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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 10-Q

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 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

(Exact name of registrant as specified in its charter)


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

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 August 12, 2003: 70,107,546



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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 4. Submission of Matters to a Vote of Security Holders                                  
|                                                 | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURE                                       
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO    
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO    
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO/CFO



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED JUNE 30, 2003

TABLE OF CONTENTS

|                                                                                              |                                                                                                           |  |    |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- |  | -- | - | 
|PART I - FINANCIAL INFORMATION                                                                |                                                                                                           |  |    |  
|Item 1. Financial Statements:                                                                 |                                                                                                           |  |    |  
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002                           |  |    | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2003 and 2002 |  |    | 4 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003
and 2002           |  |    | 5 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements as of June 30, 2003                                  |  |    | 6 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                           |  | 15 |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                           |  | 25 |  
|Item 4. Controls and Procedures                                                               |                                                                                                           |  | 25 |  
|PART II - OTHER INFORMATION                                                                   |                                                                                                           |  |    |  
|Item 1. Legal Proceedings                                                                     |                                                                                                           |  | 26 |  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                           |  | 26 |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                           |  | 26 |  
|Signature                                                                                     |                                                                                                           |  | 28 |  

2



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##### Table of Contents






PART 1 - FINANCIAL INFORMATION




Item 1 -Financial Statements




S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

|                                        |                                                     |              |                           |                                            |         |          |            |              |         |         |         | 
|--------------------------------------- | --------------------------------------------------- | ------------ | ------------------------- | ------------------------------------------ | ------- | -------- | ---------- | ------------ | ------- | ------- | ------- | 
|                                        |                                                     |              |                           |                                            |         | June 30, |            | December 31,
|                                        |                                                     |              |                           |                                            |         | 2003     |            | 2002        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|ASSETS                                  |                                                     |              |                           |                                            |         |          |            |             
|Current assets:                         |                                                     |              |                           |                                            |         |          |            |             
|                                        | Cash and cash equivalents                           |              | $                         | 127,433                                    |         |          | $          | 127,842      |        
|                                        | Short-term investments                              |              |                           | 10,348                                     |         |          |            | 14,843       |        
|                                        | Accounts receivable, net                            |              |                           | 56,185                                     |         |          |            | 54,815       |        
|                                        | Prepaid expenses                                    |              |                           | 8,670                                      |         |          |            | 7,601        |        
|                                        | Other current assets                                |              |                           | 4,589                                      |         |          |            | 7,232        |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     |              | Total current assets      |                                            |         | 207,225  |            |              |         | 212,333 |        
|                                        | Property and equipment, net                         |              |                           | 20,069                                     |         |          |            | 30,626       |        
|                                        | Intangible assets, net                              |              |                           | 14,781                                     |         |          |            | 17,585       |        
|                                        | Goodwill, net                                       |              |                           | 94,665                                     |         |          |            | 106,971      |        
|                                        | Other assets                                        |              |                           | 8,094                                      |         |          |            | 9,459        |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     | Total assets |                           | $                                          | 344,834 |          |            | $            | 376,974 |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                                     |              |                           |                                            |         |          |            |             
|Current liabilities:                    |                                                     |              |                           |                                            |         |          |            |             
|                                        | Accounts payable                                    |              | $                         | 5,755                                      |         |          | $          | 13,354       |        
|                                        | Accrued compensation and benefits                   |              |                           | 12,408                                     |         |          |            | 11,710       |        
|                                        | Accrued restructuring                               |              |                           | 6,120                                      |         |          |            | 2,665        |        
|                                        | Accrued other expenses                              |              |                           | 21,374                                     |         |          |            | 21,742       |        
|                                        | Deferred revenues                                   |              |                           | 43,785                                     |         |          |            | 40,305       |        
|                                        | Current portion of capital lease obligation         |              |                           | 801                                        |         |          |            | 1,693        |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     |              | Total current liabilities |                                            |         | 90,243   |            |              |         | 91,469  |        
|                                        | Capital lease obligation, excluding current portion |              |                           | 788                                        |         |          |            | 185          |        
|                                        | Accrued restructuring, excluding current portion    |              |                           | 7,352                                      |         |          |            | 4,445        |        
|                                        | Other liabilities                                   |              |                           | 1,658                                      |         |          |            | 1,114        |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     |              | Total liabilities         |                                            |         | 100,041  |            |              |         | 97,213  |        
|                                        |                                                     |              |                           |                                            |         |          |            |             
|Stockholders equity:                   |                                                     |              |                           |                                            |         |          |            |             
|                                        | Preferred stock                                     |              |                           | 18,328                                     |         |          |            | 18,328       |        
|                                        | Common stock                                        |              |                           | 714                                        |         |          |            | 713          |        
|                                        | Additional paid-in capital                          |              |                           | 1,897,031                                  |         |          |            | 1,896,111    |        
|                                        | Common stock held in treasury  at cost             |              |                           | (10,000                                    | )       |          |            | (9,250       | )      
|                                        | Accumulated deficit                                 |              |                           | (1,659,237                                 | )       |          |            | (1,623,545   | )      
|                                        | Accumulated other comprehensive loss                |              |                           | (2,043                                     | )       |          |            | (2,596       | )      
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     |              |                           | Total stockholders equity                 |         |          | 244,793    |              |         |         | 279,761 | 
|                                        |                                                     |              |                           |                                            |         |          |            |             
|                                        |                                                     |              |                           | Total liabilities and stockholders equity |         | $        | 344,834    |              |         | $       | 376,974 | 
|                                        |                                                     |              |                           |                                            |         |          |            |             
|Preferred shares issued and outstanding |                                                     |              | 1,398,214                 |                                            |         |          | 1,398,214  |             
|                                        |                                                     |              |                           |                                            |         |          |            |             
|Common shares issued and outstanding    |                                                     |              | 71,439,802                |                                            |         |          | 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 |            | Six Months Ended
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        | June 30,           |            | June 30,        
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                 
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        | 2003               |            | 2002             |        | 2003   |            | 2002  
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |       
|Revenues:                                   |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            | Software licenses                                                                                                                                                                                                                |                                          | $                        | 14,185         |        |                    | $          | 25,061           |        |        | $          | 29,151 |         |         | $          | 46,230 |        
|                                            | Support and maintenance                                                                                                                                                                                                          |                                          |                          | 14,575         |        |                    |            | 14,503           |        |        |            | 30,017 |         |         |            | 29,545 |        
|                                            | Professional services                                                                                                                                                                                                            |                                          |                          | 23,044         |        |                    |            | 24,861           |        |        |            | 46,322 |         |         |            | 49,679 |        
|                                            | Data center                                                                                                                                                                                                                      |                                          |                          | 14,970         |        |                    |            | 10,569           |        |        |            | 26,731 |         |         |            | 21,677 |        
|                                            | Other                                                                                                                                                                                                                            |                                          |                          | 951            |        |                    |            | 316              |        |        |            | 1,166  |         |         |            | 749    |        
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                                          | Total revenues           |                |        | 67,725             |            |                  |        | 75,310 |            |        |         | 133,387 |            |        |         | 147,880 |        
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|Operating expenses:                         |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            | Cost of software licenses                                                                                                                                                                                                        |                                          |                          | 1,014          |        |                    |            | 1,545            |        |        |            | 1,858  |         |         |            | 2,758  |        
|                                            | Cost of professional services, support and maintenance                                                                                                                                                                           |                                          |                          | 22,997         |        |                    |            | 23,703           |        |        |            | 48,389 |         |         |            | 46,233 |        
|                                            | Cost of data center                                                                                                                                                                                                              |                                          |                          | 6,664          |        |                    |            | 5,840            |        |        |            | 13,390 |         |         |            | 11,302 |        
|                                            | Cost of other revenue                                                                                                                                                                                                            |                                          |                          | 858            |        |                    |            | 302              |        |        |            | 1,014  |         |         |            | 582    |        
|                                            | Selling and marketing                                                                                                                                                                                                            |                                          |                          | 10,124         |        |                    |            | 15,495           |        |        |            | 21,654 |         |         |            | 29,457 |        
|                                            | Product development                                                                                                                                                                                                              |                                          |                          | 10,268         |        |                    |            | 14,059           |        |        |            | 22,573 |         |         |            | 27,777 |        
|                                            | General and administrative, including stock compensation
expense of $70 and $224 for the three months ended
June 30, 2003 and 2002, respectively and $281 and
$899 for the six months ended June 30, 2003 and
2002, respectively |                                          |                          | 7,803          |        |                    |            | 10,286           |        |        |            | 17,030 |         |         |            | 20,329 |        
|                                            | Depreciation                                                                                                                                                                                                                     |                                          |                          | 4,703          |        |                    |            | 5,944            |        |        |            | 10,438 |         |         |            | 11,987 |        
|                                            | Merger related costs and restructuring charges                                                                                                                                                                                   |                                          |                          | 8,418          |        |                    |            |                 |        |        |            | 16,512 |         |         |            | 2,022  |        
|                                            | Acquired in-process research and development                                                                                                                                                                                     |                                          |                          |               |        |                    |            |                 |        |        |            |       |         |         |            | 350    |        
|                                            | Amortization of other intangible assets and goodwill
impairment                                                                                                                                                                  |                                          |                          | 788            |        |                    |            | 4,964            |        |        |            | 15,857 |         |         |            | 9,696  |        
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                                          | Total operating expenses |                |        | 73,637             |            |                  |        | 82,138 |            |        |         | 168,715 |            |        |         | 162,493 |        
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  |                                          |                          | Operating loss |        |                    | (5,912     | )                |        |        | (6,828     | )      |         |         | (35,328    | )      |         |         | (14,613 | )
|Interest and other (expense) income, net    |                                                                                                                                                                                                                                  |                                          | (491                     | )              |        |                    | 643        |                  |        |        | (245       | )      |         |         | 1,278      |       
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|                                            |                                                                                                                                                                                                                                  | Loss before income tax benefit (expense) |                          |                | (6,403 | )                  |            |                  | (6,185 | )      |            |        | (35,573 | )       |            |        | (13,335 | )      
|Income tax benefit (expense)                |                                                                                                                                                                                                                                  |                                          |                         |                |        |                    | 538        |                  |        |        | (119       | )      |         |         | 982        |       
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|Net loss                                    |                                                                                                                                                                                                                                  | $                                        | (6,403                   | )              |        | $                  | (5,647     | )                |        | $      | (35,692    | )      |         | $       | (12,353    | )     
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|Basic and diluted net loss per common share |                                                                                                                                                                                                                                  | $                                        | (0.09                    | )              |        | $                  | (0.08      | )                |        | $      | (0.52      | )      |         | $       | (0.19      | )     
|                                            |                                                                                                                                                                                                                                  |                                          |                          |                |        |                    |            |                  |        |        |            |        |         |         |            |       
|Weighted average common shares outstanding  |                                                                                                                                                                                                                                  |                                          | 69,348,903               |                |        |                    | 68,718,193 |                  |        |        | 69,298,568 |        |         |         | 65,449,413 |       

