##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
    2003                                             
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    of           to                                               

Commission file number 000-02333



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Open Solutions Inc.

(Exact name of registrant as specified in its
charter)




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|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 22-3173050                          
|(State or other jurisdiction of incorporation
    or organization) |  | (I.R.S. Employer Identification No.)
|                                                                  
|300 Winding Brook Drive, Glastonbury,
    CT                       |  | 06033                               
|(Address of principal executive
    offices)                       |  | (Zip Code)                          



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(860) 652-3155

(Registrants telephone number, including
area code)




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Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.01 par value per
share


(Title of Class)




---

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

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     o

Aggregate market value of the voting and
non-voting common equity held by non-affiliates of the
registrant, based on the last sale price for such stock on
June 30, 2003: Not applicable because trading of the
registrants common stock on the Nasdaq National Market did
not commence until November 26, 2003.

As of March 23, 2004, 17,063,452 shares
of common stock, $0.01 par value per share, were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                                                                                    |  |           |     | 
|------------------------------------------------------------------------------------------------------------------- |  | --------- | --- | 
|                                                                                                                    |  | Form 10-K
|Document Description                                                                                                |  | Part     
|                                                                                                                    |  |          
|Portions of the Registrants Proxy Statement
    for the Annual Meeting of Stockholders to be held May 25,
    2004 |  |           | III | 



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INDEX

|                                                      |  |                                                                                                        |    |      |    | 
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                                      |  |                                                                                                        |    | Page
|                                                      |  |                                                                                                        |    |     
|Special Note Regarding
    Forward-Looking Statements |  |                                                                                                        | 2  |     
|PART I                                               
|Item 1.                                               |  | Business                                                                                               |    |      | 3  | 
|Item 2.                                               |  | Properties                                                                                             |    |      | 16 | 
|Item 3.                                               |  | Legal Proceedings                                                                                      |    |      | 16 | 
|Item 4.                                               |  | Submission of Matters to a
    Vote of Security Holders                                                |    |      | 17 | 
|PART II                                              
|Item 5.                                               |  | Market for Registrants
    Common Equity and Related Stockholder Matters                              |    |      | 18 | 
|Item 6.                                               |  | Selected Financial Data                                                                                |    |      | 20 | 
|Item 7.                                               |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |    |      | 21 | 
|Item 7A.                                              |  | Quantitative and Qualitative
    Disclosure about Market Risk                                          |    |      | 44 | 
|Item 8.                                               |  | Financial Statements and
    Supplementary Data                                                        |    |      | 45 | 
|Item 9.                                               |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |    |      | 45 | 
|Item 9A.                                              |  | Controls and Procedures                                                                                |    |      | 45 | 
|PART III                                             
|Item 10.                                              |  | Directors and Executive
    Officers of the Registrant                                                 |    |      | 45 | 
|Item 11.                                              |  | Executive Compensation                                                                                 |    |      | 46 | 
|Item 12.                                              |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |    |      | 46 | 
|Item 13.                                              |  | Certain Relationships and
    Related Transactions                                                     |    |      | 46 | 
|Item 14.                                              |  | Principal Accountant Fees
    and Services                                                             |    |      | 46 | 
|PART IV                                              
|Item 15.                                              |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |    |      | 46 | 
|Signatures                                            |  |                                                                                                        | 47 |     
|Index to Consolidated
    Financial Statements        |  |                                                                                                        | 48 |     
|LIST OF SUBSIDIARIES OF OPEN SOLUTIONS INC.          
|EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP        
|EX-31.1 CERTIFICATION OF CEO                         
|EX-31.2 CERTIFICATION OF CFO                         
|EX-32.1 CERTIFICATION OF CEO                         
|EX-32.2 CERTIFICATION OF CFO                         



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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

In addition to the historical information, this
Annual Report on Form 10-K contains or incorporates
forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and
section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on current expectations,
estimates, forecasts and projections about the industry and
markets in which we operate and managements beliefs and
assumptions. In addition, other written or oral statements that
constitute forward-looking statements may be made by or on our
behalf. Words such as expect,
anticipate, intend, plan,
believe, seek, estimate,
variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. We
have included important factors in the cautionary statements
under the heading Factors That May Affect Future
Results that we believe could cause our actual results to
differ materially from the forward-looking statements we make.
We do not intend to update publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise.

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PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Open Solutions Inc. is a provider of software and
services that allow financial institutions to compete and
service their customers more effectively. We develop, market,
license and support an enterprise-wide suite of software and
services that performs a financial institutions data
processing and information management functions, including
account, transaction, lending, operations, back office, client
information and reporting. Our core software and our
complementary products access and update real-time data stored
in a single relational database, which is designed to deliver
strategic benefits to financial institutions. Our software can
be operated either by the financial institution internally or on
an outsourced basis in one of our outsourcing centers or through
an outsourcing center hosted by one of our resellers. We have
historically targeted commercial banks and thrifts with assets
under $20 billion and all credit unions. Our aggregate
revenues increased from approximately $27.3 million in 2001
to approximately $44.3 million in 2002, and were
approximately $63.9 million for the year ended
December 31, 2003.

Our complementary products can be licensed to
financial institutions separately or as part of our
fully-integrated suite. When combined with our core software,
these complementary products provide financial institutions with
a suite of applications that operate efficiently and take
advantage of the architecture of our core solution, limiting the
need for software customization or middleware, which is software
that allows two applications to interface. Our complementary
products, which are fully integrated with our core, include
business intelligence, customer relationship management, or CRM,
check imaging, interactive voice response, Internet banking
and cash management, general ledger and profitability, loan
origination and check and item processing functions. We use an
open and flexible software architecture to maximize a
clients flexibility with respect to different hardware
configurations and third-party software applications that are
commonly used by financial institutions, allowing our clients to
select our complete suite or third-party products without
incurring substantial additional implementation costs. Based on
a design that is customer-centric, our software leverages an
institutions customer information through data mining
(sorting through data to identify patterns and establish
relationships) and collaborative filtering (the creation of
recommendations for a customer based on data gathered on similar
customers actions and preferences) and allows an
institution to provide its customers with better service,
improve customer retention and identify and pursue potential
cross-selling opportunities.

In contrast to legacy systems, our technologies
are fully integrated, open, flexible, customer-centric and
efficient, permitting financial institutions to draw on and
deliver consistent information quickly. Our technology allows
our clients to access information from disparate sources and
then analyze and distribute that information for use at the
point of customer contact. We believe that our products and
services enable our clients to reduce their overall core
processing and operational costs and meet their strategic needs
more effectively.

Open Solutions Inc. is located in Glastonbury,
Connecticut, and has facilities in Shelton and Simsbury,
Connecticut, Utica, New York, Mississauga, Ontario, Wixom,
Michigan and Atlanta and Marietta, Georgia. We were founded in
1992 and are incorporated in Delaware. We operate and manage our
business as one segment, the development and marketing of
computer software and related services and operates primarily in
one geographical area, the United States of America. As of
March 5, 2004, we had approximately 406 employees. On
December 2, 2003, we completed our initial public offering
raising proceeds, net of expenses, of approximately
$86.4 million. Our common stock is quoted on the Nasdaq
National Market under the symbol OPEN.

We are subject to the informational requirements
of the Securities Exchange Act of 1934 and will file reports,
proxy statements and other information with the Securities and
Exchange Commission, or SEC. Such reports, proxy statements and
other information, as well as the registration statement and the
exhibits and schedules thereto, may be inspected, without
charge, at the public reference facility maintained by the SEC
at 450 Fifth Street, NW, Washington, D.C. 20549.
Copies of such material may also be obtained from the Public

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Reference Section of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates.
You may obtain information on the operation of the SEC public
reference room in Washington, D.C. by calling the SEC at
1-800-SEC-0330. Such materials can also be inspected on the
SECs website at www.sec.gov.


We maintain a website with the address
www.opensolutions.com. We are not including the information
contained on our website as a part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make
available free of charge through our website our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, and amendments to these
reports, as soon as reasonably practicable after we
electronically file such material with, or furnish such material
to, the SEC. We have posted on our website a copy of our code of
business conduct and ethics. In addition, we intend to disclose
on our website any amendments to, or waivers from, our code of
business conduct and ethics that are required to be publicly
disclosed pursuant to rules of the SEC and the Nasdaq National
Market.

Recent Development

On February 24, 2004, we acquired Maxxar
Corporation for cash consideration of $6.5 million. This
acquisition expanded our complimentary product offering to
include a comprehensive suite of interactive voice solutions and
computer telephony integration products. The acquisition added
28 employees to our staff and facilities located in Wixom,
Michigan and Mississauga, Ontario.

Industry Background

Financial institutions have historically invested
a significant amount of money in information technology systems.
Technology research firm IDC estimates that banks, thrifts and
credit unions in the United States spent approximately
$42 billion on information technology during 2003 and
expects spending to grow to over $52 billion by 2007.
According to Thomson Financial Inc., a leading provider of
industry information, there are approximately 19,460 commercial
banks, thrifts and credit unions in the United States,
approximately 19,400 of which have an asset base of under
$20 billion.

We believe that these financial institutions,
which have traditionally competed on the basis of personalized
service, are facing increasing challenges to improve their
operating efficiencies. These challenges include the entrance of
non-traditional competitors, the compression of margins on
traditional products, significant channel proliferation and the
convergence of financial products into a single institution.
Recent legislation has allowed non-traditional competitors, such
as insurance companies and brokerage houses, to enter the market
for traditional banking products. Because these competitors are
able to subsidize traditional banking products with the revenues
of other, higher-profit products, financial institutions have
experienced lower margins, increasing the pressure to reduce
costs while continuing to offer an increasing array of consumer
products and services. At the same time, the cost and complexity
of delivering these products and services has increased as the
widespread introduction of new technology has forced financial
institutions to expand their distribution channels to include
ATMs, telephone banking, Internet banking and wireless
devices. Legislative changes have also accelerated the ability
of financial institutions to offer wider ranges of products and
services to their customers. To distinguish themselves from
competitors in this more competitive environment, banks and
credit unions must accurately define and understand their
specific markets, and be able to launch relevant products and
services to those markets over tailored delivery channels. These
challenges are forcing financial institutions to examine how to
conduct their business and service their customers most
efficiently.

Financial institutions have traditionally
fulfilled their information technology needs through legacy
computer systems, operated either by the institution itself or
through an outsourcing center. Legacy systems, which operate in
large mainframe or minicomputer environments, are generally
highly proprietary, inflexible and costly to operate and
maintain. Legacy systems often require financial institutions to
purchase a specific vendors hardware and software,
requiring them to conform evolving business processes and
reporting needs to the architecture of the legacy systems, and
preventing them from adopting new technologies or launching new
products on a cost-effective and timely basis. Most legacy
systems employed by commercial banks are designed primarily to
batch process a large number of transactions and create
centralized financial records,

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limiting the ability of these banks to offer
their customers real-time transaction processing. On the other
hand, most legacy systems employed by credit unions are designed
for real-time transaction processing, but they limit the ability
to conduct high-volume processing or more traditional commercial
banking functions. In addition, legacy systems typically store
data in non-relational, or sequentially indexed, files. Because
the data is not organized by customer, financial institutions
often face challenges extracting information from their legacy
systems, which are unable to easily provide real-time,
actionable customer data to the individuals within the financial
institution servicing customers without additional software.


We believe that financial institutions today are
seeking more integrated, open, flexible, customer-centric and
efficient information technology solutions that:



| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | combine high performance, scalability,
    reliability and security with the advantages associated with
    relational and highly normalized (which means data is easily
    accessible and not stored redundantly) technology based on
    industry standards,
|
| |  | deliver new products and services to their
    customers quickly and efficiently without extensive custom
    development,                                                                                                                                     
|
| |  | integrate easily with other applications used in
    the enterprise (whether on an in-house or an outsourced basis)
    without expensive middleware,                                                                                                          
|
| |  | provide quick and effective access to customer
    and account data in order to offer better, more customized
    services, monitor trends and performance and cross-sell services
    and products,                                                           
|
| |  | allow real-time access to customer data while
    preserving the financial institutions ability to batch
    process large transactions, and                                                                                                                  
|
| |  | accommodate, in a single application, multiple
    delivery channels, such as ATMs, telephone
    banking, Internet banking and wireless banking, as well as
    new delivery channels as they emerge.                                                         

We believe that a technology solution must meet
all of these requirements to enable financial institutions to
achieve a competitive advantage in their markets through
improved customer service, competitive product offerings and
lower costs. In addition, financial institutions are required by
federal law to evaluate the effectiveness of their information
technology systems periodically. This obligation, together with
significant upgrades and phase-outs of certain hardware by
hardware providers, creates an ongoing need for institutions to
evaluate replacement of their information technology systems.

