<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
 (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.


                                        1
<PAGE>   2
                                TABLE OF CONTENTS


ITEM NO.                                                                PAGE NO.
--------                                                                --------

PART I

Item 1. Business                                                               3
Item 2. Properties                                                            18
Item 3. Legal Proceedings                                                     19
Item 4. Submission of Matters to Vote of Security Holders                     19


PART II

Item 5. Market for Company's Common Equity and Related
        Stockholder Matters                                                   20
Item 6. Selected Financial Data                                               20
Item 7. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                                   20
Item 8. Financial Statements and Supplementary Data                           20
Item 9. Changes in and Disagreements with Accountants
        on Accounting and Financial Disclosure                                20


PART III

Item 10. Directors and Executive Officers of the Company                      21
Item 11. Executive Compensation                                               21
Item 12. Security Ownership of Certain Beneficial Owners
         and Management                                                       21
Item 13. Certain Relationships and Related Transactions                       21


PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
         on Form 8-K                                                          22



    Trademarks or trade names referred to in this Report are the property of
                            their respective owners.

The latest news and information about the Company can be found on the HNC
Software World Wide Web site: http://www.hncs.com and can also be accessed by
calling our Stockholder Information Line at 1-800-396-8052.


                                        2
<PAGE>   3
                                     PART I

ITEM 1. BUSINESS

GENERAL

       HNC Software Inc. and its subsidiaries (together, "HNC" or "the Company")
develop, market and support 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. The Company has leveraged its client-server software architecture to
address a wide range of markets.

       On August 30, 1996 the Company consummated its acquisition of Risk Data
Corporation ("Risk Data"), 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. Under the terms of
the acquisition, which was accounted for as a pooling of interests, the Company
exchanged 1,891,456 of its common shares for all the outstanding shares of Risk
Data and Risk Data became a wholly owned subsidiary of the Company. See Note 2
of Notes to Consolidated Financial Statements that are incorporated by reference
from HNC's Annual Report to Stockholders for its fiscal year ended December 31,
1996 (the "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
shares of its Common Stock 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 also established Aptex Software, Inc. ("Aptex"),
a partially owned subsidiary, in order 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.


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 or 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
any forward-looking statements, which speak only as of the date of this report.
The Company undertakes no obligation to revise any forward-


                                        3
<PAGE>   4
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.


BACKGROUND

       Businesses continually seek new ways of making better decisions by
collecting and analyzing data. Consequently, business have made, and continue to
make, significant investments in computer systems to gather and store ever
increasing amounts of data. In most cases, these computerized systems automate
manual, paper-based tasks and activities, resulting in the conversion of
significant amounts of corporate data from paper to electronic form. However,
these systems generally do not synthesize this data in ways that help businesses
analyze the data in order to make better real-time decisions.

       Historically, the development of intelligent decision software solutions
was inhibited by the lack of computing standards and effective computational
intelligence techniques. The emergence of client-server standards, including
relational database management systems, the Windows(R) operating system and
network communications protocols, has fostered the transmission and
dissemination of data within and among businesses. In addition, in recent years
new technologies have emerged that enable intelligent decision software
solutions to extract meaningful insights from historical databases and
transaction data. Neural networks and other computational intelligence
techniques enable data to be transformed into decision algorithms. Using these
techniques, intelligent decision software recognizes patterns and relationships
in electronic data. The predictive power of this software can be improved with
experience as transaction-fed databases increase in size.

       The convergence of competitive pressures and enabling technology has
driven businesses to demand intelligent software solutions for making better
business decisions. These solutions must leverage data resources and integrate
computational intelligence technology in real-time, client-server environments.


THE HNC SOLUTION

       HNC's products and support services provide solutions for
mission-critical decision applications in real-time environments. For example,
HNC's current line of software products includes products that detect
credit/debit card fraud (Falcon), manage credit card profitability (ProfitMax),
process credit card applications (Capstone), automate lending decisions
(Colleague), automate home valuations (AREAS), manage retail inventories
(SkuPLAN), provide management solutions to retailers (the Retek Merchandising
System), and estimate loss reserves for workers' compensation insurance claims
(MIRA). The Company also performs contract research and development using neural
networks and other computational intelligence methods. HNC believes that its
technology and software architecture are well suited for intelligent decision
applications that convert existing data and business experiences into meaningful
recommendations and actions.


                                        4
<PAGE>   5
HNC'S STRATEGY

       HNC's objective is to be the leading supplier of intelligent decision
software solutions for the worldwide electronic payments, financial services,
insurance services and retail markets, while seeking to broaden its product line
into new applications and markets. The Company's strategy for achieving these
objectives contains the following key elements:

       Earn recurring revenues through long-term contracts. The Company 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. Since many of the Company's
applications are enhanced by periodic model updates, customers realize high
value in 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. Accordingly, the Company's customers typically pay for this
package of software and services with a monthly usage fee and a three to seven
year contract commitment.

       Broaden product line into new applications and markets. The Company
believes that its core product architecture can be utilized across a wide range
of applications and markets. For example, during fiscal 1996, HNC introduced
four new major product applications for the financial and electronic payments
markets: ProfitMax, a profitability management system for payment card industry;
ProfitMax Bankruptcy, a bankruptcy prediction system; Falcon Sentry, a credit
card application fraud detection system; and Capstone, an application decision
processing system. In the retail market, the Company expanded its existing
product offerings through its acquisition of Retek Distribution Corporation on
November 29, 1996. Since its acquisition of Retek, the Company has released two
new retail products: Retek Data Warehouse and the Active Retail Intelligence
system, which allows a retailer to conduct detailed operational analysis.

       The Company has also expanded its product offerings to new markets beyond
the electronic payments, financial services and retail markets. The Company
continues to believe that its technology and software architecture are well
suited for other intelligent client-server decision applications addressing a
variety of other markets, including medical payments, context-based text
analysis, Internet commerce and database marketing. HNC's strategy is to broaden
its product offerings to address these markets while also seeking other new
markets. Through its August 1996 acquisition of Risk Data Corporation, the
Company expanded its product line to the insurance market, and following this
acquisition, HNC introduced two new insurance products: CompCompare, a
benchmarking product for comparative analysis between the customer's claims and
an industry data set, ProviderCompare, that profiles healthcare provider
performance.

       Leverage database assets. The Company maintains several industry
databases that it believes are unique in their size, completeness and
proprietary nature. These databases allow the Company to provide
industry-specific modeling solutions. HNC also offers proprietary profiling
technology that allows, for example, the HNC customer to capture the behavior of
its customers for real-time decisions with each transaction. The technology also
provides the basis for benchmarking products that allow the customer to compare
samples of its data against similar samples from industry databases. The Company
intends to leverage these database assets to enhance and expand its product and
service offerings.

       Expand worldwide distribution. The Company is expanding its worldwide
direct sales, distribution and service. The Company intends to continue
developing existing markets while augmenting its international growth,
particularly in the Pacific Rim and Europe. HNC uses a combination of sales
agents and direct sales offices in Europe, Australia, Japan and North America.
To accelerate its North American market penetration, the Company has established
distribution agreements with suppliers of products and services to its target
markets, and also intends to increase its direct sales effort.

       Maintain technology leadership in developed solutions. The Company
intends to continue to commit substantial resources to maintain its technology
leadership and competitive position in the development of neural-network and
computational intelligence techniques and the implementation of these models in
real-time, client-server application solutions. Research efforts are supported
by revenue-generating contracts with various United States Government agencies
and commercial firms.


