<PAGE>   1
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                          FORM 10-K/A - AMENDMENT NO. 2



 (Mark One)

         [x]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

                 For the fiscal year ended December 31, 1996
                                                            or
         [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from _____  to  _____.

                         COMMISSION FILE NUMBER 0-26146

                                HNC SOFTWARE INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                       NO. 33-0248788
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

               5930 Cornerstone Court West, San Diego, CA  92121
                    (Address of principal executive offices)

      Registrant's telephone number, including area code:  (619) 546-8877

          Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value
                                (Title of Class)

       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
       Yes   X    No       .
          -------   -------

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.     [x]

       The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing price as reported on the Nasdaq Stock
Market at February 28, 1997, was approximately $440 million.  The number of
shares of the registrant's Common Stock outstanding at February 28, 1997 was
19,230,575 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE

       Parts of the following documents are incorporated by reference in Parts
II, III and IV of this Annual Report on Form 10-K:  (1) Registrant's Annual
Report to Stockholders for the fiscal year ended December 31, 1996 - Parts II
and IV, and (2) Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders to be filed with the Commission on or before April 30, 1997 - Part
III.  With the exception of those portions which are specifically incorporated
by reference in this Annual Report on Form 10-K, such Annual Report to
Stockholders and Proxy Statement shall not be deemed filed as part of this
Report or incorporated by reference herein.




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<PAGE>   2

The Registrant hereby amends Items 6, 7, 8 and 14 of its Annual Report on Form
10-K for the year ended December 31, 1996 as follows:


ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,     
                                                                ----------------------------------------------------------------
                                                                  1996          1995          1994          1993          1992  
                                                                --------      --------      --------      --------      --------
                                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                            <C>           <C>           <C>           <C>           <C>  
STATEMENT OF OPERATIONS DATA(1):
Revenues:
     License and maintenance ..............................     $ 36,014      $ 16,878      $  9,266      $  4,447      $  2,731
     Installation and implementation ......................        6,691         4,648         3,757         1,768            --
     Contracts and other ..................................       11,128         9,146         7,651         6,614         6,716
                                                                --------      --------      --------      --------      --------
         Total revenues ...................................       53,833        30,672        20,674        12,829         9,447
                                                                --------      --------      --------      --------      --------
Operating expenses:
     License and maintenance ..............................        8,697         4,509         3,593         1,621           931
     Installation and implementation ......................        2,714         1,425         1,254           907            --
     Contracts and other ..................................        7,694         6,894         5,040         4,022         4,217
     Research and development .............................       13,271         6,581         4,344         2,095         1,484
     Sales and marketing ..................................       10,705         6,422         3,603         2,096         1,227
     General and administrative ...........................        6,634         3,699         2,591         1,677         1,564
                                                                --------      --------      --------      --------      --------
         Total operating expenses .........................       49,715        29,530        20,425        12,418         9,423
                                                                --------      --------      --------      --------      --------

Operating income ..........................................        4,118         1,142           249           411            24
                                                                --------      --------      --------      --------      --------
Other income (expense), net ...............................        1,650           406          (156)         (135)          (16)
                                                                --------      --------      --------      --------      --------
     Income before income tax (benefit) provision .........        5,768         1,548            93           276             8
Income tax (benefit) provision ............................         (608)         (575)         (455)           13            18
                                                                --------      --------      --------      --------      --------
     Net income (loss) ....................................     $  6,376      $  2,123      $    548      $    263      $    (10)
                                                                ========      ========      ========      ========      ========

Pro forma net income per share(2)  ........................                   $   0.13      $   0.04
                                                                              ========      ========
Shares used in computing pro forma net income 
      per share(2) ........................................                     16,901        13,870
                                                                              ========      ========

Net income per share ......................................     $   0.31
                                                                ======== 
Shares used in computing net income per share .............       20,367
                                                                ======== 
</TABLE>

<TABLE>
<CAPTION>
                                                                                      AS OF DECEMBER 31,    
                                                            --------------------------------------------------------------
                                                              1996         1995         1994           1993         1992  
                                                            --------     --------     --------      --------      --------
<S>                                                        <C>          <C>          <C>           <C>           <C>
BALANCE SHEET DATA (1):
Cash, cash equivalents, and investments ...............     $ 34,245     $ 43,509     $  6,714      $  4,133      $  1,715
Working capital .......................................       31,484       36,057        8,582         5,008         3,245
Total assets ..........................................       94,219       58,947       17,139         9,471         5,542
Bank notes payable, less current portion ..............          264        1,373          931           367           957
Mandatorily redeemable convertible preferred stock ....         --           --         13,169        12,452        11,735
Total stockholders' equity (deficit)(3)  ..............       82,413       47,913       (1,998)       (6,788)      (10,412)
</TABLE>
__________

(1)  The consolidated financial data gives retroactive effect to the mergers on
     August 30, 1996 with Risk Data and on November 29, 1996 with Retek, for all
     periods presented, accounted for as poolings of interests.
(2)  For an explanation of the determination of the number of shares used in
     computing pro forma net income per share, see Note 1 of Notes to
     Consolidated Financial Statements. These amounts give effect to the common
     stock dividend declared on March 5, 1996 and paid on April 3, 1996. See
     Note 1 of Notes to Consolidated Financial Statements.
(3)  Excludes mandatorily redeemable convertible preferred stock as of December
     31, 1994, 1993, and 1992.

<PAGE>   3


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS


         The following discussion contains forward-looking statements regarding
the Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by, or described in, such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation: the Company's ability to successfully
develop new products for its current markets and new markets; the Company's loss
of a large customer; the Company's inability to secure new government contracts
for technology development; the impact of competition on the Company's revenues,
market share or ability to maintain its premium usage-based pricing terms and to
generate recurring revenue; the availability to the Company, at reasonable cost,
of data required to operate or update its intelligent decision software
products; changes in law or regulatory requirements that adversely affect or
preclude customers from using the Company's products for certain applications;
delays in the Company's introduction of new products; and failure by the Company
to keep pace with emerging technologies.

         When used in this discussion, words such as "believes",
"anticipates", "expects", "intends" and similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
reports on Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that may affect the Company's business.



OVERVIEW

         HNC Software Inc. develops, markets and supports intelligent
client-server software solutions for mission-critical decision applications in
real-time environments. HNC employs proprietary neural-network predictive
models in many of its products to convert existing data and business
experiences into meaningful recommendations and actions. HNC was founded in
1986 to provide software tools and contracted technology services using
neural-network technology. The Company has leveraged its client-server software
architecture across a wide range of markets. Current HNC software products
detect credit/debit card fraud (Falcon), manage merchant risk (Eagle), manage
credit card profitability (ProfitMax), detect fraud in credit card applications
(Falcon Sentry), process credit card applications (Capstone), analyze multiple
credit card portfolios (Falcon Select), automate lending decisions (Colleague),
automate home valuation (AREAS), manage retail inventories (SkuPLAN), provide
management solutions to retailers (the Retek Merchandising System), extract
information from customers' databases (DataBase Mining Workstation) and
estimate loss reserves for workers' compensation insurance claims (MIRA).

         During fiscal 1996 the Company continued new product development with
the announcements of  ProfitMax Bankruptcy, a neural network module to predict
credit card bankruptcy cases; Falcon Expert, an add-on module to Falcon that
allows Falcon users to customize their fraud management operations,
ProviderCompare, which enables insurers to compare the relative costs of health
care providers with respect to treating workers' compensation injuries,
CompCompare, a product that permits insurers to compare historical costs of
workers' compensation insurance claims, PMAdvisor, a software system to
automate comparisons of therapy treatments against clinical guidelines, Retek
Data Warehouse, an enterprise-wide data warehouse tuned and tailored for the
retail industry, and Active Retail Intelligence (ARI), a management decision
system that can identify performance exceptions and appropriate corrective
actions. The Company also performs contract research and development using
neural networks and other computational intelligence methods.







                                       3
<PAGE>   4

         During 1996, the Company established Aptex Software Inc. ("Aptex"), a
partially owned subsidiary, in proter to exploit certain text analysis
technology that is being used to develop products for the Internet environment
and other markets, such as the education market. Aptex develops commercial
applications of the Company's Content Vector modeling techniques that were
originally developed by the Company under U.S.  Government contracts. During
1996, Aptex introduced three new products; Convectis, an intelligent document
categorization and routing server; Vital ResourceMiner, an interactive textbook
correlation system for publishers and school districts; and SelectCast, an
Internet advertising placement server.

         On August 30, 1996 the Company consummated its acquisition of Risk
Data Corporation ("RDC"), a company based in Irvine, California that is engaged
in the business of developing and marketing proprietary software decision
products for the workers' compensation insurance industry, including MIRA, a
product for predicting loss reserves for workers' compensation insurance
claims. Under the terms of the acquisition, which was accounted for as a
pooling of interests, the Company exchanged 1,891,456 common shares for all of
the outstanding shares of RDC and RDC became a wholly owned subsidiary of the
Company. See Note 2 of Notes to Consolidated Financial Statements. In addition,
on November 29, 1996, the Company consummated its acquisition of Retek
Distribution Corporation ("Retek"), a company that develops and markets
merchandise management products for retailers and their vendors. Under the
terms of the Retek agreement, which was accounted for as a pooling of
interests, the Company exchanged 1,367,196 common shares for all of Retek's
outstanding shares and Retek became a wholly owned subsidiary of the Company.
See Note 2 of Notes to Consolidated Financial Statements. The Company
anticipates that in the future it will from time to time continue to consider
acquisitions of other  businesses in order to expand the markets served by the
Company and to acquire complementary technologies, products and personnel.

         During, 1996, the Company completed a distribution of common shares
pursuant to a two-for-one common stock split as approved by its Board of
Directors. The stock dividend was paid to the Company's stockholders of record
as of the close of business on March 18, 1996, who received stock certificates
representing one additional share of HNC common stock for each outstanding share
then held. In addition, at a Special Meeting of Stockholders held on December 6,
1996, the number of shares of common stock reserved for issuance under the
Company's 1995 Equity Incentive Plan was increased by 1,500,000 shares.

         After giving retroactive effect to the Company's acquisitions of RDC
and Retek, accounted for as poolings of interests, from fiscal 1992 through
fiscal 1996, HNC experienced compound annual growth in total revenues of 55%.
This revenue growth resulted  primarily from increased license fees for Falcon,
Retek Merchandising System, MIRA and, to a lesser extent, from increased license
and installation fees for Colleague, AREAS and SkuPLAN. Because of the sales,
development and customization cycle associated with the Company's products, the
Company has not received significant revenues to date from Falcon Select, Falcon
Expert, Capstone, Sentry, Convectis, VITAL ResourceMiner, SelectCast,
CompCompare or ProviderCompare.

         Since many of the Company's software solutions are enhanced by periodic
decision model updates, the Company's customers realize significant value from
the Company's ongoing services. In addition, the mission-critical nature of many
of HNC's software solutions creates customer demand for long-term support
commitments. The Company therefore markets most of its intelligent decision
software solutions as an ongoing service that includes software licenses,
decision model updates, application consulting and on-line or on-site support
and maintenance. The Company's pricing for Falcon, Falcon Debit, Eagle, Areas,
ProfitMax, MIRA, CompCompare and ProviderCompare typically includes an annual or
monthly usage fee and a three to seven year contract commitment. In 1996, 1995
and 1994, recurring revenues from these long-term contracts represented 41.8%,
44.8% and 37.3% of the Company's total revenues and 52.7%, 63.8% and 59.2% of
the Company's software license and installation revenues, respectively. As of
December 31, 1996, the average recurring revenue contract term was approximately
four and one-half years.