These requirements can be met by information
technology systems based on open, industry-standard operating
environments and relational databases. Relational and real-time
technology can improve information sharing by providing access
at each desktop to critical customer and transaction data and
business applications, which is restricted or difficult to
access in legacy environments. This technology also enables
organizations to streamline business practices and reporting to
make faster, more informed decisions. Because this technology is
based on an open architecture, it is easily scalable by
upgrading the server or linking multiple servers. In addition,
this open model offers flexibility in that additional
functionality can easily be provided through third-party
applications. Furthermore, the costs of maintaining a legacy
system, which include the costs of upgrading both legacy system
software and hardware, are generally greater over time than the
costs associated with newer technology.

Our Solution

Our core software product is a fully-integrated,
open, flexible, customer-centric solution that enables financial
institutions to service their customers more efficiently and
effectively. Our core software operates in Microsoft, UNIX and
LINUX environments using an Oracle relational database,
supplemented by a suite of complementary software applications,
which are fully integrated with our core technology and can also
be used with any other vendors core software. We also
offer our clients a comprehensive set of support services.

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The key attributes of our solution are its:



| |                                       
| | --------------------------------------
| | Full Integration at the Core
    Level



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fully-Integrated Information
    Technology.Our core software supports
    all of a financial institutions principal data processing
    requirements using a single relational database designed as an
    integral component of the system architecture. Our
    fully-integrated software suite allows our clients to replace
    their highly proprietary, inflexible and costly legacy systems,
    which generally contain many disparate software applications,
    multiple databases and cumbersome and expensive middleware, with
    one integrated software application based on a single database
    architecture.



| |                  
| | -----------------
| | Open Architecture



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Compatibility With Varied Non-Proprietary
    Hardware.Because our core system was
    designed with an open architecture, our clients can run our
    software on desktop and server hardware supplied by a wide array
    of vendors, including Hewlett-Packard Company, IBM Corp.,
    Dell Computer Corporation, Sun Microsystems, Inc. and
    Unisys Corporation. In contrast, legacy systems often require
    the financial institution to purchase vendor-specific hardware,
    a vendors core software product and vendor-specific
    complementary products, each of which must be customized to
    interface with a decades-old legacy system, imposing significant
    cost burdens, both in cash outlay and manpower.                                                                                                                             
|
| |  | Software
    Compatibility.The flexibility and
    scalability of our core applications permit our clients to
    incorporate complementary software applications, whether
    designed by us or by a third party, in a cost-effective manner.
    Our complementary products, which may be used with either our
    core software or a third-party system, include profitability,
    web-based imaging, loan origination, cash management,
    collections, interactive voice solutions and check and item
    processing modules that may be purchased as part of a
    fully-integrated software suite or individually. In addition,
    our open architecture allows a client to activate a particular
    software module as its functionality is desired, which provides
    our clients with the ability to react to their customers
    needs efficiently.
|
| |  | Scalability.Although most of our current clients have an asset base under
    $20 billion, our open architecture is designed to
    accommodate the needs of larger financial institutions, and to
    provide our clients the ability to continue to use our solution
    as they grow. In May and June 2002 we performed a three-week
    performance test and benchmark of our core software, the results
    of which demonstrated that our solution can meet the processing
    requirements of an institution with $40 billion in assets
    and four million accounts. The scalability of our architecture
    enables us to manage unexpected increases in clients
    processing volumes as well as support the growth of our
    clients businesses.                                                                                                    



| |            
| | -----------
| | Flexibility



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Client Delivery of New Products and
    Services.Our software allows our
    clients to offer new products and services to their customers
    without reconfiguring their information technology
    infrastructure. In contrast, modifications required by legacy
    systems in order to accommodate new financial products can be
    costly and time-consuming and may require the purchase and
    maintenance of additional middleware. In addition, our clients
    can change the way in which they serve their
    customers  such as converting from a thrift to a
    commercial bank  without replacing or making major
    modifications to our software.                                                                                  
|
| |  | Direct License or Outsourced
    Distribution.We can provide our core
    software to our clients by licensing it directly for use
    on-site, through our own outsourcing centers or through
    third-party outsourcing centers. We also provide certain
    complementary applications at our outsourcing centers, including
    our business intelligence, cash management, ATM, Internet
    banking, web-based imaging, collections, interactive voice
    solutions and check and item processing tools. Our flexibility
    in distribution method allows our clients to use our core
    software and other complementary applications in the most
    cost-effective method to meet their specific operational and
    competitive requirements.

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| |                              
| | -----------------------------
| | Customer-Centric Architecture



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Real-time Customer Information in a Single
    View.Our core software uses a
    relational database organized around individual customers, which
    allows a financial institution to update and view customer
    information on a real-time basis instead of relying on periodic
    batch processing. Our clients can provide their customers with
    real-time information concerning their accounts, as well as
    create accurate and current management reports. Our software is
    designed to eliminate potential errors arising from the
    maintenance of multiple databases and to accommodate high
    volumes of customer data.                                                                                                                                                                            
|
| |  | Better Relationship
    Management.Our relationship
    management software provides a set of business intelligence
    tools that is fully integrated with and acts as a natural
    extension of our core software. This allows our clients to
    eliminate the multiple databases required when layering
    traditional business intelligence tools onto a legacy core
    system. Because our suite exploits the strength of our core
    system that is based on a single, relational database designed
    around individual customers, a financial institution may easily
    collect and analyze that data to generate timely and responsive
    initiatives (such as promotional offers) and deliver those
    initiatives immediately to the customer as the customer
    interacts with the financial institution.



| |           
| | ----------
| | Efficiency



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cost Savings.We
    believe that our software reduces the overall cost of a
    financial institutions information technology and allows
    our clients to meet their strategic goals more efficiently. The
    hardware required by a legacy system is expensive to obtain and
    costly to keep to current specifications while the pool of
    expertise with older systems is constantly shrinking. In
    contrast, our core system can run on hardware provided by many
    different vendors. Because our core software is fully integrated
    with our complementary products and supports third-party
    products, development and implementation costs for an
    institutions information systems based on our software are
    lower than those for an institution which must modify its core
    software and obtain costly proprietary products for each new
    function. Our open architecture and flexibility allow our
    clients to modify their information systems requirements quickly
    and easily, without incurring the significant costs associated
    with supporting several disparate software applications. Our
    single relational database allows our clients to organize their
    data around individual customers, use our business intelligence
    tools to analyze and manage that data in the most efficient
    manner and launch new products and services desired by their
    customers in a cost-effective manner. In addition, because our
    software is based on widely adopted technologies, a financial
    institution using it requires less specialized expertise, which
    allows the institution to achieve greater operational
    efficiencies.

Business Strategy

Our objective is to be the leading supplier of
software and services to our targeted market. Our strategy for
achieving this objective is to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand Share of Our Historical
    Market.We believe that our software
    is particularly well suited for financial institutions which
    have an asset base of under $20 billion. These financial
    institutions, which have historically constituted our target
    market, typically can neither afford, nor do they require,
    extensive customization in connection with the implementation of
    a core system. As a result, we believe that these financial
    institutions are willing to evaluate, and are well positioned to
    benefit from, our flexible, cost-effective technology. We intend
    to continue to pursue this market by marketing and selling our
    core software to new clients seeking to convert from a legacy
    system.
|
| |  | Expand Our Sources of Recurring
    Revenue.We generate recurring revenue
    through outsourcing and maintenance services. We currently host
    applications for approximately 160 financial institutions
    in our outsourcing centers and intend to continue to enhance
    this service, which we believe is an attractive solution for
    many of our targeted clients. Our outsourcing centers serve
    clients using our core software and clients using one or more of
    our Internet banking, ATM, cView, check imaging, cash
    management, collections, automated clearing house, or ACH,
    processing and check and item processing products. In                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the future, we plan to offer all of our products
    in our outsourcing centers and continue to market our
    outsourcing services aggressively. Our outsourcing services
    provide a source of recurring revenue which can grow as the
    number of accounts processed for a client increases. We continue
    to seek to expand our client base through licensing
    arrangements, which we expect to increase the recurring
    revenues, such as maintenance, that correspond to those licenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Expand Our Client Base by Licensing Our Core
    Software through Third-Party Outsourcing
    Centers.Approximately
    172 financial institutions use our core software
    application at two third-party outsourcing centers, one operated
    by BISYS, Inc., a major national outsourcing center, and
    the other operated by Connecticut On-Line Computer
    Center, Inc., or COCC, a major regional outsourcing center.
    A number of financial institutions outsource their core
    processing systems to third-party outsourcing centers such as
    these, which typically choose one or more significant core
    software products to provide their services. We plan to work
    with our existing resellers to add new clients, and have
    recently expanded our relationship with BISYS for this purpose.
    We also plan to supplement these resellers with other national
    and regional outsourcing centers.                                                                   
|
| |  | Provide Additional Products and Services to
    Our Installed Client Base.We intend
    to continue to leverage our installed client base by expanding
    the range of complementary products and services available to
    our current clients, through both the internal development of
    new products and services and through acquisitions. In addition,
    each client has an account manager who recommends complementary
    products suitable for the clients business and works with
    our sales group to generate sales. We also intend to continue
    selling our complementary products to financial institutions
    that use core systems sold by third parties.                                                                                                                                                                                                                                                                                                                      
|
| |  | Maintain Technological
    Leadership.We believe that the
    uniqueness of the open, flexible architecture of our system
    provides us with competitive advantages over companies offering
    other core processing systems. For example, our core software
    suite can satisfy the technological requirements of a commercial
    bank, thrift or credit union without modification or
    customization. We recently announced the commercial release of
    our web-based business intelligence suite, which allows a
    financial institution to transmit action messages and collect
    response information instantaneously while a customer conducts a
    transaction. Our open architecture enables us to utilize
    leading, non-proprietary software and hardware to provide
    comprehensive functionality. We intend to extend our
    technological leadership by continuing to add new applications,
    integrate new technologies and expand the functionality of our
    system.
|
| |  | Extend Target
    Markets.Our primary market currently
    consists of small to mid-size commercial banks and thrifts and
    all credit unions, located in the United States. We believe that
    our core software has benefits beyond this market, and can scale
    to meet the operating requirements of any financial institution.
    We continue to explore additional ways to extend our target
    markets, including by selling our products and services to
    larger financial institutions and international financial
    institutions. We also plan to market and sell our products and
    services to clients in the payroll services, insurance and
    brokerage industries.                                                                                                                                                                                                                                                                                                           

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| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pursue Strategic
    Acquisitions.To complement and
    accelerate our internal growth, we continue to explore
    acquisitions of businesses and products that will complement our
    existing products and services as well as expand our client
    base. Since 2000, we have completed the following acquisitions:

|                       |  |                                                          |  |                                                                            
|---------------------- |  | -------------------------------------------------------- |  | ---------------------------------------------------------------------------
|Date                   |  | Seller                                                   |  | Products and Services                                                      
|                       |  |                                                          |  |                                                                            
|June 2000              |  | Global Payment Systems LLC                               |  | Web-based cash management system                                           
|August 2001            |  | Sound Software Development, Inc.                         |  | Loan and mortgage origination product                                      
|December 2001          |  | Imagic Corporation                                       |  | Check imaging product                                                      
|March and October 2002 |  | HNC Financial Solutions, Inc. and HNC
    Software, Inc. |  | General ledger, profitability and other financial
    products             
|July 2003              |  | Liberty FiTech Systems, Inc.                             |  | Core processing software for credit unions                                 
|February 2004          |  | Maxxar Corporation                                       |  | Interactive voice response, contact center
    management and voice over IP

Technology

We design our software to integrate with other
products, to allow individual customer data to be easily
accessible at all times, and to be able to deliver strategic
benefits to financial institutions at a lower cost. We released
our initial product in 1995, at a time when technical
advancements such as distributed computing, browser-based
applications and standards for integrating disparate
applications were becoming commonly adopted in the marketplace.
To take advantage of these technical developments, we created an
open product architecture to maximize a clients
flexibility with respect to both hardware options and
integration with other software applications. In addition, we
sought to design a single platform that could service all
financial institutions, including commercial banks, thrifts and
credit unions. We also understood the difficulties financial
institutions face in retrieving timely, accurate information
with respect to their customers, and therefore designed our
software with a single relational database as its integral
component, placing an emphasis on access to customer information
rather than account data. By creating a core processing solution
that is open and customer-centric, we believe we have minimized
the need for financial institutions to purchase costly
middleware and additional databases to perform the tasks that
our products achieve with only one software application and a
single database.

