002. The decrease in general and administrative
expenses was primarily attributable to a decrease in compensation and benefits,
professional services fees and recruiting fees. During 2002, we reduced our
general and administrative headcount and our use of external resources.

Depreciation.Depreciation decreased to
$5.7 million for the three months ended March 31, 2003 from $6.0 million for
the same period in 2002, 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 purchased in 1999 and 2000, especially those
related to the build-out of our global data centers, became fully depreciated
by the end of 2002. We expect depreciation expense to be approximately $5
million each quarter for the remainder of 2003.

Merger
Related Costs and Restructuring Charges.We recorded restructuring
charges of $8.6 million during the quarter ended March 31, 2003 of which
approximately $0.9 million related to the Edify business. This charge was
partially offset by the release of a pre-merger liability of $0.5 million.
During the three months ended March 31, 2003, we began consolidating our U.K.
data center operations into our global hosting center in Atlanta, resulting in
restructuring charges of $2.3 million comprised of accelerated depreciation of assets,
severance costs and other
related costs. In addition, we provided $6.3 million for losses on unused office facilities
vacated as a result of cost alignment activities and recorded other
restructuring charges including severance and other costs associated with a
work force reduction in our financial institution and Edify business operations
as well as other corporate charges. In total we terminated approximately 80
employees.

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During 2002, we incurred merger related costs of $3.7 million in
connection with the acquisition of assets and subsidiaries of Point Holdings,
Ltd. 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 charge was partially offset 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.

Amortization
of Other Intangible Assets and Goodwill Impairment.Amortization of other intangible assets and goodwill impairment increased $10.4 million to $15.1
million for the three months ended March 31, 2003 from $4.7 million for same
period in 2002. The increase was due to an $11.7 million goodwill
impairment charge in our Edify business, as explained below, and
additional amortization of other intangible assets resulting from the
acquisition of Regency and Point in 2002. Amortization expense is expected to be $1 million each
quarter for the remainder of 2003.

In April 2003, we terminated our efforts to divest the Edify business. We
considered our inability to sell the Edify business on terms that were
acceptable to us a triggering event under SFAS No. 144 that required us to
perform a current assessment of the carrying value of the Edify business.
Based on our current analysis of fair value for the Edify business, including
estimates we based on discounted future cash flows, market valuations of
comparable businesses and offers from potential buyers, we concluded that the
fair value of the Edify business was less than its carrying value. Accordingly,
we allocated our estimate of fair value for the unit to the existing assets and
liabilities of the Edify business as of March 31, 2003, resulting in a goodwill
impairment charge of $11.7 million and accelerated amortization on other
intangible assets and purchased software of $1.2 million and $0.5 million,
respectively.

Interest and Other Income, Net.Interest and other income net was $0.2
million and $0.6 million for the three months ended March 31, 2003 and 2002,
respectively.

Income Tax (Expense) Benefit.We recorded income tax expense of $0.1
million during the three months ended March 31, 2003 compared to an income tax
benefit of $0.4 million for the three months ended March 31, 2002. We incurred
foreign income tax expense in certain European countries in 2002 and
2003. The income tax
benefit in 2002 resulted from the amortization of intangible assets acquired in
the acquisition of FICS, which more than offset the foreign income
tax expense in 2002 and 2003. This benefit ended with the complete amortization of
the FICS intangible assets in 2002. During 2003, we expect to record minimal
income tax expense in certain foreign subsidiaries.

Liquidity and Capital Resources

The following tables show information about our cash flows during the
three months ended March 31, 2003 and 2002 and selected balance sheet data as
of March 31, 2003 and December 31, 2002:

|                                                                                                       |  |                              |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ------ | ---- |  | - | ------ | -
|                                                                                                       |  | Three Months Ended March 31,
|                                                                                                       |  |                             
|                                                                                                       |  | 2003                         |        | 2002
|                                                                                                       |  |                              |        |     
|                                                                                                       |  | (In thousands)              
|Net cash (used in) provided by operating activities before
changes in operating assets and liabilities |  | $                            | (3,753 | )    |  | $ | 5,926  |  
|Change in operating assets and liabilities                                                             |  |                              | (6,127 | )    |  |   | (3,599 | )
|                                                                                                       |  |                              |        |      |  |   |        |  
|Net cash (used in) provided by operating activities                                                    |  |                              | (9,880 | )    |  |   | 2,327  |  
|Net cash provided by (used in) investing activities                                                    |  |                              | 9,684  |      |  |   | (8,228 | )
|Net cash (used in) provided by financing activities                                                    |  |                              | (2,315 | )    |  |   | 3,082  |  
|Effect of exchange rates on cash and cash equivalents                                                  |  |                              | 441    |      |  |   | (125   | )
|                                                                                                       |  |                              |        |      |  |   |        |  
|Net decrease in cash and cash equivalents                                                              |  | $                            | (2,070 | )    |  | $ | (2,944 | )
|                                                                                                       |  |                              |        |      |  |   |        |  

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|                                             |  |                |         |                   |  |   |         | 
|-------------------------------------------- |  | -------------- | ------- | ----------------- |  | - | ------- | 
|                                             |  | As of         
|                                             |  |               
|                                             |  | March 31, 2003 |         | December 31, 2002
|                                             |  |                |         |                  
|                                             |  | (In thousands)
|Cash and cash equivalents                    |  | $              | 125,772 |                   |  | $ | 127,842 | 
|Short term investments                       |  |                | 4,504   |                   |  |   | 14,843  | 
|Working capital                              |  |                | 113,352 |                   |  |   | 120,864 | 
|Working capital, excluding deferred revenues |  |                | 154,862 |                   |  |   | 161,169 | 
|Total assets                                 |  |                | 349,876 |                   |  |   | 376,974 | 
|Total stockholders equity                   |  |                | 250,482 |                   |  |   | 279,761 | 

Operating Activities.During the three months ended March 31, 2003, cash
used in operations was $9.9 million compared to cash provided by operations of
$2.3 million for same period in 2002. The deterioration in net cash flows from
operating activities generally reflects the increase in our net loss and 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.