         The Company also derives a portion of its revenues from funded
government and other contract research into solutions using neural networks and
other computational intelligence methods. The Company currently performs
contract research for the United States Government in areas that support HNC's
commercial product development plans, such as mathematical modeling, automated
text analysis and image understanding. Because of the Company's shift in
strategy from being a software tools and contracted technology services company
to a complete software solutions company, sales under prime contracts and
subcontracts with the United States Government have declined to 3.0% of the
Company's total revenues in 1996 from 7.3% in 1995 and from 11.3% in 1994. Most
of these





                                       4
<PAGE>   5



contracts, however, result in funding for basic research that may be useful in
development of commercial products that would otherwise have been financed
entirely by the Company.

         The Company's quarterly revenues and operating results have varied
significantly in the past and may do so in the future. Although to date a
significant portion of the Company's revenues has come from monthly usage fees
under long-term contracts, there can be no assurance that the Company will
continue to realize such recurring revenues or that customers under such
contracts would not seek to cancel such contracts if the Company's products were
not competitive or did not achieve effective results. A significant portion of
the Company's business has been derived from substantial orders placed by large
organizations, and the timing of such orders has caused material fluctuations in
the Company's operating results. In addition, because the Company's Retek
subsidiary generally provides its products to customers under perpeptual
licenses, it tends to recognize the majority of its revenue upon delivery and
the customer's acceptance of the software. Thus, revenues derived by Retek may
be more likely to be recognized in irregular patterns that can result in
quarterly variations in the Company's revenues. The Company's expense levels are
based in part on its expectations regarding future revenues and in the short
term are fixed to a large extent. Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
As a result, if anticipated revenues in any quarter do not occur or are delayed,
the Company's operating results for that quarter would be disproportionately
affected. The Company's operating results are also affected by seasonal trends.
Such trends may include higher revenues in the third quarter and lower revenues
in the fourth quarter as a result of fewer installations of the Falcon product
scheduled during the fourth quarter when credit card activity is at peak levels.
Operating results also may fluctuate due to factors such as the demand for the
Company's products, product life cycles, the introduction and acceptance of new
products and product enhancements by the Company or its competitors, changes in
the mix of distribution channels through which the Company's products are
offered, changes in the level of operating expenses, customer order deferrals in
anticipation of new products, competitive conditions in the industry and
economic conditions generally or in various industry segments.

         The Company expects quarterly fluctuations to continue for the
foreseeable future. Accordingly, the Company believes that period-to-period
comparisons of its financial results should not be relied upon as an indication
of the Company's future performance. No assurance can be given that the Company
will be able to achieve or maintain profitability on a quarterly or annual basis
in the future. Due to all of the foregoing factors, it is possible that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.



RESULTS OF OPERATIONS

         The consolidated financial data gives retroactive effect to the mergers
on August 30, 1996 with Risk Data and on November 29, 1996 with Retek, for all
periods presented, accounted for as poolings of interests.

         TOTAL REVENUES. The Company's revenues are comprised of license and
maintenance revenues, installation and implementation revenues and contracts and
other revenues. Total revenues increased by 75.5% to $53.8 million in 1996 and
by 48.4% to $30.7 million in 1995. International operations and export sales
represented 23.4% of total revenues in 1996, 17.9% in 1995, and 11.4% in 1994.
Product licenses to First Data Resources, Inc., the largest provider of credit
card charge receipt processing services to banks, accounted for 11.4%, 12.4% and
11.6% of the Company's total revenues during 1996, 1995 and 1994, respectively.
Retek is currently more focused in international markets than HNC historically.
The Company believes that international sales represent a significant
opportunity for revenue growth and expects international sales to increase as a
percent of total revenue. The Company intends to continue the expansion of its
international sales efforts.

         License and Maintenance Revenues. The Company's license and
maintenance revenues are derived from annual license fees, monthly license
fees, perpetual license fees and annual maintenance fees. The Company typically
licenses many of its products for an annual or monthly usage fee under
long-term contracts that include software licenses, decision model updates,
application consulting, on-line or on-site support and maintenance. Revenues
from long-term software license agreements are recognized ratably over the
respective license periods. Nonrefundable license fees are recognized as
revenues when there is no significant continuing performance obligation under
the agreement and collection is probable. Revenues from perpeptual software
licenses are generally recognized upon delivery and acceptance by the customer.
See Note 1 of Notes to Consolidated Financial Statements.






                                       5

<PAGE>   6


         License and maintenance revenues increased by 113.4% to $36.0 million
in 1996 and by 82.1% to $16.9 million in 1995. The increase from 1995 to 1996
was due primarily to the growth in Falcon license fees and the growth of
license fees of new products, including Retek's Merchandise Management System,
MIRA, and SkuPLAN. Substantially all of the increase from 1994 to 1995 was
derived from the growth in Falcon license  fees, as Falcon continued to gain
market acceptance.

         Installation and Implementation Revenues. Revenues from software
installations and implementations are generally recognized as the services are
performed using the percentage of completion method based on costs incurred to
date compared to total estimated costs at completion.  Amounts received in
advance of performance under the contracts are recorded as deferred revenue and
are generally recognized within one year from receipt.  See Note 1 of Notes to
Consolidated Financial Statements.

         Installation and implementation revenues increased by 43.9% to $6.7
million in 1996 and by 23.7% to $4.6 million in 1995.  The increase from 1995 to
1996 was due primarily to growth in the installations of SkuPlan as this product
moved from development into production.  Substantially all of the increase from
1994 to 1995 was derived from new customer installations of Falcon, as Falcon
continued to gain market acceptance.

         Contracts and Other Revenues. Contracts and other revenues are derived
primarily from new product development contracts with commercial customers and
research contracts with the United States Government. The Company typically
contracts with one or two commercial partners for pilot development and
installation of its new products and with the United States Government for
additional research funds. Revenues from contract services are generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion. See Note 1 of Notes to Consolidated Financial Statements.

         Contracts and other revenues increased by 21.7% to $11.1 million in
1996 and by 19.5% to $9.1 million in 1995. The increase in 1996 was primarily
the result of greater revenues from commercial new product pilot installation
contracts with customers in support of the Company's development of ProfitMax,
a credit card portfolio management system, Capstone, an application processing
system, and Sentry, an application fraud detection system. Increases in 1995
were primarily the result of new product pilot contracts for Colleague, SkuPLAN
and Eagle. These products concluded their pilot phase during 1996. The
increases in 1995 were partially offset by a reduction in revenues received
from Mitek Systems, Inc. ("Mitek'') pursuant to a license agreement and a
computer board supply agreement which expired during November 1995. Under this
agreement, the Company received an initial license and support fee, received
additional fees based on a percentage of Mitek's revenues and sold certain
computer boards to Mitek. At the end of 1994, future sales of computer boards
to Mitek were not estimated to be significant; therefore, the amount of initial
license fee revenues recognized during 1994 were higher than during 1995 at
$295,000 and $47,000, respectively.  However, computer board sales under this
agreement only actually decreased from $657,000 in 1994 to $527,000 in 1995 due
primarily to higher than expected Mitek orders for boards during 1995 and
higher per board sales prices during 1995 than during 1994. The Company does
not expect material revenues in the future under this agreement. See Note 7 of
Notes to Consolidated Financial Statements.

         During 1996 the Company had a significant number of new product
development projects and new product pilot installations in process for
products which it expects to begin shipping in production versions in 1997.
There can be no assurance that any of these product development projects or
pilot installations will be successful or be completed within anticipated time
schedules or that the customers who serve as pilot installation sites will be
satisfied with these products or agree to license them. If the Company's new
product development efforts are unsuccessful, are not completed on a timely
basis, or are not well received by pilot customers, the Company may be
compelled to delay or entirely discontinue the release of production versions
of these products, which would have a material adverse effect on the Company's
results of operations.

         United States Government contracts accounted for 3.0%, 7.3% and 11.3%
of the Company's total revenues during 1996, 1995, and 1994, respectively.
Revenues from government contracts decreased to $1.6 million in 1996 from $2.3
million in 1995 and $2.3 million in 1994. This decrease was due primarily to a
lengthening of the award process and budgetary constraints within the federal
government. In each of 1996, 1995 and 1994, over 90% of the Company's total
revenues from the United States Government were derived from research projects
performed for various government defense agencies and companies under contract
to such agencies. Any change in the pattern of





                                       6
<PAGE>   7



government spending, reduced demand from the defense industry or the loss of
any of the Company's major government contracts could have an adverse effect on
the Company's business, financial condition and results of operations.

         GROSS MARGIN. The following table sets forth the gross margin for each
of the Company's revenue categories for each of the comparison periods.

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                               ------------------------ 
                                               1996      1995      1994 
                                               ----      ----      ---- 
<S>                                           <C>       <C>       <C>
        License and maintenance ...........    75.9%     73.3%     61.2%
        Installation and implementation....    59.4%     69.3%     66.6%
        Contracts and other ...............    30.9%     24.6%     34.1%
</TABLE>


         License and Maintenance Gross Margin. License and maintenance costs
primarily represent the Company's expenses for personnel engaged in customer
support, travel to customer sites and the costs of documentation materials. The
Company's gross margin on licenses and maintenance improved to 75.9% in 1996
from 73.3% in 1995 and 61.2% in 1994. Gross margins improved primarily as a
result of the Company's ability to move from price discounts for early adopters
of its products to full pricing for products sold to subsequent customers as
well as a higher volume of licenses by the Company's foreign subsidiaries, which
generate relatively higher margins than domestic operations due, in part, to
lower operating expenses as a result of less management and corporate
infrastructure. The Company anticipates that gross margins on software licenses
and maintenance will not change significantly, with some variation depending
upon early adopter pricing for new products as they are introduced.


         Installation and Implementation Gross Margin. The Company's gross
margins on installation and implementation revenues decreased to 59.4% in 1996
from 69.3% in 1995 due primarily to new installations of SkuPlan which had
substantially lower margins than Falcon.  Gross margins increased to 69.3% in
1995 from 66.6% in 1994 primarily as a result of increased efficiencies in the
installation of Falcon.

         Contracts and Other Gross Margin. Contracts and other costs consist
primarily of personnel-related costs. The Company's gross margin on contracts
and other revenues was 30.9% in 1996, 24.6% in 1995 and 34.1% in 1994. The
improvement in gross margins during 1996 is due primarily to the Company's
increased ability to better price its new pilot projects with its customer
base. Decreases in gross margins during 1995 were due primarily to the
completion of the Mitek License Agreement and the corresponding decrease in
Mitek revenues. Since the majority of the revenues from Mitek had relatively
higher gross margins, contracts and other gross margins in 1994 were positively
affected by the Company's relationship with Mitek. With the Mitek agreement
substantially completed during 1995, the Company does not anticipate that its
gross margin on contracts and other revenue will change significantly from the
current level.