Our core software application offers the
following benefits:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | an open architecture that permits full
    integration with third-party hardware and software and emerging
    technologies,
|
| |  | flexible functionality, scalability and high
    performance, and                                                           
|
| |  | a highly relational database designed around
    customer information.                                                      

We believe that our software provides these
benefits through an open architecture that utilizes a relational
database, as well as leading graphical user interfaces and
report generation tools. Our software operates in an open
systems environment, does not require any proprietary hardware
components and is currently deployed on a wide range of client
and server platforms. Our open architecture also permits our
software to interface with a broad range of third-party
applications and peripherals that are commonly used in banks and
credit unions.

We implement our flexible solution through
application modules, each of which performs a specific core
processing function. All of our modules share and are able to
access the data in a single relational database, allowing for
consistency of data throughout our product suite. Through
database normalization, data is organized in tables that are
easily accessible through a variety of query tools as well as
through the application modules. In contrast to legacy systems,
our architecture allows a financial institution to capture an
unlimited

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amount of data regarding each of its customers
without requiring additional software or support. As a result, a
higher degree of independence between a clients business
processes and underlying data is achieved and the solution is
more scalable and adaptable to changing business needs. New
application modules may be developed or existing modules may be
altered as required without having to change the underlying data
model.


Our software utilizes a single, enterprise-wide
database, as opposed to a distributed database in which data is
spread among two or more components, typically resident on
different computers. The principal benefit of an architecture
using a single enterprise-wide database is that it permits
real-time processing so that, for example, transactions are
immediately reflected in a bank or credit union customers
account. This contrasts with a batch processing approach in
which all accounts are updated only at scheduled intervals,
typically at the end of the business day. Our software may be
configured to operate in either batch mode or a hybrid
batch/real-time mode for those banks or credit unions that do
not require or desire real-time processing.

Products and Services

We offer core software as well as several
complementary products that may be purchased with our core
solution or separately. The open and flexible architecture of
our core solution is designed to provide our clients with the
maximum array of options for complementary applications. While
all of our products function independently of each other,
financial institutions which use our entire software suite
benefit from our fully-integrated platform and the ability to
obtain comprehensive real-time information on all of their
customers.



| |              
| | -------------
| | Core Software

The Complete Banking Solution and The Complete
Credit Union Solution.We market our
core software in two versions, one directed primarily at
commercial banks and thrifts and the other directed primarily at
credit unions. The Complete Banking Solution and The Complete
Credit Union Solution share a common software platform that
provides a comprehensive real-time open architecture system
capable of managing all of a financial institutions core
processing requirements. Our core software permits the financial
institution and its customers to view their transactions
immediately, whether the transactions occur over the telephone,
on the Internet, at the ATM, inside the financial institution or
at an external debit location.

We believe that our core software is less
expensive to install and maintain than most legacy systems. It
can be easily integrated with third party applications or our
own complementary products to provide a comprehensive solution
that can immediately retrieve valuable customer information for
specifically targeting customers with cross-selling or
up-selling opportunities.

Some of the key features of our core software
include:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | customer-centric system,                                      
|
| |  | real-time customer touch-point integration,                   
|
| |  | integrated real-time and/or batch processing,                 
|
| |  | comprehensive lending and deposit processing,                 
|
| |  | forms integration (including signature and photo
    storage),
|
| |  | customizable web-based reporting,                             
|
| |  | comprehensive teller/ customer service
    applications,      
|
| |  | commercial institution functionality,                         
|
| |  | institution and branch operations,                            
|
| |  | direct payroll processing, and                                
|
| |  | product delivery manager.                                     

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The features of our core software offer a
comprehensive real-time view of each customer relationship,
which enables our clients to provide better customer service by
having a complete customer profile available to tellers and
officers instantaneously.



| |                       
| | ----------------------
| | Complementary Products

To enhance our core software, we offer a number
of complementary products. All of our complementary products are
designed to run on any core processing system. However, when
used with our core solution, our complementary products are
designed to take advantage of the availability of real-time
customer information. These products provide functionality
beyond that in any core solution, and include:

cView.cView is an
advanced business-intelligence suite designed around two key
functional areas: real-time customer contact and knowledge
management. cView permits a financial institution to leverage
relational technology, customer account and transaction data and
instant messaging to gather, convert and analyze disparate
customer information into knowledge that can be applied to
support timely and responsive initiatives such as promotional
offers and make them available immediately through front-line
delivery channels, such as Internet banking, tellers and others.
cView is designed to operate on any core processing system,
whether designed by us or by a third party. The cView suite
consists of the following web-based components:



| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dynamic Messaging
    Manager.Application that allows the
    financial institution to set rules that define the real-time
    distribution and receipt of messages throughout the organization.                                                  
|
| |  | Activity Manager.Application that allows the financial institution to track and
    manage the activities of its customers and prospects.                                                                                                         
|
| |  | My Vision.Access
    point for cView applications, intranet communications and access
    to relevant documents, messages and Internet links.                                                                                                     
|
| |  | Report Wizard.Query
    and report writing tool, which allows users to simplify views of
    complex database table design, effectively collapsing multiple
    tables into one.                                                                  
|
| |  | Market Vision.Customer data warehouse designed to permit financial
    institutions to learn about their customers, prospects, products
    and business lines so they can make sound business decisions and
    create effective marketing plans.

Each component of the cView suite is integrated
with the other components, as well as with our core software,
allowing clients to focus on the implementation of CRM
strategies rather than the support and maintenance of separate
software applications.

Channel Management
Center.Channel Management Center is a
suite of applications and services designed to facilitate the
building and processing of interfaces between disparate systems.
Channel Management Center is designed to act as a translator
between core, business and delivery systems and to centralize
the collection and movement of information throughout the
financial institution, eliminating the need for multiple types
of middleware services.

eCommerce Banker  Consumer and
eCommerce Banker  Business.Our eCommerce Banker suite provides clients with Internet
banking and cash management tools for commercial and retail
customers. The modules permit a financial institution to choose
from a wide menu of financial services that may be provided to
either individuals or businesses, including:



| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Account Information.Customers can view balance information for checking and savings
    accounts, certificates of deposit, lines of credit, automobile
    loans and mortgage loans. Customers can also view year-to-date
    interest accrued or paid, interest rates and deposit maturity
    dates.
|
| |  | Cash Management.Business customers can monitor their accounts, make tax payments
    and execute automated clearing house or wire transfers. We also
    provide a cash concentration function, which periodically sweeps
    cash from several accounts into a single interest-bearing
    account.  
|
| |  | Funds Transfer.Customers can transfer funds among accounts and establish
    real-time electronic bill payment.                                                                                                                                                                                       

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| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Compatibility with Personal Financial
    Management Software.Popular personal
    financial management software, such as Intuit Quicken® and
    Microsoft Money®, can be automatically synchronized with
    recent transactions.
|
| |  | Bill Payment.Customers can pay bills electronically 24 hours a day,
    seven days a week and can establish future and recurring
    payments.                                                                                     
|
| |  | Secure Messaging.Customers can communicate with a financial institution through
    secure encrypted message systems.                                                                                                              
|
| |  | Additional Features.Customers can reorder paper checks, request an account statement
    or contact financial institution personnel by e-mail.                                                                                     

Our Internet banking application supports the
open financial exchange, or OFX standard, which enables the
system to interface to financial institution services that use a
variety of devices to originate customer transactions. These
administrative components include the ability for financial
institutions customers and potential customers to submit
account applications in a secure environment. Also, financial
institutions can automatically generate e-mail responses to
customer applications, update product interest rates and terms
and receive customer-specific marketing and data analysis.

Check Imaging.This
software application enables our clients to create and store
digital check images for inclusion in monthly statements and to
facilitate their customer support services. This product suite
includes item/ image capture, document imaging/ computer output
to laser disc, or COLD, signature verification, electronic
statements, full-service check and item processing and managed
services. This product is designed to comply with federal
legislation known as The Check Clearing For The
21st Century Act, commonly known as Check 21, and to be
compatible with the Federal Reserves FedImage Platform.
These features are important because when financial institutions
exchange checks electronically rather than physically as the
legislation will require, they will seek Check 21 compliant
solutions. The product is also designed to be web-enabled, to
eliminate a large portion of entry keying, and together with
remote branch capture, to assist our clients in centralizing
electronic image storage. Our clients can choose to purchase
these products on an in-house, serviced or managed services
basis.

Loan Origination.Our loan origination technologies are designed to provide
full-service loan origination processing. Because no two lenders
transact business in exactly the same manner, our loan
origination products can also be adapted to suit a financial
institutions specific needs. Our software suite provides
integrated systems for mortgage, consumer and commercial lending:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Sound Mortgage Management Systemprovides comprehensive mortgage
    lending management. This product automates the mortgage process,
    including advanced disclosures, prequalification, origination,
    document preparation, processing, loan tracking, underwriting,
    commitment, closing, full management and government reporting.
    The system automatically books loans to our clients
    in-house or outsourced servicing systems. The system can be
    wide-area network enabled throughout all branches, and also
    provides for remote origination using the Internet.
|
| |  | The Sound Consumer Loan Management Systemprovides consumer loan management
    through a comprehensive set of features, including full document
    preparation, loan processing, tracking, underwriting, reporting
    and government reporting requirements as well as an automated
    decision service.                                                                                                                                                                                                                                                                                       
|
| |  | The Sound Commercial Loan Documenterprovides commercial loan management
    from the creation of commitment/ proposal letters to the final
    production and tracking of complete document packages for any
    small-business to middle-market loan, including commercial and
    industrial, or C&I, commercial real estate and construction
    and Small Business Administration loans.                                                                                                                                                                                                      

Financial Products.Our financial accounting software suite is designed to provide
fully-integrated back-office financial management technology to
financial institutions, including general ledger, accounts
payable

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and fixed assets. In addition, we offer strategic
financial management tools such as asset/ liability management,
profitability and financial planning:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial Accounting
    Platform.Our financial accounting
    platform is an integrated and comprehensive financial management
    suite. With detailed reporting and responsive service, it helps
    clients streamline accounting operations and improve the quality
    of their financial management. The financial accounting platform
    is comprised of four modules: general ledger, investment
    management, accounts payable and fixed assets accounting. Each
    system can operate as a stand-alone product or as part of the
    integrated financial accounting platform. As a whole or on a
    stand-alone basis, the open architecture and standardized file
    specifications are designed to allow integration with other
    accounting and information management software applications.
|
| |  | Asset/ Liability Management and Financial
    Planning System.Our asset/ liability
    management and financial planning system provides analytical,
    budgeting and strategic planning software to enable financial
    institutions to better comprehend the factors driving their
    profitability. This software is designed to provide a financial
    institution with the ability to analyze the institutions
    balance sheet in order to determine market value and risk,
    helping to ensure preservation of capital.                                                                                                                                                                                                                                                                              
|
| |  | ProfitVision.ProfitVision analyzes profitability at any level of the
    organization. It is designed to generate profit results and
    value indicators that reveal the contributors to an
    institutions bottom line. It can also be used to segment
    and profile valuable customers and determine which products,
    business units and channels are top performers.                                                                                                                                                                                                                                                                                                                                                                                                                                     