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |        |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | ------- | ---------------- | ---- | ------- | ------- | ------ | ------ | -
|                                                             |                                                                                           |                                                                    |                                                     |         | Six Months Ended
|                                                             |                                                                                           |                                                                    |                                                     |         | June 30,        
|                                                             |                                                                                           |                                                                    |                                                     |         |                 
|                                                             |                                                                                           |                                                                    |                                                     |         | 2003             |      | 2002   
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |        
|Cash flows from operating activities:                        |                                                                                           |                                                                    |                                                     |         |                  |      |         |        
|                                                             | Net loss                                                                                  |                                                                    | $                                                   | (35,692 | )                |      | $       | (12,353 | )     
|                                                             | Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           | Depreciation, amortization and goodwill impairment charge          |                                                     |         | 26,295           |      |         |         | 21,683 |       
|                                                             |                                                                                           | Loss on disposal of property and equipment                         |                                                     |         | 3,931            |      |         |         |       |       
|                                                             |                                                                                           | Acquired in-process research and development                       |                                                     |         |                 |      |         |         | 350    |       
|                                                             |                                                                                           | Compensation expense for stock options                             |                                                     |         | 281              |      |         |         | 899    |       
|                                                             |                                                                                           | Provision for doubtful accounts receivable and billing adjustments |                                                     |         | 3,948            |      |         |         | 2,714  |       
|                                                             |                                                                                           | Gain on the sale of investment securities available for sale       |                                                     |         | (24              | )    |         |         |       |       
|                                                             |                                                                                           | Loss on impaired cost-basis equity investments                     |                                                     |         | 615              |      |         |         |       |       
|                                                             |                                                                                           | Benefit for deferred income taxes                                  |                                                     |         |                 |      |         |         | (759   | )     
|                                                             |                                                                                           | Proceeds from income tax refunds                                   |                                                     |         | 710              |      |         |         |       |       
|                                                             | Changes in assets and liabilities, excluding effects of acquisitions:                     |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           | Increase in accounts receivable                                    |                                                     |         | (5,418           | )    |         |         | (4,974 | )     
|                                                             |                                                                                           | Decrease (increase) in prepaid expenses and other assets           |                                                     |         | 450              |      |         |         | (1,098 | )     
|                                                             |                                                                                           | (Decrease) increase in accounts payable                            |                                                     |         | (7,695           | )    |         |         | 6,807  |       
|                                                             |                                                                                           | Increase (decrease) in accrued expenses and other liabilities      |                                                     |         | 8,120            |      |         |         | (8,007 | )     
|                                                             |                                                                                           | Increase in deferred revenues                                      |                                                     |         | 3,963            |      |         |         | 3,940  |       
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           |                                                                    | Net cash (used in) provided by operating activities |         |                  | (516 | )       |         |        | 9,202  |  
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Cash flows from investing activities:                        |                                                                                           |                                                                    |                                                     |         |                  |      |         |        
|                                                             | Net cash paid in connection with acquisitions                                             |                                                                    |                                                     |        |                  |      |         | (3,943  | )     
|                                                             | Maturities of short-term investment securities                                            |                                                                    |                                                     | 15,851  |                  |      |         | 29,812  |       
|                                                             | Purchases of short-term investment securities                                             |                                                                    |                                                     | (11,356 | )                |      |         | (24,082 | )     
|                                                             | Proceeds from sale of investment securities available for sale                            |                                                                    |                                                     | 92      |                  |      |         |        |       
|                                                             | Purchase of long-term certificate of deposit                                              |                                                                    |                                                     |        |                  |      |         | (2,500  | )     
|                                                             | Purchases of property, equipment and technology                                           |                                                                    |                                                     | (3,599  | )                |      |         | (7,304  | )     
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           |                                                                    | Net cash provided by (used in) investing activities |         |                  | 988  |         |         |        | (8,017 | )
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Cash flows from financing activities:                        |                                                                                           |                                                                    |                                                     |         |                  |      |         |        
|                                                             | Proceeds from sale of common stock under employee stock purchase and
option plans         |                                                                    |                                                     | 640     |                  |      |         | 4,570   |       
|                                                             | Payments on capital lease obligations                                                     |                                                                    |                                                     | (1,582  | )                |      |         | (2,598  | )     
|                                                             | Repurchase of common stock held in treasury                                               |                                                                    |                                                     | (750    | )                |      |         |        |       
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           | Net cash (used in) provided by financing activities                |                                                     |         | (1,692           | )    |         |         | 1,972  |       
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                                    | 811                                                 |         |                  |      | 943     |        
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Net (decrease) increase in cash and cash equivalents         |                                                                                           |                                                                    | (409                                                | )       |                  |      | 4,100   |        
|Cash and cash equivalents at beginning of period             |                                                                                           |                                                                    | 127,842                                             |         |                  |      | 119,632 |        
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Cash and cash equivalents at end of period                   |                                                                                           | $                                                                  | 127,433                                             |         |                  | $    | 123,732 |        
|                                                             |                                                                                           |                                                                    |                                                     |         |                  |      |         |         |       
|Noncash investing and financing activities:                  |                                                                                           |                                                                    |                                                     |         |                  |      |         |        
|                                                             | Property and equipment acquired through leases                                            |                                                                    | $                                                   | 1,293   |                  |      | $       |        |       
|                                                             | Conversion of preferred stock to common stock                                             |                                                                    |                                                     |        |                  |      |         | 225,778 |       
|                                                             | Effects of acquisitions:                                                                  |                                                                    |                                                     |         |                  |      |         |         |       
|                                                             |                                                                                           |                                                                    | Issuance of common stock to acquire businesses      |         |                  |     |         |         |        | 22,778 |  
|                                                             |                                                                                           |                                                                    | Liabilities assumed                                 |         |                  |     |         |         |        | 9,990  |  

See accompanying notes to unaudited condensed consolidated financial statements.