         OPERATING EXPENSES. Research and Development Expenses. Research and
development expenses consist primarily of salaries and other personnel-related
expenses, subcontracted services, depreciation for development equipment and
supplies. Research and development expenses increased by 101.7% to $13.3
million in 1996 and by 51.5% to $6.6 million in 1995. Research and development
expenses as a percentage of total revenues were 24.7% in 1996, 21.5% in 1995
and 21.0% in 1994. The primary reason for the increases was greater staffing to
support more new product development programs, primarily for ProfitMax,
Capstone, CompCompare, ProviderCompare, and Retek Merchandising 6.0. These
costs also included the initial product development costs of the Company's
Aptex business unit, which has not had a significant impact on revenues.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed,'' requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is not established until
completion of a working model. Costs incurred by the Company between completion
of the working model and the point at which the product is ready for general
release have been insignificant. As a result, no significant software
development costs were capitalized through December 31, 1996. The Company
anticipates that research and development expenses will increase in dollar
amount for the foreseeable future.

         The Company's success depends upon its ability to successfully enter
new markets by developing new products on a timely and cost- effective basis.
The Company's products often require customer data for decision model
development and system installation. As a result, completion of new products
may be delayed while the Company







                                        7
<PAGE>   8

extracts sufficient amounts of statistically relevant data and develops the
models. During this development process, the Company relies on its potential
customers in the new market to provide data and to help train Company personnel
in the use and meaning of the data in the specific industry. These
relationships also assist the Company in establishing presence and credibility
in the new market. There can be no assurance that these potential customers,
most of which have significantly greater financial and marketing resources than
the Company, will not compete with the Company in the future or will not
otherwise discontinue their relationships with or support of the Company,
either during development of the Company's products or thereafter.

         Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of salaries, commissions, travel, entertainment and promotional
expenses. Sales and marketing expenses increased by 66.7% to $10.7 million in
1996 and by 78.2% to $6.4 million in 1995. Sales and marketing expenses as a
percentage of total revenues were 19.9% in 1996, 20.9% in 1995 and 17.4% in
1994. The increases are primarily a result of increased staffing as the Company
builds its direct sales and marketing staff, including opening sales offices in
both Europe and Japan, and increased expenses for trade shows, advertising and
other marketing programs. The Company expects sales and marketing expenses to
continue to increase for the foreseeable future. Such expenses could also
increase as a percentage of total revenues as the Company continues to develop a
direct sales force in Europe, Japan and other international markets, expand its
domestic sales and marketing organization and increase the breadth of its
product line.

         General and Administrative Expenses. General and administrative
expenses consist primarily of personnel costs for finance, contract
administration, human resources and general management, as well as acquisition,
insurance and professional services expenses. General and administrative
expenses  were $6.6 million in 1996, a 79.3% increase, and $3.7 million in
1995, a 42.8% increase. The primary reason for the increase during 1996 was
$1.2 million of acquisition expenses related to the acquisitions of RDC and
Retek.  Contributing to the increase in 1996 and the primary reason for the
increase during 1995 was increased staffing to support the Company's growth and
additional expenses associated with being a public company. General and
administrative expenses as a percentage of total revenues were 12.3% in 1996,
12.1% in 1995, and 12.5% in 1994.

         Other Income (Expense), Net. Interest and other income in 1996 was $2.1
million compared to $834,000 in 1995. The increase was primarily due to
increased interest income in 1996 from higher cash and investment balances,
which consisted primarily of the proceeds from the Company's initial public
offering in June 1995 and secondary public offering in December 1995.

         Income Tax (Benefit) Provision.  The Company accounts for income taxes
in accordance with Statement of Financial Accounting Standards No.  109,
"Accounting for Income Taxes." The income tax (benefit) provision takes into
account the effects of state income taxes, offset by utilization of net
operating loss carryforwards. The income tax benefit of $608,000 in 1996 was
primarily attributable to the recognition of a $2.7 million deferred tax asset
based on anticipated future utilization of all of the remaining net operating
loss carryforwards and research and development credit carryforwards relating to
Risk Data Corporation and Retek Distribution Corporation, two companies that HNC
acquired during fiscal 1996. That deferred tax asset had previously been offset
by a valuation allowance. The Company released the valuation allowance during
the fourth quarter of 1996, based upon management's assessment that it was more
likely than not that the Company would realize the asset in future periods.
Therefore, management does not anticipate recording significant income tax
benefits in the future. The income tax benefit of $575,000 in 1995 was primarily
attributable to the recognition of a $1.7 million deferred tax asset based on
anticipated future utilization of all of the remaining net operating loss
carryforwards and research and development credit carryforwards. The income tax
benefit of $455,000 in 1994 was primarily attributable to the utilization of net
operating loss carryforwards and the recognition of a $500,000 deferred tax
asset based primarily on anticipated future utilization of net operating loss
carryforwards.

         LIQUIDITY AND CAPITAL RESOURCES. Net cash provided by operating
activities in 1996 of $641,000 represented net income before depreciation and
amortization of approximately $9.7 million, further increased by contract and
license prepayments of $1.5 million, and accounts payable of $1.8 million
offset by increases in accounts receivable of $10.1 million and deferred taxes
of $1.3 million. Net cash provided by operating activities in 1995 of $3.9
million represented net income before depreciation and amortization of
approximately $3.7 million, further increased by contract and license
prepayments of $1.3 million and accrued liabilities of $1.8 million, largely
offset by increases in accounts and other receivables of $1.4 million and
deferred income taxes of $1.5 million.






                                        8
<PAGE>   9

         Net cash used in investing activities was $8.1 million in 1996
primarily due to net purchases of investments of $4.3 million. In addition, the
Company expended $3.9 million for property and equipment during 1996, including
$3.2 million for computer equipment and $0.7 million for furniture, fixtures
and leasehold improvements. Net cash used in investing activities was $24.0
million in 1995 primarily as a result of $22.0 million of net purchases of
investments. The Company also acquired approximately $1.9 million of property
and equipment in 1995, primarily for computer equipment.

         Net cash used in financing activities was $5.6 million in 1996
primarily due to the Company's repayment of $8.2 million of loans and notes
payable of Risk Data Corporation and Retek Distribution Corporation, partially
offset by proceeds from the issuance of common stock of $1.9 million and the tax
benefit from stock options of $896,000. Net cash provided by financing
activities was $35.2 million in 1995, primarily as a result of the Company's
initial public offering in June 1995 and secondary public offering in December
1995. Net cash provided from financing activities was $5.3 million in 1994,
primarily from preferred stock financing.

         As of December 31, 1996, the Company had $34.2 million in cash, cash
equivalents, and investments. In July 1996, the Company amended its loan
agreement with its bank. The amended loan agreement provides for a line of
credit of up to $5.0 million through July 10, 1997 bearing interest at the
bank's prime rate, which was 8.25% at December 31, 1996. The Company believes
that its current cash balances, its credit facility and net cash provided by
operating activities, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment grade securities. A portion of the
Company's cash could be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies or data. From
time to time, in the ordinary course of business, the Company evaluates
potential acquisitions of such businesses, products, technologies or data.























                                        9

<PAGE>   10
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





<TABLE>
       <S>                                                                                          <C>
       The following documents are filed as part of this report:
                 Report of Independent Accountants                                                   11
                 Consolidated Balance Sheet as of December 31, 1996 and 1995                         12
                 Consolidated Statement of Income for the years ended December 31,
                       1996, 1995 and 1994                                                           13
                 Consolidated Statement of Cash Flows for the years ended December 31,
                       1996, 1995 and 1994                                                           14
                 Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
                       the years ended December 31, 1996, 1995 and 1994                              15
                 Notes to Consolidated Financial Statements                                          16
</TABLE>





       The Selected Quarterly Financial Data required by this item appears on
page 16 in the Company's 1996 Annual Report to Stockholders, and is
incorporated herein by reference.


























                                       10
<PAGE>   11

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
of HNC Software Inc.



In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of HNC Software Inc. and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.  These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.  We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for the opinion expressed above.





PRICE WATERHOUSE LLP



San Diego, California
January 21, 1997

























                                       11

<PAGE>   12
                               HNC SOFTWARE INC.
                           CONSOLIDATED BALANCE SHEET
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                             ----------------------
                                                                               1996          1995  
                                                                             --------      --------
                                     ASSETS
<S>                                                                         <C>            <C>
Current assets:
    Cash and cash equivalents .............................................. $  7,517       $ 20,583

    Investments available for sale .........................................    7,353        14,590
    Accounts receivable, net ...............................................   19,468         6,996
    Current portion of deferred income taxes ...............................    6,400         1,702
    Other current assets ...................................................    1,869         1,561
                                                                             --------      --------
         Total current assets ..............................................   42,607        45,432
Investments available for sale .............................................   19,375         8,336
Deferred income taxes, less current portion ................................   22,966           346
Property and equipment, net ................................................    5,966         3,991
Other assets ...............................................................    3,305           842
                                                                             --------      --------
                                                                             $ 94,219      $ 58,947
                                                                             ========      ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ....................................................... $  3,270     $   1,434
    Accrued liabilities ....................................................    4,058         2,818
    Deferred revenue .......................................................    3,377         2,101
    Bank line of credit ....................................................       --         2,195
    Other current liabilities ..............................................      418           827
                                                                             --------      --------
         Total current liabilities .........................................   11,123         9,375
                                                                             --------      --------
Notes payable to stockholders ..............................................       --         1,000
                                                                             --------      --------
Other non-current liabilities ..............................................      683           659
                                                                             --------      --------

Commitments and contingencies (Notes 6 and 11)

Stockholders' equity:
    Preferred stock, $0.001 par value - 4,000 shares authorized:
         no shares issued or outstanding ...................................       --            --

    Common stock, $0.001 par value - 50,000 and 40,000 shares authorized:
         19,126 and 17,892 shares issued and outstanding, respectively .....       19            18
    Paid-in capital ........................................................   83,554        55,334
    Unrealized (loss) gain on investments available for sale ...............      (59)           92
    Foreign currency translation adjustment ................................       54            --
    Accumulated deficit ....................................................   (1,155)       (7,531)
                                                                             --------      --------
         Total stockholders' equity ........................................   82,413        47,913
                                                                             --------      --------
                                                                             $ 94,219      $ 58,947
                                                                             ========      ========
</TABLE>


            See accompanying notes to consolidated financial statements.





                                       12

<PAGE>   13
                               HNC SOFTWARE INC.
                        CONSOLIDATED STATEMENT OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31, 
                                                  ------------------------------------
                                                    1996          1995           1994 
                                                  --------      --------      --------
<S>                                              <C>           <C>           <C>
Revenues:
    License and maintenance .................     $ 36,014      $ 16,878      $  9,266
    Installation and implementation .........        6,691         4,648         3,757
    Contracts and other .....................       11,128         9,146         7,651
                                                  --------      --------      --------
         Total revenues .....................       53,833        30,672        20,674
                                                  --------      --------      --------

Operating expenses:
    License and maintenance .................        8,697         4,509         3,593
    Installation and implementation .........        2,714         1,425         1,254
    Contracts and other .....................        7,694         6,894         5,040
    Research and development ................       13,271         6,581         4,344
    Sales and marketing .....................       10,705         6,422         3,603
    General and administrative ..............        6,634         3,699         2,591
                                                  --------      --------      --------
         Total operating expenses ...........       49,715        29,530        20,425
                                                  --------      --------      --------
Operating income ............................        4,118         1,142           249
Interest and other income ...................        2,128           834           156
Interest expense ............................         (478)         (428)         (312)
                                                  --------      --------      --------
             Income before income tax benefit        5,768         1,548            93
Income tax benefit ..........................         (608)         (575)         (455)
                                                  --------      --------      --------
             Net income .....................     $  6,376      $  2,123      $    548
                                                  ========      ========      ========

Pro forma net income per share ..............                   $    .13      $    .04
                                                                ========      ========

Shares used in computing pro forma net income
    per share ...............................                     16,901        13,870
                                                                ========      ========

Net income per share ........................     $    .31
                                                  ========

Shares used in computing net income per share       20,367
                                                  ========
</TABLE>





          See accompanying notes to consolidated financial statements.