Interactive Voice
Solutions.Our interactive voice
solutions, which we obtained through the acquisition of Maxxar
Corporation on February 24, 2004, are designed to provide
financial institutions with products that enhance productivity,
strengthen customer services and reduce overall operational
costs.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interactive Voice
    Response.Our interactive voice
    response solution provides a financial institutions
    customer with round the clock access to their financial
    information and the ability to complete account transactions
    such as transferring funds, applying for loans, and accessing
    information about products and services. The product supports
    both touch-tone keypad response or natural language speech
    recognition.
|
| |  | Contact Center
    Management.Our contact center
    management solution is comprised of an enhanced Automatic Call
    Distributor (ACD) designed to provide sophisticated routing
    of telephone contacts and other forms of electronic media and
    agent workflow software used to manage a broad range of client
    services and marketing needs of a financial institution.                                                                         
|
| |  | Voice Over IP.Our
    voice over IP product provides a financial institution with a
    reliable and economical voice communication solution to meet the
    needs of a multi-site organization.                                                                                                                                                                                                                                                              



| |                     
| | --------------------
| | Outsourcing Services

We have the capability to host a clients
data processing functions at our outsourcing centers, giving the
client the benefit of our products and services without having
to maintain personnel to develop, update and run these systems
and without having to make large initial expenditures. Our
outsourcing centers currently host applications for 160
financial institutions, including clients who use our core
software and clients who use one or more of our Internet
banking, ATM, cView, check imaging, cash management,
collections, ACH processing and check and item processing
products.



| |                                               
| | ----------------------------------------------
| | Training, Maintenance and Support
    Services

Installation and
Training.We provide comprehensive
installation and training services in connection with the
purchase of in-house systems and for new outsourcing center
clients. The complete installation process of a core system
typically includes planning, design, data conversion and testing.

Both in connection with installation of new
systems and on an ongoing basis, our clients need, and we
provide, extensive training services and programs related to our
products and services. Training can be

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provided in our training centers, at meetings and
conferences or onsite at our clients locations, and can be
customized to meet our clients requirements. The large
majority of our clients acquire additional training services,
both to improve their employees proficiency and
productivity and to make full use of the functionality of our
systems.


Professional
Services.Our professional service
organization provides services on a contract basis such as
operational reviews, which leverage the best practices of our
clients to improve operational efficiency and effectiveness
across our entire client base.

Support Services.We
provide immediate telephone response service during normal
working hours and on-call support 24 hours a day, seven
days a week for all components of our solution. In addition, we
offer remote product support services whereby our support team
directly connects in a secure environment to our clients
server to troubleshoot or perform routine maintenance.

Clients

We serve financial institutions of all sizes,
however, the majority of our clients are commercial banks and
thrifts with under $20 billion of assets and credit unions
of all sizes. The majority of our clients are located in the
United States, although we also have clients in several foreign
countries. As of December 31, 2003, approximately 1,300
financial institutions were using one or more of our products.
No client accounted for more than 10% of our revenues in the
fiscal years ended December 31, 2003 and December 31,
2002.

Sales and Marketing

We have established a multi-channel distribution
and sales network. We sell and license our products directly to
end-users through our direct sales force and indirectly through
resellers, including third-party outsourcing centers. In
addition, we support our direct and indirect sales efforts
through strategic marketing relationships and public relations
programs, trade shows and other marketing activities. We operate
primarily in one geographical area, the United States.



| |             
| | ------------
| | Direct Sales

We market our products primarily through a direct
sales force which is split between our sales personnel who sell
our core software and those who sell our complementary products.
As of March 5, 2004, our direct sales force was comprised
of 32 salespersons, 15 of which were selling our core software,
and 17 of which were selling our complementary products. In
addition, our sales group is complemented by application
specialists, all of whom have extensive experience in banking
technology and provide pre-sales support to potential clients on
product information and deployment capabilities. Each client is
also assigned an account manager who is that clients
primary contact at Open Solutions, recommends complementary
products suitable for that clients business and works with
our sales group to generate sales.

In December 2003, we split our sales group for
core software into two distinct areas of focus; one for the
banking industry and one for the credit union industry. We
believe that this distinction will facilitate the ongoing effort
to design, develop and build better technology products aimed at
the specific needs of the banking and credit union industries.



| |               
| | --------------
| | Indirect Sales

We supplement our direct sales force with a range
of resellers who sell our complementary products in conjunction
with their own products and services. These resellers include a
range of hardware and software vendors and permit us to better
address specific geographical markets, including those outside
the United States, and potential clients reliant on existing
third-party core solutions.

Historically, a significant portion of financial
institutions have chosen to satisfy their information technology
needs through third-party outsourcing centers. In addition to
our own technology outsourcing centers, we have entered into
software license and marketing agreements with BISYS and COCC.
Under our agreements with these strategic marketing partners, we
receive license fees based on the asset size of the

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financial institution using our applications. We
have recently expanded our relationship with BISYS. BISYS has
the right to provide outsourcing services using our The Complete
Banking Solution software to banks in the United States. Under
the amended agreement, BISYS has also agreed to pay us minimum
license fees and must achieve minimum sales requirements, as
well as pay us annual maintenance fees for each of their clients
that uses one or more of our products or services. In exchange,
we have agreed not to compete with BISYS for the provision of
outsourcing services to banks in the United States through
September 2005 and thereafter (so long as BISYS continues to pay
us the required minimum fees and meet the required minimum
sales) and we have agreed not to enter into similar reseller
agreements with any one of six named competitors of BISYS before
March 1, 2005. Our agreement with COCC provides it with the
right to provide services using our The Complete Banking
Solution software to banks in ten states, primarily in the
northeastern and mid-Atlantic United States. In February 2004,
we entered into an agreement with COCC, which provides for the
license and resell of our e-Commerce Banker suite of electronic
banking and cash management products operated from their data
center. During the fiscal year ended December 31, 2003,
BISYS represented approximately $5.8 million, or 9.1%, of
our total revenues, and COCC represented approximately
$1.5 million, or 2.4%, of our total revenues. During the
fiscal year ended December 31, 2002, BISYS represented
approximately $2.9 million, or 6.5%, of our total revenues,
and COCC represented approximately $1.3 million, or 2.9%,
of our total revenues.




| |          
| | ---------
| | Marketing

Our marketing program includes:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | direct mail,                                                               
|
| |  | telemarketing,                                                             
|
| |  | hosting an annual client conference,                                       
|
| |  | advertising in banking and credit union trade
    journals and periodicals,
|
| |  | publishing articles and editorials,                                        
|
| |  | speaking engagements, and                                                  
|
| |  | participating in seminars and trade shows.                                 

Product Development

We plan to continue to invest significant
resources to maintain and enhance our current product and
service offerings, and are continually developing new products
that complement these offerings. For the years ended
December 31, 2003, 2002 and 2001, product development
expenses were $6.8 million, $6.2 million and
$7.6 million, respectively. We have historically released
two upgrades of existing products each year, and, since the
beginning of fiscal year 2002, we have introduced a collections
system, a safe deposit box system, a web-based business
intelligence suite, a web-based imaging system and tools to
facilitate the building and processing of interfaces between
disparate systems, as well as several smaller modules. The
collections system and safe deposit box system were
market-driven additions to our core software suite. The business
intelligence, web-based imaging systems and the interface tools
were designed to exploit the uniqueness of our core
architecture, but as with all of our complementary products,
they work with other core solutions. We have several new
products under development and plan to sell them to both our
existing client base and new clients. Our clients also regularly
advise us of new products and functionalities that they desire,
which we take into account with respect to planning our research
and development operations. As of March 5, 2004, we
employed a staff of 90 development employees.

Competition

The financial services software market is
intensely competitive and subject to technological change.
Competitors vary in size and in the scope and breadth of
products and services offered. We encounter

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competition in the United States from a number of
companies including Fiserv, Inc., Jack Henry &
Associates, Inc., Fidelity National Financial Corporation
and John H. Harland Company. We also compete against a number of
smaller, regional competitors, as well as vendors of products
that compete with one or more of our complementary products.
Many of our current competitors have longer operating histories,
larger client bases and greater financial resources than we do.
In general, we compete on the basis of product architecture and
functionality, service and support, including the range and
quality of technical support, installation and training
services, and product pricing in relation to performance and
support.


Intellectual Property and Other Proprietary
Rights

We rely primarily on a combination of copyright
and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect our proprietary rights. We
seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford
only limited protection. Our license agreements contain
provisions which limit the number of users, state that title
remains with Open Solutions and protect confidentiality. We
presently have no patents or patent applications pending.

Open Solutions Inc., The Complete Banking
Solution, The Complete Credit Union Solution and Bank-on-it are
registered trademarks, and eCommerce Banker and eCommerce Mart
are trademarks of ours. Open Solutions Inc. is also a service
mark of ours. All other trade names and trademarks referred to
in this Annual Report on Form 10-K are the property of
their respective owners.

Employees

As of March 5, 2004, we had a total of 406
employees. None of our employees is represented by a labor
union. We have not experienced any work stoppages and believe
that our relations with our employees are good.

Infrastructure

Our communications and network equipment is
located in both our corporate headquarters in Glastonbury,
Connecticut and our offices in Atlanta, Georgia. We have
preventive maintenance and disaster recovery plans, which
include periodic equipment, software and disaster recovery
testing, data monitoring and maintaining records of system
errors. We have 24-hour monitoring and engineering support and
emergency communication lines. In the event of an emergency, we
have a contingency plan to provide services through a nationally
recognized emergency service provider.






|        |           
|------- | ----------
|Item 2. | Properties

We lease approximately 42,000 square feet of
space in Glastonbury, Connecticut. We also lease approximately
4,000 square feet of space in Shelton, Connecticut,
approximately 1,100 square feet of space in Simsbury,
Connecticut, approximately 6,400 square feet of space in
Marietta, Georgia, approximately 25,000 square feet of
space in Atlanta, Georgia, approximately 1,800 square feet
of space in Utica, New York, approximately
12,200 square feet of space in Wixom, Michigan and
approximately 1,502 square feet in Mississauga, Ontario.
Our Glastonbury, Simsbury and Shelton, Connecticut leases expire
in 2005 and our Marietta, Atlanta, Wixom, Michigan, Mississauga,
Ontario and Utica, New York leases expire in 2004. We
believe our current facilities are sufficient to meet our needs
through the fiscal year ending December 31, 2004, and we
will either renew the leases with respect to our current
facilities or move to new facilities at the expiration of the
current lease terms.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are from time to time a party to legal
proceedings which arise in the normal course of business. We are
not currently involved in any material litigation, the outcome
of which would, in managements judgment based on
information currently available, have a material adverse effect
on our results of operations or financial condition, nor is
management aware of any such litigation threatened against us.