5



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S1 CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



|1. |  | BACKGROUND AND BASIS OF PRESENTATION
|-- |  | ------------------------------------

S1 Corporation is a global provider of enterprise software solutions for
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 two geographic regions: (i) the Americas region, and
(ii) the International region, consisting of Europe, Middle East and Africa
(EMEA) and the Asia-Pacific and Japan (APJ). 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; New
York, New York; West Hills, California and Santa Clara, California; and
international offices in Brussels, Dublin, Hong Kong, Lisbon, London,
Luxembourg, Madrid, Munich, Paris, Rotterdam and Singapore. 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 by June 30,
2003 on terms that were agreeable to us. 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 June 30, 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 June 30, 2003 and our results of operations for the
three and six months ended June 30, 2003 and cash flows for the six months
ended June 30, 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

6



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three and six months
ended June 30, 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 and six months ended June 30, 2003 and 2002, we recognized
compensation expense relating to stock options granted with exercise prices
less than the market price on the date of grant and for modifications made to
the terms of existing grants. 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 |       | Six Months Ended
|                                                                                                                                            |             |   | June 30,           |       | June 30,        
|                                                                                                                                            |             |   |                    |       |                 
|                                                                                                                                            |             |   | 2003               |       | 2002             |   | 2003    |       | 2002
|                                                                                                                                            |             |   |                    |       |                  |   |         |       |     
|Net loss, as reported                                                                                                                       |             | $ | (6,403             | )     |                  | $ | (5,647  | )     |      | $ | (35,692 | )     |   | $ | (12,353 | )    
|Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effects                                    |             |   | 70                 |       |                  |   | 244     |       |      |   | 281     |       |   |   | 899     |      
|Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |             |   | (27,014            | )     |                  |   | (31,403 | )     |      |   | (54,373 | )     |   |   | (63,190 | )    
|                                                                                                                                            |             |   |                    |       |                  |   |         |       |      |   |         |       |   |   |         |      
|Pro forma net loss                                                                                                                          |             | $ | (33,347            | )     |                  | $ | (36,806 | )     |      | $ | (89,784 | )     |   | $ | (74,644 | )    
|                                                                                                                                            |             |   |                    |       |                  |   |         |       |      |   |         |       |   |   |         |      
|Basic and diluted net loss per common share                                                                                                 |             |   |                    |       |                  |   |         |       |      |   |         |       |   |   |         |      
|                                                                                                                                            | As reported |   | $                  | (0.09 | )                |   | $       | (0.08 | )    |   | $       | (0.52 | ) |   | $       | (0.19 | )
|                                                                                                                                            | Pro forma   |   | $                  | (0.48 | )                |   | $       | (0.54 | )    |   | $       | (1.30 | ) |   | $       | (1.14 | )

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.

7



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The fair
values of our stock-based option awards to employees were estimated
using the Black-Scholes option-pricing model by
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           |  | 4.6 years |       | 4.5 years

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 are
effective for exit or disposal activities that are initiated after December 31,
2002. We applied the provisions of this Statement in accounting for our
restructuring activities during the three and six months ended June 30, 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 apply to revenue arrangements entered into
in fiscal periods beginning after June 15, 2003. We will adopt EITF Issue No.
00-21 effective July 1, 2003 and do not expect it to have a
material impact 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 June 30, 2003, our other intangible assets consisted of the following:

|                                  |  |                |        |              |  |   |        |  
|--------------------------------- |  | -------------- | ------ | ------------ |  | - | ------ | -
|                                  |  | Gross          |        | Accumulated 
|                                  |  | Carrying Value |        | Amortization
|                                  |  |                |        |             
|                                  |  | (In thousands)
|Purchased and acquired technology |  | $              | 11,585 |              |  | $ | (2,784 | )
|Customer relationships            |  |                | 7,500  |              |  |   | (1,520 | )
|                                  |  |                |        |              |  |   |        |  
|Total                             |  | $              | 19,085 |              |  | $ | (4,304 | )
|                                  |  |                |        |              |  |   |        |  

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We recorded amortization expense of $10.0 million and $4.2 million during
the six months ended June 30, 2002 and 2003, respectively. We estimate
aggregate amortization expense for 2003 and the next four calendar years to be
as follows (in thousands):

|                                        |  |         |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|--------------------------------------- |  | ------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                        |  | 2003(1) |       | 2004 |  | 2005 |       | 2006 |  | 2007
|                                        |  |         |       |      |  |      |       |      |  |     
|Financial institutions business segment |  | $       | 3,727 |      |  | $    | 2,770 |      |  | $    | 2,770 |  |  | $ | 2,770 |  |  | $ | 1,643 | 
|Edify business segment                  |  |         | 225   |      |  |      | 75    |      |  |      |      |  |  |   |      |  |  |   |      | 



---

|(1) |  | The estimate for 2003 excludes the goodwill impairment charge of $11.7
million and the accelerated amortization on the other intangible assets of
$1.7 million for the Edify business.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
changes in the carrying value of our goodwill for the six months
ended June 30, 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 |  |                | (710   | )     |  |       |        |   |  |   | (710    | )
|Adjustment of purchase price for Point
Information Systems  |  |                | 114    |       |  |       |        |   |  |   | 114     |  
|Impairment of goodwill                                      |  |                |       |       |  |       | (11,710 | ) |  |   | (11,710 | )
|                                                            |  |                |        |       |  |       |         |   |  |   |         |  
|Balance, June 30, 2003                                      |  | $              | 89,044 |       |  | $     | 5,621   |   |  | $ | 94,665  |  
|                                                            |  |                |        |       |  |       |         |   |  |   |         |  

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 June 30,
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 |        | Six Months Ended
|                                                                          |                    |   | June 30,           |        | June 30,        
|                                                                          |                    |   |                    |        |                 
|                                                                          |                    |   | 2003               |        | 2002             |   | 2003   |        | 2002
|                                                                          |                    |   |                    |        |                  |   |        |        |     
|Net loss                                                                  |                    | $ | (6,403             | )      |                  | $ | (5,647 | )      |      | $ | (35,692 | )       |   | $ | (12,353 | )      
|Foreign currency translation adjustment                                   |                    |   | 405                |        |                  |   | (1,076 | )      |      |   | 615     |         |   |   | (1,643  | )      
|Unrealized loss on investment securities
available for sale, net of taxes |                    |   | (51                | )      |                  |   | (35    | )      |      |   | (86     | )       |   |   | (76     | )      
|                                                                          |                    |   |                    |        |                  |   |        |        |      |   |         |         |   |   |         |        
|                                                                          | Comprehensive loss |   | $                  | (6,049 | )                |   | $      | (6,758 | )    |   | $       | (35,163 | ) |   | $       | (14,072 | )
|                                                                          |                    |   |                    |        |                  |   |        |        |      |   |         |         |   |   |         |        

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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 |       | Six Months Ended
|                      |  | June 30,           |       | June 30,        
|                      |  | 2003               |       | 2002             |  | 2003 |   | 2002
|                      |  |                    |       |                  |  |      |   |     
|Restructuring charges |  | $                  | 8,932 |                  |  | $    |  |      |  | $ | 17,509 |   |  | $ |      | 
|Merger related costs  |  |                    | (514  | )                |  |      |  |      |  |   | (997   | ) |  |   | 2,022 | 
|                      |  |                    |       |                  |  |      |   |      |  |   |        |   |  |   |       | 
|                      |  | $                  | 8,418 |                  |  | $    |  |      |  | $ | 16,512 |   |  | $ | 2,022 | 
|                      |  |                    |       |                  |  |      |   |      |  |   |        |   |  |   |       | 

During the first half of 2003, we undertook several initiatives to align our
cost structure with our anticipated 2004 revenues. As a result, management
approved restructuring plans to consolidate our data center operations in the
United Kingdom into our global hosting center in Atlanta, reduce the work
force, relocate and consolidate certain office facilities and sell certain
corporate assets. In connection with these plans, we recorded restructuring
charges of $17.5 million during the six months ended June 30, 2003. We expect
to record additional restructuring charges in the second half of 2003 as we
continue to act upon these plans and further streamline our expenses. In
total, we have eliminated approximately 106 positions worldwide. In our
American operations, we recorded $4.9 million in restructuring charges during
the six months ended June 30, 2003, which were primarily comprised of charges
for excess office space, relocation expenses and other corporate charges.

In the first quarter of 2003, we began the process of consolidating our
U.K. data center operations into our global hosting center in Atlanta. In
connection with this consolidation, we recorded $4.9 million of restructuring
charges during the first half of 2003 comprised of accelerated depreciation of
assets, severance costs and other related costs to relocate the data center
operations. In the second quarter of 2003, we relocated our remaining U.K
operations to a smaller facility, which resulted in a restructuring charge of
approximately $3.4 million for losses on the vacated office space, relocation
expenses and the write off of abandoned leasehold improvements. Under the
provisions of SFAS No. 146, we recorded the loss at the present value of the
expected cash flows. We will record accretion expense of approximately $0.9
million over the remaining term of the lease, which is six years.
Additionally, in the first half of 2003, we recorded a charge of $1.0 million
to reorganize our APJ operations and close certain offices.

We are in the process of reorganizing our Edify business to align costs
with expected revenues. As a result, we changed senior management (including a
new General Manager), reduced the workforce and closed and consolidated several
Edify office facilities worldwide. These actions resulted in restructuring
charges of $3.1 million for the six months ended June 30, 2003 for unused
office facilities, severance and other related costs. The reorganization of
the Edify business is still in process and we expect to record restructuring
charges in the second half of 2003.

In the first quarter of 2003, we decreased our merger related 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. In the second quarter of 2003, we further reduced our merger
related accrual by $0.5 million when we determined that we had an alternate use
for excess office space that was reserved when we completed the acquisition of
Point in March 2002.

During the six months ended June 30 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.