                                       13
<PAGE>   14
                               HNC SOFTWARE INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,  
                                                                         ------------------------------------
                                                                           1996          1995           1994  
                                                                         --------      --------      --------
<S>                                                                     <C>           <C>           <C>
Cash flows from operating activities:
    Net income .....................................................     $  6,376      $  2,123      $    548
    Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
         Depreciation and amortization .............................        3,344         1,589           629
         Changes in assets and liabilities:
             Accounts receivable, net ..............................      (10,100)       (1,393)       (1,754)
             Other assets ..........................................       (1,178)         (664)       (1,348)
             Deferred income taxes .................................       (1,332)       (1,548)         --
             Accounts payable ......................................        1,836           658           139
             Accrued liabilities ...................................          625         1,756           390
             Deferred revenue ......................................        1,472         1,337           (92)
             Other liabilities .....................................         (402)         --             280
                                                                         --------      --------      --------
                 Net cash provided by (used in) operating activities          641         3,858        (1,208)
                                                                         --------      --------      --------

Cash flows from investing activities:
    Purchases of investments .......................................      (26,113)      (28,666)       (7,134)
    Maturities of investments ......................................       18,125         4,182         6,000
    Proceeds from sale of investments ..............................        3,707         2,467          --
    Acquisitions of property and equipment .........................       (3,853)       (1,947)       (1,534)
                                                                         --------      --------      --------
                 Net cash used in investing activities .............       (8,134)      (23,964)       (2,668)
                                                                         --------      --------      --------

Cash flows from financing activities:
    Net proceeds from issuances of common stock ....................        1,935        33,726            10
    Net proceeds from issuance of preferred stock ..................         --            --           4,949
    Tax benefit from stock options .................................          896           800          --
    Proceeds under bank line of credit .............................          309         1,085         3,255
    Repayments under bank line of credit ...........................       (2,504)         (265)       (2,890)
    Proceeds from issuances of notes payable to stockholders .......         --           1,000          --
    Repayment of notes payable to stockholders .....................       (1,000)         --            --
    Repayment of debt from asset purchases .........................       (4,710)         --            --
    Capital lease payments .........................................         (553)         (502)         (304)
    Proceeds from issuances of bank notes payable ..................        1,999          --             603
    Repayments of bank notes payable ...............................       (1,999)         (687)         (348)
                                                                         --------      --------      --------
                 Net cash (used in) provided by financing activities       (5,627)       35,157         5,275
                                                                         --------      --------      --------

Effect of exchange rate changes on cash ............................           54          --            --  
                                                                         --------      --------      --------
Net (decrease) increase in cash and cash equivalents ...............      (13,066)       15,051         1,399
Cash and cash equivalents at beginning of period ...................       20,583         5,532         4,133
                                                                         --------      --------      --------

Cash and cash equivalents at end of period .........................     $  7,517      $ 20,583      $  5,532
                                                                         ========      ========      ========

SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Assets purchased through issuance of debt ......................     $  4,710      $   --       $    --
                                                                         ========      ========      ========
    Acquisitions of property and equipment under capital leases ....     $    344      $    411      $  1,128
                                                                         ========      ========      ========
    Conversion of preferred stock ..................................     $   --        $ 13,518      $   --
                                                                         ========      ========      ========
    Accretion of dividends on mandatorily redeemable convertible
         preferred stock ...........................................     $   --        $    348      $    717
                                                                         ========      ========      ========

SUPPLEMENTAL CASH FLOW DISCLOSURE:
    Interest paid ..................................................     $    448      $    390      $    305
                                                                         ========      ========      ========
    Income taxes paid ..............................................     $     50      $    144      $     30
                                                                         ========      ========      ========
</TABLE>


          See accompanying notes to consolidated financial statements.





                                       14

<PAGE>   15

                               HNC SOFTWARE INC.
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        PREFERRED STOCK                                      
                                                          -------------------------------------------                 
                                                               SERIES A                  SERIES E              COMMON STOCK        
                                                          SHARES     AMOUNT         SHARES     AMOUNT       SHARES       AMOUNT   
                                                          ------     ------         ------     ------       ------       ------   
<S>                                                          <C>       <C>            <C>         <C>        <C>          <C>
BALANCE AT DECEMBER 31, 1993 .........................        380   $    --             --     $   --        3,730     $   4     
Common stock options exercised .......................                                                          40                
Issuance of Series E preferred stock,
      net of issuance costs ..........................                               1,282          1                     
Accretion of dividends ...............................                                                                            
Net income ...........................................                                                                            
                                                          -------    ------         ------     ------       ------      ------   

BALANCE OF DECEMBER 31, 1994 .........................        380       --           1,282          1        3,770         4     
Common stock options exercised .......................                                                         207                
Accretion of dividends ...............................                                                                            
Issuance of common stock in initial public
      offering, net of issuance costs ................                                                       2,376         2     
Conversion of convertible preferred
      stock into common stock ........................       (380)                  (1,282)        (1)       8,956         9     
Issuance of common stock in secondary
      public offering, net of issuance costs .........                                                       1,116         2     
Issuance of common stock at inception
      of Retek (Note 2) ..............................                                                       1,367         1     
Tax benefit from stock option transactions ...........                                                                            
Unrealized gain on investments available
      for sale .......................................                                                                            
Stock warrant exercised ..............................                                                         100                
Net income ...........................................                                                                            
                                                          ------     ------         ------     ------       ------      ------   
BALANCE AT DECEMBER 31, 1995 .........................       --         --             --         --        17,892        18     
Common stock options exercised .......................                                                       1,140         1     
Common stock issued for Employee Stock
      Purchase Plan...................................                                                          94                
Tax benefit from stock option transactions ...........                                                                            
Tax benefit from Retek taxable pooling
      (Note 9)........................................                                                         --
Unrealized loss on investments available
      for sale  ......................................                                                                            
Foreign currency translation adjustment ..............                                                                            
Net income ...........................................                                                                            
                                                          -------   -------        -------     ------    ---------    ------  

BALANCE AT DECEMBER 31, 1996 .........................        --    $   --             --      $  --        19,126       $19     
                                                          =======   =======        =======     ======    =========    ======  
</TABLE>


<TABLE>
<CAPTION>
                                                                    UNREALIZED                            
                                                                  (LOSS) GAIN ON       FOREIGN                       TOTAL  
                                                                    INVESTMENTS       CURRENCY                    STOCKHOLDERS' 
                                                          PAID-IN    AVAILABLE       TRANSLATION  ACCUMULATED        EQUITY    
                                                          CAPITAL    FOR SALE        ADJUSTMENT    (DEFICIT)       (DEFICIT)   
                                                          ------- --------------     -----------  -----------     -------------
<S>                                                      <C>         <C>              <C>         <C>             <C> 
BALANCE AT DECEMBER 31, 1993 .........................    $ 6,302     $    --          $    --     $(13,094)       $  (6,788)  
Common stock options exercised .......................         10                                                         10   
Issuance of Series E preferred stock,                                                                                          
      net of issuance costs ..........................      4,948                                                      4,949 
Accretion of dividends ...............................       (717)                                                      (717)  
Net income ...........................................                                                  548              548   
                                                          -------     -------          -------     --------        ---------   
BALANCE OF DECEMBER 31, 1994 .........................     10,543          --               --      (12,546)          (1,998)  
Common stock options exercised .......................         85                                                         85   
Accretion of dividends ...............................       (348)                                                      (348)  
Issuance of common stock in initial public                                                                                     
      offering, net of issuance costs ................     14,329                                                     14,331   
Conversion of convertible preferred                                                                                            
      stock into common stock ........................     10,618                                     2,892           13,518   
Issuance of common stock in secondary                                                                                          
      public offering, net of issuance costs .........     19,184                                                     19,186   
Issuance of common stock at inception                                                                                          
      of Retek (Note 2) ..............................         (1)                                                        --   
                                                                                                                  
Tax benefit from stock option transactions ...........        800                                                        800   
Unrealized gain on investments available                                                                                       
      for sale .......................................                     92                                             92   
Stock warrant exercised ..............................        124                                                        124   
Net income ...........................................                                                2,123            2,123   
                                                          -------     -------          -------     --------        ---------   
BALANCE AT DECEMBER 31, 1995 .........................     55,334          92               --       (7,531)          47,913   
Common stock options exercised .......................      1,095                                                      1,096   
Common stock issued for Employee Stock                                                                                         
      Purchase Plan...................................        839                                                        839   
Tax benefit from stock option transactions ...........      7,889                                                      7,889   
Tax benefit from Retek taxable pooling                                                                                         
      (Note 9)........................................     18,397                                                     18,397 
Unrealized loss on investments available                                                                                     
      for sale  ......................................                   (151)                                          (151)
Foreign currency translation adjustment ..............                                      54                            54
Net income ...........................................                                                6,376            6,376
                                                          -------     -------          -------     --------        ---------
                                                                                                                            
BALANCE AT DECEMBER 31, 1996 .........................    $83,554     $   (59)         $    54     $ (1,155)       $  82,413
                                                          =======     =======          =======     ========        =========
</TABLE>



          See accompanying notes to consolidated financial statements.




                                       15


<PAGE>   16
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

    The Company

  HNC Software Inc. (the "Company") develops, markets and supports intelligent
client-server software solutions for mission-critical decision applications in
real-time environments. The Company also performs contract research and
development using neural networks and other computational intelligence methods.

    Basis of Presentation

  The consolidated financial statements and related notes give retroactive
effect to the mergers on August 30, 1996 with Risk Data Corporation ("RDC") and
on November 29, 1996 with Retek Distribution Corporation ("Retek"), for all
periods presented, accounted for as poolings of interests.  RDC is an insurance
information technology services firm engaged in the business of developing and
marketing analytical benchmarking and risk management software products
primarily for insurance carriers, state insurance funds and third party
administrators.  Retek develops, markets and installs inventory management
system software primarily for customers in the retail industry.

  The consolidated balance sheet as of December 31, 1996 and 1995 includes the
accounts of RDC and Retek as of December 31, 1996 and 1995.  The consolidated
statements of income, of cash flows and of changes in stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1996
include the results of RDC and Retek for the years then ended.  The term
"Company" as used in these consolidated financial statements refers to HNC
Software Inc. and its subsidiaries, including RDC and Retek.