16



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##### Table of Contents








|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

During the three months ended December 31,
2003, we solicited the written consent of our stockholders
pursuant to Section 228 of the General Corporation Law of
the State of Delaware in connection with the following
proposals, which were approved on October 17, 2003:

|                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |            |            |  |             |     |           |  |  |     |     |  |  |     |     | 
|------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ---------- | ---------- |  | ----------- | --- | --------- |  |  | --- | --- |  |  | --- | --- | 
|                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |            |            |  |             |     | Broker   
|Proposal                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | For(a) |            | Against    |  | Abstentions |     | Non-Votes
|                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |            |            |  |             |     |          
|                                                                                                                          | 1. To elect our board of directors: Louis
    Hernandez, Jr., Douglas K. Anderson, Douglas C. Carlisle,
    David M. Clarke, David Dame, Samuel F. McKay, Carlos P. Naudon,
    William W. Neville, Gregory W. Thompson and Richard P. Yanak                                                                                                                                                                                                                                                                                                      |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 2. To ratify PricewaterhouseCoopers LLP as
    our independent auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 3. To approve a Certificate of Amendment to
    our Certificate of Incorporation to (i) increase the number
    of authorized shares of our common stock from 45,000,000 to
    95,000,000, (ii) amend the officer and director
    indemnification and limitation on liability provisions,
    (iii) eliminate the ability of stockholders to take action
    by written consent and call a special meeting, as of the closing
    of our initial public offering, and (iv) amend the
    automatic conversion provisions of our preferred stock |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 4. To amend and restate our Certificate of
    Incorporation, to (i) eliminate all references to our
    preferred stock, (ii) authorize up to 5,000,000 shares
    of blank check preferred stock and (iii) elect
    to be governed by Section 203 of the Delaware General
    Corporation Law                                                                                                                                                                                                                                                |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 5. To adopt our Amended and Restated By-Laws                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 6. To approve the automatic conversion of
    our preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 7. To approve the classification of our
    board of directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 8. To adopt our 2003 Employee Stock Purchase
    Plan, upon the closing of our initial public offering                                                                                                                                                                                                                                                                                                                                                                                                                                            |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|                                                                                                                          | 9. To adopt our 2003 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        |            | 13,193,004 |  |             |     | n/a       |  |  |     | n/a |  |  |     | n/a | 
|10. To amend our 2000 Stock Incentive Plan
    to provide for a maximum number of shares which may be issued
    under it |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 13,193,004 |            |  |             | n/a |           |  |  | n/a |     |  |  | n/a |    
|11. To ratify prior corporate acts                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 13,193,004 |            |  |             | n/a |           |  |  | n/a |     |  |  | n/a |    

During the three months ended December 31,
2003, we also solicited the written consent of our stockholders
pursuant to Section 228 of the General Corporation Law of
the State of Delaware in connection with the following proposal,
which was approved on November 7, 2003:

|                                                                                                                                                                                        |  |  |            |  |  |  |     |  |  |  |     |  |  |  |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|1. To amend the Certificate of Amendment
    previously approved by our stockholders and described in
    number 3 above to effect a one-for-1.45 reverse split of
    our common stock |  |  | 12,568,873 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a | 



---



|    |  |                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Share numbers reflect preferred stock voting with
    the common stock on an as-converted basis. These numbers do not
    reflect the one-for-1.45 reverse stock split of all of our
    outstanding shares of common stock effected on November 24,
    2003.

17



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##### Table of Contents






PART II






|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
    and Related Stockholder Matters

Since November 26, 2003, our common stock
has traded on the Nasdaq National Market under the symbol
OPEN. On March 23, 2004, the closing sale price
of our common stock was $22.00 per share. The high and low
sales prices for our common stock for the period from
November 26, 2003 through the end of the fourth quarter of
2003 (December 31, 2003) were $15.65 and $19.78,
respectively.

As of March 23, 2004, there were
approximately 102 record holders of our common stock. This
number does not include stockholders for whom shares are held in
a nominee or street name.

We have never paid cash dividends. We currently
intend to retain all future earnings, if any, for use in our
business and we do not anticipate paying any cash dividends in
the foreseeable future.

Set forth below is information regarding shares
of common stock and preferred stock issued, and options and
restricted stock awards granted, by us during the year ended
December 31, 2003. Also included is the consideration, if
any, received by us for those shares, and information relating
to the section of the Securities Act of 1933, or rule of the
Securities and Exchange Commission under which exemption from
registration was claimed.

Issuance of Capital Stock

On July 1, 2003, we issued
133,195 shares of common stock to Liberty FiTech
Systems, Inc. in connection with the acquisition of
substantially all of the assets of Liberty FiTech
Systems, Inc. by one of our subsidiaries. Liberty FiTech
Systems, Inc. was an accredited investor. No underwriters
were involved in this sale. We issued these securities in
reliance upon exemptions from the registration provisions of the
Securities Act set forth in Section 4(2) thereof relative
to sales by an issuer not involving any public offering, to the
extent an exemption from such registration was required. The
purchasers received written disclosures that the securities had
not been registered under the Securities Act and that any resale
must be made pursuant to a registration or an available
exemption from registration.

Stock Option and Restricted Stock
Grants

During the year ended December 31, 2003, we
granted stock options to purchase 663,737 shares of our
common stock at a weighted average exercise price of
$4.32 per share to our employees.

During the year ended December 31, 2003, we
issued and sold an aggregate of 7,942 shares of our common
stock, for aggregate consideration of approximately $10,700,
upon the exercise of stock options granted under our 1994 Stock
Option Plan and our 2000 Stock Incentive Plan.

On May 7, 2003, we issued an aggregate of
680,530 shares of common stock to nineteen employees
pursuant to our 2000 Stock Incentive Plan. Each of the nineteen
employees executed a Stock Restriction Agreement that placed
restrictions on the shares of common stock that were issued.
These contractual restrictions lapsed upon the completion of our
initial public offering. Of these 680,530 shares of common
stock, 180,000 were registered pursuant to the Securities Act of
1933 on our Registration Statement on Form S-1 and sold in
our initial public offering.

The issuance of stock options and the common
stock issuable upon the exercise of stock options and the
issuance of restricted stock described above was pursuant to
written compensatory plans or arrangements with the our
employees, directors and consultants, in reliance on the
exemption provided by Rule 701 promulgated under the
Securities Act, as well as Section 4(2) of the Securities
Act. All recipients either received adequate information about
us or had access, through employment or other relationships, to
such information. No underwriters or placement agents were
involved in the foregoing issuances and sales.

18



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##### Table of Contents



Initial Public Offering and Use of Proceeds
from Sales of Registered Securities

On December 2, 2003, we completed an initial
public offering of 5,750,000 shares of our common stock,
par value $.01 per share, at a price to the public of
$17.00 per share. Of the shares sold in the IPO,



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 5,570,000 shares were sold by us, including
    750,000 shares purchased by the underwriters upon exercise
    of their over-allotment option, and
|
| |  | 180,000 shares were sold by selling
    stockholders.                                                                                             

The offer and sale of all of the shares in the
IPO were registered under the Securities Act pursuant to a
Registration Statement on Form S-1 (File
No. 333-108293), which was declared effective by the
Securities and Exchange Commission on November 25, 2003.
Bear Stearns & Co. Inc., Friedman Billings
Ramsey & Co., Inc. and U.S. Bancorp Piper
Jaffray Inc. were the managing underwriters of the IPO. We and
the selling stockholders paid the underwriters approximately
$6.6 million and $214,200, respectively, in underwriting
discounts and commissions. We incurred other expenses in
connection with the offering as follows:

|                                   |       |   |         |           | 
|---------------------------------- | ----- | - | ------- | --------- | 
|SEC Registration Fee               |       | $ | 6,068   |          
|NASD Filing Fee                    |       |   | 10,275  |          
|Nasdaq National Market Listing Fee |       |   | 104,416 |          
|Accounting Fees and Expenses       |       |   | 611,000 |          
|Legal Fees and Expenses            |       |   | 553,258 |          
|Printing Expenses                  |       |   | 253,892 |          
|Miscellaneous                      |       |   | 5,953   |          
|                                   |       |   |         |          
|                                   | Total |   | $       | 1,544,862 | 
|                                   |       |   |         |          

Payments of expenses were to persons other than
our directors or officers (or their associates), persons owning
10% or more of our equity securities, or our affiliates.

After these expenses, the net proceeds to us from
the IPO were approximately $86.4 million.

From November 25, 2003 through
December 31, 2003, we used $4.6 million of the
proceeds for repayment of indebtedness and $1.8 million for
the repurchase of shares of common stock from Liberty FiTech
Systems, Inc.. The remainder of the proceeds were invested
in short term commercial paper and corporate bonds. Payments of
proceeds were to persons other than our directors or officers or
their associates, persons owning 10% or more of our equity
securities, or our affiliates.

19



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected financial data set forth below are
derived from our audited financial statements. Since June 2000,
we have acquired six businesses, as more fully described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes thereto included
elsewhere in this Annual Report on Form 10-K. These
acquisitions have significantly affected our revenues, results
of operations and financial condition. The operating results of
each business acquired have been included in our financial
statements from the respective dates of acquisition.

The historical results presented below are not
necessarily indicative of the results to be expected for any
future period. The data set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K.

|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |       |        | 
|-------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------ | ----- | ------ | 
|                                                                                                                                 |                                   |                                      
|                                                                                                                                 |                                   | Year Ended December 31,              
|                                                                                                                                 |                                   |                                      
|                                                                                                                                 |                                   | 2003                                  |         | 2002   |        | 2001 |        | 2000   |        | 1999
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |     
|                                                                                                                                 |                                   |                                      
|                                                                                                                                 |                                   | (In thousands, except per share data)
|Statement of Operations Data:                                                                                                    |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Revenues:                                                                                                                        |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 | Software license                  |                                       | $       | 21,391 |        |      | $      | 13,449 |        |      | $       | 9,971  |        |   | $       | 8,595  |        |   | $      | 5,347 |       
|                                                                                                                                 | Service, maintenance and hardware |                                       |         | 42,461 |        |      |        | 30,896 |        |      |         | 17,295 |        |   |         | 11,625 |        |   |        | 8,705 |       
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 |                                   | Total revenues                        |         |        | 63,852 |      |        |        | 44,345 |      |         |        | 27,266 |   |         |        | 20,220 |   |        |       | 14,052 | 
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Cost of revenues:                                                                                                                |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 | Software license                  |                                       |         | 5,341  |        |      |        | 3,152  |        |      |         | 1,592  |        |   |         | 2,165  |        |   |        | 1,566 |       
|                                                                                                                                 | Service, maintenance and hardware |                                       |         | 23,540 |        |      |        | 18,430 |        |      |         | 10,084 |        |   |         | 7,229  |        |   |        | 6,261 |       
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 |                                   | Total cost of revenues                |         |        | 28,881 |      |        |        | 21,582 |      |         |        | 11,676 |   |         |        | 9,394  |   |        |       | 7,827  | 
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Operating expenses (including restricted stock
    expense and related taxes of $3,444 for the year ended
    December 31, 2003) |                                   |                                       | 33,471  |        |        |      | 25,773 |        |        |      | 25,929  |        |        |   | 26,152  |        |        |   | 11,260 |      
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Income (loss) from operations                                                                                                    |                                   |                                       | 1,500   |        |        |      | (3,010 | )      |        |      | (10,339 | )      |        |   | (15,326 | )      |        |   | (5,035 | )    
|Interest income and other, net                                                                                                   |                                   |                                       | 43      |        |        |      | 145    |        |        |      | 428     |        |        |   | 661     |        |        |   | 320    |      
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Income (loss) before income taxes                                                                                                |                                   |                                       | 1,543   |        |        |      | (2,865 | )      |        |      | (9,911  | )      |        |   | (14,665 | )      |        |   | (4,715 | )    
|Income tax (provision) benefit                                                                                                   |                                   |                                       | (234    | )      |        |      | (32    | )      |        |      | 250     |        |        |   |        |        |        |   |       |      
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net income (loss)                                                                                                                |                                   |                                       | 1,309   |        |        |      | (2,897 | )      |        |      | (9,661  | )      |        |   | (14,665 | )      |        |   | (4,715 | )    
|Preferred stock accretion charge                                                                                                 |                                   |                                       | (31,500 | )      |        |      |       |        |        |      |        |        |        |   |        |        |        |   |       |      
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net loss attributable to common stockholders                                                                                     |                                   | $                                     | (30,191 | )      |        | $    | (2,897 | )      |        | $    | (9,661  | )      |        | $ | (14,665 | )      |        | $ | (4,715 | )    
|                                                                                                                                 |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|Net loss per common share                                                                                                        |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 |  Basic                           |                                       | $       | (7.74  | )      |      | $      | (1.18  | )      |      | $       | (4.71  | )      |   | $       | (7.42  | )      |   | $      | (2.92 | )     
|                                                                                                                                 |  Diluted                         |                                       |         | (7.74  | )      |      |        | (1.18  | )      |      |         | (4.71  | )      |   |         | (7.42  | )      |   |        | (2.92 | )     
|Weighted average common shares used to compute
    net loss per common share                                                     |                                   |                                       |         |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |        |      
|                                                                                                                                 |  Basic                           |                                       |         | 3,903  |        |      |        | 2,453  |        |      |         | 2,051  |        |   |         | 1,977  |        |   |        | 1,616 |       
|                                                                                                                                 |  Diluted                         |                                       |         | 3,903  |        |      |        | 2,453  |        |      |         | 2,051  |        |   |         | 1,977  |        |   |        | 1,616 |       

