##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1 to

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2002

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | 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 0-30791

eFunds Corporation

(Exact name of registrant as specified in its charter)


|                                                                                                                 |  |                                                
|---------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization)                                          |  | 39-1506286
(IRS Employer Identification Number)
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|                                                                                                                
|Gainey Center II
8501 N. Scottsdale Road, Suite 300
Scottsdale, Arizona
(Address of principal executive offices) |  | 85253
(Zip Code)                               

Registrants telephone number, including area code: (480) 629-7700

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     [  ]

The number of shares outstanding of the registrants common stock, par value $.01 per share, at August 7, 2002 was 46,629,409.



This Form 10-Q/A is filed to amend the Form 10-Q for the quarter ended June 30, 2002 to include restated financial statements as
discussed in Note 12 to the consolidated financial statements. For purposes of this 10-Q/A, and in accordance with Rule 12b-15 under
the Securities Exchange Act of 1934, as amended, the registrant has amended and restated in its entirety each item of its Quarterly
Report on Form 10-Q which has been affected by the financial statement restatement. In order to preserve the nature and character
of the disclosure set forth in such items as of the original filing date of such Report, this Form 10-Q/A does not otherwise modify
the disclosures in that report which were not affected by the restatement.

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TABLE OF CONTENTS



|                              |                                                                                                               |                   |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------- | ----------------- |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                                 
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                OF OPERATIONS:
|PART II- OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                     
|                              |                                                                                                               | SIGNATURES       
|                              |                                                                                                               | Index to Exhibits
|EX-99.1                      
|EX-99.2                      
|EX-99.3                      
|EX-99.4                      



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##### Table of Contents






PART I- FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

eFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(As Restated  see Note 12)

|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |         |         |         | 
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                  |                                                                                                                                                             |                           |                                            |         | June 30, |         | December 31,
|(dollars in thousands)                            |                                                                                                                                                             | 2002                      |                                            | 2001   
|                                                  |                                                                                                                                                             |                           |                                            |        
|Current assets:                                   |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash and cash equivalents                                                                                                                                   |                           | $                                          | 100,922 |          |         | $            | 101,871 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deposits subject to compensating balance arrangement                                                                                                        |                           |                                            | 2,448   |          |         |              | 2,448   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Restricted custodial cash                                                                                                                                   |                           |                                            | 4,676   |          |         |              | 1,124   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts receivable  net                                                                                                                                   |                           |                                            | 75,402  |          |         |              | 78,488  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred income taxes                                                                                                                                       |                           |                                            | 13,067  |          |         |              | 13,492  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Prepaid expenses and other current assets                                                                                                                   |                           |                                            | 16,107  |          |         |              | 14,364  |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             | Total current assets      |                                            |         | 212,622  |         |              |         | 211,787 |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|Property and equipment  net                      |                                                                                                                                                             |                           | 69,492                                     |         |          |         | 75,638       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term investments                             |                                                                                                                                                             |                           | 3,989                                      |         |          |         | 2,747        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Intangibles:                                      |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Goodwill                                                                                                                                                    |                           |                                            | 102,029 |          |         |              | 87,151  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other intangible assets  net                                                                                                                               |                           |                                            | 63,829  |          |         |              | 60,432  |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             |                           | Total intangibles  net                    |         |          | 165,858 |              |         |         | 147,583 | 
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  | Other non-current assets                                                                                                                                    |                           |                                            | 4,632   |          |         |              | 5,161   |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             | Total non-current assets  |                                            |         | 243,971  |         |              |         | 231,129 |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             |                           | Total assets                               |         | $        | 456,593 |              |         | $       | 442,916 | 
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|Current liabilities:                              |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts payable                                                                                                                                            |                           | $                                          | 31,214  |          |         | $            | 25,511  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accrued liabilities                                                                                                                                         |                           |                                            | 35,266  |          |         |              | 36,565  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accrued contract losses                                                                                                                                     |                           |                                            | 11,631  |          |         |              | 14,777  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred revenue                                                                                                                                            |                           |                                            | 13,990  |          |         |              | 14,377  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Long-term debt due within one year                                                                                                                          |                           |                                            | 2,316   |          |         |              | 2,781   |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             | Total current liabilities |                                            |         | 94,417   |         |              |         | 94,011  |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|Long-term debt                                    |                                                                                                                                                             |                           | 1,659                                      |         |          |         | 2,529        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred income taxes                             |                                                                                                                                                             |                           | 7,286                                      |         |          |         | 7,313        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other long-term liabilities                       |                                                                                                                                                             |                           | 3,730                                      |         |          |         | 4,748        |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  | Total liabilities                                                                                                                                           |                           |                                            | 107,092 |          |         |              | 108,601 |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|Commitments and contingencies (Notes 4, 7 and 11) |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|Stockholders equity:                             |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Preferred stock $.01 par value; 100,000,000 shares authorized; no shares
issued and outstanding                                                             |                           |                                            |        |          |         |              |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common stock $.01 par value; authorized: 250,000,000 shares; issued and
outstanding: 46,629,000 shares at June 30, 2002 and 46,380,000 at
December 31, 2001 |                           |                                            | 466     |          |         |              | 464     |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Additional paid-in capital                                                                                                                                  |                           |                                            | 409,604 |          |         |              | 407,210 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated deficit                                                                                                                                         |                           |                                            | (58,043 | )        |         |              | (71,049 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accumulated other comprehensive loss                                                                                                                        |                           |                                            | (2,526  | )        |         |              | (2,310  | )      
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             | Stockholders equity      |                                            |         | 349,501  |         |              |         | 334,315 |        
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        
|                                                  |                                                                                                                                                             |                           | Total liabilities and stockholders equity |         | $        | 456,593 |              |         | $       | 442,916 | 
|                                                  |                                                                                                                                                             |                           |                                            |         |          |         |              |        

See Notes to Condensed Consolidated Financial Statements

2



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##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(As Restated  See Note 12)

|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |         |         | 
|---------------------------------------- | ----------------------------------------------------------------- | ------------------------ | ------- | --------------------------- | ------- | ------------------------- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                         |                                                                   |                          |         | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                         |                                                                   |                          |         |                             |         |                          
|(in thousands, except per share amounts) |                                                                   | 2002                     |         | 2001                        |         | 2002                      |         | 2001  
|                                         |                                                                   |                          |         |                             |         |                           |         |       
|Net revenue                              |                                                                   | $                        | 133,471 |                             |         | $                         | 127,204 |        |         | $ | 267,468 |         |         | $ | 257,759 |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Operating expenses:                      |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Processing, communication, and service costs                      |                          |         | 53,111                      |         |                           |         | 48,096 |         |   |         | 103,898 |         |   |         | 96,956  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Employee costs                                                    |                          |         | 45,699                      |         |                           |         | 53,909 |         |   |         | 96,717  |         |   |         | 105,580 |        
|                                        
|                                        
|                                        
|                                        
|                                         | Depreciation and amortization                                     |                          |         | 9,701                       |         |                           |         | 10,285 |         |   |         | 19,243  |         |   |         | 20,074  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Other operating costs                                             |                          |         | 9,001                       |         |                           |         | 8,994  |         |   |         | 19,193  |         |   |         | 20,220  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Restructuring and asset impairment charges                        |                          |         | 10,446                      |         |                           |         |       |         |   |         | 10,446  |         |   |         | 3,200   |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         |                                                                   | Total operating expenses |         |                             | 127,958 |                           |         |        | 121,284 |   |         |         | 249,497 |   |         |         | 246,030 | 
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Income from operations                   |                                                                   |                          | 5,513   |                             |         |                           | 5,920   |        |         |   | 17,971  |         |         |   | 11,729  |        
|                                        
|                                        
|                                        
|                                        
|Other income  net                       |                                                                   |                          | 203     |                             |         |                           | 270     |        |         |   | 605     |         |         |   | 815     |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Income before income taxes               |                                                                   |                          | 5,716   |                             |         |                           | 6,190   |        |         |   | 18,576  |         |         |   | 12,544  |        
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                                                                   |                          | (1,240  | )                           |         |                           | (2,013  | )      |         |   | (5,574  | )       |         |   | (4,623  | )      
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Net income                               |                                                                   | $                        | 4,476   |                             |         | $                         | 4,177   |        |         | $ | 13,002  |         |         | $ | 7,921   |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         | Weighted average shares outstanding                               |                          |         | 46,578                      |         |                           |         | 45,790 |         |   |         | 46,526  |         |   |         | 45,647  |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         | Weighted average shares and potential dilutive
shares outstanding |                          |         | 47,027                      |         |                           |         | 48,216 |         |   |         | 47,394  |         |   |         | 47,341  |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                        
|                                        
|                                        
|                                        
|Net income per share  basic             |                                                                   | $                        | 0.10    |                             |         | $                         | 0.09    |        |         | $ | 0.28    |         |         | $ | 0.17    |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Net income per share  diluted           |                                                                   | $                        | 0.10    |                             |         | $                         | 0.09    |        |         | $ | 0.27    |         |         | $ | 0.17    |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        

See Notes to Condensed Consolidated Financial Statements

3



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##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(As Restated  See Note 12)

|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |        |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------- | ----------------------------------------- | ----- | ---------------- | ------- | ------- | ------ | ------- | ------- | -
|                                                     |                                                                                   |                                                                       |                              |                                           |       | Six Months Ended
|                                                     |                                                                                   |                                                                       |                              |                                           |       | June 30,        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                 
|(in thousands)                                       |                                                                                   | 2002                                                                  |                              | 2001                                     
|                                                     |                                                                                   |                                                                       |                              |                                          
|Cash flows from operating activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                        |                                                                       | $                            | 13,002                                    |       |                  | $       | 7,921   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                       |                              |                                           |       |                  |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Depreciation                                                          |                              |                                           | 9,574 |                  |         |         | 9,133  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Amortization of intangibles                                           |                              |                                           | 9,669 |                  |         |         | 10,941 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Loss on impairment or disposal of property, equipment and intangibles |                              |                                           | 3,153 |                  |         |         | 148    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Equity in earnings of investee                                        |                              |                                           |      |                  |         |         | (139   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Deferred income taxes                                                 |                              |                                           | 398   |                  |         |         | (2,308 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Changes in assets and liabilities:                                    |                              |                                           |       |                  |         |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Restricted custodial cash    |                                           |       | (3,552           | )       |         |        | 4,469   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accounts receivable          |                                           |       | 3,086            |         |         |        | (21,550 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accounts payable             |                                           |       | 5,703            |         |         |        | (4,793  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accrued contract losses      |                                           |       | (3,146           | )       |         |        | (2,419  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Other assets and liabilities |                                           |       | (5,743           | )       |         |        | 6,296   |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                     |                                                                                   |                                                                       |                              | Net cash provided by operating activities |       |                  | 32,144  |         |        |         | 7,699   |  
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|Cash flows from investing activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                              |                                                                       |                              | (11,596                                   | )     |                  |         | (14,308 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                      |                                                                       |                              | (22,300                                   | )     |                  |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                             |                                                                       |                              | 26                                        |       |                  |         | (1,119  | )     
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                     |                                                                                   |                                                                       |                              | Net cash used in investing activities     |       |                  | (33,870 | )       |        |         | (15,427 | )
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|Cash flows from financing activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments on line of credit                                                      |                                                                       |                              |                                          |       |                  |         | (5,303  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments on long-term debt                                                        |                                                                       |                              | (1,619                                    | )     |                  |         | (1,168  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Release of loan guarantee collateral                                              |                                                                       |                              |                                          |       |                  |         | 8,500   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                          |                                                                       |                              | 2,396                                     |       |                  |         | 7,288   |       
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       |                              | Net cash provided by financing activities |       |                  | 777     |         |        |         | 9,317   |  
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|Net (decrease) increase in cash and cash equivalents |                                                                                   |                                                                       | (949                         | )                                         |       |                  | 1,589   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                       | 101,871                      |                                           |       |                  | 78,731  |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                     | 100,922                      |                                           |       | $                | 80,320  |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|Supplemental disclosures of cash flow information:   |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash paid for income taxes                           |                                                                                   | $                                                                     | 3,549                        |                                           |       | $                | 3,357   |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |        

See Notes to Condensed Consolidated Financial Statements

4



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##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1  The Company:

eFunds Corporation and its wholly-owned subsidiaries (the Company) provide
transaction processing, risk management and professional services to financial
institutions, retailers, electronic funds transfer networks, e-commerce
providers and government agencies. The Company has four operating segments:
Electronic Payments; Automated Teller Machine (ATM) Management Services;
Decision Support and Risk Management; and Professional Services. The Electronic
Payments segment provides automated clearinghouse (ACH), point of sale (POS),
electronic funds transfer (EFT) and other processing services across multiple
financial networks and electronic benefit transfer (EBT) services for
government agencies. The ATM Management Services segment provides ATM
deployment, management and branding services. The Decision Support and Risk
Management segment provides risk management based data and other products to
financial institutions, retailers and other businesses that assist in detecting
fraud and assessing the risk of opening a new account or accepting a check. The
Professional Services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services.