                                        5
<PAGE>   6
MARKETS AND PRODUCTS

       HNC's intelligent decision software systems apply to numerous markets and
sub-markets. Until recently, the Company's products had primarily addressed
certain needs of the electronic payments, financial services and retail markets.
As a result of internal development and acquisitions, the Company has expanded
its product offerings in these markets and has entered new markets. Through
fiscal 1996, HNC's revenue growth resulted primarily from increased license fees
for Falcon, the 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 more recently released products including Falcon Select, Falcon Expert,
ProfitMax, ProfitMax Bankruptcy, Capstone, Sentry, Convectis, VITAL
ResourceMiner, SelectCast, CompCompare, ProviderCompare, Retek Data Warehouse
and Active Retail Intelligence (ARI). The Company also provides custom modeling
and customer support through its DataBase Mining Workstation, an advanced
neural-network modeling tool.


    ELECTRONIC PAYMENTS MARKET AND PRODUCTS

       The electronic payments market has grown rapidly because of the trend
toward a cashless economy and consumers' increasing ability to perform their own
financial/electronic commerce services through means such as home banking and
credit/debit card-reading terminals. The increasing volume of electronic
financial transactions requires mission-critical decision-making in real time
for applications such as credit card charge authorization that carry a
substantial risk of consumer and merchant fraud. The Company's electronic
payments product line addresses these trends by providing high-speed, real-time
responses (directly affecting profits) for each cardholder transaction.

       Falcon, Falcon Debit, Falcon Select, Falcon Sentry, and Falcon Expert.
Falcon, a credit card fraud detection system introduced in September 1992,
addresses fraud losses, which were estimated by The Nilson Report for March 1994
to be approximately $1.8 billion worldwide in 1994. Falcon has been purchased by
18 of the 20 largest United States bank credit card issuers as identified in The
Nilson Report for August 1994 and is used to monitor over 100 million credit
card accounts. Falcon employs a neural-network fraud detection model combined
with profile models of individual cardholders to identify fraudulent
transactions. The Company believes Falcon was the first commercial system to
detect fraud in real time (i.e., while the customer transaction is being
authorized). Falcon employs a client-server architecture consisting of an
interface into the customer's legacy authorization system, a decision engine, a
cardholder profile database, a case management database and a fraud workstation.
Falcon is invisible to the fraud perpetrator and adapts to changing environments
through updated cardholder profiles and periodic HNC fraud model updates. In
addition, certain Falcon customers join the Falcon fraud control consortium, a
cardholder-transaction data repository maintained by HNC that allows the Company
to analyze transactions, report results and build new fraud detection models.
License and installation of the Company's Falcon product have accounted for
35.7%, 59.9% and 52.4% of the Company's software license and installation
revenues in 1996, 1995 and 1994, respectively.

       In September 1994, HNC announced Falcon Debit, a product designed to
bring the benefits of Falcon to the rapidly growing debit card market. Debit
cards authorize electronic payment for a transaction to be charged directly to
the cardholder's bank account, without any extension of credit. Although fraud
losses on debit cards are lower than losses on credit cards, the Company
believes that demand exists for debit card fraud control because the bank issuer
wants to avoid the customer relations problem of a cardholder's checking account
being depleted by fraudulent activity.

       Falcon Select, introduced in September 1995, is a software product that
enables Falcon to select automatically from multiple scoring models when
evaluating suspected bank card fraud transactions. Users can select between
standard models, such as the Credit Model and Debit Model, or custom models
designed to meet specialized fraud detection requirements. This flexible design
allows Falcon to provide fraud detection for specific portfolio subsets, such as
Gold cards, and also for other domains of the financial industry, such as
gasoline cards.

       Falcon Sentry, introduced in February 1996, uses neural networks,
intelligent consistency checking, and a verification-management rules base to
attack the problem of application fraud. It features two specialized
fraud-detection models. The Application


                                        6
<PAGE>   7
Fraud model runs within an issuer's application processing environment to screen
out fraudulent applications, using application information and credit bureau
data. The New Account Fraud model runs within the bank's Falcon payment card
fraud detection system to look for fraudulent transactions. Falcon Sentry
includes an application verification workstation capability that enables
suspected application fraud cases to be uniformly treated and tracked.

       Falcon Expert, released in February 1996, is a flexible software package
that lets fraud managers easily define and deploy rules to automate various
fraud prevention procedures. The customer uses a rule editor to develop rules
for creating cases based on Falcon transaction fields and the Falcon score. For
example, rules can be written to open a case at a lower fraud score threshold if
the cardholder has changed address and requests a new card during the past 30
days. Because all Falcon case creation is performed in accordance with the
Falcon Expert rules, the custom can apply different score thresholds to
different sets of cards.

       Eagle. Eagle, a merchant profitability management system that was
introduced in September 1994, has been installed at two customer sites and, as
of March 1997, is being installed at two other customer sites. Eagle is designed
to predict the probability that the merchant will generate chargebacks to its
acquiring bank. In addition, Eagle can also predict merchant attrition (the
likelihood that the merchant will sign with a new bank). These two capabilities
allow the merchant's bank to make decisions on the trade-offs necessary to price
services to the merchant. Eagle's functionality is important to these banks,
since the combination of chargeback and attrition losses represents a
significant percentage of their profits from merchant credit card transactions.
Eagle consists of a decision engine, chargeback risk assessment model, attrition
assessment model and profitability management software.

       ProfitMax. In September 1995, the Company announced ProfitMax, a product
that provides transaction-based, real-time credit authorization decisions from
within an infrastructure for managing the profitability of credit card
portfolios. Three neural network-based custom models -- Credit Risk, Revenue and
Attrition Risk -- will be used along with historical data to analyze the
expected profitability of each account in an issuer's portfolio. The profit
evaluation is also customized to the issuer's definition of financial profit.
Transaction-based scoring enables on-line, real-time credit authorization
decisions. The product has been installed at First Data Resources, as well as
two other customer sites, and is currently being installed at three additional
customer locations.

       ProfitMax Bankruptcy. An addition to the ProfitMax product family that
was announced in September 1996. ProfitMax Bankruptcy provides transaction-based
account monitoring for indications of potential bankruptcy. The product gives
issuers advance warning of a cardholder's risky behavior and allows them to
mitigate potential losses.


    FINANCIAL SERVICES MARKET AND PRODUCTS

       The financial services market consists of banks, savings and loan
institutions, mortgage banks, consumer lenders and purchasers of asset-backed
securities in the secondary market. A recent special report on technology in
banking produced by Ernst & Young LLP for the American Bankers Association
estimated that banks spent $4.7 billion in 1995 and would increase spending
nearly 15% to $5.4 billion in 1996, on discretionary endeavors such as
modernizing processes and improving customer service and decision making. The
Company believes that this spending is in response to three competitive
pressures: cost reduction; rapid loan approval; and the potential of home
banking. The Company believes these trends compel lenders to automate loan
origination in order to lower costs, improve customer service and provide remote
access to lending services. HNC is among the first suppliers to meet this need
by integrating expert judgment, automated home valuation, predictive modeling,
rule-based strategies and workflow process automation through its Colleague and
AREAS products.


                                        7
<PAGE>   8
       Colleague. Colleague is an automated mortgage underwriting decision
product for first mortgage and home equity lenders that automates the
labor-intensive process of credit, employment and appraisal evaluation. The
Company estimates that loan underwriting costs in the United States currently
exceed $1 billion each year. Colleague applies both neural-network and
rule-based decision technologies to screen loan applicants against loan
criteria, validate compliance with lending regulations, review the loan package
against underwriting guidelines and predict loan performance. Colleague employs
a client-server architecture consisting of an on-line or batch interface into
the legacy loan origination system, an intelligent decision engine (executing in
NT or Windows), a loan file database (in Sybase, Informix, Watcom or Oracle) and
an underwriter's workbench (operating under Windows). Four current Colleague
users participated in the Aquarius underwriting data consortium, which combined
member lender files and underwriter expertise to produce a turnkey automated
mortgage decision package. Colleague users can obtain predictive mortgage
underwriting models for Colleague either by subscribing to the Aquarius
neural-network models and rules-based service or by integrating custom models
and building custom rules-bases.