20



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|                                                   |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                   |  |                                      
|                                                   |  | Year Ended December 31,              
|                                                   |  |                                      
|                                                   |  | 2003                                  |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                   |  |                                       |         |      |  |      |         |      |  |     
|                                                   |  |                                      
|                                                   |  | (In thousands, except per share data)
|Balance Sheet Data:                                |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Cash and cash equivalents                          |  | $                                     | 84,953  |      |  | $    | 11,414  |      |  | $    | 11,552  |   |  | $ | 8,522   |   |  | $ | 5,225   |  
|Working capital                                    |  |                                       | 73,084  |      |  |      | 1,486   |      |  |      | 3,261   |   |  |   | 5,051   |   |  |   | 3,008   |  
|Total assets                                       |  |                                       | 133,071 |      |  |      | 35,839  |      |  |      | 33,745  |   |  |   | 20,905  |   |  |   | 10,027  |  
|Long-term debt, current portion                    |  |                                       |        |      |  |      | 750     |      |  |      | 748     |   |  |   |        |   |  |   |        |  
|Long-term debt, less current portion               |  |                                       |        |      |  |      | 700     |      |  |      |        |   |  |   |        |   |  |   |        |  
|Mandatorily redeemable convertible preferred stock |  |                                       |        |      |  |      | 31,100  |      |  |      | 31,100  |   |  |   | 20,084  |   |  |   |        |  
|Redeemable convertible preferred stock             |  |                                       |        |      |  |      | 26,480  |      |  |      | 26,480  |   |  |   | 24,744  |   |  |   | 24,740  |  
|Stockholders equity (deficit)                     |  |                                       | 105,419 |      |  |      | (43,261 | )    |  |      | (40,699 | ) |  |   | (33,751 | ) |  |   | (19,204 | )






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion and analysis of our
financial condition and results of operations should be read in
conjunction with, and are derived from, our consolidated
financial statements and related notes appearing elsewhere in
this Annual Report on Form 10-K. In addition to historical
information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions, which could cause actual results to differ
materially from managements expectations. Important
factors that could cause these differences include those
described in Factors That May Affect Future Results
and elsewhere in this Annual Report on Form 10-K.

We use the terms Open Solutions,
we, us and our to refer to
the business of Open Solutions Inc. and our subsidiaries. All
references to years, unless otherwise noted, refer to our fiscal
years, which end on December 31.

Overview

We are a provider of software and services that
allow financial institutions to compete and service their
customers more effectively. We develop, market, license and
support an enterprise-wide suite of software and services that
perform a financial institutions data processing and
information management functions, including account,
transaction, lending, operations, back office, client
information and reporting. Our complementary products and
services supplement our core software to provide our clients
with fully-integrated business intelligence, customer
relationship management, or CRM, check imaging, Internet
banking and cash management, general ledger and profitability,
loan origination, interactive voice solutions and check and item
processing functions. Our software can be operated either by the
financial institution itself, on an outsourced basis in one of
our outsourcing centers or through an outsourcing center hosted
by one of our resellers. Substantially all of our historical
revenue has been generated through the licensing of our core
software and our complementary products and the provision of
related services and maintenance to small and mid-size
commercial banks and thrifts and credit unions of all sizes.

We derive revenues from two primary sources:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sales of licenses for our core software and
    complementary products, and                                                                                                            
|
| |  | fees from installation, training, maintenance and
    support services, as well as fees generated from our outsourcing
    centers and the outsourcing centers hosted by our resellers.

Our revenues have grown from approximately
$14.1 million in 1999 to approximately $63.9 million
in 2003. This growth has resulted primarily from internal
expansion supplemented by strategic acquisitions, through which
we have developed and acquired new products and services and
have expanded the number of clients using one or more of our
products to approximately 1,300 financial institutions as of
December 31, 2003.

21



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##### Table of Contents



Software license revenue includes fees received
from the licensing of application software. We license our
proprietary software products under standard agreements which
typically provide our clients with a perpetual non-exclusive,
non-transferable right to use the software for a single
financial institution upon payment of a license fee.

We generate service and maintenance fees by
converting clients to our core software suite, installing our
software, assisting our clients in operating the applications,
modifying and updating the software and providing outsourcing
services. Our software license agreements typically provide for
five years of support and maintenance. We perform outsourcing
services through our two outsourcing centers and our check and
item processing centers. Revenues from outsourcing center
services and the check and item processing centers are derived
from monthly usage fees, typically under three to five-year
service contracts with our clients.

We derive other revenues from hardware sales and
client reimbursement of out-of-pocket costs. We have entered
into agreements with several hardware manufacturers under which
we sell computer hardware and related services, primarily to our
check imaging clients. Client reimbursements represent direct
costs paid to third parties primarily for data communication,
postage and travel.

We expect that our revenues from installation,
training, maintenance, support services, our outsourcing centers
and the outsourcing centers hosted by our resellers will
continue to expand as our base of clients expands. Our
maintenance revenues are the largest of these revenue
components, and we expect that these revenues, due to their
recurring nature, will continue to be a significant portion of
our total revenue as our client base grows.

We anticipate that the revenue from outsourcing
centers hosted by our resellers will comprise a greater
proportion of total revenues in future periods due to the
expansion of our relationship with BISYS, Inc. Pursuant to
our agreement with BISYS signed on September 30, 2003,
BISYS has agreed to pay us aggregate minimum license fees of
approximately $27.7 million through June 2006, including
$7.2 million in fiscal year 2004. BISYS is obligated to pay
us these license fees in quarterly installments.

In November 2000, Enserv, Inc., a small
consulting firm, filed a complaint against us, alleging that we
breached the terms of a value-added reseller agreement. As of
December 31, 2002, we had accrued $50,000 related to this
complaint. On October 31, 2003, we and Enserv settled this
complaint. Pursuant to the settlement, which includes mutual
releases of the parties: (1) we made a payment to Enserv in
the amount of $233,333; and (2) we and Enserv entered into
a consulting agreement whereby Enserv is obligated to provide
technical consulting services to us for two years for which
Enserv will be paid $133,333 per year. Based on the terms
of this agreement, we have recorded a settlement expense of
$183,333 in the third quarter of 2003, and we are expensing the
remaining $266,666 consulting fees ratably during the
twenty-four month contract term. We have the right to cancel the
consulting agreement if Enserv does not perform under the terms
of the agreement.

In May 2003, we issued an aggregate of
680,530 shares of common stock to 19 of our employees under
our 2000 Stock Incentive Plan. The shares of common stock issued
to each of these individuals vested at the end of seven years or
vest immediately upon a change in control or initial public
offerings. Prior to the closing of the initial public offering,
we were recording a charge each quarter of approximately
$117,000 based on amortization over seven years. This charge was
accelerated on the completion of the initial public offering,
resulting in a non-cash charge to our statement of operations in
the fourth quarter of 2003 of approximately $3.0 million
for the unamortized balance of deferred compensation. We also
recorded employer tax expense of approximately $168,000 related
to the restricted stock.

In the second, third and fourth quarters of 2003,
certain grants of stock options were made at exercise prices
less than the fair market value of our common stock and, as a
result, we recorded approximately $49,000, $98,000 and $99,000
of stock compensation expense, respectively. We will continue
recording a charge each quarter of $101,000 based on
amortization over the four-year vesting period of these stock
options.

The conversion formula for the Series F
preferred stock provided for adjustment of the Series F
preferred stock conversion price in the event that our initial
public offering price was less than $27.03 per share. The
holders of Series F preferred stock received shares of
common stock with an aggregate value of approximately

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$62,600,000. The recorded value of the
Series F preferred stock was $31,100,000 and as a result,
on the closing of our initial public offering, we recorded an
accretion charge of $31,500,000 in stockholders equity
(deficit). This accretion charge resulted in a non-cash
deduction from income attributable to holders of our common
stock and a deduction in related earnings per share.


On February 24, 2004, we acquired Maxxar
Corporation for cash consideration of $6.5 million. In
connection with the acquisition, we incurred approximately
$175,000 of acquisition related cost. This acquisition will be
recorded under the purchase method with the total consideration
allocated to the fair value of assets acquired. This acquisition
expanded our complementary product offerings to include a
comprehensive suite of interactive voice information solutions
and computer telephony integration products.

Results of Operations

|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |        | 
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------- | ------ | 
|                                      |                                                                                                                                         |                        
|                                      |                                                                                                                                         | Year Ended December 31,
|                                      |                                                                                                                                         |                        
|                                      |                                                                                                                                         | 2003                    |        | 2002   |  | 2001
|                                      |                                                                                                                                         |                         |        |        |  |     
|                                      |                                                                                                                                         |                        
|                                      |                                                                                                                                         | (In thousands)         
|Statement of Operations Data:         |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|Revenues:                             |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|                                      | Software license                                                                                                                        |                         | $      | 21,391 |  |      | $      | 13,449 |  |   | $       | 9,971  | 
|                                      | Service, maintenance and hardware                                                                                                       |                         |        | 42,461 |  |      |        | 30,896 |  |   |         | 17,295 | 
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|                                      | Total revenues                                                                                                                          |                         |        | 63,852 |  |      |        | 44,345 |  |   |         | 27,266 | 
|Cost of revenues:                     |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|                                      | Software license                                                                                                                        |                         |        | 5,341  |  |      |        | 3,152  |  |   |         | 1,592  | 
|                                      | Service, maintenance and hardware                                                                                                       |                         |        | 23,540 |  |      |        | 18,430 |  |   |         | 10,084 | 
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|Total cost of revenues                |                                                                                                                                         |                         | 28,881 |        |  |      | 21,582 |        |  |   | 11,676  |       
|Operating expenses:                   |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|                                      | Sales and marketing                                                                                                                     |                         |        | 10,729 |  |      |        | 9,533  |  |   |         | 8,771  | 
|                                      | Product development                                                                                                                     |                         |        | 6,854  |  |      |        | 6,223  |  |   |         | 7,643  | 
|                                      | General and administrative (includes restricted
    stock expense and related taxes of $3,444 for the year ended
    December 31, 2003) |                         |        | 15,888 |  |      |        | 10,017 |  |   |         | 9,068  | 
|                                      | In-process research and development                                                                                                     |                         |        |       |  |      |        |       |  |   |         | 447    | 
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|                                      | Total operating expenses                                                                                                                |                         |        | 33,471 |  |      |        | 25,773 |  |   |         | 25,929 | 
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|Income (loss) from operations         |                                                                                                                                         |                         | 1,500  |        |  |      | (3,010 | )      |  |   | (10,339 | )     
|Interest income and other, net        |                                                                                                                                         |                         | 43     |        |  |      | 145    |        |  |   | 428     |       
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|Net income (loss) before income taxes |                                                                                                                                         |                         | 1,543  |        |  |      | (2,865 | )      |  |   | (9,911  | )     
|Income tax (provision) benefit        |                                                                                                                                         |                         | (234   | )      |  |      | (32    | )      |  |   | 250     |       
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       
|Net income (loss)                     |                                                                                                                                         | $                       | 1,309  |        |  | $    | (2,897 | )      |  | $ | (9,661  | )     
|                                      |                                                                                                                                         |                         |        |        |  |      |        |        |  |   |         |       

|                             |                                   |                         |  |       |  |      |  |       |  |  |  |       | 
|---------------------------- | --------------------------------- | ----------------------- |  | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|                             |                                   |                        
|                             |                                   | Year Ended December 31,
|                             |                                   |                        
|                             |                                   | 2003                    |  | 2002  |  | 2001
|                             |                                   |                         |  |       |  |     
|As a Percentage of Revenues: |                                   |                         |  |       |  |      |  |       |  |  |  |      
|Revenues:                    |                                   |                         |  |       |  |      |  |       |  |  |  |      
|                             | Software license                  |                         |  | 33.5  |  |      |  | 30.3  |  |  |  | 36.6  | 
|                             | Service, maintenance and hardware |                         |  | 66.5  |  |      |  | 69.7  |  |  |  | 63.4  | 
|                             |                                   |                         |  |       |  |      |  |       |  |  |  |      
|                             | Total revenues                    |                         |  | 100.0 |  |      |  | 100.0 |  |  |  | 100.0 | 