  No adjustments to conform accounting methods were required.  Certain amounts
have been reclassified with regard to presentation of the financial information
of the two companies.  Revenues and net income (loss) for each of the
previously separate companies for the periods prior to their acquisitions are
as follows:

<TABLE>
<CAPTION>  
                                                                       YEAR ENDED DECEMBER 31, 
                        NINE MONTHS ENDED      SIX MONTHS ENDED      ----------------------------  
                       SEPTEMBER 30, 1996       JUNE 30, 1996          1995               1994 
                       ------------------       -------------          ----               ---- 
                           (unaudited)           (unaudited)
<S>                        <C>                   <C>                <C>                <C>
                            --------              --------           --------           --------
Revenues:                                     
     HNC .........          $ 31,423              $ 16,478           $ 25,174           $ 16,473
     RDC .........              --                   2,600              4,577              4,201
     Retek .......             5,635                 3,377                921               --   
                            --------              --------           --------           --------
                            $ 37,058              $ 22,455           $ 30,672           $ 20,674
                            ========              ========           ========           ========

                                              
Net income (loss):                            
     HNC .........          $    975              $  1,780           $  4,457           $  1,923
     RDC .........              --                  (2,184)            (1,952)            (1,375)
     Retek .......                93                    43               (382)              --   
                            --------              --------           --------           --------
                            $  1,068              $   (361)          $  2,123           $    548
                            ========              ========           ========           ========
</TABLE>                                      
                                          
    Principles of Consolidation

  The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries.  All significant intercompany transactions and
balances have been eliminated.





                                       16
<PAGE>   17
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


    Financial Statement Preparation

  The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

    Cash Equivalents

    Cash equivalents are highly liquid investments and consist of investments in
money market accounts and commercial paper purchased with maturities of three
months or less.

    Investments

  Management determines the appropriate classification of its investments in
marketable debt and equity securities at the time of purchase and re-evaluates
such designation as of each balance sheet date.  As of and for the year ended
December 31, 1994 based upon the Company's intent and ability, the Company
classified such securities in the held-to-maturity category and recorded these
securities at amortized cost, which approximated market value.  As of December
31, 1995, the Company reassessed its intent and ability with respect to these
securities.  As a result of this reassessment, the Company reclassified all
securities as "available for sale" and accounts for them accordingly on a
prospective basis.  Available for sale securities are carried at fair value
with unrealized gains or losses related to these securities included in
stockholders' equity in the Company's consolidated balance sheet.

   Property and Equipment

  Property and equipment are recorded at cost.  Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets of three to seven years.  Leasehold improvements are amortized over
the shorter of their estimated useful lives or the remaining terms of the
related leases.  Repair and maintenance costs are charged to expense as
incurred.

    Software Costs

  Software costs are recorded at cost and amortized over their estimated useful
lives of 36 to 42 months.  Software costs are comprised of purchased software
and other rights which are recorded at the lower of cost or net realizable
value.  At December 31, 1996 and 1995, software costs of $2,561 and $0,
respectively, are included in other assets in the consolidated balance sheet
net of accumulated amortization of $642 and $0, respectively.

  Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value.  Through December 31, 1996, no significant amounts were expended
subsequent to reaching technological feasibility.

    Long-Lived Assets

  The Company investigates potential impairments of long-lived assets, certain
identifiable intangibles and associated goodwill, on an exception basis, when
events or changes in circumstances have made recovery of an asset's carrying
value unlikely.  An impairment loss is recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset.  No such
impairments of long-lived assets existed through December 31, 1996.





                                       17
<PAGE>   18
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


    Stock-Based Compensation

  The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value-based
method had been applied in measuring compensation expense (Note 10).

    Revenue Recognition

  Revenue from long-term periodic software license agreements is generally
recognized ratably over the respective license periods.  Revenue from perpetual
licenses of the Company's software for which there are no significant
continuing obligations and collection of the related receivables is probable is
recognized on delivery of the software and acceptance by the customer.

  Revenue from software installation and contract services is generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion.  Amounts received in advance of performance under contracts are
recorded as deferred revenue and are generally recognized within one year from
receipt.  Contract losses are recorded as a charge to income in the period such
losses are first identified.  Unbilled receivables are stated at estimated
realizable value. Contract costs under government contracts, including indirect
costs, are subject to audit and adjustment by negotiations between the Company
and government representatives.  Through 1990, indirect government contract
costs have been agreed upon with government representatives.  Revenues from
government contracts have been recorded in amounts that are expected to be
realized upon final settlement.

  Revenue from product sales, which is included in contracts and other revenue,
is recognized upon shipment to the customer.

    Income Taxes

  Current income tax expense is the amount of income taxes expected to be
payable for the current year.  A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities as well as the expected
future tax benefit to be derived from tax loss and tax credit carryforwards.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount "more likely than not" to be realized in future tax
returns.  Tax rate changes are reflected in income during the period such
changes are enacted.

    Foreign Currency Translation

  The financial statements of the Company's international operations are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and average exchange rates during the period for revenues and
expenses.  Cumulative translation gains and losses are excluded from results of
operations and accumulated as a separate component of stockholders' equity.
Gains and losses resulting from foreign currency transactions (transactions
denominated in a currency other than the entity's local currency) are included
in the consolidated statement of income and are not material.





                                       18
<PAGE>   19
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


    Diversification of Credit Risk

  The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash equivalents, investments and trade
accounts receivable which are generally not collateralized.  The Company's
policy is to place its cash, cash equivalents and investments with high credit
quality financial institutions and commercial companies and government agencies
in order to limit the amount of its credit exposure.  The Company's software
license and installation agreements and commercial development contracts are
primarily with customers in the financial services, insurance and retail
industries.  The Company maintains reserves for potential credit losses.

  During 1996, 1995 and 1994, sales under prime and subcontracts with the
federal government represented 3.0%, 7.3%, and 11.3%, respectively, of the
Company's total revenues.  One domestic customer accounted for 11.4%, 12.4% and
11.6% of total revenues in 1996, 1995 and 1994, respectively.  Revenues from
international operations and export sales, primarily to Western Europe and
Canada, represented approximately 23.4%, 17.9%, and 11.4% of total revenues in
1996, 1995 and 1994, respectively.  Export sales were $7,310, $4,595 and $2,355
in 1996, 1995 and 1994, respectively.

    Disclosures about fair value of financial instruments

  The carrying amounts of cash and cash equivalents, accrued liabilities, the
bank line of credit and notes payable to stockholders approximate fair value
because of the short term maturities of these financial instruments.  The
carrying amounts of capital lease obligations approximate their fair values
based on interest rates currently available to the Company for borrowings with
similar terms and maturities.

    Reincorporation and stock split

  In May 1995, the stockholders approved an Agreement and Plan of Merger
whereby the Company merged with and into a newly incorporated Delaware
corporation ("HNC Delaware"), which is the surviving corporation.  In
conjunction with the merger, each share of the Company's common stock,
preferred stock and options and warrants to purchase the Company's common stock
was exchanged for one-half share of HNC Delaware's common stock, preferred
stock and options and warrants to purchase HNC Delaware's common stock, at
twice the exercise price for options and warrants.  All references to share and
per share amounts of common and preferred stock and other data in these
financial statements have been retroactively restated to reflect the
reincorporation.

  In April 1996, the Company consummated a two-for-one stock split effected in
the form of a common stock dividend.  All references in these consolidated
financial statements to share and per share amounts have been adjusted to give
retroactive effect to the stock split.

    Pro forma net income per share

  Pro forma net income per share is computed based on the weighted average
number of common shares and common stock equivalents, using the treasury stock
method, outstanding during the respective periods after giving retroactive
effect to the conversion, which occurred upon the closing of the Company's
initial public offering, of all outstanding shares of preferred stock into
8,957 shares of common stock.  Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, all stock options granted from May 5, 1994
through June 26, 1995 have been included as outstanding for all periods prior
to June 26, 1995 using the treasury stock method and the $7.00 initial public
offering price per share.  For periods prior to 1996, historical earnings per
share are not presented because such amounts are not deemed meaningful due to
the significant change in the Company's capital structure that occurred in
connection with the initial public offering.





                                       19
<PAGE>   20
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

   Net income per share

  Net income per share is computed based on the weighted average number of
common shares and common stock equivalents, using the treasury stock method,
outstanding during the period.

    Reclassifications

 Certain prior year balances have been reclassified to conform to the current
                              year presentation.


NOTE 2 -- ACQUISITIONS

  On August 30, 1996, the Company completed an acquisition of Risk Data
Corporation ("RDC").  Under the terms of the acquisition, accounted for as a
pooling of interests, the Company exchanged 1,891 common shares for all of the
then outstanding shares of RDC preferred and common stock.  All periods
presented have been retroactively restated (Note 1).

  On November 29, 1996, the Company completed an acquisition of all of the
outstanding shares of Retek Distribution Corporation.  Under the terms of the
acquisition, accounted for as a pooling of interests, the Company exchanged
1,367 common shares for all of Retek's then outstanding shares.  All periods
presented have been retroactively restated (Note 1).

  Transaction costs of $563 and $515 were incurred to complete the mergers with
RDC and Retek, respectively.  Transaction costs were charged to income as
incurred and consisted primarily of investment banker, legal and accounting
fees, and printing, mailing and registration expenses.


NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                   ----------------------------
                                                     1996                1995 
                                                   ----------------------------
<S>                                                <C>                 <C>
  Accounts receivable, net:
       Billed ..........................           $ 10,156            $  4,048
       Unbilled ........................              9,299               2,955
       Other ...........................                636                 496
                                                   --------            --------
                                                     20,091               7,499
Less allowance for doubtful accounts ...               (623)               (503)
                                                   --------            --------
                                                   $ 19,468            $  6,996
                                                   ========            ========
</TABLE>


     Unbilled amounts represent revenue recorded in excess of amounts billable
pursuant to contract provisions and generally become billable at contractually
specified dates or upon the attainment of milestones. Unbilled amounts are
expected to be realized within one year.