       Colleague 2.0, which the Company released in the first quarter of 1996,
incorporates the changes necessary to make Colleague a generic platform for both
mortgage and consumer lending decisions. Designed with a modular architecture,
Colleague 2.0 can be customized to achieve the level and type of automation
appropriate for either mortgage or consumer lending. The Company believes that
the product can be used with equal effectiveness by consumer lenders and
mortgage lenders through the deployment of different models that reflect the
risks historically associated with the various loan types.

       AREAS. The AREAS property valuation product provides lenders with rapid
valuations of residential real estate with personal computer "front-end"
interfaces. The user enters an address and AREAS recalls the subject property
information, evaluates the most likely sales price, provides a range of values,
reports recent price trend information and lists recent similar sales in the
geographic area. AREAS is currently available in 20 California counties and
selected counties in 18 other states. HNC intends to expand the geographic
regions covered by AREAS as the Company acquires rights to additional relevant
data for such geographic regions. The Company obtains data from commercial
databases on available terms and conditions. To expand the coverage of AREAS,
the Company would be required to develop or obtain data on home sales in each
county for which AREAS is marketed. There can be no assurance that the Company
will be able to continue to obtain adequate amounts of statistically relevant
data on a timely basis in the required formats or on reasonable terms and
conditions.

       Capstone. Capstone is an automated system that tracks bank card
applications from initiation through decisioning. It interfaces with various
external sources to accomplish such tasks as importing the applications, pulling
credit, and exporting a list of cards to be generated. Capstone software
components include a Configuration Workstation, a Server and an Analyst
Workstation. The Configuration Workstation is used to define application
processing decision strategies that will be executed on the Server. The small
percentage of applications that cannot be automatically decided on the Server
are routed to the Analyst Workstation for manual review. Capstone lets the user
define its own rules and derived variables, enabling card issuers to customize
the decisioning logic to meet their card portfolio goals.


    RETAIL MARKET AND PRODUCTS

       Rapid changes in consumer buying patterns have caused merchants to place
increased emphasis on predicting consumer demand and managing retail
inventories. Suppliers to merchants purchase the Company's retail products to
address reductions in inventory carrying costs for retail inventories nationwide
(estimated by the United States Census Bureau to be approximately $290 billion
at the end of 1994 on a seasonally adjusted basis). The change from mass to
individual retail marketing has multiplied the number of promotional offers and
stock-keeping units ("SKUs") required to address market opportunities. Although
retailers have made significant investments in customer information file, point
of sale and quick response ordering systems, these applications often do not
include the intelligent analysis and forecasting capability required to optimize
profits and respond to competition through "in store" replenishment, electronic
networking and quick response initiatives. HNC has developed the use of
neural-network models to forecast market response and retail demand and manage
inventories through its SkuPLAN system and DataBase Mining Workstation product.
With its acquisition of Retek and its Merchandise Management System, HNC has
expanded its retail inventory forecasting system to address inventory control,
merchandise management and financial control management.


                                        8
<PAGE>   9
       SkuPLAN. SkuPLAN forecasts consumer demand for retail products at the
store level (by SKU) or at any summary level. The system automates the
labor-intensive process of estimating demand in stores (for example, a large
department store can contain nearly one million SKUs). It uses neural-network
and statistical technologies to provide forecasting in three dimensions: product
hierarchy; location hierarchy; and time. SkuPLAN employs a client-server
architecture consisting of an on-line or batch interface into the legacy
product-ordering system, a decision engine, a relational database and
analysis/forecasting workstations. SkuPLAN directly affects retailer profits by
reducing forecasting errors while improving purchasing, promotion and logistics
efficiency. When used in conjunction with quick-response ordering techniques,
SkuPLAN can substantially reduce inventory carrying costs. SkuPLAN users can
subscribe to a model-update service or rebuild their own models with the
Company's DataBase Mining Workstation.

       DataBase Mining Workstation. The DataBase Mining Workstation ("DMW")
provides data analysis and neural-network modeling functionality. Its capability
includes data preparation, data relationship discovery, variable selection,
sensitivity analysis, automated neural-network modeling and model evaluation. To
date, the DMW has been used primarily by customers in the retail industry to
build demand forecasting and marketing models from their own data. The DMW
provides retail customers with the ability to rebuild forecasting models
employed by SkuPLAN in order to predict demand and manage inventory.

       DataBase Mining Marksman. The DataBase Mining Marksman is a predictive
modeling and customer profiling system based on the DMW technology and enhanced
specifically for use by database marketers. High-speed modeling is provided by a
specially designed PCI bus parallel coprocessor that delivers 640 Mflops of
processing power to a standard Pentium PC on the desktop.

       Retek Merchandising System. The Retek Merchandising System is designed to
meet the needs of department store, mass merchandisers and specialty retail
chains in a multi-store, multi-warehouse environment, and allows for both
centralized or distributed processing. The system can be broadly defined in
three parts; inventory control, merchandise management and financial control.
Inventory control addresses the definition and management of merchandise
assortment at item level (SKU level). Merchandise management addresses the
process by which a retailer carries out day-to-day buying and selling
activities. And, finally, financial control provides a mechanism to report the
results of the inventory and merchandise process through stock ledgers.


    INSURANCE SERVICES MARKET

       With its acquisition of Risk Data Corporation, HNC now offers and is
developing products in the insurance services market with personal computer
"front-end" interfaces. These products are targeted to insurance carriers, state
insurance funds, third party administrators and self insureds. Risk Data
Corporation began sales of its first product, MIRA, during 1991 and in 1996
introduced two new products, CompCompare and ProviderCompare. A fourth product,
PMAdvisor, is currently in a pre-deployment stage.

       MIRA is an automated loss reserving system that uses proprietary
statistical modeling techniques to convert historical workers' compensation
insurance claims data into predictive models which are used in combination with
rules-based technology that factors in state laws and customer policies. MIRA is
used by insurance carriers, third-party administrators and state insurance funds
in the workers' compensation insurance market to estimate workers' compensation
insurance loss reserves. MIRA benefits these entities by providing an accurate
and supportable cost prediction in a fully automated environment. MIRA helps
prevent the increase of loss reserves, which directly impacts earnings and the
financial condition of the carrier.

       CompCompare, released in May 1996, is a workers' compensation
benchmarking product that allows the user to generate detailed comparative
analyses between their workers' compensation claims data and industry claims
data on a case mix adjusted basis. This product utilizes Risk Data's unique
industry database of workers' compensation claims compiled over years of its
sales of MIRA. This information allows the user to measure/demonstrate the
effectiveness of its managed care programs, allow comparative analysis among
similar employers and insurance companies, independently calculate
performance-based pricing arrangements and supplement internal data for pricing
and underwriting.


                                        9
<PAGE>   10
       ProviderCompare is a provider profiling product that allows users to
track the financial outcomes, by provider, to measure claim cost and treatment
pattern differences on a case mix adjusted basis. Developed specifically for the
workers' compensation industry, it uses a credible methodology based on data
collected from the customer's claims system to effectively compare and rank
physicians' financial outcomes and treatment patterns. This makes it possible to
instantly identify those providers who achieve the best outcomes for a given
diagnosis, which can dramatically assist in controlling costs.