The Company was incorporated in Delaware in December 1984 and changed its name
from Deluxe Electronic Payment Systems, Inc. to eFunds Corporation in September
1999. Previously a wholly-owned subsidiary of Deluxe Corporation (Deluxe),
the Company completed its initial public offering (the IPO) in June 2000,
issuing 5.5 million shares of common stock at $13.00 per share for $64.5
million, net of offering expenses. In December 2000, Deluxe distributed all of
its remaining shares of the Companys common stock to its shareholders through
a spin-off transaction.

Note 2  Consolidation and Basis of Presentation:

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated. Investments in unconsolidated affiliated
companies, included in Long-term investments, are accounted for under the
cost method as of June 30, 2002. The consolidated financial statements should
be read in conjunction with the Companys 2001 Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission. In the opinion of
management, the accompanying financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations and
cash flows for the interim periods presented. The results of operations and
cash flows for the interim periods presented are not necessarily indicative of
the results of any future period.

Recent Accounting Pronouncement

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires the
recording of costs associated with exit or disposal activities at their fair
values at the time a liability exists and it eliminates the definition and
requirements for recognition of exit costs in Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, a liability for
an exit cost was generally recognized at the date of an entitys commitment to
an exit plan, which may have been before an actual liability arose. The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company is assessing what impact, if
any, this statement will have on its consolidated balance sheet and statement
of operations.

Note 3  Accounting Change:In January 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred (formerly EITF
Abstracts, Topic No. D-103). This EITF requires that reimbursements received
for out-of-pocket expenses should be classified as revenue and is effective for
financial reporting periods beginning after December 15, 2001. EITF Issue No.
01-14 requires that financial statements for prior periods presented be
reclassified to comply with these provisions. The Company typically incurs
telecommunications, network customer fees, travel, maintenance and repair, and
other transaction costs that are billed to and reimbursed by customers. These
reimbursements were previously classified as a reduction in operating
expenses. The effect of the Companys adoption of EITF Issue No. 01-14 was an
increase in net revenue and operating expenses of $7.5 million and $6.8 million
for the quarters ended June 30, 2002 and 2001, respectively, and $14.6 million
and $12.9 million for the six months ended June 30, 2002 and 2001,
respectively, with no effect on the Companys financial position or net income.

5



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##### Table of Contents



Note 4  Acquisitions:

On January 31, 2002, the Company purchased substantially all of the ATM-related
assets of Hanco Systems, Inc. (Hanco), an independent ATM deployment and
management company. Hanco managed a network of approximately 2,500 ATMs in 30
states. Effective May 1, 2002, the Company purchased Samsar ATM Company, Inc.
(Samsar), a Seattle-based provider of ATM services which managed an ATM
network of more than 1,000 ATMs in the northwest United States. Also, effective
June 1, 2002, the Company purchased Evergreen Teller Services, Inc.
(Evergreen), a California-based provider of ATM services for more than 1,600
ATMs located throughout California and the northwest United States. The
operating results of Hanco, Samsar and Evergreen have been included in the
Companys consolidated financial statements since the date of each purchase.
The Company currently manages a network of approximately 14,100 ATM machines.

The total purchase price of these acquisitions was approximately $24.1 million
of which approximately $22.3 million was paid in cash. Payment of approximately
$1.8 million of the purchase price is subject to satisfaction of certain
post-closing conditions. The purchase price was allocated to the assets and
liabilities of the acquired companies and the unallocated portion of the
purchase price was recorded as goodwill. The following table summarizes the
estimated fair value of assets acquired and liabilities assumed at the date of
each acquisition. Of the $7.1 million of intangible assets, $6.7 million was
assigned to customer contracts and $0.4 million was assigned to non-compete
agreements.

|                       |                       |   |        |        | 
|---------------------- | --------------------- | - | ------ | ------ | 
|(in thousands)         |                       |   |        |       
|Current assets         |                       | $ | 1,617  |       
|                      
|                      
|                      
|                      
|Property and equipment |                       |   | 367    |       
|                      
|                      
|                      
|                      
|Intangible assets      |                       |   | 7,114  |       
|                      
|                      
|                      
|                      
|Goodwill               |                       |   | 14,878 |       
|                      
|                      
|                      
|                      
|Other assets           |                       |   | 100    |       
|                       |                       |   |        |       
|                       | Total assets acquired |   |        | 24,076 | 
|                       |                       |   |        |       
|Current liabilities    |                       |   | 1,734  |       
|                       |                       |   |        |       
|                       | Net assets acquired   |   | $      | 22,342 | 
|                       |                       |   |        |       

In March 2000, the Company paid cash of $20.0 million for an approximate 24%
interest in Access Cash International L.L.C., a Delaware limited liability
company (ACI). ACI was the second largest independent provider of ATM services
in the United States. ACI provided turnkey ATM deployment solutions, including
ATM sales and management activities, as well as branding and advertising
services. The Company accounted for this initial investment under the equity
method of accounting, which requires that an investor record its share of the
losses relating to its ownership interest. Accordingly, the Companys results
of operations for the period from January 1, 2001 to September 30, 2001 include
its 24% share of the results of operations of ACI. The difference of $20.0
million between the amount of the investment and the underlying equity in the
net assets of ACI was being amortized over 15 years and the amortization was
included in other income-net. Effective October 1, 2001, the Company acquired
the remaining approximately 76% equity interest in ACI. The final acquisition
was accounted for as a purchase in accordance with the provisions of SFAS No.
141, Business Combinations. As a result of the acquisition of the remaining
equity interest in ACI, the Company consolidated ACIs results of operations
with its own, as ACI was a wholly-owned subsidiary from the date of acquisition
forward.

The purchase price (Purchase Price) of the remaining 76% of ACI was $44.6
million, of which approximately $40.3 million was paid in cash on or prior to
the closing date of the acquisition. Payment of the balance of approximately
$4.3 million is subject to the satisfaction of certain post-closing conditions.
If these conditions are resolved such that the Company is required to pay any
portion of the balance of the Purchase Price, such payments will be accounted
for as an increase to goodwill. The Purchase Price was determined by
negotiation between the parties and resulted in the recognition of goodwill as
that price exceeded the estimated fair values of identifiable assets and
liabilities and intangible assets with finite useful lives.

6



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##### Table of Contents



The following table summarizes the unaudited pro forma results of operations of
the Company as though the acquisitions of Hanco, Samsar, Evergreen and ACI had
occurred at the beginning of each period presented:

|                                         |         |      |                             |      |                           |      |         |      |  |   |         |      |  |   |         |      | 
|---------------------------------------- | ------- | ---- | --------------------------- | ---- | ------------------------- | ---- | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                         |         |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                         |         |      |                             |      |                          
|(in thousands, except per share amounts) |         | 2002 |                             | 2001 |                           | 2002 |         | 2001
|                                         |         |      |                             |      |                           |      |         |     
|Revenue                                  |         | $    | 135,064                     |      |                           | $    | 134,907 |      |  | $ | 273,863 |      |  | $ | 272,294 |     
|                                        
|                                        
|                                        
|                                        
|Net income                               |         |      | 4,533                       |      |                           |      | 2,663   |      |  |   | 12,917  |      |  |   | 5,424   |     
|                                        
|                                        
|                                        
|                                        
|Net income per share:                    |         |      |                             |      |                           |      |         |      |  |   |         |      |  |   |         |     
|                                        
|                                        
|                                        
|                                        
|                                         | Basic   |      |                             | 0.10 |                           |      |         | 0.06 |  |   |         | 0.28 |  |   |         | 0.12 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Diluted |      |                             | 0.10 |                           |      |         | 0.06 |  |   |         | 0.27 |  |   |         | 0.11 | 

Note 5  Goodwill and Other Intangible Assets:

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets(SFAS 142) which was issued by the Financial Accounting
Standards Board in June 2001. SFAS No. 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives and requires that these
assets be tested for impairment at least annually. The Company has completed
its transitional impairment test for goodwill and intangible assets with
indefinite useful lives and has determined that no impairment exists. The
following table reconciles the net income and earnings per share the Company
reported for the three and six month periods ended June 30, 2001 to exclude
historical goodwill and related tax effects:

|                                                         |         |   |              |      |            |   |        |      | 
|-------------------------------------------------------- | ------- | - | ------------ | ---- | ---------- | - | ------ | ---- | 
|                                                         |         |   | Three Months |      | Six Months
|                                                         |         |   | Ended        |      | Ended     
|                                                         |         |   | June 30,     |      | June 30,  
|(in thousands, except per share amounts)                 | 2001    |   | 2001        
|                                                         |         |   |             
|Reported net income                                      |         | $ | 4,177        |      |            | $ | 7,921  |     
|                                                        
|                                                        
|                                                        
|                                                        
|Adjustment amount for purchased goodwill amortization    |         |   | 977          |      |            |   | 1,954  |     
|                                                        
|                                                        
|                                                        
|                                                        
|Adjustment amount for ACI equity investment amortization |         |   | 220          |      |            |   | 427    |     
|                                                         |         |   |              |      |            |   |        |     
|Adjusted net income                                      |         | $ | 5,374        |      |            | $ | 10,302 |     
|                                                         |         |   |              |      |            |   |        |     
|Reported net income per share:                           |         |   |              |      |            |   |        |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Basic   |   | $            | 0.09 |            |   | $      | 0.17 | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Diluted |   | $            | 0.09 |            |   | $      | 0.17 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Adjusted net income per share:                           |         |   |              |      |            |   |        |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Basic   |   | $            | 0.12 |            |   | $      | 0.23 | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Diluted |   | $            | 0.11 |            |   | $      | 0.22 | 

Other intangible assets, both acquired and developed, subject to amortization
were as follows:

|                   |  |                     |  |                |        |               |         |                   |         |         |         |              |        |             |        |   |        |       |         |   |         |   |         |   |        |   |        | 
|------------------ |  | ------------------- |  | -------------- | ------ | ------------- | ------- | ----------------- | ------- | ------- | ------- | ------------ | ------ | ----------- | ------ | - | ------ | ----- | ------- | - | ------- | - | ------- | - | ------ | - | ------ | 
|                   |  |                     |  |                |        | June 30, 2002 |         | December 31, 2001
|                   |  |                     |  |                |        |               |         |                  
|                   |  |                     |  |                |        |               |         |                   |         |         |         |              |        |             |        |   |        | Gross |         |   |         |   |         |   |        |  
|                   |  | Amortization Period |  | Gross Carrying |        | Accumulated   |         |                   |         |         |         | Carrying     |        | Accumulated |        |   |        |      
|(in thousands)     |  | In Years            |  | Amounts        |        | Amortization  |         | Net               |         | Amounts |         | Amortization |        | Net        
|                   |  |                     |  |                |        |               |         |                   |         |         |         |              |        |            
|Software           |  | 3 to 5              |  | $              | 68,702 |               |         | $                 | (35,676 | )       |         | $            | 33,026 |             |        | $ | 65,079 |       |         | $ | (29,427 | ) |         | $ | 35,652 |  
|                  
|                  
|                  
|                  
|Customer contracts |  | 15 to 25            |  |                | 18,357 |               |         |                   | (654    | )       |         |              | 17,703 |             |        |   | 11,693 |       |         |   | (195    | ) |         |   | 11,498 |  
|                  
|                  
|                  
|                  
|Other              |  | 3 to 5              |  |                | 74,308 |               |         |                   | (61,208 | )       |         |              | 13,100 |             |        |   | 71,768 |       |         |   | (58,486 | ) |         |   | 13,282 |  
|                   |  |                     |  |                |        |               |         |                   |         |         |         |              |        |             |        |   |        |       |         |   |         |   |         |   |        |   |        | 
|                   |  |                     |  |                |        | $             | 161,367 |                   |         | $       | (97,538 | )            |        | $           | 63,829 |   |        | $     | 148,540 |   |         | $ | (88,108 | ) |        | $ | 60,432 | 
|                   |  |                     |  |                |        |               |         |                   |         |         |         |              |        |             |        |   |        |       |         |   |         |   |         |   |        |   |        | 

For the quarters ended June 30, 2002 and 2001, amortization expense was $5.0
million, and $5.6 million, respectively, and for the six-month periods ended
June 30, 2002 and 2001, amortization expense for intangible assets was $9.7
million and $10.9 million, respectively. The estimated future annual
amortization expense for intangible assets held at June 30, 2002 is $17
million, $13 million, $8 million, $4 million and $2 million for the years 2003,
2004, 2005, 2006 and 2007, respectively.