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 
                                                        ---------------------------
                                                          1996               1995  
                                                        ---------------------------
<S>                                                     <C>                <C>     
Property and equipment, net:
       Computer equipment ....................          $  8,409           $  4,934
       Furniture and fixtures ................             1,884              1,268
       Leasehold improvements ................               273                167
                                                        --------           --------
                                                          10,566              6,369
Less accumulated depreciation 
       and amortization.......................            (4,600)            (2,378)
                                                        --------           --------
                                                        $  5,966           $  3,991
                                                        ========           ========
</TABLE>







                                       20
<PAGE>   21
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                              DECEMBER 31, 
                                                        ------------------------
                                                         1996              1995
                                                        ------------------------
<S>                                                    <C>               <C>
Accrued liabilities:
       Payroll and related benefits ........            $1,457            $1,126
       Vacation ............................               673               435
       Other ...............................             1,928             1,257
                                                        ------            ------
                                                        $4,058            $2,818
                                                        ======            ======
</TABLE>


NOTE 4 -- INVESTMENTS

     At December 31, 1996 and 1995, the amortized cost and estimated fair value
of investments available for sale were as follows:


<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1996
                                             -----------------------------------------------------------
                                             AMORTIZED      UNREALIZED       UNREALIZED           FAIR
                                                COST           GAINS           LOSSES             VALUE
                                             ---------      ----------       ----------           ----
  <S>                                        <C>            <C>               <C>               <C>
Current:
U.S. government and 
  federal agencies..................          $ 1,999          $ --            $    (2)          $ 1,997
U.S. corporate debt ................            3,149            --                 (6)            3,143
Foreign corporate debt .............            2,216            --                 (3)            2,213
                                              -------          ------          -------           -------
                                                7,364            --                (11)            7,353
                                              -------          ------          -------           -------
Non-current:
U.S. government and 
  federal agencies..................          $16,213          $ --            $   (36)          $16,177
Foreign government debt ............            1,006            --                 (2)            1,004
U.S. corporate debt ................            1,702            --                 (8)            1,694
Foreign corporate debt .............              502            --                 (2)              500
                                              -------          ------          -------           -------
                                               19,423            --                (48)           19,375
                                              -------          ------          -------           -------
                                              $26,787          $ --            $   (59)          $26,728
                                              =======          ======          =======           =======
</TABLE>

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 1995                
                                             -------------------------------------------------------
                                             AMORTIZED       UNREALIZED      UNREALIZED         FAIR
                                               COST             GAINS          LOSSES           VALUE
                                             ---------       ----------      ----------         ----
<S>                                          <C>              <C>              <C>            <C>
Current:
U.S. government and 
  federal agencies..................          $ 1,481          $     9          $--            $ 1,490
Foreign government debt ............            1,017                2           --              1,019
U.S. corporate debt ................            8,870               45           --              8,915
Foreign corporate debt .............            3,164                2           --              3,166
                                              -------          -------          -----          -------
                                               14,532               58           --             14,590
                                              -------          -------          -----          -------
Non-current:
Foreign government debt ............          $ 1,019                2           --              1,021
U.S. corporate debt ................            7,077               32           --              7,109
Foreign corporate debt .............              206             --             --                206
                                              -------          -------          -----          -------
                                                8,302               34           --              8,336
                                              -------          -------          -----          -------
                                              $22,834          $    92          $--            $22,926
                                              =======          =======          =====          =======
</TABLE>

  Maturities for non-current investments in securities range from one to two
years.  Included in the Company's 1995 income statement is a realized gain in
the amount of $3 related to the sale of held-to-maturity securities with an
aggregate amortized cost in the amount of $2,464.  No significant gains or
losses were recognized during the year ended December 31, 1996.  The cost of
securities sold is determined by the specific identification method.





                                       21
<PAGE>   22
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5 -- NOTES PAYABLE

  The Company has a Loan and Security Agreement with a bank which provides for
a $5,000 revolving line of credit through July 10, 1997. The agreement requires
that the Company maintain certain financial ratios and levels of tangible net
worth and also restricts the Company's ability to pay cash dividends and
repurchase stock without the bank's consent.  At December 31, 1996 and 1995,
the Company had $0 outstanding under the revolving line of credit.  Any
borrowings under the agreement will be collateralized by substantially all of
the Company's assets.  Interest is payable monthly at the bank's prime rate,
which was 8.25% at December 31, 1996.

  The RDC credit facility was comprised of a revolving line of credit secured
by eligible accounts receivable as well as a bridge loan which was secured by
the guarantees of certain stockholders.  The revolving line of credit matured
on January 5, 1997.  The bridge loan matured on September 5, 1996.  All
outstanding amounts were repaid during 1996 and neither credit facility was
renewed.

  During 1995, the preferred stockholders of RDC loaned the Company $1,000
under subordinated note agreements (secured by the assets of RDC but
subordinated to borrowings under the RDC line of credit) bearing interest at
9%.  All outstanding amounts were repaid during 1996.


NOTE 6 -- LEASES

  At December 31, 1996, the Company is obligated under noncancelable operating
leases for its facilities and certain equipment through 2003 as follows:

<TABLE>
<CAPTION>
                                                    NET FUTURE
               FUTURE MINIMUM     LESS SUBLEASE    MINIMUM LEASE
                LEASE PAYMENTS        INCOME         PAYMENTS   
               --------------     -------------    -------------
     <S>           <C>               <C>             <C>
      1997          $1,943            $  212          $1,731
      1998           1,539               192           1,347
      1999           1,189               149           1,040
      2000           1,211              --             1,211
      2001           1,249              --             1,249
thereafter           1,787              --             1,787
</TABLE>                         

  The lease for the Company's corporate headquarters provides for scheduled
rent increases and an option to extend the lease for five years with certain
changes to the terms of the lease agreement and a refurbishment allowance. Rent
expense under operating leases for the years ended December 31, 1996, 1995, and
1994 was approximately $1,340, $1,192, and $898, respectively, net of sublease
income of $125, $83 and $40, respectively.

  RDC maintains a lease line of credit with a leasing company for the
acquisition of equipment under capital lease arrangements.  Future minimum
payments are as follows:

<TABLE>
<S>                                                          <C>
    
    1997 ...........................................          $ 475
    1998 ...........................................            232
    1999 ...........................................             66
                                                              -----
                                                                773
    Less amounts representing interest .............           (110)
                                                              -----
    Capital lease obligations ......................            663
    Less current portion ...........................           (399)
                                                              -----
                                                              $ 264
                                                              =====
</TABLE>










                                       22



<PAGE>   23
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


  The gross value of assets under capital leases at December 31, 1996 and 1995
was $1,481 and $2,186 and accumulated amortization was $599 and $572,
respectively.  Amortization expense for assets acquired under capital leases is
included in depreciation expense.


NOTE 7 -- LICENSE OF CHARACTER RECOGNITION TECHNOLOGY

  In November 1992, the Company entered into an agreement that granted Mitek a
license to use certain character recognition technology developed by the
Company. The agreement provided for the Company to receive an initial license
and support fee payment of $1,350 and an additional license and support fee
based on a percentage of Mitek's revenue from the sale of character recognition
products through November 1995. The agreement also required that the Company
sell certain proprietary computer boards to Mitek at a substantial discount
from normal sales prices, but in excess of cost, and provide ongoing
engineering and technical support over the agreement period, which ended during
November 1995. As the Company had a significant continuing obligation under
this agreement, the initial license and support fee received thereunder was
deferred on receipt and recognized as revenue over the performance period based
on estimated sales of proprietary computer boards. The additional license and
support fees were recognized as a percentage of actual Mitek revenues pursuant
to the agreement.

  Revenue recognized pursuant to this agreement, which is included in
"contracts and other" in the consolidated statement of income, is summarized as
follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                           ------------------------
                                                            1995              1994 
                                                           ------            ------
<S>                                                       <C>               <C>
   Initial license fee ........................            $   47            $  295
   Additional license and support fee .........               314               476
   Computer board sales .......................               527               657
                                                           ------            ------
                                                           $  888            $1,428
                                                           ======            ======
</TABLE>


NOTE 8 -- CAPITAL STOCK

  During June 1995, the Company completed its initial public offering for sale
of 5,175 shares of common stock (of which 2,375 shares were sold by the Company
and 2,800 shares were sold by certain selling stockholders) at a price to the
public of $7.00 per share, which resulted in net proceeds to the Company of
$15,461 after the payment of underwriters' commissions but before the deduction
of offering expenses.  Upon the closing of the Company's initial public
offering, all outstanding shares of Series A, B, C, D, and E convertible
preferred stock were automatically converted into shares of common stock at
their then effective conversion prices.  Upon conversion, the preferred
stockholders were no longer entitled to any undeclared cumulative dividends and
all class voting rights terminated.

  During December 1995, the Company completed a secondary public offering for
sale of 3,000 shares of common stock (of which 1,116 shares were sold by the
Company and 1,884 shares were sold by certain selling stockholders) at a price
to the public of $18.50 per share, which resulted in net proceeds to the Company
of $19,606 after the payment of underwriters' commissions but before the
deduction of offering expenses.





                                       23
<PAGE>   24
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


  The Board of Directors is authorized to issue up to 4,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders.  The rights of the holders of Common Stock will
be subject to the rights of the holders of any Preferred Stock that may be
issued in the future.


NOTE 9 -- INCOME TAXES

  Income (loss) before income tax benefit was taxed under the following
jurisdictions:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                    ------------------------------------------------
                                      1996                1995                 1994
                                    -------             -------              -------
    <S>                            <C>                 <C>                  <C>
    Domestic ..........             $ 3,008             $ 1,746              $    93
    Foreign ...........               2,760                (198)                  --   
                                    -------             -------              -------
                                    $ 5,768             $ 1,548              $    93
                                    =======             =======              =======
</TABLE>

  The income tax provision (benefit) is summarized as follows:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,   
                                     ------------------------------------------------
                                      1996                1995                  1994 
                                     -------             -------              -------
<S>                                 <C>                 <C>                 <C>
     Current:
         Federal ........            $ 1,132             $    97             $    17
         State ..........                137                  76                  28
         Foreign ........                 51                --                  --
     Deferred:
         Federal ........             (1,569)               (521)               (425)
         State ..........                (63)               (183)                (75)
         Foreign ........               (296)                (44)               --   
                                     -------             -------              -------
                                     $  (608)            $  (575)            $  (455)
                                     =======             =======              =======
</TABLE>

  Deferred tax assets are summarized as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                          -------------------------
                                                            1996              1995 
                                                          -------           -------
<S>                                                      <C>               <C>
    Taxable pooling basis difference ..........           $18,397           $  --
    Net operating loss carryforwards ..........             8,587             2,902
    Tax credit carryforwards ..................             1,878             1,370
    Other .....................................               504               493
                                                          -------           -------
    Gross deferred tax assets .................            29,366             4,765
    Deferred tax asset valuation allowance ....              --              (2,717)
                                                          -------           -------
        Net deferred tax asset ................           $29,366           $ 2,048
                                                          =======           =======
</TABLE>

At December 31, 1994, the Company provided a deferred tax asset valuation
allowance for deferred tax assets which management determined were "more likely
than not" unrealizable based on trends in operating results after eliminating
the effects of non-recurring revenue (Note 7).  During 1995, the Company
released the valuation allowance related to HNC's deferred tax assets based on
management's assessment that it was more likely than not that the Company would
realize a portion of those assets in future periods due to improvements in
HNC's operating results.  During 1996, the Company released the valuation
allowances related to RDC and Retek deferred tax assets





                                       24


<PAGE>   25
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


based on management's assessment that it was more likely than not that the
Company would realize those assets in future periods due to improvements in the
operating results of those subsidiaries.

  During 1996 and 1995, the Company realized certain tax benefits related to
stock option plans in the amount of $7,889 and $800, respectively.  The benefit
from the stock option tax deduction is credited directly to paid-in capital.

  In connection with the acquisition of Retek, the Company made an Internal
Revenue Code Section 338 election for federal and state tax purposes, resulting
in the treatment of the acquisition as a taxable transaction, whereby the tax
bases of the acquired assets and liabilities were adjusted to their fair values
as of the date of the acquisition.  As the purchase price exceeded the carrying
value of the net assets acquired by approximately $46,000, the Company recorded
a deferred tax asset in the amount of $18,397.