       PMAdvisor is a utilization review software program that evaluates
chiropractic and physical therapy treatment against established clinical
guidelines. It is estimated that insurers now incur the cost of approximately
1.3 million physical medicine visits each day. In response to this, the industry
is turning more and more to the utilization of review programs. PMAdvisor is
designed to assist insurance companies, utilization review organizations, PPOs,
HMOs, TPAs, self-insured employers and other related companies in evaluating the
appropriate care in physical medicine. PMAdvisor provides the ability to perform
pre-certification, concurrent, or retrospective review and incorporates all
relevant and verifiable research, reports and consensus data when developing the
guidelines. More specifically, PMAdvisor controls medical cost by determining
clinically appropriate medical treatment plans, insuring quality through the use
of arduously researched clinical guidelines, providing a consistent review
process, rendering objective decisions through well documented and clearly
formatted reports, thereby, reducing complaints and litigation in otherwise
potentially adversarial situations.


COMMERCIAL AND GOVERNMENT CONTRACTS

       The Company generates substantial revenues through commercial and, to a
lesser extent, government contract work. Commercial contracts include
pre-introduction product-related activities, product customization and work
related to the Company's technology but not related to its existing products.
Current government contracts typically relate to work concerning image and text
processing. See "Research and Development" below.


EMERGING MARKET OPPORTUNITIES

       The Company's experience and technology capabilities in the electronic
payments, financial services and retail markets often lead to new product ideas
and concepts. The Company also evaluates new market opportunities that arise
through its commercial and government contract work. As contracts are completed,
the end products are evaluated for commercialization. For example, contracts for
the Advanced Research Projects Agency, United States Army Research Laboratory,
United States Air Force, Office of Naval Research, DataTimes Corporation and
Tracer Applied Sciences, Inc. generated a context-based text analysis technology
called MatchPlus. This core text analysis technology has been under development
at HNC Software for the last four years for Department of Defense applications.

       During 1996, the Company formed Aptex Software Inc. ("Aptex"), to
commercialize HNC's MatchPlus text analysis technology for emerging markets.
Aptex has developed a strategic partner with Infoseek Corporation, a leading
Internet search and navigation service, to deliver products using this text
analysis technology to the Internet market. To date, two new Internet products
have been launched; Convectis and SelectCast. Convectis automates document
analysis and routing, while SelectCast was developed for advertising servers to
analyze audiences and user behavior. In the education market, Aptex introduced
VITAL ResourceMiner during 1996. VITAL ResourceMiner is a software solution that
correlates the content of educational publishers' material to state and district
textbook standards and objectives.

       Most of the Company's software license and installation revenues in
recent years have been attributable to sales of intelligent decision software
solutions and services, and these products and services are currently expected
to continue to account for a substantial amount of the Company's future software
license and installation revenues. The market for intelligent decision software
solutions is still emerging. The rate at which businesses have adopted the
Company's products has varied significantly by market and by product within each
market, and the Company expects to continue to experience such variations with
respect to its target markets and products in the future. The Company has
recently announced several new products, including Capstone, Falcon Sentry,
Falcon Expert, ProfitMax, ProfitMax Bankruptcy, PMAdvisor, Retek Data Warehouse
and Active Retail Intelligence. To date none


                                       10
<PAGE>   11
of these products has achieved any significant degree of market acceptance, and
there can be no assurance that such products will ever be widely accepted.
Although businesses in the Company's target markets have recognized the
advantages of automation, many have developed automation systems internally
rather than licensing them from outside vendors. There can be no assurance that
the market for the Company's products will continue to develop or that the
Company's products will be widely accepted. If the markets for the Company's new
or existing products fail to develop, or develop more slowly than anticipated,
the Company's sales would be negatively impacted, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.


CUSTOMER SERVICE AND SUPPORT

       A high level of continuing maintenance, service and support is critical
to maintaining intelligent decision system performance. Service and support are
also essential to the Company's objective of developing long-term relationships
with, and obtaining recurring revenues from, customers. The Company's service
and support activities are related to system installation, performance
validation and ongoing consultation on the optimal use of HNC products. With the
exception of the DataBase Mining Workstation, which includes a 90-day warranty,
the Company's products generally do not include performance warranties, although
many product and service agreements include acceptance test procedures.

       Model and Rulebase Updates. Most HNC product license agreements include
periodic data, model and/or rulebase updates to maintain system performance. In
the case of AREAS, these updates are shipped to the customer for user
installation. In the case of the Company's other products, HNC technical
personnel assist the customer with installation. The Company makes commitments
to update models at varying intervals, from fixed times (such as quarterly and
annually) to unscheduled times, provided the customer has met its commitments to
provide data to HNC.

       Education. The Company offers comprehensive education and training
programs to its customers. The Company provides on-site training services
associated with many of its products. In addition, the Company provides basic
training classes concerning neural-network modeling and the DataBase Mining
Workstation. Fees for education and training services are generally included in
usage-priced products, but may be charged separately in other cases.

       Consulting. The Company's consultants are available to work with
customers' user application groups and information systems organizations.
Customers who buy consulting services are usually planning large implementations
or want to optimize performance of the Company's products in their operating
environments. Fees for consulting are generally included in usage-priced
products, but may be charged separately in other cases.


CUSTOMERS AND APPLICATIONS

       The Company has over 100 customers most of whom are relatively large
customers, such as banks, insurance carriers, and retailers. While the sales
cycle varies substantially from customer to customer, given the nature of the
Company's products and customer base, it typically requires six to twelve
months. 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. The loss of First Data Resources, Inc. as a customer for any
reason could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, approximately one-third of
Retek's sales of the Retek Merchandising System are referred to Retek by
Andersen Consulting LLP. The loss or deterioration of Retek's relationship with
Andersen Consulting LLP would have a material adverse effect on Retek'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.Over the
past two years, in excess of 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.
Consequently, any change in the pattern of government spending, reduced demand
from the defense industry or the loss of any of the Company's major government
contracts would have an adverse effect on the Company's business, financial
condition and results of operations. Furthermore, United States Government
contracts may subject the Company to risks that are not typically present in
commercial contracts, such as retroactive price adjustments and potential
penalties, and are terminable at the


                                       11
<PAGE>   12
convenience of the government. Although the Company has not experienced any
material cancellations in the past, there can be no assurance that such
cancellations will not occur in the future. Also, because many of the Company's
government contracts were awarded under programs available only to certain small
businesses, the Company may not be eligible for additional contracts under such
programs in the future. The Company, through its Risk Data subsidiary, has
derived a significant amount of its revenue through sales of its products to
state insurance funds. Generally, these contracts have funding clauses that
permit the state governmental unit to terminate the contract should funds not be
appropriated by the state's budget. To date, only one such state insurance fund
has not renewed its contract due to budgetary reasons, although this does not
diminish the risk of this problem occurring again.


PRICING

       The Company generally establishes prices in one of two ways: usage-based
fees and fixed-fee licenses with maintenance. The Company employs usage-based
pricing for Falcon, Falcon Debit, Eagle, ProfitMax, AREAS Colleague, Capstone,
MIRA and PMAdvisor. Under the usage-based pricing structure, HNC generally
provides a fixed-term software license, software maintenance, model updates (in
the case of HNC supplied models) and ongoing consulting services in exchange for
recurring revenue based on usage. Usage-based term contracts typically include
annual price index adjustments. The Company employs fixed-fee license pricing
for SkuPLAN, Retek Merchandising System, DataBase Mining Marksman and the
DataBase Mining Workstation. Under the fixed-fee license pricing structure, the
Company generally licenses the product for the customer's internal use on a
perpetual basis. In most cases, the user can separately contract for maintenance
services on an annual basis. The Company typically offers early adopter pricing
for its usage-based products to customers that agree to be part of pilot or
other early product life cycle installations. Early adopter pricing might
include reduced-fee perpetual licenses, reduced-fee services or both.