10



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The restructuring reserves as of December 31, 2002 and June 30, 2003 and
their utilization for the six months ended June 30, 2003 are summarized as
follows:

|                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|-------------------------- |  | --------------- | ------ | ----------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                           |  | Personnel Costs |        | Lease Costs |  | Other |        | Total
|                           |  |                 |        |             |  |       |        |      
|                           |  | (In thousands) 
|Balance, December 31, 2002 |  | $               | 78     |             |  | $     | 6,724  |       |  | $ | 308    |   |  | $ | 7,110   |  
|Restructuring charges      |  |                 | 3,086  |             |  |       | 7,449  |       |  |   | 6,974  |   |  |   | 17,509  |  
|Amounts utilized           |  |                 | (2,008 | )           |  |       | (2,324 | )     |  |   | (6,815 | ) |  |   | (11,147 | )
|                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Balance, June 30, 2003     |  | $               | 1,156  |             |  | $     | 11,849 |       |  | $ | 467    |   |  | $ | 13,472  |  
|                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  

We expect to make future cash expenditures, net of anticipated sublease
income, related to these restructuring activities of approximately $13.1
million, of which we anticipate to pay approximately $5.7 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 paid to S1 and Davidge as well
as all damages flowing from the dispute, including service bureau
expenses incurred because of the alleged 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,
our core business segment, and the Edify business. The financial institutions
segment develops, markets and implements integrated, transactional and
brandable enterprise applications for small, mid-sized and large financial
institutions worldwide, available as in-house or hosted solutions. 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.

11



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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 and six months ended June
30, 2003 and 2002. We do not use any asset-based metrics to measure the
operating performance of our segments.

|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |        | 
|------------------------ | --------------------------------------------------------------- | - | -------------------------------- | ------ | ----- | - | ------------ | ----- | ----- | - | ---- | ---- | - | - | ------ | ------ | 
|                         |                                                                 |   | Three Months Ended June 30, 2003
|                         |                                                                 |   |                                 
|                         |                                                                 |   | Financial                        |        |       |   |              |       |       |   |      |      |   |   |       
|                         |                                                                 |   | Institutions                     |        | Edify |   | Eliminations |       | Total
|                         |                                                                 |   |                                  |        |       |   |              |       |      
|Revenues                 |                                                                 | $ | 61,438                           |        |       | $ | 6,843        |       |       | $ | (556 | )    |   | $ | 67,725 |       
|Operating expenses:      |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|                         | Direct costs                                                    |   |                                  | 27,510 |       |   |              | 4,579 |       |   |      | (556 | ) |   |        | 31,533 | 
|                         | Selling and marketing                                           |   |                                  | 7,527  |       |   |              | 2,597 |       |   |      |     |   |   |        | 10,124 | 
|                         | Product development                                             |   |                                  | 8,792  |       |   |              | 1,476 |       |   |      |     |   |   |        | 10,268 | 
|                         | General and administrative                                      |   |                                  | 6,777  |       |   |              | 1,026 |       |   |      |     |   |   |        | 7,803  | 
|                         | Depreciation                                                    |   |                                  | 4,510  |       |   |              | 193   |       |   |      |     |   |   |        | 4,703  | 
|                         | Merger related costs and restructuring charges                  |   |                                  | 6,197  |       |   |              | 2,221 |       |   |      |     |   |   |        | 8,418  | 
|                         | Amortization of other intangible assets and
goodwill impairment |   |                                  | 713    |       |   |              | 75    |       |   |      |     |   |   |        | 788    | 
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|Total operating expenses |                                                                 |   | 62,026                           |        |       |   | 12,167       |       |       |   | (556 | )    |   |   | 73,637 |       
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|Segment operating loss   |                                                                 | $ | (588                             | )      |       | $ | (5,324       | )     |       | $ |     |      |   | $ | (5,912 | )     
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       

|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |        | 
|------------------------ | --------------------------------------------------------------- | - | -------------------------------- | ------ | ----- | - | ------------ | ----- | ----- | - | ---- | ---- | - | - | ------ | ------ | 
|                         |                                                                 |   | Three Months Ended June 30, 2002
|                         |                                                                 |   |                                 
|                         |                                                                 |   | Financial                        |        |       |   |              |       |       |   |      |      |   |   |       
|                         |                                                                 |   | Institutions                     |        | Edify |   | Eliminations |       | Total
|                         |                                                                 |   |                                  |        |       |   |              |       |      
|Revenues                 |                                                                 | $ | 63,807                           |        |       | $ | 12,327       |       |       | $ | (824 | )    |   | $ | 75,310 |       
|Operating expenses:      |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|                         | Direct costs                                                    |   |                                  | 26,802 |       |   |              | 5,412 |       |   |      | (824 | ) |   |        | 31,390 | 
|                         | Selling and marketing                                           |   |                                  | 10,766 |       |   |              | 4,729 |       |   |      |     |   |   |        | 15,495 | 
|                         | Product development                                             |   |                                  | 11,769 |       |   |              | 2,290 |       |   |      |     |   |   |        | 14,059 | 
|                         | General and administrative                                      |   |                                  | 8,900  |       |   |              | 1,386 |       |   |      |     |   |   |        | 10,286 | 
|                         | Depreciation                                                    |   |                                  | 5,437  |       |   |              | 507   |       |   |      |     |   |   |        | 5,944  | 
|                         | Amortization of other intangible assets and
goodwill impairment |   |                                  | 4,147  |       |   |              | 817   |       |   |      |     |   |   |        | 4,964  | 
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|Total operating expenses |                                                                 |   | 67,821                           |        |       |   | 15,141       |       |       |   | (824 | )    |   |   | 82,138 |       
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       
|Segment operating loss   |                                                                 | $ | (4,014                           | )      |       | $ | (2,814       | )     |       |   |     |      |   | $ | (6,828 | )     
|                         |                                                                 |   |                                  |        |       |   |              |       |       |   |      |      |   |   |        |       

|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |        | 
|------------------------ | --------------------------------------------------------------- | - | ------------------------------ | ------ | ----- | - | ------------ | ------ | ----- | - | ------ | ------ | - | - | ------- | ------ | 
|                         |                                                                 |   | Six Months Ended June 30, 2003
|                         |                                                                 |   |                               
|                         |                                                                 |   | Financial                      |        |       |   |              |        |       |   |        |        |   |   |        
|                         |                                                                 |   | Institutions                   |        | Edify |   | Eliminations |        | Total
|                         |                                                                 |   |                                |        |       |   |              |        |      
|Revenues                 |                                                                 | $ | 120,680                        |        |       | $ | 14,088       |        |       | $ | (1,381 | )      |   | $ | 133,387 |       
|Operating expenses:      |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|                         | Direct costs                                                    |   |                                | 56,514 |       |   |              | 9,518  |       |   |        | (1,381 | ) |   |         | 64,651 | 
|                         | Selling and marketing                                           |   |                                | 15,304 |       |   |              | 6,350  |       |   |        |       |   |   |         | 21,654 | 
|                         | Product development                                             |   |                                | 19,435 |       |   |              | 3,138  |       |   |        |       |   |   |         | 22,573 | 
|                         | General and administrative                                      |   |                                | 14,344 |       |   |              | 2,686  |       |   |        |       |   |   |         | 17,030 | 
|                         | Depreciation                                                    |   |                                | 9,916  |       |   |              | 522    |       |   |        |       |   |   |         | 10,438 | 
|                         | Merger related costs and restructuring charges                  |   |                                | 13,412 |       |   |              | 3,100  |       |   |        |       |   |   |         | 16,512 | 
|                         | Amortization of other intangible assets and
goodwill impairment |   |                                | 2,344  |       |   |              | 13,513 |       |   |        |       |   |   |         | 15,857 | 
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|Total operating expenses |                                                                 |   | 131,269                        |        |       |   | 38,827       |        |       |   | (1,381 | )      |   |   | 168,715 |       
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|Segment operating loss   |                                                                 | $ | (10,589                        | )      |       | $ | (24,739      | )      |       |   |       |        |   | $ | (35,328 | )     
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       

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|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |        | 
|------------------------ | --------------------------------------------------------------- | - | ------------------------------ | ------ | ----- | - | ------------ | ------ | ----- | - | ------ | ------ | - | - | ------- | ------ | 
|                         |                                                                 |   | Six Months Ended June 30, 2002
|                         |                                                                 |   |                               
|                         |                                                                 |   | Financial                      |        |       |   |              |        |       |   |        |        |   |   |        
|                         |                                                                 |   | Institutions                   |        | Edify |   | Eliminations |        | Total
|                         |                                                                 |   |                                |        |       |   |              |        |      
|Revenues                 |                                                                 | $ | 125,571                        |        |       | $ | 24,015       |        |       | $ | (1,706 | )      |   | $ | 147,880 |       
|Operating expenses:      |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|                         | Direct costs                                                    |   |                                | 52,402 |       |   |              | 10,179 |       |   |        | (1,706 | ) |   |         | 60,875 | 
|                         | Selling and marketing                                           |   |                                | 20,469 |       |   |              | 8,988  |       |   |        |       |   |   |         | 29,457 | 
|                         | Product development                                             |   |                                | 23,103 |       |   |              | 4,674  |       |   |        |       |   |   |         | 27,777 | 
|                         | General and administrative                                      |   |                                | 17,552 |       |   |              | 2,777  |       |   |        |       |   |   |         | 20,329 | 
|                         | Depreciation                                                    |   |                                | 10,919 |       |   |              | 1,068  |       |   |        |       |   |   |         | 11,987 | 
|                         | 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 |   |                                | 8,179  |       |   |              | 1,517  |       |   |        |       |   |   |         | 9,696  | 
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|Total operating expenses |                                                                 |   | 134,996                        |        |       |   | 29,203       |        |       |   | (1,706 | )      |   |   | 162,493 |       
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       
|Segment operating loss   |                                                                 | $ | (9,425                         | )      |       | $ | (5,188       | )      |       |   |       |        |   | $ | (14,613 | )     
|                         |                                                                 |   |                                |        |       |   |              |        |       |   |        |        |   |   |         |       

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 23% and 26% of our financial institutions
segment revenues from State Farm Mutual Automobile Insurance Company during the
three months ended June 30, 2003 and 2002, respectively. We derived 23% and
27% of our financial institutions segment revenues from State Farm Mutual
Automobile Insurance Company during the six months ended June 30, 2003 and
2002, respectively.