Cash used in operations for the three months ended March 31, 2003 included the effects of:



| |  |  | our net loss of $29.3 million;                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $20.8 million of depreciation, amortization and impairment of intangible assets;                                                                    
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $2.6 million; and                                                                                  
|
| |  |  | an increase of $9.8 million in accounts receivable, including
$6.0 million due to the timing of payments from one significant
customer which was received in April 2003.

Cash provided by operations for the three months ended March 31, 2002 included the effects of:



| |  |  | our net loss of $6.7 million;                                                         
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $10.8 million of depreciation and amortization;                   
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $1.6 million; and
|
| |  |  | changes in operating assets and liabilities of $3.6 million.                          

Investing Activities.Cash provided by investing activities was $9.7
million for the three months ended March 31, 2003 compared to cash used in
investing activities of $8.2 million in the same period in 2002.

In
the first three months of 2003, we:



| |  |  | converted $10.3 million, net, from short-term investments to cash and cash equivalents; and
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | purchased $0.7 million of property and equipment.                                          

In the first three months of 2002, we:



| |  |  | paid $3.5 million in cash in connection with the acquisitions of Regency and Point;       
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | converted $2.7 million, net, from cash and cash equivalents to short-term investments; and
|
| |  |  | purchased $2.1 million of property and equipment.                                         

Financing Activities.Cash used in financing activities was $2.3 million
for the three months ended March 31, 2003 compared to cash provided by
financing activities of $3.1 million in same period in 2002.

In the first three months of 2003 and 2002, we received $0.4 million and
$3.9 million from the sale of common stock under our employee stock plans,
respectively. We paid $1.9 million and $0.9 million for capital lease
obligations in the three months ended March 31, 2003 and 2002, respectively.
In the first quarter of 2003, we repurchased $0.8 million of our common stock.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program. This program has been
funded from available cash. Through March 31, 2003, we repurchased 2.1
million shares of our common stock for $10.0 million under this program.

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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 a 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.




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 2002 Annual Report on Form 10-K. There have been no
significant changes in our market risk from December 31, 2002.




Item 4.Controls and Procedures

Within the 90 days prior to the date of filing this Form 10-Q, we carried
out an evaluation, under the supervision and with the participation of
management, including the chief executive officer and the chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the chief executive officer and the chief financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
SEC filings. There have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls subsequent
to the date we carried out our evaluation.

20



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##### Table of Contents












PART II  OTHER INFORMATION

Item 1.Legal Proceedings.

Except as noted below, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to the business, to which S1,
or any of its subsidiaries is a party or which their property is subject.



| |  |  | S1 Corporation and its
subsidiary Davidge Data Systems, Inc. are involved
in litigation with Scottrade, Inc. and an affiliate company, Computer
Research, Inc., relating to a software development project. The action
was initially filed in March 2002 in the U.S. District Court for the
Eastern District of Missouri. The plaintiffs filed amended complaints in
November of 2002 and January of 2003. The plaintiffs have made a claim
for a refund of all amounts paid to S1 and Davidge as well as all
damages flowing from the dispute, including service bureau expenses
incurred because of the allege failure to perform, the sum of which
could exceed a million dollars. S1 and Davidge have filed a counterclaim
for unpaid amounts under the contract. We believe the plaintiffs claims
are not meritorious and intend to vigorously defend the suit.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of America
Corporation and Bank of America National Association. We believe that
the plaintiffs claims are not meritorious and intend to vigorously
defend the suit.                                                                                                                                                                                                                                                                                                                                                                                                                             

While we do not believe that any of the above matters or any other pending
litigation will be material to our financial position or results of operations,
there can be no assurance on the ultimate outcome of these matters.

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 March 31, 2003:



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Current Report on Form 8-K filed with the SEC on February 18,
2003 (date of report February 13, 2003) (regarding a press release
and an analyst conference call related to fourth quarter of 2002
results and S1 and its operations).

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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 May 15, 2003.

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

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##### Table of Contents






10-Q Certification

I, Jaime W. Ellertson, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of S1 Corporation;                                                                                                                                                                                                                                                                                                                    
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                                                                                
|  
|a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;                                                                                          
|  
|b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                                                                            
|  
|c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                                  
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                           
|  
|a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                           
|  
|b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                                   
|  
|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                                                                
|----------------------------------------------------------------
|Date: May 14, 2003
/s/ Jaime W. EllertsonChief Executive Officer

23



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##### Table of Contents



10-Q Certification

I, Matthew Hale, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of S1 Corporation;                                                                                                                                                                                                                                                                                                                    
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;                                                           
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                                                                              
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                                                                                
|  
|a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;                                                                                          
|  
|b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                                                                                                            
|  
|c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                                  
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):                                                                                                                                           
|  
|a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                           
|  
|b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                                   
|  
|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

|                                                                                           
|-------------------------------------------------------------------------------------------
|Date: May 14, 2003
/s/ Matthew HaleChief Financial Officer and Principal Accounting Officer

24