       The Company often contracts for installation services associated with its
intelligent decision systems. Products requiring installation are Falcon, Falcon
Debit, Falcon Sentry, Eagle, ProfitMax, Colleague, SkuPLAN, MIRA, CompCompare,
ProviderCompare, and PMAdvisor. The Company provides user-specific proposals
priced at either fixed-fee levels or on a time and materials basis. In nearly
all cases, travel expenses are billed separately at cost.

       The Company offers contract consulting services. Because of the
complexity associated with intelligent decision software solutions, users often
request that HNC help them to develop models or analyze problems. Also, the
Company from time to time accepts engagements not associated with current
product offerings in order to become more familiar with a new application area
and determine the potential for new product development. Although consulting
services are included with many of the Company's usage-based products, customers
may request additional consulting, often associated with custom modeling.


SALES AND MARKETING

       The Company sells and markets its software and services in North America
and internationally through its direct sales organization, joint marketing and
distribution agreements. The sales cycle begins with the generation of a sales
lead or the receipt of a request for proposal from a prospect. After the lead is
qualified, the Company makes a presentation to the prospective customer,
executes a mutual confidentiality agreement, determines the customer's operating
environment, prepares and presents a sales proposal, conducts one or more
presentations/demonstrations, negotiates a contract and obtains a commitment
from the customer.

       Due in part to the mission-critical nature of certain of the Company's
applications, potential customers perceive high risk in connection with adoption
of the Company's neural-network technology. As a result, customers have been
cautious in making product acquisition decisions. In addition, the purchase of
the Company's products involves a significant commitment of capital, with the
attendant delays frequently associated with customers' internal procedures to
approve large capital expenditures and test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with the purchase of the Company's products is typically lengthy and subject to
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews and delays, over which the Company has little or no
control. Because of the lengthy sales cycle, if revenues forecasted from a
specific customer for a particular quarter are not realized in that quarter, the
Company


                                       12
<PAGE>   13
likely would not be able to generate revenues from alternate sources in time to
compensate for the shortfall. As a result, and due to the typical size of
customers' orders, a lost or delayed sale could have a material adverse effect
on the Company's quarterly operating results. In addition, the Company has
entered into certain contracts for pilot installations of new products for a
fixed fee. If the Company is not able to complete such pilot installations for
the contracted fees, it would realize losses on these contracts, which could
have a material adverse effect on quarterly results.

       The Company's world wide sales and marketing organization consisted of 57
employees as of December 31, 1996. The sales staff is based at the Company's
corporate headquarters in San Diego and in North American field sales offices in
Canada, Connecticut, Colorado, Georgia, Minnesota, New York, Pennsylvania and
Virginia. Internationally, the Company has field sales offices in the United
Kingdom and Japan. To support its sales force, the Company conducts
comprehensive marketing programs, which include direct mail, public relations,
advertising, seminars, trade shows and ongoing customer communication programs.
The Company also sponsors an annual users' group meeting for its intelligent
decision software solutions customers. The sales staff is generally product
based, and each representative is assigned a geographic territory.

       The Company has licensed First Data Resources, Inc. and Electronic Data
Systems to act as service bureaus to provide an alternate channel of
distribution for end-users to utilize the Falcon product to process credit card
receipts for banks and other credit card issuers. These service bureaus pay the
Company monthly usage fees based on the volume of transactions processed for
such credit card issuers. First Data Resources, Inc., which is 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. Licensed service bureaus for the AREAS product include
Freddie Mac, Computer Power, Inc. and Market Intelligence, Inc., which provide
appraisal services to other customers. The Company also maintains reseller
agreement with Customer Insight Company, Inc. for the DataBase Mining
Workstation and Policy Management Systems Corporation for its MIRA and
CompCompare products. The Company generally assists its service bureau partners
in the sales effort, often employing the Company's direct sales force in the
process. Company sales representatives earn a commission for service bureau
sales in their territory.

       The Company also uses representative agents for some territories outside
of North America. The Company has agents covering Australia, Austria, France,
Germany, Italy, New Zealand, Spain and Switzerland. For 1996, 1995 and 1994,
international sales represented 23.5%, 17.9% and 11.4% of the Company's total
revenues, respectively. International sales result primarily from Falcon product
sales and Retek's sales. Retek is currently more focused in international
markets than HNC historically. The Company intends to continue to expand its
operations outside the United States and to enter additional international
markets, including the addition of sales and support offices in France, Germany
and South Africa, which will require significant management attention and
financial resources. The Company has committed and continues to commit
significant time and development resources to customizing its products for
selected international markets and to developing international sales and support
channels. There can be no assurance that the Company's efforts to develop
databases and models for targeted international markets or to develop
international sales and support channels will be successful. The failure of such
efforts could have a material adverse effect on the Company's business,
financial condition and results of operations. International sales are subject
to inherent risks, including longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burdens of
complying with a variety of foreign laws, greater difficulty or delay in
accounts receivable collection, potentially adverse tax consequences and
political and economic instability. The Company's export sales are currently
denominated predominantly in United States dollars. An increase in the value of
the United States dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, potentially less competitive in foreign
markets. In the future, if more of the Company's export sales are denominated in
local currencies, foreign currency translations may contribute to significant
fluctuations in the Company's business, financial condition and results of
operations. If for any reason exchange or price controls or other restrictions
on foreign currencies are imposed, the Company's business, financial condition
and results of operations could be materially adversely affected. As the Company
increases its international sales, its total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.


                                       13
<PAGE>   14
TECHNOLOGY

       The Company seeks to develop innovative products by combining industry
and application knowledge with its core neural-network technology to address
specific market needs. The Company's systems also employ rule-based technology
to implement customer strategy, policy and procedures. These technologies are
incorporated in computer software and hardware architectures, including
client-server hardware, relational databases and object-oriented programming.
The Company intends to continue to develop state-of-the-art technologies to
enhance its current products and broaden development opportunities.

       Neural-Network Technology. Neural networks have predictive power that can
be improved with experience as the historical database increases in size. The
term "neural networks" refers to a family of nonlinear, statistical modeling
techniques, sometimes called "computational intelligence." These techniques
distinguish themselves through a process of automated "learning" or "training"
that replaces the time-consuming manual techniques of traditional nonlinear,
statistical modeling. The neural-network architecture itself consists of groups
of "processing elements," or equations with several inputs and a single output.
The output of each element becomes either the input to another element or part
of the dependent output. Each input receives a "weight," or value, in the
equation, which is adjusted during the training process. The actual result from
each training record is compared with the answer from the neural network, and
the weights are adjusted to reduce the error between the two. This process can
become computationally intensive, as thousands or millions of training data
records must be processed hundreds or thousands of times. HNC has developed
proprietary high-speed and parallel-processor boards to accelerate training and
execution of its neural-network software. The Company also believes that the
rapid model development afforded by its technology provides a competitive
advantage in the development of intelligent decision software solutions.

       Rule-Based Technology. The Company's systems also employ rule-based
technology to implement customer strategy, policy and procedures. The rules are
implemented as part of intelligent decision processes. The Company believes that
its combination of neural networks and rule-bases in a single decision engine
represents a significant competitive advantage over more traditional approaches
to decision automation.

       Leverage Industry Standards. The Company believes that its business has
been aided by a convergence of industry standards for client-server
architecture, relational databases and electronic networks. HNC was one of the
early suppliers of electronic payments software products on the UNIX operating
system and was among the first to use C compilers on mainframe computers. The
Company believes it is among the few suppliers to offer client-server options on
NetWare, NT, UNIX and CICS platforms and that the breadth of this platform
support currently provides a meaningful competitive advantage in the electronic
payments business. The Company intends to support future client and server
environments as they achieve customer acceptance. HNC's products benefit from
standard data interchange environments, such as ISO 8583 for transaction
processing, X.12 for lending-data interchange and the Internet for consumer
information routing.