The other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 23% and 15% of our revenues from the
financial institutions segment during the three months ended June 30, 2003 and
2002, respectively. Zurich accounted for 21% and 18% of our revenues from the
financial institutions segment during the six months ended June 30, 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, was recognized in the first six
months of 2003. Associated direct costs were accelerated over the same period.

During the first and second quarter of 2003, we reported data center
revenue of $2.8 million and $5.9 million for data center services provided to
Zurich, respectively. Under the terms of the amended agreement, we received
the all of the data center payments from Zurich before 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 and $1.2 million, including cost of goods sold and depreciation
and do not include any allocation of management or administration expenses
during the three months ended March 31,2003 and June 30, 2003, respectively.

The 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 |       | Six Months Ended
|                                                     |                             |  | June 30,           |       | June 30,        
|                                                     |                             |  |                    |       |                 
|                                                     |                             |  | 2003               |       | 2002             |  | 2003   |       | 2002
|                                                     |                             |  |                    |       |                  |  |        |       |     
|Weighted average common shares outstanding           |                             |  | 69,349             |       |                  |  | 68,718 |       |      |  | 69,299 |       |  |  | 65,449 |      
|Weighted average effect of common stock equivalents: |                             |  |                    |       |                  |  |        |       |      |  |        |       |  |  |        |      
|                                                     | Convertible preferred stock |  |                    | 1,719 |                  |  |        | 3,815 |      |  |        | 1,719 |  |  |        | 6,231 | 
|                                                     | Stock options               |  |                    | 768   |                  |  |        | 2,799 |      |  |        | 847   |  |  |        | 4,806 | 
|                                                     |                             |  |                    |       |                  |  |        |       |      |  |        |       |  |  |        |      
|Weighted average diluted shares outstanding          |                             |  | 71,836             |       |                  |  | 75,332 |       |      |  | 71,865 |       |  |  | 78,486 |      
|                                                     |                             |  |                    |       |                  |  |        |       |      |  |        |       |  |  |        |      

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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, our core business segment. 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.

We sell our solutions to small, mid-sized and large financial
organizations in two geographic regions: (i) the Americas region, (ii) the
International region, consisting of Europe, Middle East and Africa (EMEA) and
Asia-Pacific and Japan (APJ). 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 23%
and 27% of our financial institution revenues during the six months ended June
30, 2003 and 2002, respectively. The revenue from State Farm for the six-month
period ended June 30, 2003 decreased $5.5 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 as we complete projects that are in progress.
Revenues from State Farm accounted for 21% and 23% of
our total revenues during the six months ended June 30, 2003 and 2002,
respectively.

Zurich Insurance Company and certain of its affiliates or subsidiaries,
accounted for 21% and 18% of our revenues from our financial institutions
segment during the six months ended June 30, 2003 and 2002, respectively.
Revenues from Zurich accounted for 19% and 15% of our total revenues during both of the
six-month periods ending June 30, 2003 and

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2002.  A significant portion of the
revenue earned from Zurich is from a subscription license, which expires on
December 31, 2003. We do not expect to earn any revenue from Zurich in 2004
and beyond.

In March 2003, we amended the terms of our data center arrangement with
Zurich to shorten the term over which services would 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,
was recognized entirely in the first six months of 2003. Associated direct
costs were accelerated over the same period.

During the six months ended June 30, 2003, we reported data center revenue
of $8.6 million for data center services provided to Zurich. 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 $2.6 million
including costs of goods sold and depreciation and do not included any
allocation of management or administration expenses during the six months ended
June 30, 2003. These costs do not include costs associated with the close of
our U.K. data center facility; however, the closure of our U.K. data center was
directly affected by the early completion of the Zurich data center contract.
The costs associated with the closure were recorded as restructuring costs in
the first and second quarters of 2003. Our subscription license and
professional services components of our arrangement with Zurich were not
affected by the data center contract amendment.

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. During the 12-month period from
July 2002 through June 2003, we held the Edify business for sale. At June 30,
2003, we made the decision to discontinue an active sale of the Edify business,
hired a new General Manager and focused future plans on reducing operating
costs and making the Edify business segment profitable. We expect to record a
charge in the range of $1 to $2 million during the quarter ending September 30,
2003 as a result of activities to further consolidate the global business
activities of Edify and to reduce headcount.

We continually review our cost structure on a worldwide basis and consider
additional ways to streamline our operations. During the first half of 2003, we
provided $17.5 million for expected losses on unused office facilities vacated
as a result of cost alignment activities, including consolidation and
relocation of office and data center facilities and severance associated with
work force reduction; as well as elimination of certain corporate marketing and
human resource programs and other corporate assets. We expect these actions,
and future actions, to reduce our annual operating expenses in the financial
institutions segment by approximately $30 million in order to align our cost
structure with our anticipated 2004 revenues.

Comparison of the Three Months Ended June 30, 2003 and 2002

Revenues.The following table sets forth selected revenue data for the
three months ended June 30, 2003 and 2002.

|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |        |        | 
|---------------------------- | ---------------- | ------------------------------ | - | -------- | ------ | ----------- | - | ------------ | ------ | ------ | - | ------ | ------ | ----- | - | ------ | ------ |  | - | --- | --- |  | - | ------ | ------ | 
|                             |                  |                                |   | Software |        | Support and |   | Professional |        | Data   |   |        |        |       |   |        |        | 
|                             |                  |                                |   | Licenses |        | Maintenance |   | Services     |        | Center |   | Other  |        | Total
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |      
|Quarter Ended June 30, 2003: |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             | Core FI business |                                | $ | 4,260    |        |             | $ | 11,419       |        |        | $ | 21,662 |        |       | $ | 9,088  |        |  | $ | 951 |     |  | $ | 47,380 |       
|                             | Zurich           |                                |   | 8,176    |        |             |   |             |        |        |   |       |        |       |   | 5,882  |        |  |   |    |     |  |   | 14,058 |       
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             |                  | Financial Institutions Segment |   |          | 12,436 |             |   |              | 11,419 |        |   |        | 21,662 |       |   |        | 14,970 |  |   |     | 951 |  |   |        | 61,438 | 
|                             | Edify            |                                |   | 1,831    |        |             |   | 3,574        |        |        |   | 1,438  |        |       |   |       |        |  |   |    |     |  |   | 6,843  |       
|                             | Eliminations     |                                |   | (82      | )      |             |   | (418         | )      |        |   | (56    | )      |       |   |       |        |  |   |    |     |  |   | (556   | )     
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             | Total            |                                | $ | 14,185   |        |             | $ | 14,575       |        |        | $ | 23,044 |        |       | $ | 14,970 |        |  | $ | 951 |     |  | $ | 67,725 |       
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|Quarter Ended June 30, 2002: |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             | Core FI business |                                | $ | 11,367   |        |             | $ | 10,199       |        |        | $ | 22,981 |        |       | $ | 9,194  |        |  | $ | 316 |     |  | $ | 54,057 |       
|                             | Zurich           |                                |   | 8,181    |        |             |   |             |        |        |   | 194    |        |       |   | 1,375  |        |  |   |    |     |  |   | 9,750  |       
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             |                  | Financial Institutions Segment |   |          | 19,548 |             |   |              | 10,199 |        |   |        | 23,175 |       |   |        | 10,569 |  |   |     | 316 |  |   |        | 63,807 | 
|                             | Edify            |                                |   | 5,513    |        |             |   | 4,597        |        |        |   | 2,217  |        |       |   |       |        |  |   |    |     |  |   | 12,327 |       
|                             | Eliminations     |                                |   |         |        |             |   | (293         | )      |        |   | (531   | )      |       |   |       |        |  |   |    |     |  |   | (824   | )     
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       
|                             | Total            |                                | $ | 25,061   |        |             | $ | 14,503       |        |        | $ | 24,861 |        |       | $ | 10,569 |        |  | $ | 316 |     |  | $ | 75,310 |       
|                             |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |     |     |  |   |       

Total revenues decreased by $7.6 million to $67.7 million for the three
months ended June 30, 2003 compared to $75.3 million for the same period in
2002, a decrease of 10%, principally due to a $10.9 million decrease in license
revenue

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offset by a $3.5 million increase in data center revenue. Our
financial institutions segment earned revenues of $61.4 million for the quarter
ended June 30, 2003 compared with $63.8 million for the same period in 2002.
Revenues for our Edify business were $6.8 million for the three months ended
June 30, 2003 compared with $12.3 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 $8.6 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
completely replace the lost Zurich revenue in 2004. As a result, we expect
revenues in 2004 to be lower than 2003.