  A reconciliation of the income tax benefit to the amount computed by applying
the statutory federal income tax rate to income before income tax provision is
summarized as follows:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                  -------------------------------------------
                                                                    1996                1995         1994
                                                                  -------           -------           -------
<S>                                                              <C>               <C>               <C>
      Amounts computed at statutory federal rate .......          $ 1,961           $   526           $    32
      Release of valuation allowance ...................           (2,717)           (2,223)           (1,008)
      Tax credit carryforwards generated ...............             (334)              (68)              (51)
      Losses without tax benefit .......................             --                 794               468
      Separate return impact of acquired businesses ....             (154)             --                --
      Acquisition expenses not tax deductible ..........              367              --                --
      State income tax expense .........................              480               401                28
      Foreign net operating loss carryforwards generated             (296)              (44)             --
      Other ............................................               85                39                76
                                                                  -------           -------           -------
          Income tax benefit ...........................          $  (608)          $  (575)          $  (455)
                                                                  =======           =======           =======
</TABLE>

  At December 31, 1996, the Company had federal, state and foreign net
operating loss carryforwards of approximately $22,300, $10,800 and $800,
respectively.  The Company's net operating loss carryforwards expire as
follows:

<TABLE>
<S>                                                  <C>
                    1997 .........                    $   278
                    1998 .........                        240
                    1999 .........                          2
                    2001 .........                      9,148
                    2003 .........                        833
                    2004 .........                      1,240
                    2005 .........                      1,216
                    2006 .........                      1,670
                    2007 .........                         17
                    2008 .........                      1,692
                    2009 .........                      1,370
                    2010 .........                      1,840
                    2011 .........                     14,086
                    No expiration                         268
                                                    
</TABLE>  





                                       25
<PAGE>   26
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


  The Company also has approximately $1,400 of federal research and development
credit carryforwards, which expire from 2000 to 2011, $400 of state research
and development credit carryforwards, which have no expiration date, and $100
of foreign tax credit carryforwards, which expire from 1999 to 2000.  Certain
of these net operating loss and research and development credit carryforwards
generated by RDC and Retek prior to their acquisitions by HNC are subject to
annual limitations on their utilization and also are limited to utilization
solely by the Company which generated them.  Should a substantial change in
HNC's ownership occur, as defined by the Tax Reform Act of 1986, there will be
an annual limitation on the utilization of net operating loss and research and
development credit carryforwards.


NOTE 10 -- EMPLOYEE BENEFIT PLANS

  During 1987, the Company adopted the 1987 Stock Option Plan whereby 2,500
shares of the Company's common stock were reserved for issuance pursuant to
nonqualified and incentive stock options to its officers, directors, key
employees and consultants.  The plan, as amended, is administered by the Board
of Directors or its designees and provides generally that, for incentive stock
options and nonqualified stock options, the exercise price must not be less
than the fair market value of the shares as determined by the Board of
Directors at the date of grant.  The options expire no later than ten years
from the date of grant and may be exercised in installments based upon
stipulated timetables (not in excess of seven years).  At December 31, 1996,
options to purchase 545 shares were exercisable.

  During 1995, the Company adopted the 1995 Directors Stock Option Plan (the
"Directors Plan"), the 1995 Equity Incentive Plan (the "Incentive Plan") and
the 1995 Employee Stock Purchase Plan (the "Purchase Plan").  For purposes of
the discussion contained in the three paragraphs below, "fair market value"
means the closing price of the Company's Common Stock on the Nasdaq National
Market on the grant date.

  The Directors Plan provides for the issuance of up to 300 nonqualified stock
options to the Company's outside directors.  Under the provisions of the
Directors Plan, options to purchase 25 shares of the Company's common stock are
granted to outside directors upon their respective dates of becoming members of
the Board of Directors and 10 additional options will be granted on each
anniversary of such dates.  Options under the Directors Plan are granted at the
fair market value of the stock at the grant date and vest at specific times
over a four- year period.  At December 31, 1996, options to purchase 40 shares
were exercisable.

  The Incentive Plan provides for the issuance of up to 2,800 shares of the
Company's common stock in the form of nonqualified or incentive stock options,
restricted stock or stock bonuses.  In addition, any shares remaining unissued
under the 1987 Stock Option Plan on the effective date of the Incentive Plan,
and any shares issuable upon exercise of options granted pursuant to the 1987
Stock Option Plan that expire or become unexercisable for any reason without
having been exercised in full, will no longer be available for issuance under
the 1987 Stock Option Plan but will be available for issuance under the
Incentive Plan.  Nonqualified stock options and restricted stock may be awarded
at a price not less than 85% of the fair market value of the stock at the date
of the award.  Incentive stock options must be awarded at a price not less than
100% of the fair market value of the stock at the date of the award, or 110% of
fair market value for awards to more than 10% stockholders.  Options granted
under the Incentive Plan may have a term of up to 10 years.  The Company has
the discretion to provide for restrictions and the lapse thereof in respect of
restricted stock awards, and options typically vest at the rate of 25% of the
total grant per year over a four-year period.  However, the Company may, at its
discretion, implement a different vesting schedule with respect to any new
stock option grant.  At December 31, 1996, 58 shares were exercisable under the
Incentive Plan.





                                       26
<PAGE>   27
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


  The Purchase Plan provides for the issuance of a maximum of 400 shares of
common stock.  Each purchase period, eligible employees may designate between
2% and 10% of their cash compensation, subject to certain limitations, to be
deducted from their pay for the purchase of common stock under the Purchase
Plan.  The purchase price of the shares under the Purchase Plan is equal to 85%
of the lesser of the fair market value per share, as defined by the Purchase
Plan, on the first day of the twelve-month offering period or the last day of
each six-month purchase period.  Approximately 65% of eligible employees have
participated in the Plan in the last two years.  Under the Purchase Plan, the
Company sold 94 shares to employees in 1996.

  RDC's stock option plan is administered by HNC's Board of Directors.  All
outstanding RDC options were converted into options to purchase HNC common
stock and adjusted to give effect to the exchange ratio (Note 2).  No changes
were made to the terms of the RDC options in connection with the exchange.
Options granted under the RDC stock option plan generally vest at the rate of
25% of the total grant per year over a four- year period and expire 10 years
after the date of grant.  At December 31, 1996, 63 shares were exercisable
under the RDC plan.

  Retek's stock options are administered by HNC's Board of Directors.  All
outstanding Retek options were converted into options to purchase the Company's
common stock and adjusted to give effect to the exchange ratio (Note 2).  No
changes were made to the terms of the Retek options in connection with the
exchange.  Options granted vest ratably over periods from one to four years and
have a term of up to 10 years.  At December 31, 1996, options to purchase 28
shares were exercisable.

  Transactions under the Company's stock option and purchase plans during the
years ended December 31, 1996 and 1995, including options under the RDC stock
option plan and options under the Retek stock option plan but excluding options
to purchase stock of a subsidiary of the Company, Aptex Software Inc.
("Aptex"), are summarized as follows:


<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                  1996                           1995 
                                                        --------------------------      ---------------------------  
                                                                  WEIGHTED AVERAGE                 WEIGHTED AVERAGE
                                                        SHARES     EXERCISE PRICE      SHARES       EXERCISE PRICE  
                                                        ------     --------------      -------      --------------  
<S>                                                    <C>          <C>                <C>           <C>
      Outstanding at beginning of year .............    2,722          $ 2.87          2,081             $0.49
             Options granted .......................    1,591           28.84          1,101              6.67
             Options exercised .....................   (1,140)            .96           (207)             0.41
             Options canceled ......................     (150)          17.77           (253)             1.75
                                                       ------                          -----
      Outstanding at end of year ...................    3,023           16.53          2,722              2.87
                                                       ======                          =====
      Options exercisable at end of year ...........      734                          1,427
      Weighted average fair value of options granted
             during the year .......................   $16.94                          $4.64
</TABLE>










                                       27


<PAGE>   28
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


  The following table summarizes information about employee stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE    
                          ------------------------------------------------------  ---------------------------------
                              NUMBER          WEIGHTED AVERAGE      WEIGHTED          NUMBER           WEIGHTED
         RANGE OF         OUTSTANDING AT         REMAINING           AVERAGE       OUTSTANDING AT       AVERAGE
     EXERCISE PRICES     DECEMBER 31, 1996    CONTRACTUAL LIFE    EXERCISE PRICE  DECEMBER 31, 1996  EXERCISE PRICE
     ---------------     -----------------    ----------------    --------------  -----------------  --------------
  <S>                          <C>              <C>              <C>                 <C>            <C>
   $  0.02 to$  0.92             554               4.66 years         $  0.35             475              $  0.30
      1.00 to   3.00             607               8.10                  2.67             157                 2.67
      4.50 to  21.38             505               8.73                 13.06              92                10.91
     21.50 to  30.25             510               9.38                 26.64               1                22.55
     30.50 to  30.75             568               9.73                 30.68               9                30.75
     30.81 to  49.50             279               9.47                 37.81              --                   --
                              ------                                                   ------  
   $  0.02 to $49.50           3,023               8.23                 16.53             734                 2.55
                              ======                                                   ======  
</TABLE>

  During 1996, Aptex adopted the 1996 Equity Incentive Plan (the "Aptex Plan")
whereby 2,000 shares of Aptex common stock were reserved for issuance pursuant
to nonqualified and incentive stock options and restricted stock awards.  The
plan is administered by the Board of Directors of Aptex or its designees and
provides generally that nonqualified stock options and restricted stock may be
awarded at a price not less than 85% of the fair market value of the stock at
the date of the award.  Incentive stock options must be awarded at a price not
less than 100% of the fair market value of the stock at the date of the award,
or 110% of fair market value for awards to more than 10% stockholders.  Options
granted under the Incentive Plan may have a term of up to 10 years.  The
Company has the discretion to provide for restrictions and the lapse thereof in
respect of restricted stock awards, and options typically vest at the rate of
25% of the total grant per year over a four-year period.  However, the Company
may, at its discretion, implement a different vesting schedule with respect to
any new stock option grant.  During 1996, Aptex issued 1,000 shares of common
stock under the Aptex Plan at an issuance price of $0.03 per share.  No options
granted under the Aptex Plan were exercisable at December 31, 1996.

  The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation.  No
compensation expense has been recognized for its employee stock option grants,
which are fixed in nature, as the options have been granted at fair market
value.  No compensation expense has been recognized for the Purchase Plan.  Had
compensation cost for the Company's stock-based compensation awards issued
during 1996 and 1995 been determined based on the fair value at the grant dates
of awards consistent with the method of Financial Accounting Standards Board
Statement No. 123, the Company's net income and pro forma net income per share
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                        --------------------------------
                                                          1996                    1995   
                                                        ---------              ---------
<S>                                                    <C>                    <C>
        Net income:
            As reported ..................              $   6,376              $   2,123
            Pro forma ....................                  2,137                  1,549
        Net income per share:
            As reported ..................              $     .31              $     .13
            Pro forma ....................                    .11                    .09
        </TABLE>

  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 1996 and 1995,
respectively:  dividend yield of 0.0% for both years, risk-free interest rates
of 6.03% and 6.29%, expected volatility of 70% and 75%, and expected lives of
3.5 years for both years.  The fair value of the employees'





                                       28
<PAGE>   29
                               HNC SOFTWARE INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


purchase rights pursuant to the Purchase Plan is estimated using the
Black-Scholes model with the following assumptions:  dividend yield of 0.0% for
both years, risk-free interest rates of 5.36% and 5.66%, expected volatility of
70% and 75%; and an expected life of 6 months for both years.  The
weighted-average fair value of those purchase rights granted in 1996 and 1995
was $9.61 and $2.75, respectively.