       The Company's success depends upon its ability to 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, the completion of new products may be delayed while
the Company 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 companies, 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. The failure by the Company
to obtain adequate third-party support for new product development or to obtain
relevant data for model development would have a material adverse effect on the
Company's ability to extend its product line into new markets and to develop new
products, and would have a material adverse effect on the Company's business,
financial condition and results of operations.


                                       14
<PAGE>   15
RESEARCH AND DEVELOPMENT

       The Company believes that its future success depends in part on its
ability to maintain and improve its core technologies, enhance its existing
products and develop new products that meet an expanding range of markets and
customer requirements. The Company intends to expand its existing product
offerings and to introduce new intelligent decision software solutions. In the
development of new products and enhancements to existing products, the Company
uses its own tools extensively. Until 1996, the Company had relied primarily on
internal development of its products and expects to continue to do so. Based on
timing and cost considerations though, it may consider acquiring technology or
products from third parties or consultants. The Company performs all quality
assurance and develops documentation internally. The Company intends to continue
to support industry standard operating environments, client-server architectures
and network protocols.

       The Company's specialists in neural-network model development, software
engineering, user interface design, product documentation and quality
improvement are responsible for maintaining and enhancing the performance,
quality and usability of all HNC intelligent decision systems. The marketing
services organization is responsible for authoring and updating all user
documentation and other publications.

       The Company strategically targets its long-term research projects. In
addition to funds allocated by the Company for research, HNC receives research
contracts from a range of commercial sources and the United States Government.
Government and commercial contract customers include the Advanced Research
Projects Agency, United States Army Research Laboratory, United States Air
Force, Office of Naval Research, DataTimes Corporation and Tracor Applied
Sciences, Inc. The Company believes that these contracts augment its ability to
maintain existing technologies and investigate new technologies that may or may
not become part of its products. The United States Government typically retains
certain intellectual property rights and licenses in the technologies the
Company develops under research contracts directly or indirectly sponsored by
the government, and in some cases can terminate the Company's rights in such
technologies if the Company fails to commercialize them on a timely basis.
Historically, these contracts have not resulted in development of products
contributing to the Company's revenues in the fiscal year in which the research
contract is performed, or in the subsequent fiscal year. Such activities
currently constitute approximately 10.6% of the Company's combined research and
development expenses and government contract costs. Research and development
expenses for fiscal 1996, 1995 and 1994 as a percentage of total revenues were
24.7%, 21.5%, 21.0%, respectively. The primary reason for the increase in fiscal
1996 was greater staffing to support new product development programs, primarily
for ProfitMax, Capstone, CompCompare, ProviderCompare and Retek Merchandising
6.0.

       The market for intelligent decision software solutions is characterized
by rapidly changing technology and improvements in computer hardware, network
operating systems, programming tools, programming languages, operating systems
and database technology. The Company's success will depend upon its ability to
maintain competitive technologies, enhance its current products and develop new
products in a timely and cost-effective manner that meet changing market
conditions, including evolving customer needs, new competitive product
offerings, emerging industry standards and changing technology. There can be no
assurance that the Company will be able to develop and market, on a timely
basis, if at all, product enhancements or new products that respond to changing
market conditions or that will be accepted by customers. The Company has
previously experienced significant delays in the development and introduction of
new products and product enhancements, primarily due to difficulties with model
development, which has in the past required multiple iterations, as well as
difficulties with acquiring data and adapting to particular operating
environments. The length of these delays has varied depending upon the size and
scope of the project and the nature of the problems encountered. Any failure by
the Company to anticipate or to respond adequately to changing market
conditions, or any significant delays in product development or introduction,
could cause customers to delay or decide against purchases of the Company's
products and would have a material adverse effect on the Company's business,
financial condition and results of operations.


INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

       The Company relies on a combination of patent, copyright, trademark and
trade secret laws and confidentiality procedures to protect its proprietary
rights. The Company currently owns six issued United States patents and has four
United States patent applications pending. The Company has applied for
additional patents for its Falcon


                                       15
<PAGE>   16
technology in Canada, Europe and Japan and its MIRA product in Australia,
Canada and Europe. There can be no assurance that patents will be issued with
respect to pending or future patent applications or that the Company's patents
will be upheld as valid or will prevent the development of competitive products.
The Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. As part of its confidentiality procedures, the Company generally
enters into invention assignment and proprietary information agreements with its
employees and independent contractors and nondisclosure agreements with its
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise to obtain
and use the Company's products or technology without authorization, or to
develop similar technology independently. In addition, to ensure that customers
will not be adversely affected by an interruption in the Company's business, the
Company places source code for its products into escrow, which may increase the
likelihood of misappropriation or other misuse of the Company's intellectual
property. Moreover, effective protection of intellectual property rights may be
unavailable or limited in certain foreign countries. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not develop similar technology
independently. The Company frequently develops technologies under research
projects conducted under agreements with various United States Government
agencies or subcontractors to such agencies. Although the Company often acquires
certain commercial rights to such technologies, the United States Government
typically retains ownership of certain intellectual property rights and licenses
in the technologies developed by the Company under such contracts, and in some
cases can terminate the Company's rights in such technologies if the Company
fails to commercialize them on a timely basis. In addition, under certain United
States Government contracts, the results of the Company's research may be made
public by the government, which could limit the Company's competitive advantage
with respect to future products based on such research.

       In the past, the Company has received communications from third parties
asserting that Company trademarks infringe other parties trademarks, and given
the Company's ongoing efforts to develop and market new technologies and
products, there can be no assurance that in the future the Company will not
receive other communications from third parties asserting that the Company's
products infringe, or may infringe, third parties' intellectual property rights.
There can be no assurance that licenses to disputed third-party technology or
intellectual property rights will be available on reasonable commercial terms,
if at all. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation, either
as plaintiff or defendant, could result in significant expense to the Company
and divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation is resolved in favor of the
Company. In the event of an adverse ruling in any such litigation, the Company
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology or the court might
invalidate the Company's patents, trademarks or other proprietary rights. In the
event of a successful claim against the Company and the failure of the Company
to develop or license a substitute technology, the Company's business, financial
condition and results of operations would be materially and adversely affected.

       As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, can be time consuming and expensive to
defend and could materially and adversely affect the Company's business,
financial condition and results of operations.


COMPETITION

       The market for intelligent decision software solutions and other software
products marketed by the Company is intensely competitive and subject to rapid
change. Competitors vary in size and in the scope of the products and services
they offer. The Company encounters competition from a number of sources,
including (i) other application software companies, (ii) management information
systems departments of customers and potential customers, (iii) third-party
professional services organizations, including without limitation consulting
divisions of public accounting firms, (iv) hardware suppliers that bundle or
develop complementary software, (v) network and service providers that seek to
enhance their value-added services and (vi) neural-network tool suppliers. In
the electronic


                                       16
<PAGE>   17
payments market, the Company has experienced competition from Fair, Isaac & Co.,
Inc., Nestor, Inc., Neuralware Inc., NeuralTech Inc., International Business
Machines Corporation ("IBM"), Visa International and others. In addition,
Mastercard International is developing a computer model utilizing neural network
technology for detecting credit card fraud that would compete with the Company's
products. In the financial services market, the Company has experienced
competition from Cogensys (a subsidiary of Policy Management Systems
Corporation), Fannie Mae, Freddie Mac, PMI Mortgage Services Co., CLM
Technologies, Ltd., Norwest Bank Minnesota, N.A., PSAR Systems, Inc. and others.
In the retail market, the Company has experienced competition from Manugistics
Group, Inc., IBM, SAP, JDA Software Group, Inc., PeopleSoft, Inc. and others. In
the insurance market, the Company experiences competition primarily from NCCI,
Corporate Systems and CSC Incorporated. Because there are relatively low
barriers to entry, the Company expects to experience additional competition from
other established and emerging companies. In addition, the Company's fraud
detection product competes against other methods of preventing credit card
fraud, such as card activation programs, credit cards that contain the
cardholder's photograph, smart cards and other card authorization techniques.
For example, Eastman Kodak announced a technology that digitally encodes the
cardholder's photograph on the card for access by the issuing bank or merchant
for fraud prevention. The introduction of these and other new technologies will
result in increased competition for the Company and its products. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.