Software license revenues for our financial institutions segment were
$12.4 million for the three months ended June 30, 2003, a decrease of $7.1
million from the same period in 2002. License revenues declined in the second
quarter of 2003 primarily due to an increase in the number of contracts signed
during the second quarter of 2003 that will be recognized under the percentage
of completion method of accounting. Additionally, we have experienced a slower
sales cycle as a result of customers lengthening their purchase decisions.
License revenue earned from Zurich comprised $8.2 million of our license
revenue during the three months ended June 30, 2003 and 2002. This revenue
comes from a subscription license, which will continue through December 2003.

For the quarter ended June 30, 2003, software license revenue of $1.8
million for our Edify business decreased $3.7 million from the same period in
2002. We believe the following items contributed to the decrease: (1) poor
economic conditions in the primary markets served by Edify (telecommunications,
travel and retail); (2) the impact on management as a consequence of holding
the business for sale; and (3) the subsequent reorganization of the business,
including a change in Edify senior management and office closures. We expect
quarterly license revenues for our Edify business to increase over recent
quarters as the business stabilizes under new management.

Support and maintenance revenues for our financial institutions segment
were $11.4 million for the three months ended June 30, 2003 as compared to
$10.2 million for the same period in 2002. The increase is primarily
attributable to support and maintenance fees earned from growth in our
installed customer base from customers who purchased licenses during 2002.

Support and maintenance revenues for the Edify business were $3.5 million
for the three months ended June 30, 2003, a decrease from $4.6 million for the
same period in 2002. The decrease is primarily due to an increase in
the reserve for billing adjustments recorded in the second quarter of
2003 and attrition in the Edify customer base. We expect quarterly support and maintenance revenues for our Edify
business to increase slightly over the remainder of 2003.

Professional services revenues for our financial institutions segment were
$21.7 million for the three months ended June 30, 2003, a decrease of $1.5
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 by approximately $2 million to $4
million per quarter for the remainder of 2003 related to the completion of
several projects for State Farm.

The Edify business recorded $1.4 million for professional services earned
during the second quarter of 2003, compared to $2.2 million for the second
quarter of 2002. This decrease is attributable to the decrease in sales and
related projects. We expect professional services to remain stable or decrease
slightly for the remainder of 2003, as revenues from new projects should
replace most of those lost to the completion of current projects.

Data center revenues were $15.0 million for the three months ended June
30, 2003, an increase of $4.4 million from the same period in 2002. The
increase resulted from the acceleration of data center 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. 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 be
completed by the end of 2003. After which, we expect data center revenues to be at least $8.0 million
per quarter. We anticipate that we will 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 begin to increase sequentially each quarter in
2004 from a base of $8.0 million per quarter.

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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. In the second
quarter of 2003, we recorded approximately $0.9 million in revenue for
third-party hardware delivered to one customer. We expect to recognize an
additional $2.6 million of other revenue for this customer over the next
several quarters as the hardware is delivered. The related cost of the
hardware sold is included in cost of other revenue as the hardware is
delivered. There is only minimal gross margin associated with the resale of
hardware.

Direct Costs and Gross Margins.Direct costs increased by $0.1 million to
$31.5 million for the three months ended June 30, 2003 from the same period in
2002. Overall gross margins were 53% and 58% for the three months ended June
30, 2003 and 2002, respectively. The overall increase in direct costs was due
to the increase in data center costs and the cost of the pass-through hardware
sold to one customer, offset in part by a reduction in employee headcount and
higher cost outside contractors, as well as reduced facilities costs resulting
from the consolidation of offices. The decrease in gross margins was primarily
due to the mix of revenue earned. Software license revenues
represented 21%
and 33% of total revenues for the three months ended June 30, 2003 and 2002,
respectively. Historically, the gross margins on software licenses have been
higher than the gross margin on professional services, support and maintenance
and data center revenue. Therefore, a significant decrease in license revenues
as a percentage of total sales adversely impacts the overall gross margin
percentage for the business as a whole.

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

Cost of software licenses for our products sold in our financial
institution segment are generally minimal because we internally develop most of
the financial institution 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 total
license 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 $23.0 million for the three
months ended June 30, 2003, a slight decrease from $23.7 million for the same
period in 2002.

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 $0.9 million to $6.7 million for the three months ended
June 30, 2003 from $5.8 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. We
expect data center costs to decrease to approximately $4.5 million per quarter
for the reminder of 2003.

Selling and Marketing Expenses.Total selling and marketing expenses
decreased by $5.4 million to $10.1 million for the three months ended June 30,
2003 from $15.5 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 $3.8 million to $10.3 million for the three months ended June 30, 2003 from
$14.1 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 $2.5 million to $7.8 million for the three months ended June 30,
2003 from $10.3 million for the same period in 2002. As a percentage of
revenues, general and administrative expenses were 12% and 14% for the three
months ended June 30, 2003 and 2002, respectively. The decrease in general and
administrative expenses was primarily attributable to a decrease in
compensation

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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 $4.7 million for the three months
ended June 30, 2003 from $5.9 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 $4 million each quarter for the remainder of 2003.

Merger Related Costs and Restructuring Charges.We recorded restructuring
charges of $8.9 million during the quarter ended June 30, 2003 of which
approximately $2.2 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 first half of 2003, we undertook several initiatives to align
our cost structure with our anticipated 2004 revenues. In our American
operations, we recorded $0.6 million in restructuring charges during the six
months ended June 30, 2003, which were primarily comprised of charges for
excess office space, relocation expenses and other corporate charges. In the
first quarter of 2003, we began the process of consolidating our U.K. data
center operations into our global hosting center in Atlanta. In connection
with this consolidation, we recorded $2.3 million of restructuring charges
during the first half of 2003 comprised of accelerated depreciation of assets,
severance costs and other related costs to relocate the data center operations.
In the second quarter of 2003, we relocated our remaining U.K operations to a
smaller facility, which resulted in a restructuring charge of approximately
$3.4 million for losses on the vacated office space, relocation expenses and
the write off of abandoned leasehold improvements. Under the provisions of
SFAS No. 146, we recorded the loss at the present value of the expected cash
flows. We will record accretion expense of approximately $0.9 million over the
remaining term of the lease, which is six years. Additionally, in the second
quarter of 2003, we recorded a charge of $0.3 million to reorganize our APJ
operations and close certain offices. In our Edify business, we changed senior
management (including a new General Manager), reduced the workforce and closed
and consolidated several Edify office facilities worldwide. These actions
resulted in restructuring charges of $2.2 million for the six months ended June
30, 2003 for unused office facilities, severance and other related costs.

These charges were partially offset by the release a merger related
accrual for excess office space acquired during the Point acquisition when we
determined that we had an alternate use for that facility in the second quarter
of 2003.

We expect to record additional restructuring charges in the second half of
2003 as we continue to act upon these plans and further streamline our
expenses.

Amortization of Other Intangible Assets and Goodwill Impairment.
Amortization of other intangible assets and goodwill impairment decreased $4.2
million to $0.8 million for the three months ended June 30, 2003 from $5.0
million for same period in 2002. The decrease was due to the completion of
amortization periods for certain intangibles from three acquisitions made in
1999 and 2000. Amortization expense is expected to be approximately $0.8
million each quarter for the remainder of 2003.

Interest and Other (Expense) Income, Net.Interest and other (expense)
income net was $0.5 million of expense and $0.6 million of income for the three
months ended June 30, 2003 and 2002, respectively. In the second quarter of
2003, we recorded a non-cash charge of $0.6 million to write-down our carrying
value in a certain cost-basis equity investment for other than temporary
impairments. In July 2003, the company in which we hold the investment
announced that it was being sold. The revised carrying value reflects our
expected proceeds from the transaction.

Income Tax (Expense) Benefit.Our income tax expense (benefit) was zero
for the three months ended June 30, 2003. This compares to an income tax
benefit of $0.5 million for the three months ended June 30, 2002. 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. This benefit ended with the complete amortization of the
FICS intangible assets in the fourth quarter of 2002. During the remainder of
2003, we expect to record minimal income tax expense in certain foreign
subsidiaries.