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Note 6  Accrued Losses, Charges and Allowances:

Accrued Contract Losses

The Company has historically incurred losses related to its government services
business and has established a reserve to provide for expected losses on
existing long-term service contracts. Changes to the Companys loss reserve were as follows:

|                           |  |      |        |      |  |   |        |  
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|(in thousands)             |  | 2002 |        | 2001
|                           |  |      |        |     
|Balance, beginning of year |  | $    | 14,777 |      |  | $ | 22,247 |  
|                          
|                          
|                          
|                          
|Charges to loss reserve    |  |      | (1,208 | )    |  |   | (785   | )
|                           |  |      |        |      |  |   |        |  
|Balance at March 31,       |  |      | 13,569 |      |  |   | 21,462 |  
|                          
|                          
|                          
|                          
|Charges to loss reserve    |  |      | (938   | )    |  |   | (634   | )
|                          
|                          
|                          
|                          
|Cash payments              |  |      | (1,000 | )    |  |   | (1,000 | )
|                           |  |      |        |      |  |   |        |  
|Balance at June 30,        |  | $    | 11,631 |      |  | $ | 19,828 |  
|                           |  |      |        |      |  |   |        |  

Deluxe has agreed to indemnify the Company for certain future losses arising
from any litigation, based on the conduct of the government services business
prior to the IPO as well as incremental future losses on contracts of the
government services segment which were in a loss position at April 30, 2000 to
the extent such losses exceed the estimates underlying the Companys $29.2
million loss reserve balance at April 30, 2000. The Company plans to record any
amounts received from Deluxe under the indemnification agreement as a reduction
of expense when, and if, any additional contract or litigation losses are
recognized. Deluxes total indemnification obligations to the Company are
limited to $14.6 million. No such indemnification obligations have arisen
through June 30, 2002.

Restructuring and Asset Impairment Charges

During the quarter ended June 30, 2002, the Company recorded restructuring
charges and asset impairments of $10.4 million, of which $2.0 million related
to its Electronic Payments segment, $4.8 million related to Decision Support
and Risk Management Services, $0.9 million related to Professional Services,
and $2.7 million related to unallocated corporate expense. These charges were
comprised of expected severance benefits totaling $3.4 million, $5.7 million of
lease related costs associated with the consolidation of facilities, and a net
charge of $1.3 million related to software impairment and other charges.
Severance charges resulted from the planned elimination of approximately 270
positions across all business segments primarily related to positions located
in the United States.

When circumstances warrant, the Company evaluates for impairment the carrying
value of the capitalized software costs related to the development and delivery
of a product or product line. The Company is in the process of a strategic
business reassessment of the performance and contribution of existing and
potential products. During the second quarter of 2002, certain under-performing
products were identified as impaired and the carrying value of the related
capitalized software and certain fixed assets were reduced through the
impairment charge.

During the first quarter of 2001, restructuring accruals of $3.2 million were
recorded as a result of the planned closure of the Companys operations in
Bothell, Washington. These expenses related entirely to the Decision Support
and Risk Management segment.

The following table summarizes the Companys utilization of restructuring
accruals for the three and six month periods ended June 30, 2002:

|                                 |  |                    |     |                   |  |                    |       |   |  |   |       |    
|-------------------------------- |  | ------------------ | --- | ----------------- |  | ------------------ | ----- | - |  | - | ----- | ---
|(in thousands, except employees) |  | Employees Affected |     | Severance-Related |  | Facility and other
|                                 |  |                    |     |                   |  |                   
|Balance, December 31, 2001       |  |                    | 74  |                   |  | $                  | 1,011 |   |  | $ | 1,397 |    
|                                
|                                
|                                
|                                
|Expense provision                |  |                    |    |                   |  |                    |      |   |  |   |      |    
|                                
|                                
|                                
|                                
|Cash payments                    |  |                    | (31 | )                 |  |                    | (452  | ) |  |   |      |    
|                                 |  |                    |     |                   |  |                    |       |   |  |   |       |    
|Balance, March 31, 2002          |  |                    | 43  |                   |  |                    | 559   |   |  |   | 1,397 |    
|                                
|                                
|                                
|                                
|Expense provision                |  |                    | 271 |                   |  |                    | 3,397 |   |  |   | 4,623 | (1)
|                                
|                                
|                                
|                                
|Cash payments                    |  |                    | (38 | )                 |  |                    | (368  | ) |  |   | (879  | )  
|                                 |  |                    |     |                   |  |                    |       |   |  |   |       |    
|Balance, June 30, 2002           |  |                    | 276 |                   |  | $                  | 3,588 |   |  | $ | 5,141 |    
|                                 |  |                    |     |                   |  |                    |       |   |  |   |       |    

|    |  |                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------
|(1) |  | Does not include approximately $2.4 million of non-cash asset impairment charges expensed in this period.

8



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Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses that will
likely result from customers failing to pay the Company. The estimate of
the allowance is based on experience with specific customers,
understanding of their current economic circumstances and managements judgment as
to the likelihood of their ultimate payment. Management also considers collection
experience with the balance of the receivables portfolio and makes estimates
regarding collectibility based on trends in aging. The estimates utilized to
calculate the Companys allowance for doubtful accounts were revised during the second
quarter of 2002 following the establishment of the Companys collections and credit
committee and the implementation of enhanced collection processes and systems
to be more reflective of the Companys recent collection history. As a result of this
change in estimate, management reduced the estimate for uncollectible accounts by $2.5 million
during the second quarter of 2002.

Note 7  Long-term Debt and Credit Facilities:

Long-term debt consists principally of capital lease obligations related to
equipment. Long-term debt was as follows:

|                                |       |      |          |       |              |   |        |       | 
|------------------------------- | ----- | ---- | -------- | ----- | ------------ | - | ------ | ----- | 
|                                |       |      | June 30, |       | December 31,
|(in thousands)                  |       | 2002 |          | 2001 
|                                |       |      |          |      
|Capital leases and other debt   |       | $    | 3,975    |       |              | $ | 5,310  |      
|                               
|                               
|                               
|                               
|Less amount due within one year |       |      | (2,316   | )     |              |   | (2,781 | )    
|                                |       |      |          |       |              |   |        |      
|                                | Total |      | $        | 1,659 |              |   | $      | 2,529 | 
|                                |       |      |          |       |              |   |        |      

The capital lease obligations bear interest at rates ranging from 6.1% to 35.9%
and are due through the year 2004.

In September 2001, the Company obtained a revolving credit facility in the
amount of $20.0 million to replace a facility that was due to expire. The
Company did not borrow any funds under this facility through June 30, 2002, and
it was terminated by agreement with the lending bank in August 2002.

Note 8  Net Income Per Share:

Net income per share  basic is computed by dividing net income by the weighted
average number of shares outstanding. Net income per share  diluted is
computed by dividing net income by the weighted average number of shares
outstanding and, if dilutive, the weighted average number of potentially
dilutive common shares outstanding. Potentially dilutive common shares are
shares issuable upon the exercise of outstanding in the money stock option
agreements. The Company uses the treasury stock method to calculate diluted
weighted average shares outstanding. This method assumes that the Company uses
the proceeds received from the hypothetical exercise of dilutive stock options
to repurchase shares at the average market price per share during the period.

The following table reflects the calculation of basic and diluted net income
per share:

|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|---------------------------------------- | ------------------------------------------------------- | ---- | ------------------ | ------ | ---------------- | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                         |                                                         |      | Three Months Ended |        | Six Months Ended
|                                         |                                                         |      | June 30,           |        | June 30,        
|                                         |                                                         |      |                    |        |                 
|(in thousands, except per share amounts) |                                                         | 2002 |                    | 2001   |                  | 2002 |   | 2001  
|                                         |                                                         |      |                    |        |                  |      |   |       
|Net income per share  basic:            |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                                              |      | $                  | 4,476  |                  |      | $ | 4,177  |  |  | $ | 13,002 |  |  | $ | 7,921  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Weighted average shares outstanding                     |      |                    | 46,578 |                  |      |   | 45,790 |  |  |   | 46,526 |  |  |   | 45,647 | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                         | Net income per share  basic                            |      | $                  | 0.10   |                  |      | $ | 0.09   |  |  | $ | 0.28   |  |  | $ | 0.17   | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|Net income per share  diluted:          |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                                              |      | $                  | 4,476  |                  |      | $ | 4,177  |  |  | $ | 13,002 |  |  | $ | 7,921  | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                         | Weighted average shares outstanding                     |      |                    | 46,578 |                  |      |   | 45,790 |  |  |   | 46,526 |  |  |   | 45,647 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Dilutive impact of stock options                        |      |                    | 449    |                  |      |   | 2,426  |  |  |   | 868    |  |  |   | 1,694  | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                         | Weighted average shares and dilutive shares outstanding |      |                    | 47,027 |                  |      |   | 48,216 |  |  |   | 47,394 |  |  |   | 47,341 | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                         | Net income per share  diluted                          |      | $                  | 0.10   |                  |      | $ | 0.09   |  |  | $ | 0.27   |  |  | $ | 0.17   | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       

Note 9  Comprehensive Income:

The Companys total comprehensive income for the three month periods ended June
30, 2002 and 2001 was $4.6 million and $4.1 million, respectively, and $12.8
million and $7.6 million for the six month periods ended June 30, 2002 and
2001, respectively. The Companys total comprehensive income consists of net
income and foreign currency translation adjustments.

Note 10  Business Segments:

As a result of restructuring, integration initiatives and its ATM acquisition
strategy, the Company has reorganized its segments to consolidate its
government services business with its previous Electronic Payments segment. In
addition,

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##### Table of Contents



new segments consisting of ATM Management Services, Decision Support and Risk
Management, and Professional Services have been separately identified. The
Company reports segment information consistent with the way management
internally disaggregates its operations to assess performance and to allocate
resources. The Electronic Payments segment includes ACH, POS, EFT and other
processing services across multiple financial networks, and EBT services for
government agencies. The ATM Management Services segment provides of ATM
deployment, management and branding services. The Decision Support and Risk
Management segment provides risk management based data and other products to
financial institutions, retailers and other businesses to assist them in
detecting fraud and assessing the risk of opening a new account or accepting a
check. The Professional Services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services. The segment information presented below for the three
and six month periods ended June 30, 2001 have been restated for comparative
purposes to reflect the Companys current segments.

The accounting policies of the segments are the same as those applied to the
Company on a consolidated basis. For internal reporting purposes, the Company
groups costs based upon managerial control. The majority of these managed cost
groups are directly assigned to a reportable segment. For cost groups
supporting more than one reportable segment, the costs are assigned based upon
the product line or project benefited. The Company does not allocate expenses
that benefit all segments and are corporate or administrative in nature. These
costs include, but are not limited to, legal, accounting, human resources, risk
management, sales and executive expenses.

Information concerning operations in these reportable segments of business is
as follows:

|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |         | 
|---------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------- | - | --------------------------- | ------- | ------------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                   |                                      |                                                                             |   | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                                                                   |                                      |                                                                             |   |                             |         |                          
|(in thousands)                                                                     |                                      | 2002                                                                        |   | 2001                        |         | 2002                      |   | 2001   
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |        
|Net Revenue:                                                                       |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Electronic payments                  |                                                                             | $ | 47,262                      |         |                           | $ | 45,725  |         |  | $ | 93,769  |         |  | $ | 90,922  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | ATM management services              |                                                                             |   | 27,510                      |         |                           |   | 18,324  |         |  |   | 48,150  |         |  |   | 34,904  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Decision support and risk management |                                                                             |   | 34,828                      |         |                           |   | 35,107  |         |  |   | 72,153  |         |  |   | 72,496  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Professional services                |                                                                             |   | 23,871                      |         |                           |   | 28,048  |         |  |   | 53,396  |         |  |   | 59,437  |        
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                   |                                      | Total net revenue                                                           |   |                             | 133,471 |                           |   |         | 127,204 |  |   |         | 267,468 |  |   |         | 257,759 | 
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|Operating Expenses before restructuring
and asset impairment charges:              |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Electronic payments                  |                                                                             |   | 31,087                      |         |                           |   | 34,184  |         |  |   | 65,211  |         |  |   | 67,683  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | ATM management services              |                                                                             |   | 25,381                      |         |                           |   | 17,458  |         |  |   | 44,635  |         |  |   | 34,020  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Decision support and risk management |                                                                             |   | 24,961                      |         |                           |   | 26,873  |         |  |   | 54,069  |         |  |   | 54,331  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Professional services                |                                                                             |   | 14,444                      |         |                           |   | 19,472  |         |  |   | 33,323  |         |  |   | 39,694  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Corporate                            |                                                                             |   | 21,639                      |         |                           |   | 23,297  |         |  |   | 41,813  |         |  |   | 47,102  |        
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                   |                                      | Total operating expenses before
restructuring and asset impairment charges  |   |                             | 117,512 |                           |   |         | 121,284 |  |   |         | 239,051 |  |   |         | 242,830 | 
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Restructuring and asset impairment charges:                                        |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Electronic payments                  |                                                                             |   | 2,046                       |         |                           |   |        |         |  |   | 2,046   |         |  |   |        |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | ATM management services              |                                                                             |   | 38                          |         |                           |   |        |         |  |   | 38      |         |  |   |        |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Decision support and risk management |                                                                             |   | 4,832                       |         |                           |   |        |         |  |   | 4,832   |         |  |   | 3,200   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Professional services                |                                                                             |   | 868                         |         |                           |   |        |         |  |   | 868     |         |  |   |        |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Corporate                            |                                                                             |   | 2,662                       |         |                           |   |        |         |  |   | 2,662   |         |  |   |        |        
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                   |                                      | Total restructuring and asset impairment charges                            |   |                             | 10,446  |                           |   |         |        |  |   |         | 10,446  |  |   |         | 3,200   | 
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|Income (loss) from operations including
restructuring and asset impairment charges |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Electronic payments                  |                                                                             |   | 14,129                      |         |                           |   | 11,541  |         |  |   | 26,512  |         |  |   | 23,239  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | ATM management services              |                                                                             |   | 2,091                       |         |                           |   | 866     |         |  |   | 3,477   |         |  |   | 884     |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Decision support and risk management |                                                                             |   | 5,035                       |         |                           |   | 8,234   |         |  |   | 13,252  |         |  |   | 14,965  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Professional services                |                                                                             |   | 8,559                       |         |                           |   | 8,576   |         |  |   | 19,205  |         |  |   | 19,743  |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Corporate                            |                                                                             |   | (24,301                     | )       |                           |   | (23,297 | )       |  |   | (44,475 | )       |  |   | (47,102 | )      
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                                   |                                      | Income from operations including
restructuring and asset impairment charges |   | $                           | 5,513   |                           |   | $       | 5,920   |  |   | $       | 17,971  |  |   | $       | 11,729  | 
|                                                                                   |                                      |                                                                             |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        

The Company has not disclosed assets by segment as this information is not
reviewed by the chief operating decision

10



---



##### Table of Contents



maker, is not produced internally and
it is not practicable to prepare it.