       The Company believes that its products are currently priced at a premium
when compared to its competitors' products. The market for the Company's
products is highly competitive, and the Company expects that it will face
increasing pricing pressures from its current competitors and new market
entrants. In particular, increased competition could reduce or eliminate such
premiums and cause further price reductions. In addition, such competition could
adversely affect the Company's ability to obtain new long-term contracts and
renewals of existing long-term contracts on terms favorable to the Company. Any
reduction in the price of the Company's products could materially adversely
affect the Company's business, financial condition and results of operations.

       The Company believes that the principal competitive factors affecting its
market include technical performance (for example, accuracy in detecting credit
card fraud or evaluating residential property), access to unique proprietary
databases and product attributes such as adaptability, scalability, ability to
integrate with products produced by other vendors, functionality, ease-of-use,
product reputation, quality, performance, price, customer service and support,
the effectiveness of sales and marketing efforts and company reputation.
Although the Company believes that its products currently compete favorably with
respect to such factors, there can be no assurance that the Company can maintain
its competitive position against current and potential competitors, especially
those with significantly greater financial, marketing, service, support,
technical and other resources.

       Some of the Company's current, and many of the Company's potential,
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly gain
significant market share. Also, the Company relies upon its customers to provide
data and other support for the ongoing updating of the Company's models. There
can be no assurance that its 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. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.


EMPLOYEES

       As of December 31, 1996, the Company had a total of 385 employees,
including 210 in product development and support, 58 in customer service, 57 in
sales and marketing and 60 in finance, administration and MIS. Thirty-five of
these employees have earned Ph.D. degrees. Almost all of these employees are
located in the United States. None of the Company's employees are represented by
a labor union. The Company has experienced no work stoppages and believes that
its employee relationships are generally good.

       The Company's success depends to a significant degree upon the continued
service of members of the Company's senior management and other key research,
development, sales and marketing personnel. Accordingly, the loss of any of the
Company's senior management or key research, development, sales or marketing
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. Only Michael Thiemann, President
of the Company's Aptex subsidiary, Mark Hammond, President of Risk Data
Corporation and John Buchanan, President of Retek Distribution Corporation, are
subject to employment


                                       17
<PAGE>   18
agreements with the Company; however, there can be no assurance that such
agreements will result in the retention of these employees for any significant
period of time. In particular, as of February 1, 1997, Neil Thall, former
President of the Company's wholly-owned subsidiary, Neil Thall Associates, Inc.,
terminated his employment with the Company, though he is continuing to serve as
a consultant to the Company on a temporary basis. The Company believes that its
future success will depend upon its ability to attract and retain highly skilled
managerial, research, development, sales and marketing personnel, for whom the
competition is intense. In particular, in the past, the Company has experienced
difficulty in recruiting a sufficient number of qualified sales people. In
addition, competitors may attempt to recruit the Company's key employees. There
can be no assurance that the Company will be successful in attracting,
assimilating and retaining such personnel, and the failure to attract,
assimilate and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.


HISTORY

       HNC Software Inc. was founded in 1986 by Robert Hecht-Nielsen and Todd W.
Gutschow as a neural-network technology company under the name Hecht-Nielsen
Neurocomputer Corporation. The Company initially offered technology training
courses and later provided neural network software and hardware tools for users
who wished to design and build their own applications. In 1987, the Company
changed its name to HNC, Inc. and began offering consulting services in
conjunction with its tools sales. These consulting engagements formed the
genesis of end-user application concepts. In 1989, the Company began business
planning for the development of intelligent decision software solutions. In
1990, as part of a decision to change its business strategy from tools to
solutions, the Company formed two commercial business units, Decision Systems
and Data Entry Products. The Data Entry unit's key products and core technology
were licensed to Mitek Systems, Inc. in 1992, and the Decision Systems unit was
divided into Payment Systems, Lender Systems and Retail Systems groups. In
conjunction with the commencement of Neil Thall's employment with the Company in
January 1992, the Company formed Neil Thall Associates, Inc. ("NTA") to develop,
market and sell inventory control products to the retail market. In 1994, the
Company changed its name to HNC Software Inc. During 1996, HNC Software Inc.
acquired Risk Data Corporation and Retek Distribution Corporation. The Company
plans to merge the operations of its NTA subsidiary into Retek in fiscal 1997.


STOCK SPLIT

       On March 5, 1996, the Company announced that its Board of Directors had
approved a two-for-one stock split effected in the form of a common stock
dividend. The stock dividend was paid to the Company's stockholders of record at
the close of business on March 18, 1996. See Note 1 in Notes to Consolidated
Financial Statements.


ITEM 2. PROPERTIES

FACILITIES

       The Company's principal administrative, sales, marketing, support,
research and development facilities are located in approximately 80,000 square
feet of space in San Diego, California. These facilities are leased to the
Company through the year 2003, with a five-year renewal option. The Company
leases an additional 7,000 square feet of space in San Diego, California, for
its subsidiary, Aptex Software Inc. The Company also leases another facility of
approximately 5,300 square feet in Atlanta, Georgia, sales offices in Westport,
Connecticut, the United Kingdom and Japan, and maintains a customer support
office in King of Prussia, Pennsylvania. Risk Data Corporation's principal
facilities are located in Irvine, California in an approximately 22,000 square
foot building, with sales offices in Reston, Virginia and Denver, Colorado.
Retek Distribution Corporation has headquarters in Minneapolis, Minnesota and
additional sales offices in the United Kingdom, Canada, Australia and South
Africa. Retek plans to relocate into new facilities in Minneapolis in fiscal
1997. The Company believes that its current facilities are adequate to meet its
needs for the foreseeable future. The Company believes that suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.


                                       18
<PAGE>   19
ITEM 3. LEGAL PROCEEDINGS

        None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       A Special Meeting of Stockholders was held on December 6, 1996 to approve
a proposal to amend the Company's 1995 Equity Incentive Plan increasing the
number of shares of the Company's Common Stock reserved for issuance thereunder
by 1,500,000 shares. The proposal passed by the following vote:


                                                            ABSTENTIONS
                                                            AND BROKER
     VOTES FOR                VOTES AGAINST                  NON-VOTES
     ---------                -------------                 -----------
     10,906,858                 1,446,043                     65,735


                                       19
<PAGE>   20
                                     PART II

ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

       The information required by this item, which appears under the captions
"Dividend Policy" and "Stock Market Data" on pages 15 and 17 in the Company's
1996 Annual Report to stockholders, is incorporated herein by reference.


ITEM 6. SELECTED FINANCIAL DATA

       The information required by this Item, which appears under the caption
"Selected Consolidated Financial Data" on page 15 in the Company's 1996 Annual
Report to Stockholders, is incorporated herein by reference.