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Comparison of the Six Months Ended June 30, 2003 and 2002

Revenues.The following table sets forth selected revenue data for the
six months ended June 30, 2003 and 2002.

|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |         |         | 
|------------------------------- | ---------------- | ------------------------------ | - | -------- | ------ | ----------- | - | ------------ | ------ | ------ | - | ------ | ------ | ----- | - | ------ | ------ |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                |                  |                                |   | Software |        | Support and |   | Professional |        | Data   |   |        |        |       |   |        |        | 
|                                |                  |                                |   | Licenses |        | Maintenance |   | Services     |        | Center |   | Other  |        | Total
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |      
|Six Months Ended June 30, 2003: |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                | Core FI business |                                | $ | 10,456   |        |             | $ | 23,059       |        |        | $ | 42,916 |        |       | $ | 18,097 |        |  | $ | 1,166 |       |  | $ | 95,694  |        
|                                | Zurich           |                                |   | 16,352   |        |             |   |             |        |        |   |       |        |       |   | 8,634  |        |  |   |      |       |  |   | 24,986  |        
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                |                  | Financial Institutions Segment |   |          | 26,808 |             |   |              | 23,059 |        |   |        | 42,916 |       |   |        | 26,731 |  |   |       | 1,166 |  |   |         | 120,680 | 
|                                | Edify            |                                |   | 2,676    |        |             |   | 7,896        |        |        |   | 3,516  |        |       |   |       |        |  |   |      |       |  |   | 14,088  |        
|                                | Eliminations     |                                |   | (333     | )      |             |   | (938         | )      |        |   | (110   | )      |       |   |       |        |  |   |      |       |  |   | (1,381  | )      
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                | Total            |                                | $ | 29,151   |        |             | $ | 30,017       |        |        | $ | 46,322 |        |       | $ | 26,731 |        |  | $ | 1,166 |       |  | $ | 133,387 |        
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|Six Months Ended June 30, 2002: |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                | Core FI business |                                | $ | 19,732   |        |             | $ | 19,620       |        |        | $ | 44,837 |        |       | $ | 18,383 |        |  | $ | 749   |       |  | $ | 103,321 |        
|                                | Zurich           |                                |   | 15,437   |        |             |   | 1,745        |        |        |   | 1,774  |        |       |   | 3,294  |        |  |   |      |       |  |   | 22,250  |        
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                |                  | Financial Institutions Segment |   |          | 35,169 |             |   |              | 21,365 |        |   |        | 46,611 |       |   |        | 21,677 |  |   |       | 749   |  |   |         | 125,571 | 
|                                | Edify            |                                |   | 11,061   |        |             |   | 8,755        |        |        |   | 4,199  |        |       |   |       |        |  |   |      |       |  |   | 24,015  |        
|                                | Eliminations     |                                |   |         |        |             |   | (575         | )      |        |   | (1,131 | )      |       |   |       |        |  |   |      |       |  |   | (1,706  | )      
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        
|                                | Total            |                                | $ | 46,230   |        |             | $ | 29,545       |        |        | $ | 49,679 |        |       | $ | 21,677 |        |  | $ | 749   |       |  | $ | 147,880 |        
|                                |                  |                                |   |          |        |             |   |              |        |        |   |        |        |       |   |        |        |  |   |       |       |  |   |        

Total revenues decreased by $14.5 million to $133.4 million for the six
months ended June 30, 2003 compared to $147.9 million for the same period in
2002, a decrease of 10%. Our financial institutions segment earned revenues of
$120.7 million for the six months ended June 30, 2003 compared with $125.6
million for the same period in 2002. Revenues for our Edify business were
$14.1 million for the six months ended June 30, 2003 compared with $24.0
million for the same period in 2002.

Software license revenues for our financial institutions segment were
$26.8 million for the six months ended June 30, 2003, a decrease from $35.2
million for the same period in 2002. License revenues declined in the second
quarter of 2003 primarily due to an increase in the number of contracts signed
during the second quarter of 2003 that will be recognized under the percentage
of completion method of accounting. Additionally, we have experienced a slower
sales cycle as a result of customers lengthening their purchase decisions.
Although most of our license revenue has to be replaced each period, license
revenue earned from Zurich comprised $16.4 million of our license revenue
during the six months ended June 30, 2003 as compared to $15.4 million in the
six months ended June 30, 2002. This revenue comes from a subscription license,
which will continue through December 2003.

Software license revenue of $2.7 million for our Edify business decreased
$8.4 million from the same period in 2002. A portion of this decrease resulted
from recording a provision of $1.4 million for billing adjustments.
Additionally, we believe the following items contributed to the decrease: (1)
poor economic conditions in the primary markets served by Edify
(telecommunications, travel and retail); (2) the impact on management as a
consequence of holding the business for sale; and (3) the subsequent
reorganization of the business, including a change in Edify senior management
and office closures.

Support and maintenance revenues for our financial institutions segment
were $23.1 million for the six months ended June 30, 2003 as compared to $21.4
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 $1.7 million decrease in Zurich support and
maintenance fees.

Support and maintenance revenues for the Edify business were $7.9 million
for the six months ended June 30, 2003, a decrease of $0.9 million from the
same period in 2002. The decrease is primarily due to an increase in
the reserve for billing adjustments recorded in the first half of
2003 and attrition in the Edify customer base.

Professional services revenues for our financial institutions segment were
$42.9 million for the six months ended June 30, 2003, a decrease of $3.7
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.

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The Edify business recorded $3.5 million for professional services earned
during the first half of 2003, as compared to $4.2 million for the first half
of 2002. The decrease was primarily attributable to lower sales activities and
related projects. We expect professional services to remain stable or decrease
slightly for the remainder of 2003, as revenues from new projects should
replace most of those lost to the completion of current projects.

Data center revenues were $26.7 million for the six months ended June 30,
2003, an increase of $5.1 million from the same period in 2002. The increase
resulted from the acceleration of data center revenue from Zurich, offset by
decreases from the attrition of other large customers.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. In the six months
ended June 30, 2003, we recorded approximately $0.9 million in revenue for
third-party hardware delivered to one customer. Other revenue fluctuates based
on the mix of products and services sold.

Direct Costs and Gross Margins.Direct costs increased by $3.7 million to
$64.7 million for the six months ended June 30, 2003 from the same period in
2002. Overall gross margins were 52% and 59% for the six months ended June 30,
2003 and 2002, respectively. The overall increase in direct costs was due to
increases in professional services and data center costs, as discussed below,
and the cost of the pass-through hardware delivered to one customer, offset in
part by the reductions in employee headcount and higher cost outside
contractors, and reduced facilities costs resulting from the consolidation of
offices. The decrease in gross margins was primarily due to the mix of revenue
earned. Software license revenues represented 21% and 31% of total revenues
for the six months ended June 30, 2003 and 2002, respectively. Historically,
the gross margins on software licenses have been higher than the gross margins
on professional service, support and maintenance and data center fees.
Therefore, a significant decrease in license revenues as a percentage of total
sales affects the overall gross margin percentages.

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

Cost of software licenses for our products sold in our financial
institution segment are generally minimal because we internally develop most of
the financial institution 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 $48.4 million for the six
months ended June 30, 2003, an increase from $46.2 million for the same period
in 2002. The increase resulted from an accrual of $3.7 million during the first
quarter of 2003 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 $2.1 million to $13.4 million for the six months ended
June 30, 2003 from $11.3 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 $7.8 million to $21.7 million for the six months ended June 30,
2003 from $29.5 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 $5.2 million to $22.6 million for the six months ended June 30, 2003 from
$27.8 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

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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 $3.3 million to $17.0 million for the six months ended June 30,
2003 from $20.3 million for the same period in 2002. As a percentage of
revenues, general and administrative expenses were 13% and 14% for the six
months ended June 30, 2003 and 2002, respectively. The decrease in general and
administrative expenses was primarily attributable to a decrease in
compensation and benefits, professional services fees and recruiting fees.
During the second half of 2002, we reduced our general and administrative
headcount and our use of external resources.

Depreciation.Depreciation decreased to $10.4 million for the six months
ended June 30, 2003 from $12.0 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 $4 million each quarter for the remainder of 2003.

Merger Related Costs and Restructuring Charges.We recorded restructuring
charges of $17.5 million during the six months ended June 30, 2003. This charge
was partially offset by the release of a pre-merger liability of $1.0 million

During the first half of 2003, we undertook several initiatives to align
our cost structure with our anticipated 2004 revenues. In our American
operations, we recorded $4.9 million in restructuring charges during the six
months ended June 30, 2003, which were primarily comprised of charges for
excess office space, relocation expenses and other corporate charges. In the
first quarter of 2003, we began the process of consolidating our U.K. data
center operations into our global hosting center in Atlanta. In connection
with this consolidation, we recorded $4.9 million of restructuring charges
during the first half of 2003 comprised of accelerated depreciation of assets,
severance costs and other related costs to relocate the data center operations.
In the second quarter of 2003, we relocated our remaining U.K operations to a
smaller facility, which resulted in a restructuring charge of approximately
$3.4 million for losses on the vacated office space, relocation expenses and
the write off of abandoned leasehold improvements. Under the provisions of
SFAS No. 146, we recorded the loss at the present value of the expected cash
flows. We will record accretion expense of approximately $0.9 million over the
remaining term of the lease, which is six years. Additionally, in the first
half of 2003, we recorded a charge of $1.0 million to reorganize our APJ
operations and close certain offices. In our Edify business, we changed senior
management (including a new General Manager), reduced the workforce and closed
and consolidated several Edify office facilities worldwide. These actions
resulted in restructuring charges of $3.1 million for the six months ended June
30, 2003 for unused office facilities, severance and other related costs.