Revenue is attributed to geographic areas based on the location of the assets
producing the revenue. The Companys net revenues and property and equipment by
geographic area are as follows:

|                        |                    |      |                    |         |                  |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------- | ------------------ | ---- | ------------------ | ------- | ---------------- | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                        |                    |      | Net Revenues      
|                        |                    |      |                   
|                        |                    |      | Three Months Ended |         | Six Months Ended
|                        |                    |      | June 30,           |         | June 30,        
|                        |                    |      |                    |         |                 
|(in thousands)          |                    | 2002 |                    | 2001    |                  | 2002 |         | 2001   
|                        |                    |      |                    |         |                  |      |         |        
|United States           |                    | $    | 122,437            |         |                  | $    | 117,141 |         |  | $ | 243,809 |         |  | $ | 236,924 |        
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 2,729              |         |                  |      | 4,409   |         |  |   | 7,480   |         |  |   | 9,500   |        
|                       
|                       
|                       
|                       
|India                   |                    |      | 5,879              |         |                  |      | 5,654   |         |  |   | 11,879  |         |  |   | 11,335  |        
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 2,246              |         |                  |      |        |         |  |   | 4,300   |         |  |   |        |        
|                        |                    |      |                    |         |                  |      |         |         |  |   |         |         |  |   |         |        
|                        | Total consolidated |      | $                  | 133,471 |                  |      | $       | 127,204 |  |   | $       | 267,468 |  |   | $       | 257,759 | 
|                        |                    |      |                    |         |                  |      |         |         |  |   |         |         |  |   |         |        

|                        |                    |      |                            |        |              |   |        |        | 
|----------------------- | ------------------ | ---- | -------------------------- | ------ | ------------ | - | ------ | ------ | 
|                        |                    |      | Property and Equipment-Net
|                        |                    |      |                           
|                        |                    |      | June 30,                   |        | December 31,
|(in thousands)          |                    | 2002 |                            | 2001  
|                        |                    |      |                            |       
|United States           |                    | $    | 58,856                     |        |              | $ | 64,687 |       
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 1,594                      |        |              |   | 1,736  |       
|                       
|                       
|                       
|                       
|India                   |                    |      | 8,526                      |        |              |   | 8,950  |       
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 516                        |        |              |   | 265    |       
|                        |                    |      |                            |        |              |   |        |       
|                        | Total consolidated |      | $                          | 69,492 |              |   | $      | 75,638 | 
|                        |                    |      |                            |        |              |   |        |       

Note 11  Commitments and Contingencies:

In connection with the Companys government services, collection and ATM
placement activities, the Company posts surety bonds with state agencies
guaranteeing its performance of certain obligations related to the relevant
contracts or state requirements. The aggregate amount of such bonds outstanding
at June 30, 2002 was $8.0 million.

The Company had outstanding letters of credit amounting to $1.0 million at June
30, 2002 which were issued under its previous credit facility. In August 2002,
the Company collateralized these letters of credit with a $1.0 million cash
deposit at the issuing bank in connection with the termination of that
facility.

The Company has guaranteed certain equipment lease payments for Canadian
customers of its ATM management business totaling $2.1 million as of June 30,
2002. Through June 30, 2002, the Company has been required to make payments of
approximately $66,000 pursuant to these guarantees.

In December 2001, the Company entered into a subscription agreement to acquire
a 15% interest in Webtel Pty. Ltd., an Australian corporation (Webtel).
Pursuant to the subscription agreement, the Company invested $1.3 million in
Webtel in 2001 and has committed to invest an additional $0.8 million upon the
satisfaction of certain conditions specified in the subscription agreement.

The Company has approximately $1.5 million in time deposits, denominated in
Indian rupees, primarily for securing letters of credit issued in the ordinary
course of business by its India operations. An Indian bank has also issued an
advance guarantee on behalf of the Company to secure its performance under a
customer contract. The banks guarantee is secured by an additional time
deposit of $0.9 million.

The Company operates a call center in Mumbai, India under a customer contract.
The customer receives credits toward a right to purchase, after December 31,
2002, a minority interest in, or sole ownership of, certain assets used by the
Company in performing call center operations for the customer as well as
transition assistance. The customers right to acquire an ownership right in
the assets is determined by a formula that is driven primarily by the revenue
generated by the contract. As of June 30, 2002, the customer was entitled to
acquire less than a 5% ownership interest.

On March 8, 2002, the Company received a letter from the Securities and
Exchange Commission (the SEC) stating that the SEC is conducting an inquiry
of the Company and requesting the Companys voluntary assistance in connection
with the provision of certain documents relating to the Companys 2001
financial results and certain transactions between the Company and ACI, among
other things. The letter from the SEC states that the inquiry is non-public and
that it should not be construed as an indication that the SEC believes any
violation of law has occurred. The Company is cooperating fully with the SEC in
resolving this matter. The Company may, however, be the subject of additional
inquiries or become

11



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subject to a fine or other liabilities.

Note 12  Restatement:

Subsequent to the issuance of the Companys consolidated financial
statements for the year ended December 31, 2001, and in response
to questions raised in connection with an internal audit of certain
significant vendor contracts, the
Company conducted an
investigation of certain significant transactions reflected in the
Companys financial statements during 2000 and 2001. As a result
of this investigation, the
Companys management determined that the historical accounting
treatment that had been afforded to (i) certain data purchase agreements with Experian Information Systems
(Experian) and Acxiom Corporation (Acxiom), (ii) certain tax contingencies
related to the Companys India based operations, (iii) the timing of
revenue recognition for certain software licenses sold by the Companys
subsidiary in the United Kingdom and, (iv) tax benefits associated with stock option
exercises in 2001, should be revised. The revisions are discussed below:



| |  | Experian:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2000, the Company and Experian executed a Data Purchase Agreement
(the 2000 Agreement), which expired June 30, 2001. The Company recognized
$3 million of revenue from a data file sale related to the 2000 Agreement in
the second quarter of 2000, and minimum royalties of $1.5 million and $0.5
million were recorded as revenue in the first and second quarters of 2001,
respectively. In June 2001, the Company and Experian executed a new Data
Purchase Agreement (the 2001 Agreement), which expires in March 2003. The
Company recognized $3 million of revenues from a data file sale related to
the 2001 Agreement in the second quarter of 2001. In July 2001, the Company
also entered into a Data Access/Use Agreement with Experian. The Company
recorded revenue of $0.2 million in the third quarter of 2001 related to the
Data Access/Use Agreement.                                                                                                                                                                                                                                          
|
| |  | Management has subsequently determined that the 2001 Agreement and the Data
Access/Use Agreement should be viewed as interrelated and in substance one
agreement that became effective in July 2001. Management has also
determined that sufficient objective evidence of fair value does not exist
to support separate accounting for the various elements of the 2000 and 2001
Agreements. As a result, management determined that these transactions
should be treated as service arrangements for which revenue should be
recognized ratably over the service periods and that revenue recognition
should not commence until the last essential element of the arrangements was
delivered, which was October 2000 for the 2000 Agreement and August 2001 for
the 2001 Agreement. This treatment results in recognition of the $5 million
of total fees related to the 2000 Agreement ratably over the remaining term
of that agreement, commencing October 2000, and recognition of the $3.2
million of total fees related to the 2001 Agreement ratably over the
remaining term of that agreement, commencing August 2001.
|
| |  | Acxiom:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | During the period from March 2001 through June 2001, the Company and Acxiom
negotiated and executed agreements (Vendor Agreements) related to three
primary arrangements under which the Company purchased outsourcing and
data-related services from Acxiom that were being provided over terms
extending through March 2006. Also in June 2001, the Company and Acxiom
executed a Data Purchase Agreement under which the Company sold data files
to Acxiom. Under the terms of the Vendor Agreements, the Company was
recognizing the cost of the services as they were billed by Acxiom, and the
Company recognized $3 million in revenue from the data file sale under the
Data Purchase Agreement in the second quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Management has subsequently determined that the Vendor Agreements and the
Data Purchase Agreement should be viewed as economically interrelated and
treated as a single agreement between the parties, and that the $3 million
received from Acxiom under the Data Purchase Agreement should be
treated as a reduction of expense associated with the Vendor Agreements
over the remaining term of those agreements rather than as an item of
revenue. Management also determined that the expenses related to the Vendor
Agreements and one other service contract, which contain fixed prices over
their terms, should be recorded on a ratable basis over the term of the
related service periods.                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Management has determined that
the liabilities associated with certain tax contingencies related to the
Companys India based operations were underestimated, resulting in an
understatement of income tax expense for federal income tax purposes of
$0.8 million and $0.2 million in 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

12



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##### Table of Contents





| |  | United Kingdom  Software Licenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Management also determined that $1.0 million in software licenses sold by
the Companys subsidiary in the United Kingdom during 2001 had been
incorrectly recognized as revenue prior to obtaining a signed license
agreement which resulted in an overstatement of revenues by $0.2
million and $0.8 million in the first and second quarters of 2001,
respectively, and an understatement of revenues of $0.9 million and $0.1 million, respectively,
in the third and fourth quarters of 2001.
|
| |  | In addition, one other
miscellaneous adjustment was made to recognize $0.3 million of revenue
ratably in the second and third quarters of 2000 that had previously been
recognized in the first quarter of 2000.                                                                                                                                                                                                                                                                                 
|
| |  | Exercise of stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Management also determined that the Company had not accounted for $2.2
million in tax benefits associated with the exercise of certain stock
options in 2001, which should have been recognized as an increase in
additional paid-in capital and a reduction in income taxes payable. This
adjustment did not affect the Statement of Operations for any period
presented.                                                                                                                       

As a result, the accompanying condensed consolidated financial statements as of
June 30, 2002 and for the three and six month periods ended June 30, 2002 and
2001 have been restated from amounts previously reported to revise the
accounting for these transactions.