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|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |      | 
|------------------------------------- | ----------------------------------- | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ----- | ---- | 
|                                      |                                     |                        
|                                      |                                     | Year Ended December 31,
|                                      |                                     |                        
|                                      |                                     | 2003                    |      | 2002 |  | 2001
|                                      |                                     |                         |      |      |  |     
|Cost of revenues:                     |                                     |                         |      |      |  |      |      |      |  |  |       |     
|                                      | Software license                    |                         |      | 8.4  |  |      |      | 7.1  |  |  |       | 5.8  | 
|                                      | Service, maintenance and hardware   |                         |      | 36.9 |  |      |      | 41.6 |  |  |       | 37.0 | 
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|                                      | Total cost of revenues              |                         |      | 45.3 |  |      |      | 48.7 |  |  |       | 42.8 | 
|Operating expenses:                   |                                     |                         |      |      |  |      |      |      |  |  |       |     
|                                      | Sales and marketing                 |                         |      | 16.8 |  |      |      | 21.5 |  |  |       | 32.2 | 
|                                      | Product development                 |                         |      | 10.7 |  |      |      | 14.0 |  |  |       | 28.0 | 
|                                      | General and administrative          |                         |      | 24.9 |  |      |      | 22.6 |  |  |       | 33.3 | 
|                                      | In-process research and development |                         |      |     |  |      |      |     |  |  |       | 1.6  | 
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|                                      | Total operating expenses            |                         |      | 52.4 |  |      |      | 58.1 |  |  |       | 95.1 | 
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|Income (loss) from operations         |                                     |                         | 2.3  |      |  |      | (6.8 | )    |  |  | (37.9 | )   
|Interest income and other, net        |                                     |                         | 0.1  |      |  |      | 0.3  |      |  |  | 1.6   |     
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|Net income (loss) before income taxes |                                     |                         | 2.4  |      |  |      | (6.5 | )    |  |  | (36.3 | )   
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|Income tax (provision) benefit        |                                     |                         | (0.4 | )    |  |      | (0.1 | )    |  |  | 0.9   |     
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     
|Net income (loss)                     |                                     |                         | 2.0  |      |  |      | (6.6 | )    |  |  | (35.4 | )   
|                                      |                                     |                         |      |      |  |      |      |      |  |  |       |     



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    to Year Ended December 31, 2002

Revenues.We
generate revenues from licensing the rights to use our software
products and certain third-party software products to clients.
We also generate revenues from installation, training,
maintenance and support services provided to clients, from
outsourcing center services and from hardware sales related to
our check imaging business. Revenues increased 44.0% from
$44.3 million for the year ended December 31, 2002 to
$63.9 million for the year ended December 31, 2003.
This increase was attributable primarily to a $6.9 million
increase in licensing revenue from our core and complimentary
products attributable to sales to new clients, cross sales to
existing clients and an increase in license fees from BISYS. An
increase of $6.9 million in our maintenance revenue,
$1.7 million of which is from the Liberty FiTech
Systems, Inc. business and $4.4 million in our
outsourcing revenues, $2.5 million of which is from the
Liberty FiTech Systems, Inc. business. The acquisition of
Liberty FiTech Systems, Inc. on July 1, 2003
contributed an additional $2.7 million to revenues
consisting primarily of license, service and hardware revenues
for the year ended December 31, 2003. We expect that, due
to the amendment of our agreement with BISYS, the proportion of
revenues generated from our resellers will increase in the
future.

Cost of Revenues.Cost of revenues includes third party license fees and the
direct expenses associated with providing our services such as
systems operations, customer support, installations,
professional services and other related expenses. Cost of
revenues increased 33.8% from $21.6 million for the year
ended December 31, 2002 to $28.9 million for the year
ended December 31, 2003. The increase was due primarily to
a $2.1 million increase in costs associated with
maintenance, $1.1 million of which is from the Liberty
FiTech Systems, Inc. business and a $1.5 million
increase in costs associated with the growth of our outsourcing
business, $1.2 million of which is from the Liberty FiTech
Systems, Inc. business.. The Liberty FiTech
Systems, Inc. business contributed an additional
$2.0 million of license, service and hardware costs. Cost
of revenues represented 48.7% of revenues for the year ended
December 31, 2002 as opposed to 45.3% of revenues for the
year ended December 31, 2003. Cost of revenues as a
percentage of revenues decreased primarily because our revenues
grew at a faster rate than our costs. In addition, we
experienced a decrease in sales of low-margin hardware during
the period. We expect that, due to the amendment of our
agreement with BISYS, our cost of revenues as a percentage of
revenues will continue to decrease, as margins generated by
revenues from our resellers have historically been higher than
those generated by other sources of revenue.

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| |                   
| | ------------------
| | Operating Expenses

Sales and Marketing.Sales and marketing expenses include salaries and commissions
paid to sales and marketing personnel and other costs incurred
in marketing our products and services. Sales and marketing
expenses increased 12.5% from $9.5 million for the year
ended December 31, 2002 to $10.7 million for the year
ended December 31, 2003. This increase was due primarily to
a incremental $1.0 million increase in sales and marketing
expenses from owning the HNC business for a full year and owning
Liberty FiTech Systems Inc. for six months in 2003. Sales and
marketing expenses represented 21.5% of revenues for the year
ended December 31, 2002 as opposed to 16.8% of revenues for
the year ended December 31, 2003. Sales and marketing
expenses as a percentage of revenues decreased primarily because
we did not increase our sales or marketing expenses
significantly, but revenues continued to grow. In the event that
we acquire product lines or businesses in the future, we would
anticipate that, based on the nature and magnitude of those
acquisitions, our sales and marketing expenses would increase
more significantly as a result of those acquisitions.

Product Development.Product development expenses include salaries of personnel in
our product development department, consulting fees and other
related expenses. Product development expenses increased 10.1%
from $6.2 million for the year ended December 31, 2002
to $6.9 million for the year ended December 31, 2003.
This increase was due primarily to a $0.5 million increase
in product development expenses from the Liberty FiTech
Systems, Inc. business. Product development expenses
represented 14.0% of revenues for the year ended
December 31, 2002 as opposed to 10.7% of revenues for the
year ended December 31, 2003. Product development expenses
as a percentage of revenues decreased primarily because our
major product lines are largely developed and therefore did not
require incremental investment.

General and
Administrative.General and
administrative expenses consist of salaries for executive,
administrative and financial personnel, consulting expenses and
facilities costs such as office leases, insurance and
depreciation. General and administrative expenses increased
58.6% from $10.0 million for the year ended
December 31, 2002 to $15.9 million for the year ended
December 31, 2003. The increase was due primarily to a
$3.4 million expense related to the shares of restricted
stock issued to certain employees as a result of the initial
public offering and $1.2 million of expense from the
acquisition of the Liberty FiTech Systems, Inc. business.
In addition, there was a $0.5 million increase in
accounting and legal fees, due primarily to non-recurring
expenses associated with preparing for our initial public
offering and settling an outstanding litigation matter. General
and administrative expenses represented 22.6% of revenues for
the year ended December 31, 2002 as opposed to 24.9% of
revenues for the year ended December 31, 2003. General and
administrative expenses as a percentage of revenues increased
primarily because of the restricted stock charge mentioned
above. In the event that we acquire product lines or businesses
in the future, we would anticipate that, based on the nature and
magnitude of those acquisitions, our general and administrative
expenses would increase more significantly as a result of those
acquisitions.

Interest and Other Income (Expense),
net.Interest and other income
(expense), net, decreased from $145,000 for the year ended
December 31, 2002 to $43,000 for the year ended
December 31, 2003. This decrease was due primarily to
increased interest payments because of the debt incurred as a
result of the acquisitions of Liberty FiTech Systems, Inc.
and HNC Financial Solutions, as well as the draw down on our
credit facility offset by interest earned on the investment of
the proceeds of the initial public offering.

Income Tax Benefit
(Provision).Income tax provision
increased 631.3% from $32,000 for the year ended
December 31, 2002 to $234,000 for the year ended
December 31, 2003. The increase was primarily because of
increased profitability resulting in higher state and deferred
tax expense related to the tax amortization of goodwill from the
Liberty FiTech Systems Inc. acquisition.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

Revenues.Revenues
increased 62.6% from $27.3 million for 2001 to
$44.3 million for 2002. The increase in revenues was partly
a result of a $4.8 million increase in maintenance revenues
due to an increase in the size of our client base, as well as a
$2.8 million increase in revenues from our outsourcing
center. In addition, we acquired two businesses in 2001, which
contributed revenue for the partial year in 2001 and the full
year in 2002, and one business in 2002, which contributed
revenue for the partial year in 2002. Our

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##### Table of Contents



acquired businesses accounted for
$11.7 million of revenues in 2002 as opposed to
$1.9 million of revenues in 2001. This $9.8 million
increase represented 57.4% of our total growth in revenues
between 2001 and 2002.


Cost of Revenues.Cost of revenues increased 84.8% from $11.7 million for
2001 to $21.6 million for 2002. The increase was due
primarily to a $5.8 million increase in cost of revenues
from the companies we acquired in 2002 and 2001. We also
incurred an additional $1.5 million in costs in 2002 at our
outsourcing center, which did not open until May 2001 and had
more clients in 2002 than 2001. Cost of revenues represented
42.8% of revenues for 2001 as opposed to 48.7% of revenues for
2002. Cost of revenues as a percentage of revenues increased
primarily due to the acquisition of the Imagic business in
December 2001, which is hardware-intensive and has lower gross
margins than our other products.



| |                   
| | ------------------
| | Operating Expenses

Sales and Marketing.Sales and marketing expenses increased 8.7% from
$8.8 million for 2001 to $9.5 million for 2002. The
increase was due primarily to an increase of $1.5 million
in sales and marketing costs from the companies we acquired in
2002 and 2001, a $0.4 million increase in account
management team expenses in 2002 partially offset by a
$0.6 million reduction in personnel and related costs in
our sales and pre-sales department and a $0.5 million
reduction in marketing costs. Sales and marketing expenses
represented 32.2% of revenues for 2001 as opposed to 21.5% of
revenues for 2002. Sales and marketing expenses as a percentage
of revenues decreased primarily due to the fact that we did not
increase our sales and marketing expenses significantly as
revenues continued to grow.

Product Development.Product development expenses decreased 18.6% from
$7.6 million for 2001 to $6.2 million for 2002. The
decrease was due primarily to the fact that the
$1.0 million annual amortization of our development cost of
one of our e-commerce products ended in December 2001. Product
development expenses represented 28.0% of revenues for 2001 as
opposed to 14.0% of revenues for 2002. Product development
expenses as a percentage of revenues decreased primarily because
the amortization expense described above ended in 2001 and the
development effort for our major products did not require as
much investment in 2002 as it did in 2001.

General and
Administrative.General and
administrative expenses increased 10.5% from $9.1 million
for 2001 to $10.0 million for 2002. This increase was due
primarily to a $1.1 million increase in general and
administrative expenses associated with the companies we
acquired in 2002 and 2001 offset by a $0.6 million decrease
in compensation expense related to the elimination of an
executive position. General and administrative expenses
represented 33.3% of revenues for 2001 as opposed to 22.6% of
revenues for 2002. General and administrative expenses as a
percentage of revenues decreased primarily because our corporate
overhead was sufficient to accommodate the needs of the
organization as revenues increased.