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. In the second quarter of 2003, we released additional merger
related accrual for excess office space acquired during the Point acquisition
when we determined that we had an alternate use for that facility.

Amortization of Other Intangible Assets and Goodwill Impairment.
Amortization of other intangible assets and goodwill impairment increased $6.2
million to $15.9 million for the six months ended June 30, 2003 from $9.7
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, the
accelerated amortization of the Edify business other intangible assets and
additional amortization of other intangible assets resulting from the
acquisition of Regency and Point in 2002. Amortization expense is expected to
be approximately $0.8 million each quarter for the remainder of 2003.

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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 (Expense) Income, Net.Interest and other (expense)
income net was $0.2 million of expense and $1.3 million of income for the six
months ended June 30, 2003 and 2002, respectively. In the second quarter of
2003, we recorded a non-cash charge of $0.6 million to write-down our carrying
value in certain cost-basis equity investments for other than temporary
impairments. In July 2003, the company in which we hold the investment
announced that it was being sold. The revised carrying value reflects our
expected proceeds from the transaction.

Income Tax (Expense) Benefit.We recorded income tax expense of $0.1
million during the six months ended June 30, 2003 compared to an income tax
benefit of $0.9 million for the same period in 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 2002. This benefit ended with the complete
amortization of the FICS intangible assets in 2002.

Liquidity and Capital Resources

The following tables show information about our cash flows during the six
months ended June 30, 2003 and 2002 and selected balance sheet data as of June
30, 2003 and December 31, 2002:

|                                                                                             |  |                           |        |      |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | - | ------ | -
|                                                                                             |  | Six Months Ended June 30,
|                                                                                             |  |                          
|                                                                                             |  | 2003                      |        | 2002
|                                                                                             |  |                           |        |     
|                                                                                             |  | (In thousands)           
|Net cash provided by operating activities before
changes in operating assets and liabilities |  | $                         | 64     |      |  | $ | 12,534 |  
|Change in operating assets and liabilities                                                   |  |                           | (580   | )    |  |   | (3,332 | )
|                                                                                             |  |                           |        |      |  |   |        |  
|Net cash (used in) provided by operating activities                                          |  |                           | (516   | )    |  |   | 9,202  |  
|Net cash provided by (used in) investing activities                                          |  |                           | 988    |      |  |   | (8,017 | )
|Net cash (used in) provided by financing activities                                          |  |                           | (1,692 | )    |  |   | 1,972  |  
|Effect of exchange rates on cash and cash equivalents                                        |  |                           | 811    |      |  |   | 943    |  
|                                                                                             |  |                           |        |      |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                         |  | $                         | (409   | )    |  | $ | 4,100  |  
|                                                                                             |  |                           |        |      |  |   |        |  

|                                             |  |                |         |                   |  |   |         | 
|-------------------------------------------- |  | -------------- | ------- | ----------------- |  | - | ------- | 
|                                             |  | As of         
|                                             |  | June 30, 2003  |         | December 31, 2002
|                                             |  |                |         |                  
|                                             |  | (In thousands)
|Cash and cash equivalents                    |  | $              | 127,433 |                   |  | $ | 127,842 | 
|Short term investments                       |  |                | 10,348  |                   |  |   | 14,843  | 
|Working capital                              |  |                | 116,982 |                   |  |   | 120,864 | 
|Working capital, excluding deferred revenues |  |                | 160,767 |                   |  |   | 161,169 | 
|Total assets                                 |  |                | 344,834 |                   |  |   | 376,974 | 
|Total stockholders equity                   |  |                | 244,793 |                   |  |   | 279,761 | 

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Operating Activities.During the six months ended June 30, 2003, cash used
in operations was $0.5 million compared to cash provided by operations of $9.2
million for the same period in 2002. The decline 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 six months ended June 30, 2003 included the effects of:



| |  |  | our net loss of $35.7 million;                                                                                                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $26.3 million of depreciation, amortization and impairment of intangible assets;                                                                                                                    
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $3.9 million; and                                                                                                                                  
|
| |  |  | an increase of $5.4 million in accounts receivable and a
decrease in accounts payable of $7.7 million, offset in part by an
increase in deferred revenues of $4.0 million and other accrued
liabilities of $8.1 million.

Cash provided by operations for the six months ended June 30, 2002 included the effects of:



| |  |  | our net loss of $12.4 million;                                                        
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | non-cash charges of $21.7 million of depreciation and amortization;                   
|
| |  |  | provision of doubtful accounts receivable and billing adjustments of $2.7 million; and
|
| |  |  | changes in operating assets and liabilities of $3.3 million.                          

Investing Activities.Cash provided by investing activities was $1.0
million for the six months ended June 30, 2003 compared to cash used in
investing activities of $8.0 million in the same period in 2002.

In the first six months of 2003, we:



| |  |  | converted $4.5 million, net, from short-term investments to cash and cash equivalents; and
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | purchased $3.6 million of property and equipment.                                         

In the first six months of 2002, we:



| |  |  | paid $3.9 million in cash in connection with the acquisitions of Regency and Point;   
| | - |  | --------------------------------------------------------------------------------------
|
| |  |  | converted $5.7 million, net, from short-term investments to cash and cash equivalents;
|
| |  |  | purchased a $2.5 million long-term certificate of deposit; and                        
|
| |  |  | purchased $7.3 million of property and equipment.                                     

Financing Activities.Cash used in financing activities was $1.7 million
for the six months ended June 30, 2003 compared to cash provided by financing
activities of $2.0 million in same period in 2002.

In the first six months of 2003 and 2002, we received $0.6 million and
$4.6 million from the sale of common stock under our employee stock plans,
respectively. We paid $1.5 million and $2.5 million for capital lease
obligations in the three months ended March 31, 2003 and 2002, respectively.
In the first half 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
January 2003, we repurchased 2.1 million shares of our common stock for $10.0
million under this program. At this time, we do not have any plans to
repurchase any common stock during the remainder of 2003.

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.

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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

Our management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) (the Exchange Act) as
of the end of the period covered by this report. Based upon that evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that, our disclosure controls and procedures are effective
in timely alerting them to any material information relating to the Company and
its subsidiaries required to be included in our Exchange Act filings.

There were no significant changes made in our internal controls over
financial reporting that occurred during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

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



|(a) |  | S1s 2003 annual meeting of shareholders was held on May 22, 2003.                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Howard J. Runnion, Jr. was re-elected as a director at the 2003 annual
meeting. Continuing directors include James S. Mahan, III, Jaime W.
Ellertson, David C. Hodgson, M. Douglas Ivester and Gregory J. Owens.                                                                                        
|   
|(c) |  | The election of one director for a three-year term was voted on and
approved by S1s shareholders at the 2003 annual meeting of shareholders
held on May 22, 2003. Howard J. Runnion, Jr. received 50,113,661 votes
for election, 1,544,559 votes to withhold authority to vote and no broker
non-votes.
|   
|    |  | At S1s 2003 annual meeting of shareholders, shareholders approved
the 2003 Stock Incentive Plan. There were 15,315,926 votes to
approve the 2003 Stock Incentive Plan, 13,472,200 against approval,
79,325 votes abstained and 22,790,769 un-voted shares.                                             
|   
|(d) |  | Not applicable                                                                                                                                                                                                                                                                                          




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



|(a) |  | Exhibits
|--- |  | --------



| | 31.1 |  | Certification of Chief Executive Officer                                                                             
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------
|
| | 31.2 |  | Certification of Chief Financial Officer                                                                             
|
| | 32.1 |  | Certificate of Chief Executive Officer and Chief
Financial Officer pursuant to §906 of the Sarbanes-Oxley Act
of 2002

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|(b) |  | Reports on Form 8-K.                                                                                                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | S1 filed the following Current Reports on Form 8-K with the
Securities and Exchange Commission (the SEC) during the quarter
ended June 30, 2003:                                                                                 
|   
|    |  | Current Report on Form 8-K filed with the SEC on April 4, 2003
(date of report April 4, 2003) (regarding a press release announcing
the annual shareholders meeting).                                                              
|   
|    |  | Current Report on Form 8-K filed with the SEC on April 7, 2003
(date of report April 7, 2003) (regarding a press release announcing
preliminary financial results for the first quarter of 2003).                                  
|   
|    |  | Current Report on Form 8-K filed with the SEC on May 1, 2003
(date of report April 30, 2003) (regarding a press release
announcing the termination of negotiations relating to the sale of
our contact center automation business).
|   
|    |  | Current Report on Form 8-K filed with the SEC on May 1, 2003
(date of report May 1, 2003) (regarding a press release and an
analyst conference call related to first quarter of 2003 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 August 14, 2003.

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

28