13



---



##### Table of Contents



A summary of the significant effects of the restatement is as follows:

|                                          |  |                        |         |                         |  |                        |         |             |  |   |         |  |  |   |         | 
|----------------------------------------- |  | ---------------------- | ------- | ----------------------- |  | ---------------------- | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                          |  | As of June 30, 2002    |         | As of December 31, 2001
|                                          |  |                        |         |                        
|                                          |  | As Previously Reported |         | As Restated             |  | As Previously Reported |         | As Restated
|                                          |  |                        |         |                         |  |                        |         |            
|(in thousands)                            |  |                        |         |                         |  |                        |         |             |  |   |         |  |  |   |         | 
|Accounts receivable net                   |  | $                      | 75,402  |                         |  | $                      | 75,402  |             |  | $ | 79,444  |  |  | $ | 78,488  | 
|                                         
|                                         
|                                         
|                                         
|Deferred income taxes                     |  |                        | 10,947  |                         |  |                        | 13,067  |             |  |   | 10,844  |  |  |   | 13,492  | 
|                                         
|                                         
|                                         
|                                         
|Prepaid expenses and other current assets |  |                        | 16,143  |                         |  |                        | 16,107  |             |  |   | 14,444  |  |  |   | 14,364  | 
|                                         
|                                         
|                                         
|                                         
|Total current assets                      |  |                        | 210,538 |                         |  |                        | 212,622 |             |  |   | 210,175 |  |  |   | 211,787 | 
|                                         
|                                         
|                                         
|                                         
|Total assets                              |  |                        | 454,509 |                         |  |                        | 456,593 |             |  |   | 441,304 |  |  |   | 442,916 | 
|                                         
|                                         
|                                         
|                                         
|Accrued liabilities                       |  |                        | 34,736  |                         |  |                        | 35,266  |             |  |   | 35,643  |  |  |   | 36,565  | 
|                                         
|                                         
|                                         
|                                         
|Deferred revenue                          |  |                        | 12,488  |                         |  |                        | 13,990  |             |  |   | 12,831  |  |  |   | 14,377  | 
|                                         
|                                         
|                                         
|                                         
|Total current liabilities                 |  |                        | 92,385  |                         |  |                        | 94,417  |             |  |   | 91,543  |  |  |   | 94,011  | 
|                                         
|                                         
|                                         
|                                         
|Other long-term liabilities               |  |                        | 2,017   |                         |  |                        | 3,730   |             |  |   | 2,713   |  |  |   | 4,748   | 
|                                         
|                                         
|                                         
|                                         
|Total liabilities                         |  |                        | 103,347 |                         |  |                        | 107,092 |             |  |   | 104,098 |  |  |   | 108,601 | 
|                                         
|                                         
|                                         
|                                         
|Additional paid-in capital                |  |                        | 407,387 |                         |  |                        | 409,604 |             |  |   | 404,993 |  |  |   | 407,210 | 
|                                         
|                                         
|                                         
|                                         
|Total stockholders equity                |  |                        | 351,162 |                         |  |                        | 349,501 |             |  |   | 337,206 |  |  |   | 334,315 | 

|                                             |  |                                |         |             |  |                        |         |             |  |   |         |  |  |   |         | 
|-------------------------------------------- |  | ------------------------------ | ------- | ----------- |  | ---------------------- | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                             |  | For the Quarter Ended June 30,
|                                             |  |                               
|                                             |  | 2002                           |         | 2001       
|                                             |  |                                |         |            
|                                             |  | As Previously                  |         |             |  |                        |         |             |  |   |         |  |  |  
|                                             |  | Reported                       |         | As Restated |  | As Previously Reported |         | As Restated
|                                             |  |                                |         |             |  |                        |         |            
|(in thousands, except per share data)        |  |                                |         |             |  |                        |         |             |  |   |         |  |  |   |         | 
|Net revenue                                  |  | $                              | 132,971 |             |  | $                      | 133,471 |             |  | $ | 132,835 |  |  | $ | 127,204 | 
|                                            
|                                            
|                                            
|                                            
|Processing, communication, and service costs |  |                                | 53,393  |             |  |                        | 53,111  |             |  |   | 48,124  |  |  |   | 48,096  | 
|                                            
|                                            
|                                            
|                                            
|Total operating expenses                     |  |                                | 128,240 |             |  |                        | 127,958 |             |  |   | 121,312 |  |  |   | 121,284 | 
|                                            
|                                            
|                                            
|                                            
|Income from operations                       |  |                                | 4,731   |             |  |                        | 5,513   |             |  |   | 11,523  |  |  |   | 5,920   | 
|                                            
|                                            
|                                            
|                                            
|Net income                                   |  |                                | 3,929   |             |  |                        | 4,476   |             |  |   | 7,738   |  |  |   | 4,177   | 
|                                            
|                                            
|                                            
|                                            
|Net income per share  basic                 |  | $                              | 0.08    |             |  | $                      | 0.10    |             |  | $ | 0.17    |  |  | $ | 0.09    | 
|                                            
|                                            
|                                            
|                                            
|Net income per share  diluted               |  | $                              | 0.08    |             |  | $                      | 0.10    |             |  | $ | 0.16    |  |  | $ | 0.09    | 

|                                             |  |                                   |         |             |  |                        |         |             |  |   |         |  |  |   |         | 
|-------------------------------------------- |  | --------------------------------- | ------- | ----------- |  | ---------------------- | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                             |  | For the Six Months Ended June 30,
|                                             |  |                                  
|                                             |  | 2002                              |         | 2001       
|                                             |  |                                   |         |            
|                                             |  | As Previously                     |         |             |  |                        |         |             |  |   |         |  |  |  
|                                             |  | Reported                          |         | As Restated |  | As Previously Reported |         | As Restated
|                                             |  |                                   |         |             |  |                        |         |            
|(in thousands, except per share data)        |  |                                   |         |             |  |                        |         |             |  |   |         |  |  |   |         | 
|Net revenue                                  |  | $                                 | 266,468 |             |  | $                      | 267,468 |             |  | $ | 263,455 |  |  | $ | 257,759 | 
|                                            
|                                            
|                                            
|                                            
|Processing, communication, and service costs |  |                                   | 104,656 |             |  |                        | 103,898 |             |  |   | 96,818  |  |  |   | 96,956  | 
|                                            
|                                            
|                                            
|                                            
|Total operating expenses                     |  |                                   | 250,255 |             |  |                        | 249,497 |             |  |   | 245,892 |  |  |   | 246,030 | 
|                                            
|                                            
|                                            
|                                            
|Income from operations                       |  |                                   | 16,213  |             |  |                        | 17,971  |             |  |   | 17,563  |  |  |   | 11,729  | 
|                                            
|                                            
|                                            
|                                            
|Net income                                   |  |                                   | 11,772  |             |  |                        | 13,002  |             |  |   | 11,821  |  |  |   | 7,921   | 
|                                            
|                                            
|                                            
|                                            
|Net income per share  basic                 |  | $                                 | 0.25    |             |  | $                      | 0.28    |             |  | $ | 0.26    |  |  | $ | 0.17    | 
|                                            
|                                            
|                                            
|                                            
|Net income per share  diluted               |  | $                                 | 0.25    |             |  | $                      | 0.27    |             |  | $ | 0.25    |  |  | $ | 0.17    | 

In October 2002, the staff of the
Securities and Exchange Commission requested additional information
from us related to, among other things, certain of the matters that
are the subject of this restatement.




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
               OF OPERATIONS:

As discussed in Note 12 to the condensed consolidated financial statements
included in Item 1, the condensed consolidated financial statements as of June
30, 2002 and for the three and six month periods ended June 30, 2002 and 2001
have been restated. The following management discussion and analysis takes into
account the effects of the restatement.

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to those financial statements
included in this Quarterly Report on Form 10-Q/A and our 2001 Annual Report on
Form 10-K/A filed with the Securities & Exchange Commission.

Forward-Looking Statements

In addition to historical and pro forma information, this Quarterly Report
contains forward-looking statements as defined in the U.S. Private Securities
Litigation Reform Act of 1995. All forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those described in the statements. Some of the factors that
could cause actual results to differ from those that are presently anticipated
are discussed in Item 5 of this Quarterly Report.

14



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Overview

eFunds Corporation and its wholly-owned subsidiaries (the Company, we or
us) provide transaction processing, risk management and professional services
to financial institutions, retailers, electronic funds transfer networks,
e-commerce providers and government agencies. The Company has four operating
segments: Electronic Payments; Automated Teller Machine (ATM) Management
Services; Decision Support and Risk Management; and Professional Services. The
Electronic Payments segment provides automated clearinghouse (ACH), point of
sale (POS) electronic funds transfer (EFT), and other processing services
across multiple financial networks and electronic benefits transfer (EBT)
services for government agencies. The ATM Management Services segment provides
ATM deployment, management and branding services. The Decision Support and Risk
Management segment provides risk management based data and other products to
financial institutions, retailers and other businesses that assist in detecting
fraud and assessing the risk of opening a new account or accepting a check. The
Professional Services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles that are generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue recognition,
intangible assets, accrued contract losses, bad debts, income taxes and
stock-based compensation. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:

Revenue recognition  Our net revenues consist of transaction processing and
service fees, decision support fees, software licensing, maintenance and
support fees, government service fees, and information technology consulting
and business process management services fees. Our revenue recognition policies
for these various fees are as follows:



| |  | Transaction processing and service fees are recognized in the period that the service is performed. These services consist
of processing our customers electronic debit transactions through electronic funds transfer networks and settling the
funds with the financial institutions involved in the transactions. Additionally, these services include monitoring ATMs
and point-of-sale devices to alert our customers when potential problems occur. These fees are charged on a per transaction
basis, depending on the contractual arrangement with the customer. We also receive fees paid by consumers utilizing ATM
machines owned or managed by us and fees paid by their banks for interchange services. Government services fees are
recognized in the period services are provided based on monthly fees per benefits recipient.                                                                                                                                                                                                                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Decision support fees are recognized as revenue in the period the services are provided. Decision support services consist
of new account applicant and check verification screenings to manage the risk associated with account openings and check
acceptance. Decision support fees are based on the number of inquiries against the databases used for screening purposes or
monthly fees based on the aggregate dollar value of checks authorized by the retailer or other similar measures, depending
on the product and service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| 
| |  | Software and data license fees for standard products are recognized when a license agreement has been signed, the license
fee is fixed and determinable, collectibility of the license fee is probable, delivery has occurred and there are no
uncertainties surrounding product acceptance. If a license contains customer acceptance criteria for which significant
uncertainties exist, the revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance
period. Certain software and data products include multiple modules and the license fee charged to the customer is based on
the modules licensed. If a customer contract requires that we deliver multiple elements, then upfront fees are recognized
as revenue if vendor specific objective evidence of fair value exists for each of the undelivered elements. If vendor
specific objective evidence of fair value does not exist, then the total fees of the arrangement are recognized over the
term of the related agreement based upon delivery of all essential elements.
| 
| |  | We also provide professional services consisting of information technology consulting and business process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

15



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|  |  | management services. Revenue from providing such services is generally
recognized under one of two methods, depending on the relevant contractual
terms. Under the time and materials method, which is applied to nearly all of
our Professional Services contracts, revenue is based on a fee per hour basis
and is recognized as hours are completed. Under the fixed contract method, a
pre-set fee is agreed upon for a project, and revenue is recognized
proportionately to the percentage of completion of the project. If the
information technology consulting services involve the significant
customization of software that has been licensed from us, the license fee is
also recognized proportionately to the percentage of completion of the
project.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Software maintenance and support revenue is recognized ratably over the
term of the contract, or as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The process involved in evaluating the appropriateness of revenue recognition
involves judgments about vendor-specific objective evidence of the fair value
of each of the various elements to be delivered in a sale that has multiple
components, collectibility of fees, and projections of costs to complete
projects for our customers.

Intangible Assets  Our intangible assets consist primarily of goodwill,
capitalized software costs and acquired customer contracts. We capitalize the
cost of software developed or obtained for internal use once the preliminary
project stage has been completed, management commits to funding the project and
it is probable that the project will be completed and that the software will be
used to perform the function intended. Capitalized costs include only (1)
external direct costs of materials and services consumed in developing or
obtaining internal-use software, (2) payroll and payroll-related costs for
employees who are directly associated with and who devote time to the
internal-use software project, and (3) interest costs incurred, when material,
while developing internal-use software. Capitalization of costs ceases when the
project is substantially complete and the software is ready for its intended
use. Software developed or obtained for internal use is tested for impairment
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable.

We capitalize the cost of software developed for licensing and resale once
technological feasibility has been established. Costs incurred prior to
establishing technological feasibility are expensed as incurred. Technological
feasibility is established when we have completed all planning, designing,
coding and testing activities that are necessary to determine that a product
can be produced to meet its design specifications, including functions,
features and technical performance requirements. Capitalization of costs ceases
when the product is available for general release to customers. Such costs are
amortized on a product-by-product basis over no longer than five years.
Software developed for resale is carried at the lesser of amortized cost or net
realizable value.

When we acquire other companies, generally accepted accounting principles
require that we make estimates regarding the fair values of the acquirees
tangible assets and liabilities and identifiable intangible assets. Based upon
these estimates, we then allocate the purchase price to the assets and
liabilities of the acquired company for the purpose of recording these items in
our financial records. Any unallocated purchase price is considered to be, and
recorded as, goodwill. The distinction between the amount of the purchase price
allocated either to tangible assets and liabilities or identifiable intangible
assets and goodwill is significant as goodwill is not amortized to the
statement of operations but is instead subject to an annual impairment test.
Estimates inherent in the process of this purchase price allocation include
assumptions regarding the timing and amounts of future cash inflows and
outflows, the saleability of inventories, selection of discount rates, contract
renewal rates and general market conditions. Where appropriate, we use
third-party valuation professionals to assist us in making these estimates.

The process of evaluating goodwill and other intangible assets, including
capitalized software costs and customer contract costs, for impairment involves
judgments about market conditions and economic indicators, estimates of future
cash flows and assumptions about our strategic plans with regard to our
operations. To the extent additional information arises or our strategies
change, it is possible that our conclusions regarding the carrying value of our
intangible assets could change and materially affect our financial position or
results of operations. We recorded a write-down of capitalized software
associated with under-performing products in the second quarter of 2002 and our
ongoing product review process may require additional charges of this type in
the third quarter.