  The fair value of each option granted under the Aptex Plan is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants during the year ended
December 31, 1996:  dividend yield of 0.0%, risk-free interest rate of 6.42%,
expected volatility of 90%, and an expected life of 9.25 years.  Options to
purchase 704 shares were granted during 1996 at a weighted average exercise
price of $0.03 per share.  The weighted average fair value of options granted
during the year was $0.03 per share.  At December 31, 1996, there were 704
options outstanding under the Aptex Plan with a weighted average exercise price
of $0.03 per share and a weighted average remaining contractual life of 9.74
years.


NOTE 11 -- CONTINGENCIES

  Various claims arising in the course of business, seeking monetary damages
and other relief, are pending. The amount of the liability, if any, from such
claims, cannot be determined with certainty; however, in the opinion of
management, the ultimate liability for such claims will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.


NOTE 12 - SUBSEQUENT EVENT (UNAUDITED)

In July 1997, the Company signed a definitive agreement to acquire all of the
outstanding shares and options of CompReview, an insurance information
technology product and services company located in Costa Mesa, California, in
return for the issuance of approximately 5,000,000 shares of HNC common stock
and options to purchase common stock.  This transaction has not yet been
consummated and remains subject to certain conditions, including stockholder
approval and qualification of the transaction for 'pooling of interests'
accounting treatment.













                                       29
<PAGE>   30
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

       (a)   The following documents are filed as part of this report:
             1.  Financial Statements

<TABLE>
<S>                                                                                            <C> 
                 The financial statements of the Company listed below are included herein:
                                                                                                  
                                                                                              

                 Report of Independent Accountants                                                   11
                 Consolidated Balance Sheet as of December 31, 1996 and 1995                         12
                 Consolidated Statement of Income for the years ended December 31,
                       1996, 1995 and 1994                                                           13
                 Consolidated Statement of Cash Flows for the years ended December 31,
                       1996, 1995 and 1994                                                           14
                 Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
                       the years ended December 31, 1996, 1995 and 1994                              15
                 Notes to Consolidated Financial Statements                                          16


             2.  Financial Statement Schedules:

                 The financial statement schedules of the Company are incorporated herein
                 by reference to the following pages of the Company's annual report on
                 Form 10-K for the year ended December 31, 1996:
                                                                                                     Page in
                                                                                                   Form 10-K
                                                                                                   ---------

                 Report of Independent Accountants on Financial Statement Schedule                   29

                 For the three fiscal years ended December 31, 1996--
                       Schedule II  -  Valuation and Qualifying Accounts and Reserves                30

                 All other schedules are omitted because they are not applicable, not
                 required, or the required information is shown in the Financial
                 Statements or notes thereto.
</TABLE>


             3.  Exhibits:

                 2.01     Agreement and Plan of Merger by and between the
                          Registrant and HNC Software Inc., a California
                          corporation (1)

                 2.02     Agreement and Plan of Reorganization dated as of July
                          19, 1996 by and among the Registrant, HNC Merger Corp.
                          and Risk Data Corporation, as amended (2)

                 2.03     Agreement of Merger dated August 30, 1996 by and
                          between HNC Merger Corp. and Risk Data Corporation (2)

                 2.04     Exchange Agreement dated as of October 25, 1996 by and
                          among the Registrant, Retek Distribution Corporation
                          and the shareholders of Retek Distribution Corporation
                          (3)

                 2.05     Form of Option Exchange Agreement between the
                          Registrant and each person who held outstanding
                          options to purchase shares of Retek Distribution
                          Corporation on November 29, 1996 (3)

                 3(i).01  Registrant's Certificate of Designation of Preferred
                          Stock (1)

                 3(i).02  Registrant's Certificate of Elimination (4)

                 3(i).03  Registrant's Restated Certificate of Incorporation
                          filed with the Secretary of State of Delaware on June
                          13, 1996 (5)





                                       30
<PAGE>   31


                 3(ii).04 Registrant's Bylaws (1)

                 3(ii).05 Registrants Bylaws, as amended (5)

                 4.01     Form of Specimen Certificate for Registrant's Common
                          Stock (1)

                 4.02     Third Amended Registration Rights Agreement dated
                          March 10, 1993, as amended (1)

                 4.03     Second Waiver and Amendment to Third Amended
                          Registration Rights Agreement (4)

                 4.04     Registration Rights Agreement dated as of August 30,
                          1996 by and among the Registrant and the former
                          shareholders of Risk Data Corporation (2)

                 4.05     Registration Rights Agreement dated as of October 25,
                          1996 by and among the Registrant and the former
                          shareholders of Retek Distribution Corporation (3)

                 4.06     Amendment No. 1 to the Registration Rights Agreement
                          dated as of February 24, 1997 by and between the
                          Registrant and the former shareholders of Retek
                          Distribution Corporation

                 10.01    Registrant's 1987 Stock Option Plan and related
                          documents (1)

                 10.02    Registrant's 1995 Equity Incentive Plan and related
                          documents as amended December 6, 1996

                 10.03    Registrant's 1995 Directors Stock Option Plan and
                          related documents (1)

                 10.04    Registrant's 1995 Employee Stock Purchase Plan and
                          related documents (1)

                 10.05    Form of Indemnity Agreement entered into by Registrant
                          with each of its directors and executive officers (1)

                 10.06    Office Building Lease dated as of December 1, 1993, as
                          amended effective February 1, 1994 and June 1, 1994,
                          between Registrant and PacCor Partners (1)

                 10.07    Marketing Agreement dated as of June 24, 1993 between
                          Registrant and First Data Resources, Inc. (1) (6)

                 10.08    License Agreement dated as of June 24, 1993, as
                          amended October 18, 1993, September 16, 1994 and by
                          letter amendment, with Addendum dated January 21,
                          1994, as amended February 15, 1995, between Registrant
                          and First Data Resources, Inc. (1) (6)

                 10.09    Loan and Security Agreement dated as of September 23,
                          1992, as amended October 28, 1993, July 21, 1994, May
                          26, 1995 and August 31, 1995, between Registrant and
                          Silicon Valley Bank (4)

                 10.10    Amended Loan and Security Agreement dated as of July
                          10, 1996, between the Company and Silicon Valley Bank
                          (7)

                 10.12    Office Building Lease dated as of June 17, 1996,
                          between Registrant and Williams Properties I, LLC &
                          Williams Properties II, LLC

                 10.13    Employment Agreement dated as of September 10, 1996,
                          by and between Aptex Software Inc. and Michael A.
                          Thiemann (8)

                 10.14    Investors' Rights Agreement dated as of September 10,
                          1996, by and among Aptex Software Inc., HNC Software
                          Inc. and Michael A. Thiemann (8)


                 10.15    Restricted Stock Purchase Agreement dated as of
                          September 10, 1996, by and between Aptex Software Inc.
                          and Michael Thiemann (8)

                 10.16    Aptex Software Inc.'s 1996 Equity Incentive Plan and
                          related documents

                 11.01    Statement Regarding Computation of Per Share Earnings

                 13.01    1996 Annual Report to Stockholders (to be deemed filed
                          only to the extent provided in Item 6.01(b) (13) of
                          Regulation S-K)

                 21.01    List of Registrant's subsidiaries

                 23.01    Consent of Price Waterhouse LLP, Independent
                          Accountants *

                 24.01    Power of Attorney (See "Signatures")

                 27.01    Financial Data Schedule


____________________

          *     Filed herewith as a part of this amendment to Report.





                                       31
<PAGE>   32

       (1)    Incorporated by reference to the Registrant's Form S-1
              Registration Statement (File No. 33-91932).

       (2)    Incorporated by reference to the Registrant's Report on Form 8-K
              filed on September 12, 1996.

       (3)    Incorporated by reference to the Registrant's Report on Form 8-K
              filed on December 12, 1996.

       (4)    Incorporated by reference to the Registrant's Form S-1
              Registration Statement (File No. 33-99980).

       (5)    Incorporated by reference to the Registrant's Quarterly Report on
              Form 10-Q for the quarter ended June 30, 1996 as originally filed
              on August 13, 1996.

       (6)    Incorporated by reference to the Registrant's Quarterly Report on
              Form 10-Q for the quarter ended September 30, 1996 as originally
              filed on November 14, 1996.

       (7)    Confidential treatment has been granted for certain portions of
              this document. Such portions have been omitted from the filing and
              have been filed separately with the Securities and Exchange
              Commission.


       (8)    Management Contract.

       (b)   Reports on Form 8-K

              (i)    A Report on Form 8-K was filed on December 12, 1996 with
                     respect to an event dated November 29, 1996 (the
                     acquisition of Retek Distribution Corporation).

              (ii)   A Report on Form 8-K was filed on December 19, 1996 to file
                     the Consolidated Balance Sheet as of December 31, 1996 and
                     1995, the Consolidated Statement of Income for the years
                     ended December 31, 1996, 1995 and 1994, the Consolidated
                     Statement of Cash Flows for the years ended December 31,
                     1996, 1995 and 1994, the Consolidated Statement of Changes
                     in Stockholders' Equity (Deficit) for the years ended
                     December 31, 1996, 1995 and 1994, the Notes to Consolidated
                     Financial Statements, and the Report of Independent
                     Accountants, in order to satisfy the financial statement
                     requirements for a Registration Statement on Form S-8 that
                     was filed subsequent to the filing of this Report on Form
                     8-K, which incorporated this Report on Form 8-K by
                     reference.





                                       32

<PAGE>   33


                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to report
to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  October 20, 1997

                                  HNC SOFTWARE INC.



                                  BY:  /s/ RAYMOND V. THOMAS
                                       ---------------------------------------
                                       Raymond V. Thomas
                                       Vice President, Finance & Administration
                                       and Chief Financial Officer


       Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
       SIGNATURE                                   TITLE                                             DATE
       ---------                                   -----                                             ----
<S>                                        <C>                                                <C>
/s/ ROBERT L. NORTH                        President and Chief Executive Officer              October 20, 1997
-----------------------------------        (Principal Executive Officer)
Robert L. North                         



/s/ RAYMOND V. THOMAS                      Vice President, Finance & Administration           October 20, 1997
-----------------------------------        and Chief Financial Officer (Principal
Raymond V. Thomas                          Financial Officer and Principal Accounting
                                           Officer)
                                        

/s/ EDWARD K. CHANDLER*                    Director                                           October 20, 1997
-----------------------------------                                                                           
Edward K. Chandler



/s/ OLIVER D. CURME*                       Director                                           October 20, 1997
-----------------------------------                                                                           
Oliver D. Curme



/s/ ROGER L. EVANS*                        Director                                           October 20, 1997
-----------------------------------                                                                           
Roger L. Evans


/s/ THOMAS F. FARB*                        Director                                           October 20, 1997
-----------------------------------                                                                           
Thomas F. Farb
</TABLE>





                                       33
<PAGE>   34

<TABLE>
<S>                                        <C>                                                <C>
/s/ CHARLES H. GAYLORD, JR.*               Director                                           October 20, 1997
-----------------------------------                                                                           
Charles H. Gaylord, Jr.


* By:/s/ RAYMOND V. THOMAS  
    -------------------------------
    Raymond V. Thomas
    Attorney-in-fact
</TABLE>






















                                       34