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

       The information required by this item, which appears under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 18 to 23 in the Company's 1996 Annual Report to
Stockholders, is incorporated herein by reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       The information required by this item appears under the caption "Selected
Consolidated Quarterly Operating Results (Unaudited)" on page 16 in the
Company's 1996 Annual Report to Stockholders and in the Consolidated Financial
Statements appearing on pages 24 to 36 in the Company's 1996 Annual Report to
Stockholders, and is incorporated herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

       Not applicable.


                                       20
<PAGE>   21
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

       The information required by this Item, which will be set forth under the
captions "Proposal No. 1 Election of Directors," "Executive Officers" and
"Compliance Under Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, is
incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

       The information required by this Item, which will be set forth under the
captions "Director Compensation," "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation," "Report on Executive
Compensation" and "Company Stock Price Performance" in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The information required by this Item, which will be set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, is
incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       The information required by this Item, which will be set forth under the
caption "Certain Transactions" in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders, is incorporated herein by reference.


                                       21
<PAGE>   22
                                     PART IV

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

          The financial statements of the Company listed below are incorporated
          herein by reference to the following pages of the 1996 Annual Report
          to Stockholders:

<TABLE>
<CAPTION>
                                                                                            Page in
                                                                                          Annual Report
                                                                                          -------------
<S>                                                                                            <C>
          Consolidated Balance Sheet as of December 31, 1996 and 1995                          24
          Consolidated Statement of Income for the years ended December 31,
                 1996, 1995 and 1994                                                           25
          Consolidated Statement of Cash Flows for the years ended December 31,
                 1996, 1995 and 1994                                                           26
          Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
                 the years ended December 31, 1996, 1995 and 1994                              27

          Notes to Consolidated Financial Statements                                           28

          Report of Independent Accountants                                                    37
</TABLE>

       2. Financial Statement Schedules:

          The financial statement schedules of the Company are included in Part
          IV of this report on the pages indicated:

<TABLE>
<CAPTION>
                                                                                            Page in
                                                                                           Form 10-K
                                                                                           ---------
<S>                                                                                            <C>
          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
</TABLE>

          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.

       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)


                                       22
<PAGE>   23
          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)
          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 Company and the former shareholders of Risk
                    Data Corporation (2)
          4.05      Registration Rights Agreement dated as of October 25, 1996
                    by and among registrant and the former shareholders of Retek
                    Distribution Corporation (3)
          10.01     Registrant's 1987 Stock Option Plan and related documents
                    (1)
          10.02     Registrant's 1995 Equity Incentive Plan and related
                    documents (1)
          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
          10.11     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

----------

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


                                       23
<PAGE>   24
          (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) 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.
          (7) 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.
          (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.


                                       24
<PAGE>   25
                                   SIGNATURES

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

Date:  March 28, 1997

                                    HNC SOFTWARE INC.



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






                                POWER OF ATTORNEY

       KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Robert L. North and Raymond V. Thomas and
each of them, as his or her true and lawful attorneys-in-fact and agents, with a
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
to this Report, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.


                                       25

<PAGE>   26
                                   SIGNATURES


       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                  March 28, 1997
------------------------------              (Principal Executive Officer)
Robert L. North


/s/ Raymond V. Thomas                       Vice President, Finance & Administration               March 28, 1997
------------------------------              and Chief Financial Officer (Principal
Raymond V. Thomas                           Financial Officer and Principal Accounting
                                            Officer)


/s/ Edward K. Chandler                      Director                                               March 28, 1997
------------------------------
Edward K. Chandler



/s/ Oliver D. Curme                         Director                                               March 28, 1997
------------------------------
Oliver D. Curme



/s/ Roger L. Evans                          Director                                               March 28, 1997
------------------------------
Roger L. Evans



/s/ Thomas F. Farb                          Director                                               March 28, 1997
------------------------------
Thomas F. Farb



/s/ Charles H. Gaylord, Jr.                 Director                                               March 28, 1997
------------------------------
Charles H. Gaylord, Jr.
</TABLE>


                                       26
<PAGE>   27
                                  EXHIBIT INDEX

EXHIBIT
NUMBER                            EXHIBIT TITLE
------                            -------------

   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)
   3(ii).04 Registrant's Bylaws (1)
   3(ii).05 Registrant's 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 Company and the former shareholders of Risk Data
            Corporation (2)
   4.05     Registration Rights Agreement dated as of October 25, 1996 by and
            among registrant and the former shareholders of Retek Distribution
            Corporation (3)
   10.01    Registrant's 1987 Stock Option Plan and related documents (1)
   10.02    Registrant's 1995 Equity Incentive Plan and related documents (1)
   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
   10.11    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


                                       27
<PAGE>   28
            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

----------

(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)   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.
(7)   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.
(8)   Management Contract.


                                       28
<PAGE>   29
                                                                 EXHIBIT 11.01

                                HNC SOFTWARE INC.

                               STATEMENT REGARDING
                        COMPUTATION OF PER SHARE EARNINGS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                        1996       1995       1994
                                                       -------    -------    -------
<S>                                                    <C>        <C>        <C>
NET INCOME                                             $ 6,376    $ 2,123    $   548
                                                       =======    =======    =======

SHARES (1)
      Weighted average common shares outstanding        18,666     10,309      3,756


      Weighted average common stock options and
      warrants as determined by application of the
      treasury stock method (2)                          1,701      2,138      1,562


      Weighted average preferred shares outstanding
      assuming conversion to common stock (3)               --      4,454      8,552
                                                       -------    -------    -------


      Pro forma weighted average common and common
      equivalent shares outstanding                                16,901     13,870
                                                                  =======    =======


      Weighted average common and common
      equivalent shares outstanding                     20,367
                                                       =======


PRO FORMA NET INCOME PER SHARE OF COMMON STOCK                    $  0.13    $  0.04
                                                                  =======    =======

NET INCOME PER SHARE OF COMMON STOCK                   $  0.31
                                                       =======
</TABLE>




----------

(1)   All share and per share amounts have been adjusted to give retroactive
      effect to the stock split, which occurred on April 3, 1996.

(2)   Includes an adjustment for options pursuant to SAB No. 83 using the
      treasury stock method at the initial public offering price of $7.00 per
      share for all periods presented prior to or including the Company's public
      offering date of June 26, 1995.

(3)   All outstanding shares of the Company's preferred stock automatically
      converted into shares of common stock upon the consummation of the
      Company's initial public offering on June 26, 1995.
<PAGE>   30
        REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE





To the Board of Directors
of HNC Software Inc.


Our audits of the consolidated financial statements referred to in our report
dated January 21, 1997 appearing on page 37 of the 1996 Annual Report to
Stockholders of HNC Software Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.





PRICE WATERHOUSE LLP

San Diego, California
January 21, 1997


                                       29
<PAGE>   31
                                                                     SCHEDUEL II


                                HNC SOFTWARE INC.

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                  DEFERRED TAX
                                               ALLOWANCE FOR     ASSET VALUATION
                                             DOUBTFUL ACCOUNTS      ALLOWANCE
                                                 ---------         ----------
<S>                                              <C>               <C>
Balance at December 31, 1993                     $ 292,000         $4,658,000
     Provision                                     484,000            972,000
     Write-off                                    (262,000)                --
     Recovery                                           --         (1,392,000)
                                                 ---------         ----------

Balance at December 31, 1994                       514,000          4,238,000
     Provision                                     479,000            702,000
     Write-off                                    (472,000)                --
     Recovery                                      (18,000)        (2,223,000)
                                                 ---------         ----------

Balance at December 31, 1995                     $ 503,000         $2,717,000
     Provision                                     243,000                 --
     Write-off                                     (94,000)                --
     Recovery                                      (29,000)        (2,717,000)
                                                 ---------         ----------

Balance at December 31, 1996                     $ 623,000         $      -0-
                                                 =========         ==========
</TABLE>


                                       30