Reserves and Allowances  We maintain a reserve for expected future losses on
certain EBT contracts. Our estimates of such losses are based on a variety of
assumptions including assumptions about future welfare case levels, number of
transactions per case and costs related to processing transactions and support
services. These assumptions are subject to significant uncertainties and may
differ substantially from actual results. In the event such differences arise,
a revision to the loss contract reserve would be required. Any such revision
could have a material effect on our financial position or

16



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##### Table of Contents



results of operations.

We maintain an allowance for doubtful accounts for estimated losses resulting
from our customers failing to make required payments. We develop our estimate
of the allowance based on our experience with specific customers, our
understanding of their current economic circumstances and our own judgment as
to the likelihood of their ultimate payment. We also consider our collection
experience with the balance of our receivables portfolio and make estimates
regarding collectibility based on trends in aging. The estimates utilized to
calculate our allowance for doubtful accounts were revised during the second
quarter of 2002 following the establishment of our collections and credit
committee and the implementation of enhanced collection processes and systems
to be more reflective of our recent collection history. As a result of this
change in estimate, we reduced our estimated uncollectible accounts by $2.5 million
during the second quarter of 2002. If the financial condition of our customers
were to deteriorate, thereby impairing their ability to make payments, an
increase in this allowance could be required in a future period.

Income Taxes  Accounting for income taxes requires significant judgments in
the development of estimates used in income tax calculations. Such judgments
would include, but would not be limited to, the likelihood the Company would
realize the benefits of net operating loss carry forwards, the adequacy of
valuation allowances, the rates used to measure transactions with foreign
subsidiaries and the development of valuation models used for measuring the
value of certain transactions. Further, our operations are governed by and
subject to government regulations in the United States and in foreign countries
in which we operate, including laws and regulations relating to taxation and
the judgments and estimates used are subject to challenge by domestic and
foreign taxing authorities. The Company recognizes tax liabilities at such time
as they are judged to be probable of being incurred and they can be reasonably
estimated. It is possible that either foreign or domestic taxing
authorities could challenge those judgments and estimates and draw
conclusions that would cause the Company to incur tax liabilities in
excess of those currently recorded.

We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. Although we have considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we were to
determine that we will be able to realize our deferred tax assets in the future
in excess of the net recorded amount, an adjustment to the deferred tax asset
would increase income in the period any such determination was made. Likewise,
should we determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period any such determination was made.

We consider the undistributed earnings of our foreign subsidiaries to be
permanently invested and, accordingly, we have not provided for U.S. Federal,
state income or applicable foreign withholding taxes on those amounts. Upon any
distribution of those earnings in the form of dividends or otherwise, we would
be subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and applicable withholding taxes payable to the foreign countries.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with such a
hypothetical calculation.

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##### Table of Contents



Results of Operations  Three and Six Months ended June 30, 2002 Compared to
Three and Six Months Ended June 30, 2001

The following table presents, for the periods indicated, the relative
composition of net revenues and selected statements of operations data as a
percentage of net revenues:

|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |      |       |      | 
|-------------------------- | ------------------------------------------- | ------------------ | ------------------------ | ---- | --------------------------- | ---- | ------------------------- | ---- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | ---- | 
|                           |                                             |                    |                          |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                           |                                             |                    |                          |      |                             |      |                          
|                           |                                             |                    |                          |      | 2002                        |      | 2001                      |      | 2002  |      | 2001
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |     
|Net revenue                |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                          
|                          
|                          
|                          
|                           | Electronic Payments                         |                    |                          | 35.4 | %                           |      |                           | 35.9 | %     |      |      | 35.0 | %     |      |      | 35.3 | %    
|                          
|                          
|                          
|                          
|                           | ATM Management Services                     |                    |                          | 20.6 |                             |      |                           | 14.4 |       |      |      | 18.0 |       |      |      | 13.5 |      
|                          
|                          
|                          
|                          
|                           | Decision Support and Risk Management        |                    |                          | 26.1 |                             |      |                           | 27.6 |       |      |      | 27.0 |       |      |      | 28.1 |      
|                          
|                          
|                          
|                          
|                           | Professional Services                       |                    |                          | 17.9 |                             |      |                           | 22.1 |       |      |      | 20.0 |       |      |      | 23.1 |      
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                           |                                             | Total net revenues |                          |      | 100.0                       |      |                           |      | 100.0 |      |      |      | 100.0 |      |      |      | 100.0 |     
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Operating expenses         |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                          
|                          
|                          
|                          
|                           | Processing, communication and service costs |                    |                          | 39.8 |                             |      |                           | 37.8 |       |      |      | 38.8 |       |      |      | 37.6 |      
|                          
|                          
|                          
|                          
|                           | Employee costs                              |                    |                          | 34.2 |                             |      |                           | 42.4 |       |      |      | 36.2 |       |      |      | 41.0 |      
|                          
|                          
|                          
|                          
|                           | Depreciation and amortization               |                    |                          | 7.3  |                             |      |                           | 8.1  |       |      |      | 7.2  |       |      |      | 7.8  |      
|                          
|                          
|                          
|                          
|                           | Other operating expenses                    |                    |                          | 6.8  |                             |      |                           | 7.0  |       |      |      | 7.2  |       |      |      | 7.8  |      
|                          
|                          
|                          
|                          
|                           | Restructuring and other charges             |                    |                          | 7.8  |                             |      |                           |     |       |      |      | 3.9  |       |      |      | 1.2  |      
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                           |                                             |                    | Total operating expenses |      |                             | 95.9 |                           |      |       | 95.3 |      |      |       | 93.3 |      |      |       | 95.4 | 
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Income from operations     |                                             |                    | 4.1                      |      |                             |      | 4.7                       |      |       |      | 6.7  |      |       |      | 4.6  |     
|                          
|                          
|                          
|                          
|Other income-net           |                                             |                    | 0.2                      |      |                             |      | 0.2                       |      |       |      | 0.2  |      |       |      | 0.3  |     
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Income before income taxes |                                             |                    | 4.3                      |      |                             |      | 4.9                       |      |       |      | 6.9  |      |       |      | 4.9  |     
|                          
|                          
|                          
|                          
|Provision for income taxes |                                             |                    | (0.9                     | )    |                             |      | (1.6                      | )    |       |      | (2.0 | )    |       |      | (1.8 | )   
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Net income                 |                                             |                    | 3.4                      | %    |                             |      | 3.3                       | %    |       |      | 4.9  | %    |       |      | 3.1  | %   
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     

Net revenue Net revenue increased $6.3 million, or 5.0%, to $133.5 million
for the second quarter of 2002 from $127.2 million for the second quarter of
2001. Net revenue increased $9.7 million or 3.8%, to $267.5 million for the
first six months of 2002 from $257.8 million for the first six months of 2001.

Electronic Paymentsnet revenue increased $1.6 million, or 3.5%, to $47.3
million in the second quarter of 2002 from $45.7 million in the second quarter
of 2001. Net revenue increased $2.9 million, or 3.2% to $93.8 million for the
first six months of 2002 from $90.9 million for the first six months of 2001.
Revenue growth in this segment for the quarter and six months period was driven
by higher EBT case counts and the renewal of certain government contracts at
improved rates.

Although we continue to pursue EBT contracts where we can obtain them on a
profitable basis, we expect to see a decline in the revenues of the government
services segment in 2002 if our Medicaid eligibility verification contract with
the state of New York is not renewed. This contract provided us approximately
$6.1 million of revenue in the first six months of 2002 and is currently
scheduled to expire in mid-November 2002. It is possible that we may receive
further extensions of this agreement, but we are unable to predict whether we
in fact will receive any such extensions. No other EBT contracts are scheduled
to expire until the fourth quarter of 2002 (at which time a contract that
generated $1.8 million of revenue in 2001 is scheduled to expire), although all
of our government services contracts are terminable by the contracting
governmental entity at any time.

Excluding the impact of EITF Issue
01-14 (see Accounting Change in Note 3 to financial
statements), revenues from ACH, POS, EFT and other processing decreased
slightly due to the expected revenue declines associated with the STAR network.
Processing revenues from this network were approximately $14 million during the
first six months of 2001 as compared to the revenues of approximately $11
million we derived from this relationship in the first half of 2002. We expect
revenues from the STAR network will approximate $5 million in the third quarter
and that we will not realize material revenues from this relationship
thereafter.

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##### Table of Contents



Revenue growth in Electronic Payments does not correlate directly to the growth
in transaction volumes as the revenue growth is impacted by the fixed fee
structure under which we perform processing for Star and the mix of
transactions. Summarized below are billable volumes by general type of
transaction, exclusive of ATM Management Services:

|                             |  |                    |     |                  |  |      |     |      |  |  |     |  |  |  |     | 
|---------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  |  | --- |  |  |  | --- | 
|                             |  | Three Months Ended |     | Six Months Ended
|                             |  | June 30,           |     | June 30,        
|                             |  |                    |     |                 
|(in billions)                |  | 2002               |     | 2001             |  | 2002 |     | 2001
|                             |  |                    |     |                  |  |      |     |     
|Network & Gateway (EFT, POS) |  |                    | 0.9 |                  |  |      | 0.8 |      |  |  | 1.7 |  |  |  | 1.6 | 
|                            
|                            
|                            
|                            
|Account Verification         |  |                    | 1.2 |                  |  |      | 1.0 |      |  |  | 2.4 |  |  |  | 1.9 | 
|                            
|                            
|                            
|                            
|ACH                          |  |                    | *   |                  |  |      | *   |      |  |  | 0.1 |  |  |  | 0.1 | 

| | * |  | Less than 0.1 billion
| | - |  | ---------------------

ATM Management Servicesrevenue increased $9.2 million, or 50.3%, to $27.5
million in the second quarter of 2002 from $18.3 million in the second quarter
of 2001. Revenue from this segment increased $13.2 million, or 37.8%, to $48.1
million in the first six months of 2002 from $34.9 million in the first six
months of 2001. These increases are primarily due to the acquisition of ATM
networks from Hanco Systems, Inc. (Hanco), Samsar ATM Company, Inc.
(Samsar), and Evergreen Teller Services, Inc. (Evergreen), which combined,
contributed $7.5 million in new revenue during the second quarter of 2002 and
$10.7 million in new revenue for the first six months of 2002. Branding and
equipment sales also represented revenue sources for this segment during the
first six months of 2002, which did not exist in the first half of last year.
We currently manage a network of approximately 14,100 ATMs, which amount
reflects some attrition experienced by the Company during the process of
converting purchased machines and verifying the inventory of acquired networks.
We are actively seeking to acquire the ATM portfolios of other independent ATM
deployment and management companies.

Decision Support and Risk Managementrevenue increased $0.3 million, or 0.9%,
to $34.8 million in the second quarter of 2002 from $35.1 million in the second
quarter of the prior year. Revenue decreased $0.3 million, or 0.4%, to $72.2
million in the first six months of 2002 from $72.5 million in the first six
months of 2001. An increase in revenues from our
ChexSystemsSMsuite of
products was more than offset by a decline in sales of our SCANSMproduct over
the comparable periods in the prior year. The increase in revenues from the
ChexSystemsSMservice was attributable to our marketing campaign to encourage
financial institutions to prepare for the mandate by the U.S. government for
better customer screening under the USA Patriot Act. The decrease in revenues
from SCANSMproducts was attributable to customer losses due to bankruptcies
and other attrition and pricing concessions.

Professional Servicesrevenues decreased $4.1 million, or 14.6%, to $23.9
million in the second quarter of 2002 from $28.0 million in the second quarter
of the prior year. Revenue decreased $6.0 million, or 10.1%, to $53.4 million
for the first six months of 2002 from $59.4 million for the first six months of
2001.

Revenue from information technology services provided under our contract with
Deluxe were $10.4 million in the second quarter of 2001 as compared to $10.3
million in the second quarter of 2002. For the six month period, revenues from
Deluxe were $20.6 million in 2002 as compared to $22.9 million in 2001. If
Deluxe fails to spend a minimum of $43 million for software development
services under our agreement with it in any year, it will be obligated to make
payments to us based on a schedule in the contract that is reflective of an
estimate of our lost profits. We currently anticipate that 2002 revenues from
software development activities performed pursuant to this agreement will
approximate $41 million. Revenues from other information technology clients
declined by $2.5 million and $5.8 million in the second quarter and the first
six months of 2002, respectively, as compared to the same periods for the prior
year as a result of our decision in 2001 to cease offering stand-alone
information technology development services.

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##### Table of Contents



Software sales in the second quarter of this year declined as compared to the
prior year period. Software revenue for the first six months of 2002 increased
$1.5 million. The following table illustrates our revenue generated from
software sales:

|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 
|---------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                       |  | Three Months Ended |       | Six Months Ended
|                       |  | June 30,           |       | June 30,        
|                       |  |                    |       |                 
|(in thousands)         |  | 2002               |       | 2001             |  | 2002 |       | 2001
|                       |  |                    |       |                  |  |      |       |     
|License fees           |  | $                  | 1,787 |                  |  | $    | 2,692 |      |  | $ | 9,486  |  |  | $ | 5,546  | 
|                      
|                      
|                      
|                      
|Maintenance            |  |                    | 3,309 |                  |  |      | 3,596 |      |  |   | 6,726  |  |  |   | 6,796  | 
|                      
|                      
|                      
|                      
|Software modifications |  |                    | 2,009 |                  |  |      | 2,644 |      |  |   | 3,425  |  |  |   | 5,769  | 
|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 
|                       |  | $                  | 7,105 |                  |  | $    | 8,932 |      |  | $ | 19,637 |  |  | $ | 18,111 | 
|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 

Business process management (BPM) revenues remained relatively flat in the
second quarter and first six months of 2002 as compared to the same periods for
the prior year at approximately $6 million and $11 million, respectively. A
modest decline in revenue from BPM services for Deluxe was offset by increased
revenues from other BPM customers and by increased call center activities. Our
agreement with Deluxe calls for us to provide Deluxe with accounts receivable,
accounts payable and other general accounting and data entry services. Deluxes
annual minimum spending target for these services ranges from $8.1 million in
2000 to $4.2 million in 2004. The target for 2002 is $6.4 million and revenues
from these services were $1.1 million and $2.3 million in the second quarter
and first six months of this year, respectively.

Processing, communication and
service costs This category includes cost of
processing, telecommunications, computer equipment and promotional services.
These costs increased $5.0 million, or 10.4%, to $53.1 million in the second
quarter of 2002 from $48.1 million in the same period of the prior year, and
$6.9 million, or 7.1%, to $103.9 million in the first six months of 2002 from
$97.0 million in the first six months of 2001. As a percentage of net revenue,
processing, communication and service costs were 39.8% and 38.8% in the second
quarter and first six months of 2002, respectively, compared to 37.8% and 37.6%
for the same periods of 2001. Telecommunications, third party processing
charges and cost of equipment sales have increased along with the increase in
ATM processing and ATM equipment sales. We provide the processing for
approximately 7,500 of the 12,800 U.S. ATM machines in our network and we
expect to complete the transition of the processing for approximately 2,500
additional U.S. ATMs to our networks by the end of the year. Due to existing
contractual commitments, processing for the approximately 1,300 ATMs we have in
Canada will not likely be transitioned to our networks for a substantial period
of time. Processing for the approximately 2,800 remaining U.S. ATMs, including
the 2,600 ATMs, we acquired from Samsar and Evergreen in the second quarter of
2002, will be transitioned to our networks as existing contractual commitments
expire or as the economics associated with accelerated contract cancellations
make it logical to do so. Reimbursable costs, the majority of which related to
transaction processing, that are billed to customers also increased in the
second quarter and first six months of 2002 compared to the same periods of the
prior year due to increased transaction volumes.

Employee costs Expenditures in this category represent employee compensation
and related employee expenses, benefits and travel. These costs decreased $8.2
million, or 15.2%, to $45.7 million in the second quarter of 2002 from $53.9
million in the second quarter of 2001. Employee costs decreased $8.9 million,
or 8.4%, to $96.7 million in the first six months of 2002 from $105.6 million
in the first six months of 2001. As a percentage of net revenue, employee costs
were 34.2%, and 36.2% in the second quarter and first six months of 2002,
respectively, compared to 42.4% and 41.0% for the second quarter and first six
months of 2001, respectively. The primary reason for the decrease in employee
costs is the elimination of performance-based employee compensation for 2002
due to reduced revenue and earnings expectations. Performance-based
compensation expense decreased $7.1 million and $7.7 million for the second
quarter and first six months ended June 30, 2002, respectively, from the same
periods of the prior year.

Although we had approximately 200 more employees in the second quarter of 2002
than we did in the second quarter of 2001, we realized cost savings by
re-deploying certain development responsibilities to our India based operations
and as a result of cost reduction initiatives begun in 2001, such as the
consolidation of our data center operations. Additionally, our travel
expenditures were less in the second quarter and first six months of 2002
compared to the same periods of the prior year. These savings were partially
offset by increased costs for employee health benefits.

Depreciation and amortization These costs represent depreciation of
facilities and equipment, amortization of intangible assets, such as
capitalized software costs and customer contract costs and, prior to
implementation of SFAS 142 in 2002, amortization of goodwill. Depreciation and
amortization decreased $0.6 million, or 5.8%, to $9.7 million in the second
quarter of 2002 from $10.3 million for the second quarter of 2001 and $0.9
million, or 4.5%, to $19.2 million for the first six months of 2002 from $20.1
million in the first six months of 2001. These costs were 7.3% and
7.2% of

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revenue in the second quarter and first six months of 2002, respectively, and
8.1% and 7.8% of revenue for the same periods of the prior year. Goodwill
amortization of $1.0 million and $2.0 million was recorded in the second
quarter and first six months of 2001, respectively, whereas no such
amortization was recorded in 2002. The decrease in amortization expense was
offset by more depreciation of property and equipment, more amortization of
internally developed software, and amortization of customer contracts recorded
in connection with our acquisitions.

Other operating expenses Expenditures in this category include facility
costs, professional, consulting and temporary services, bad debt, and certain
administrative costs. Other operating expenses remained flat at $9.0 million
for each of the second quarters of 2002 and 2001, and decreased $1.0 million,
or 5.0%, to $19.2 million for the first six months of 2002 from $20.2 million
for the same period of the prior year. As a percentage of revenue, these
expenses were 6.8% and 7.0% for the second quarters of 2002 and 2001,
respectively, and decreased to 7.2% in the first six months of 2002 from 7.8%
for the first six months in 2001. At the beginning of the quarter, we
established a collections and credit committee and implemented enhanced
collection processes and systems, thereby improving our ability to pursue slow
payors and to refine our estimates regarding the probability that an account
may become uncollectible. As a result, during the second quarter of 2002, we
reduced our estimate for uncollectible accounts by $2.5 million. This cost
savings was offset somewhat by increased costs for professional services
surrounding the SEC inquiry, executive search fees, and also by an increase in
facility rental costs due to the expansion of our facilities in India and in
Scottsdale, Arizona.

Restructuring and asset
impairment charges Restructuring and asset impairment charges for the
second quarter of 2002 consist of $3.4 million in severance benefits, $5.7
million for lease-related costs as a result of the consolidation of facilities,
and a net charge of $1.3 million related to software impairment and other
charges. Results for the first six months of 2001 included a restructuring
charge of $3.2 million related to the closure of our Bothell, Washington
facility.

During the second quarter of 2002, we committed to a series of restructuring
actions to lower our cost structure and improve operating efficiencies. We
expect to pay a significant portion of the $3.4 million in severance charges
before the end of 2002. Of the lease related-costs accrued due to the exit of
facilities, approximately $1.1 million relates to equipment and leasehold
improvements, and the remainder of $4.6 million relates to estimated lease
costs for closed facilities (net of any projected savings from sub-leases). We
expect the personnel reductions reflected in the severance charge to positively
impact our cash flow for 2003. The charge for lease costs will not change our
2003 cash flows as our rental obligations will continue until the
expiration of the lease or we can sub-let the related property.

Certain under-performing product lines were identified during the second
quarter of 2002. As a result we recorded a charge to reduce the value of
certain tangible assets and capitalized software associated with these
products. It is likely that we will record additional charges for severance and
software impairment in the third quarter as we continue our strategic analysis
of our various lines of business.

Income from operations Income from operations decreased $0.4 million, or
6.8%, to $5.5 million in the second quarter of 2002 compared to $5.9 million in
the second quarter of 2001, and increased $6.3 million, or 53.8%, to $18.0
million for the first six months of 2002 from $11.7 million for the first six
months of 2001. As a percentage of net revenue, income from operations was 4.1%
and 6.7% for the second quarter and first six months of 2002, respectively,
compared to 4.7% and 4.6% for the same periods of the prior year. Results for
the second quarter of 2002 include restructuring and asset impairment charges of $10.4
million and the results for the first six months of 2001 include restructuring
charges of $3.2 million. Also, in accordance with SFAS No. 142, we ceased
amortization of goodwill in 2002. Goodwill amortization for the second quarter
and first six months of 2001 was approximately $1.0 million and $2.0 million,
respectively.

Excluding the restructuring and other charges in both periods and eliminating
the goodwill amortization for 2001, income from operations increased
approximately $9.0 million, or approximately 130% for the second quarter of
2002 compared to the prior year, and increased $11.5 million, or 68%, for the
first six months of 2002 compared to the prior year. As a percentage of
revenue, income from operations, excluding restructuring and asset impairment charges and
goodwill amortization, increased to 12.0% in the second quarter of 2002 from
5.4% in the same period of the prior year and increased to 10.6% for the first
six months of 2002 from 6.6% for the same period of the prior year. The
improvement is attributable to the elimination of performance-based employee
compensation in 2002 and the downward revision of our allowance for doubtful
accounts in the second quarter of 2002. These expense reductions were offset in
part by a change in revenue mix to more recurring but lower margin product
lines.

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Other income-net Other income-net was $0.2 million during the second quarter
of 2002 compared to $0.3 million for the same period of the prior year and $0.6
million for the first six months of 2002 compared to $0.8 million for the same
period of the prior year. Interest earned on cash and cash equivalents
decreased $0.1 million to $0.5 million in the second quarter of 2002 as
compared to $0.6 million for the same period of the prior year and decreased by
$1.1 million to $0.8 million for the first six months in 2002 as compared to
$1.9 million for the same period of the prior year. These decreases were due to
reduced interest rates. Additionally, interest expense, equity method
amortization and other expense decreased during both the second quarter and
first six months of 2002.

Provision for income taxesThe provision for income taxes was $1.2 million
and $5.6 million in the second quarter and first six months of 2002,
respectively, compared to $2.0 million and $4.6 million for the same periods of
the prior year, resulting in annualized effective tax rates of 30% for 2002 and
37% for 2001. The decrease in our effective tax rate is a result of the
cessation of goodwill amortization beginning in 2002 which was
non-deductible
for tax purposes in 2001 and a change in the composition of our projected
earnings between our domestic and Indian subsidiary. Our Indian software
development and business process management operations qualify for tax
incentives associated with businesses that operate within designated geographic
locations within India. Such incentives generally provide us with exemptions
from Indian income tax on certain business income generated from these
operations. As a result of a recent change in Indian tax law, effective April
1, 2002 and through March 31, 2003, 10% of this previously tax-exempt income
will be subject to Indian income tax at the rate of 35%. The remaining tax
incentives phase out through March 2009.

Business Segment InformationThe following table presents, for the periods
indicated, operating income by segment as a percentage of segment revenue, and
the unallocated corporate expenses and income from operations as a percentage
of total revenue:

|                               |                                      |                        |  |                             |     |                           |  |       |     |      |  |       |     |   |  |       |     |  
|------------------------------ | ------------------------------------ | ---------------------- |  | --------------------------- | --- | ------------------------- |  | ----- | --- | ---- |  | ----- | --- | - |  | ----- | --- | -
|                               |                                      |                        |  | Three Months Ended June 30, |     | Six Months Ended June 30,
|                               |                                      |                        |  |                             |     |                          
|                               |                                      |                        |  | 2002                        |     | 2001                      |  | 2002  |     | 2001
|                               |                                      |                        |  |                             |     |                           |  |       |     |     
|Income (loss) from operations: |                                      |                        |  |                             |     |                           |  |       |     |      |  |       |     |   |  |      
|                              
|                              
|                              
|                              
|                               | Electronic payments                  |                        |  | 29.9                        | %   |                           |  | 25.2  | %   |      |  | 28.3  | %   |   |  | 25.6  | %  
|                              
|                              
|                              
|                              
|                               | ATM management services              |                        |  | 7.6                         |     |                           |  | 4.7   |     |      |  | 7.2   |     |   |  | 2.5   |    
|                              
|                              
|                              
|                              
|                               | Decision support and risk management |                        |  | 14.5                        |     |                           |  | 23.5  |     |      |  | 18.4  |     |   |  | 20.6  |    
|                              
|                              
|                              
|                              
|                               | Professional services                |                        |  | 35.9                        |     |                           |  | 30.6  |     |      |  | 36.0  |     |   |  | 33.2  |    
|                              
|                              
|                              
|                              
|                               | Corporate                            |                        |  | (18.2                       | )   |                           |  | (18.3 | )   |      |  | (16.6 | )   |   |  | (18.3 | )  
|                              
|                              
|                              
|                              
|                               |                                      | Income from operations |  |                             | 4.1 | %                         |  |       | 4.7 | %    |  |       | 6.7 | % |  |       | 4.6 | %

Operating income in the Electronic Payments business segment increased to $14.1
million in the second quarter of 2002 from $11.5 million in the second quarter
of the prior year, and increased to $26.5 million in the first six months of
2002 from $23.2 million in the first six months of 2001. As a percent of net
segment revenues, operating margins were 29.9% and 28.3% for the quarter and
six months ended June 30, 2002, respectively, an increase over the 25.2% and
25.6% we recorded for the same periods of the prior year. During the current
quarter, we recorded $2.0 million in restructuring and asset
impairment charges in
Electronic Payments related to severance and asset impairments and had $1.2
million less expense for performance-based compensation. This reduction of
expense includes the effect of reversing the accrual for performance-based
compensation we recorded in the first quarter of 2002. The reversal of this
accrual and the absence of any provision for incentive compensation in the
second quarter resulted in our recording $0.9 million less in compensation
expense for the first six months of 2002 than we did for the comparable period
in the prior year. Due to cost reduction measures implemented in 2002 and
increased revenues from government EBT contracts, operating margins improved
for both the second quarter and first six months of 2002 despite the net
increase in expenses from the restructuring and other charges.

Operating income in the ATM Management Services business segment increased to
$2.1 million in the second quarter of 2002 from $0.9 million in the second
quarter of the prior year, and increased to $3.5 million in the first six
months of 2002 from $0.9 million in the first six months of 2001. As a percent
of net segment revenues, operating margins were 7.6% and 7.2% for the quarter
and six months ended June 30, 2002, an increase over the margins of 4.7% and
2.5% we saw during the same periods last year. Revenues in this segment
increased due primarily to acquisitions. Margin improvements were primarily
driven by efficiency gains through the consolidation of the operations of
acquired businesses, including the transitioning of acquired ATMs to our
internal processing systems. We expect to see further margin improvement in
this business in future periods as our integration efforts proceed.

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Operating income in the Decision Support and Risk Management business segment
decreased to $5.0 million in the second quarter of 2002 from $8.2 million in
the second quarter of the prior year, and decreased to $13.3 million in the
first six months of 2002 from $15.0 million in the first six months of 2001. As
a percent of net segment revenues, operating margins were 14.5% and 18.4% for
the quarter and six months ended June 30, 2002, a decrease from the 23.5% and
20.6% recorded for the same periods of the prior year. During the current
quarter, we recorded $4.8 million in restructuring and asset impairment charges in the
Decision Support and Risk Management segment related to severance, lease
expense and asset impairments, and had $1.4 million less expense for
performance-based compensation, (including the effect of reversing
performance-based compensation accruals that existed at the beginning of the
quarter.) We also recorded $1.1 million less expense for performance-based
compensation for the first six months of 2002 than we did in 2001. The net
increase in expenses from the restructuring and asset impairment charges, combined with a
small net growth in revenue, resulted in reduced operating margins for both the
second quarter and first six months of 2002.

Operating income in the Professional Services business segment remained flat at
$8.6 million for the second quarters of 2002 and 2001, and decreased to $19.2
million in the first six months of 2002 from $19.7 million in the first six
months of 2001. As a percent of net segment revenues, operating margins were
35.9% and 36.0% for the quarter and six months ended June 30, 2002, an increase
over the 30.6% and 33.2% for the same periods of the prior year. During the
current quarter, we recorded $0.9 million in restructuring and asset impairment charges in
Professional Services related primarily to severance, and had $2.9 million less
in performance-based compensation expense due in part to the reversal of
performance-based compensation accruals that existed at the beginning of the
quarter. We also recorded $2.9 million less in such compensation expense for
the first six months of 2002 than we did in 2001, as we do not expect to pay
employee bonuses in 2002. Despite the loss of revenue from IT consulting
services, the net decrease in expenses due to the reduction of
performance-based compensation resulted in an improved margin for both the
second quarter and first six months of 2002.

Corporate expenses include, but are not limited to, legal, accounting, human
resources, risk management, sales and executive expenses. These expenses
increased to $24.3 million in the second quarter of 2002 from $23.3 million in
the second quarter of the prior year, and decreased to $44.5 million in the
first six months of 2002 from $47.1 million in the first six months of 2001.
During the current quarter, we recorded $2.7 million in
restructuring and asset impairment charges as corporate expenses which were related to severance, lease expense
acceleration and asset impairments, and had $1.8 million less in
performance-based compensation expense, and $2.6 million less in bad debt
expense. We also recorded $2.8 million less in performance-based compensation
expense for the first six months of 2002 compared to the same period last year.
Exclusive of the restructuring and asset impairment charges and reductions in incentive
compensation and bad debt, corporate expenses increased due to increased
professional service fees related to the SEC inquiry, facility rental costs
from the expansion of our facilities in Scottsdale, Arizona and rising costs
for employee health benefits. The effect of these increases was mitigated by
the discontinuance of goodwill amortization in 2002. Goodwill amortization was
$1 million and $2 million in the second quarter and first six months of 2001,
respectively.

Liquidity, Capital Resources, and Financial Condition

At June 30, 2002, net working capital was $118.2 million, compared to $117.8
million at December 31, 2001. Cash and cash equivalents, including cash in ATMs
of approximately $18 million, totaled $100.9 million at June 30, 2002, a
decrease of $1.0 million from December 31, 2001. This decrease was primarily
the result of acquisition activities. At June 30, 2002, we had $4.7 million of
restricted cash that we temporarily hold in custodial accounts on behalf of
clients and $2.4 million of deposits subject to compensating balance
arrangements.

Our operations and our capital expenditure and acquisition requirements are
financed primarily through cash flow from operations. Short-term liquidity
needs and long term capital expenditure requirements will be provided from cash
and cash equivalents on hand and cash flow from operations.

We have terminated our $20 million revolving credit facility. We never borrowed
any money under this facility, although we did use it to issue letters of
credit in the ordinary course of business from time to time. At June 30, 2002
the aggregate value of such outstanding letters of credit amounted to $1.0
million and we have now cash collateralized these letters with a $1.0 million
deposit at the issuing bank.

We have additional outstanding commercial commitments consisting mainly of
guarantees for contract performance, that include letters of credit, bank
guarantees and performance bonds. As of June 30, 2002 and December 31, 2001,
our total obligation under these commercial commitments was $12.0 million and
$11.5 million, respectively, over a five-year term. As of December 31, 2001 our
contractual cash obligations for capital and operating leases and outsourcing
and maintenance obligations totaled $128.3 million through December 31, 2006.
Our contractual cash obligations had not

23



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materially changed from this amount at June 30, 2002.

The following table sets forth a summary of our cash flow activity and should
be read in conjunction with our unaudited consolidated statements of cash
flows:

|                                                     |  |                       |         |      |  |   |         |  
|---------------------------------------------------- |  | --------------------- | ------- | ---- |  | - | ------- | -
|                                                     |  | Summary of Cash Flows
|                                                     |  |                      
|                                                     |  | Six Months Ended     
|                                                     |  | June 30,             
|                                                     |  |                      
|(in thousands)                                       |  | 2002                  |         | 2001
|                                                     |  |                       |         |     
|Cash provided by operating activities                |  | $                     | 32,144  |      |  | $ | 7,699   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash used in investing activities                    |  |                       | (33,870 | )    |  |   | (15,427 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash provided by financing activities                |  |                       | 777     |      |  |   | 9,317   |  
|                                                     |  |                       |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |  | $                     | (949    | )    |  | $ | 1,589   |  
|                                                     |  |                       |         |      |  |   |         |  

Net cash flows from operating activities provided $32.1 million and $7.7
million for the first six months of 2002 and 2001, respectively. The increase
in operating cash flow compared to the same period last year resulted from
improved collection procedures and more effective management of working capital
accounts. During the six months ended June 30, 2002, accounts receivable
decreased by $3.1 million, whereas accounts receivable increased by $21.6
million for the same period of the prior year. The increase last year was due
to the growth of our Company and also because billings to Deluxe were shown as
receivables in 2001 as opposed to intercompany balances which were settled at
December 31, 2000.

Our investing activities used cash of $33.9 million for the six months ended
June 30, 2002, compared to $15.4 million for the same period last year. We
spent $11.6 million to purchase systems and equipment and develop software in
the first six months of 2002, compared to like capital expenditures of $14.3
million in the same period last year. We also completed the acquisitions of
Hanco, Samsar, and Evergreen for $22.3 million in the first six months of 2002.

Financing activities provided $0.8 million and $9.3 million in cash for the six
months ended June 30, 2002 and 2001, respectively. During the six months ended
June 30, 2002, we repaid $1.6 million of long-term debt and received $2.4
million from sales of common stock pursuant to exercise of stock options and
our employee stock purchase plan. During the same period of the prior year, we
used cash to repay debt of $6.5 million, obtained $8.5 million from the release
of a time deposit placed as collateral for that debt and we received $7.3
million from sales of common stock pursuant to exercise of stock options and
the employee stock purchase plan.

Recent Developments

Transactions with STAR  In 2001, Concord EFS acquired the STAR debit network,
formerly our largest transaction processing customer, and notified us that it
intended to terminate STARs processing agreement with us and perform the
processing for this network at its own data centers. As part of the transition
of this activity, STAR licensed our EFT software and contracted for the
long-term maintenance thereof and for professional services to assist in the
migration effort. The licenses to STAR represented our largest software
licensing transactions to date. The transition of the processing for the STAR
network to Concord EFS is currently scheduled to be completed by the fourth
quarter of 2002. Concord EFS will pay us fixed monthly fees for the transaction
processing we will perform for the STAR network during the transition period
and we expect to see only minimal revenues from our relationship with STAR
beginning in the fourth quarter of this year.

Including software license and maintenance fees and fees for processing
transactions for STAR and other Concord affiliates, Concord EFS accounted for
approximately $7.9 million of revenues (excluding revenues derived from
reimbursed expenses) during the quarter ended June 30, 2002, as compared to
$8.1 million for the quarter ended June 30, 2001. Concord EFS accounted for
approximately $19.3 million of revenues (excluding revenues derived from
reimbursed expenses) during the first six months of 2002, compared to $18.0
million for the same period in 2001. We currently estimate that the total net
revenues we will recognize from our relationship with Concord EFS in 2002 will
approximate $28 million (excluding revenues derived from reimbursed expenses),
compared to $56.2 million in 2001. Of this amount, approximately $16 million
relates to the provision of transaction processing services to the STAR network
during the transition period ($11 million of which was recognized during the
first six months of 2002 and the balance of which will be recognized in the
third quarter). Approximately $4 million of these 2002 revenues relates to a
software sale also recognized during the first quarter. We do not expect the
remaining revenues from Concord EFS affiliate Primary Payment Systems, Inc. to
be affected by the termination of STARs processing agreement.

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PART II  OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are filed as part of this report:

|            |  |                                       |  |                 
|----------- |  | ------------------------------------- |  | ----------------
|Exhibit No. |  | Description                           |  | Method of Filing
|            |  |                                       |  |                 
|99.1        |  | Certification by Thomas S. Liston     |  | Filed herewith  
|           
|           
|           
|           
|99.2        |  | Certification by Paul F. Walsh        |  | Filed herewith  
|           
|           
|           
|           
|99.3        |  | Written statement by Paul F. Walsh    |  | Filed herewith  
|           
|           
|           
|           
|99.4        |  | Written statement by Thomas S. Liston |  | Filed herewith  



|* |  | Incorporated by reference
|- |  | -------------------------



|(a) |  | Reports on Form 8-K                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company filed a report on Form 8-K on May 15, 2002. An exhibit to this
report contained the following financial statements:



| |  |  | eFunds Corporation Unaudited Consolidated Quarterly Statement of
Operations Information (2001 Results Adjusted for Segment
Reclassification) for the following reporting periods (the Reporting
Periods): the Quarters ended March 31, June 30, September 30 and
December 31, 2001, the Year ended December 31, 2001 and the Quarter
ended March 31, 2002;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | eFunds Corporation Unaudited Consolidated Statement of Operations
Information (2001 Results Reclassified to Reflect EITF No. 01-14) for
the Reporting Periods; and                                                                                                                                                                                          
|
| |  |  | eFunds Corporation Unaudited Consolidated Statement of Operations
Information (2001 Results adjusted for Reclassified Operating Expenses)
for the Reporting Periods.                                                                                                                                                                                        

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SIGNATURES

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

|                        |  |                                                                     
|----------------------- |  | --------------------------------------------------------------------
|                        |  | eFunds Corporation
(Registrant)                                     
|                       
|                        |  |                                                                     
|                       
|Date: November 29, 2002 |  | /s/ Paul F. WalshPaul F. Walsh,
Chief Executive Officer and Chairman

26



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##### Table of Contents






Index to Exhibits

|            |  |                                       |  |  |  | 
|----------- |  | ------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                           |  | 
|            |  |                                       |  | 
|99.1        |  | Certification by Thomas S. Liston    
|           
|           
|           
|           
|99.2        |  | Certification by Paul F. Walsh       
|           
|           
|           
|           
|99.3        |  | Written statement by Paul F. Walsh   
|           
|           
|           
|           
|99.4        |  | Written statement by Thomas S. Liston

27