In 2001, we recorded a one-time charge of
$447,000 related to in-process research and development acquired
as part of the August 3, 2001 acquisition of Sound Software
Development Inc. that had not yet reached technological
feasibility and had no alternative use. There was no charge for
acquired in-process research and development in 2002.

Interest and Other Income,
net.Interest and other income
decreased 66.1% from $428,000 in 2001 to $145,000 in 2002. This
decrease was due to lower average cash balances and lower
interest rates.

Income Tax Benefit
(Provision).Income tax benefit was
$250,000 in 2001 due to our research and development tax benefit
from the State of Connecticut. Income tax provision was $32,000
in 2002. In 2002, our tax benefits were not sufficient to offset
all of our state tax obligations.

Liquidity and Capital Resources

At December 31, 2003, 2002 and 2001, we had
cash and cash equivalents totaling $85.0 million,
$11.4 million and $11.6 million, respectively.

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##### Table of Contents



The following table sets forth the elements of
our cash flow statement for the following periods:

|                                                        |  |                         |         |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|                                                        |  | 2003                    |         | 2002 |  | 2001
|                                                        |  |                         |         |      |  |     
|                                                        |  |                        
|                                                        |  | (In thousands)         
|Net cash provided by (used in) operating
    activities |  | $                       | 10,069  |      |  | $    | 2,702  |   |  | $ | (3,332 | )
|Net cash used in investing activities                   |  |                         | (17,582 | )    |  |      | (2,280 | ) |  |   | (5,606 | )
|Net cash provided by (used in) financing
    activities |  |                         | 81,052  |      |  |      | (560   | ) |  |   | 11,968 |  



| |                                   
| | ----------------------------------
| | Cash from Operating
    Activities

Cash provided by operations in the year ended
December 31, 2003 was attributable to net income of
$1.3 million, depreciation and amortization and other
non-cash items, including restricted stock expense of
$7.5 million and an increase in working capital of
$1.2 million. Cash provided by operations for the year
ended December 31, 2002 was attributable to a net loss of
$2.9 million, depreciation and amortization and other
non-cash items of $3.2 million and a decrease in working
capital of $2.4 million primarily due to an increase in
payments received from clients in advance of product and service
delivery. Cash used in operations for the year ended
December 31, 2001 was attributable to a net loss of
$9.7 million, depreciation and amortization and other
non-cash items of $3.6 million and a decrease in working
capital of $2.8 million primarily due to an increase in
payments received from clients in advance of product and service
delivery and an improvement in collections of account
receivables.



| |                                   
| | ----------------------------------
| | Cash from Investing
    Activities

Cash from investing activities consists primarily
of purchases of fixed assets, investments in marketable
securities and business acquisitions. Total capital expenditures
for the years ended December 31, 2003, 2002 and 2001, were
$1.5 million, $1.7 million and $2.2 million,
respectively, and were primarily related to the purchase of
computer equipment, computer software, software development
services, furniture and fixtures and leasehold improvements. We
currently have no significant capital spending or purchase
commitments, but expect to continue to engage in capital
spending in the ordinary course of business.

At December 31, 2003 we held
$8.1 million in marketable securities.

Additionally, net cash used in investing
activities for the year ended December 31, 2003 also
included the $8.0 million used for the acquisition of
substantially all the assets of Liberty FiTech
Systems, Inc. Net cash used in investing activities for
acquisitions was $564,000 for the year ended December 31,
2002 and $3.4 million for the year ended December 31,
2001.



| |                                   
| | ----------------------------------
| | Cash from Financing
    Activities

On December 2, 2003, we completed our
initial public offering raising proceeds, net of expenses, of
$86.4 million. For the year ended December 31, 2001,
we obtained $12.0 million in funding, primarily through the
issuance of shares of our preferred stock.

In April 2003, we obtained a credit facility upon
which we could draw an aggregate amount of $4.0 million. We
had borrowed $1.7 million against the equipment portion of
the facility, which was paid in full in December 2003 from the
proceeds of the initial public offering. In February 2004, we
terminated our credit facility. As of March 2004, we have no
outstanding long term debt. For the years ended December 2003,
2002 and 2001 we made total payments of principal of
$5.0 million, $748,000 and $91,000 respectively, to repay
outstanding long term debt.

We currently anticipate that our current cash
balance and cash flow from operations will be sufficient to meet
our presently anticipated capital needs for the next twelve
months, but may be insufficient to provide funds necessary for
any future acquisitions we may make during that time. To the
extent we require additional funds, whether for acquisitions or
otherwise, we may seek additional equity or debt financing. Such
financing may not be available to us on terms that are
acceptable to us, if at all, and any equity financing may be
dilutive to our stockholders. To the extent we obtain additional
debt financing, our debt service obligations will

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increase and the relevant debt instruments may,
among other things, impose additional restrictions on our
operations, require us to comply with additional financial
covenants or require us to pledge assets to secure our
borrowings.


Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements
or relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured
finance or special purpose entities, which are typically
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.

Contractual Obligations as of
December 31, 2003

|                              |  |                        |           |           |  |           |           |           |  |         |         |  |  |  |   |  |  |  |   | 
|----------------------------- |  | ---------------------- | --------- | --------- |  | --------- | --------- | --------- |  | ------- | ------- |  |  |  | - |  |  |  | - | 
|                              |  |                       
|                              |  | Payments Due by Period
|                              |  |                       
|                              |  |                        |           | Less Than |  |           |           | More Than
|Contractual Obligations       |  | Total                  |           | 1 Year    |  | 1-3 Years |           | 3-5 Years |  | 5 Years
|                              |  |                        |           |           |  |           |           |           |  |        
|Long-Term Debt                |  |                        |          |           |  |           |          |           |  |         |        |  |  |  |  |  |  |  |  | 
|Capital Lease Obligations     |  |                        | 546,000   |           |  |           | 468,000   |           |  |         | 78,000  |  |  |  |  |  |  |  |  | 
|Operating Leases              |  |                        | 2,284,000 |           |  |           | 1,365,000 |           |  |         | 919,000 |  |  |  |  |  |  |  |  | 
|                              |  |                        |           |           |  |           |           |           |  |         |         |  |  |  |   |  |  |  |   | 
|Total Contractual Obligations |  |                        | 2,830,000 |           |  |           | 1,833,000 |           |  |         | 997,000 |  |  |  |  |  |  |  |  | 
|                              |  |                        |           |           |  |           |           |           |  |         |         |  |  |  |   |  |  |  |   | 

Income Taxes

At December 31, 2003, we had
$43.2 million of federal net operating loss carryforwards
that begin expiring in 2007 and had $35.8 million of state
net operating loss carryforwards that begin to expire in 2004.
At December 31, 2003, we had $513,000 of federal research
and development credit carryforwards that begin to expire in
2007; $355,000 of state research and development carryforwards
with an unlimited carryforward period; and $405,000 of state
non-research and development carryforwards that begin expiring
in 2004.

For the year ended December 31, 2001, we
recorded a Connecticut tax benefit of $250,000 in the Statement
of Operations. The benefit is the result of Connecticut
legislation which allowed us to obtain cash refunds from the
State of Connecticut for a portion of research and development
tax credits in exchange for foregoing the carryforward of these
credits into future years.

As defined in Section 382 of the Internal
Revenue Code, certain ownership changes limit the annual
utilization of federal net operating loss and tax credit
carryforwards. We experienced such an ownership change in
December 1995 which limits approximately $3.2 million of
federal net operating loss carryforwards and $149,000 of
research tax credits to a $307,000 annual Section 382
limitation. Our initial public offering caused an additional
ownership change under Section 382 however, management
believes that the initial public offering did not cause any
additional Section 382 limitation. As a result of future
issuance of, sales of, and other transactions involving our
common stock, we may experience an ownership change in the
future, which could cause such federal net operating losses and
tax credit carryforwards to be subject to limitation under
Section 382.

Acquisitions

Since June 2000, we have expanded our product
offerings and client base through the acquisition of six
businesses. The operating results of each business acquired have
been included in our financial statements from the respective
dates of acquisition.

On June 16, 2000, we purchased certain
assets and liabilities of Global Payment Systems LLC for a
purchase price of $836,000, consisting of $635,000 in cash and
21,460 shares of our Series F preferred stock. This
acquisition was recorded under the purchase method with the
total consideration allocated to the fair value of the assets
acquired, including purchased technology of $1.0 million.
This acquisition provided us with a web-based cash management
system and other products and clients.

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On August 3, 2001, we acquired Sound
Software Development, Inc. for a purchase price of
$3.0 million, consisting of $1.7 million in cash,
80,472 shares of our Series G preferred stock and
55,496 shares of our common stock. In conjunction with this
acquisition, we incurred $113,000 of acquisition related costs.
This acquisition was recorded under the purchase method with the
total consideration allocated to the fair value of the assets
acquired, including purchased technology of $832,000, goodwill
of $1.6 million and other intangibles of $196,000.
Additionally, we recorded a charge of $447,000 related to
in-process research and development. This acquisition expanded
our complementary product offering to include loan origination
software and expanded our client base.

On December 14, 2001, we acquired Imagic
Corporation for a purchase price of $4.2 million,
consisting of $1.8 million in cash and 314,486 shares
of our common stock. Our assumed liabilities included a note
payable of $748,000 that was subsequently paid in full in
January 2002. In conjunction with this acquisition, we incurred
$120,000 of acquisition related costs. This acquisition was
recorded under the purchase method with the total consideration
allocated to the fair value of the assets acquired, including
purchased technology of $1.9 million, goodwill of
$4.0 million and other intangibles of $80,000. This
acquisition expanded our complementary product offering to
include check imaging software and services and expanded our
client base.

During 2002, we acquired business operations from
HNC Financial Solutions, Inc. On March 29, 2002, we
acquired certain intellectual property rights of HNC Financial
Solutions, Inc. and assumed the related future software
maintenance and support obligations in exchange for a $500,000
promissory note. This note was paid in full in December 2003
with the proceeds from the initial public offering. We
concurrently entered into a license and service agreement with
the seller for the HNC Profit Manager software in exchange for
$564,000 in cash. In conjunction with this acquisition, we
incurred $39,000 of acquisition related costs. This acquisition
expanded our complementary product offering to include financial
accounting, asset/ liability management and financial planning
products, and expanded our client base and product offerings.

On October 31, 2002, we purchased the
intellectual property rights that had been licensed in the March
2002 HNC Financial Solutions transaction, plus accounts
receivable and related future software maintenance and support
obligations for a $950,000 promissory note. This note was paid
in full in December 2003 with the proceeds from the initial
public offering. The combined transaction was recorded under the
purchase method with the purchase price allocated to the fair
value of the assets acquired, including purchased technology of
$1.2 million and goodwill of $772,000. This acquisition
expanded our financial product offering to include profitability
analysis.

On July 1, 2003, we acquired substantially
all of the assets of Liberty FiTech Systems, Inc. and
assumed certain liabilities and the related future software
maintenance and support obligations for consideration of
$11.7 million, consisting of $8.0 million in cash, a
$1.9 million promissory note and 133,195 shares of our
common stock. The 133,195 shares of common stock issued to
Liberty FiTech Systems, Inc. were subject to a put and call
agreement, in which Liberty FiTech Systems, Inc. had the
right to require us to purchase the shares at a price of
$13.51 per share, and we had the right to require Liberty
FiTech Systems, Inc. to sell these shares to us at a price
of $13.51 per share. On September 3, 2003, FS
Acquisition, Inc., the successor-in-interest to Liberty
FiTech Systems, Inc., exercised its put right pursuant to
this put and call agreement with respect to these shares. On
December 2, 2003, we purchased these 133,195 shares at
a price of $13.51 per share, or an aggregate of
approximately $1.8 million. The note was paid in full in
December 2003 with the proceeds from the initial public
offering. The acquisition was recorded under the purchase method
with the total consideration allocated to the fair value of
assets acquired, including purchased technology of $530,000,
goodwill of $4.8 million and other intangible assets of
$6.7 million. We view this acquisition as an opportunity to
increase our core data processing client base among credit
unions and to increase the recurring revenue component of our
revenues.

On February 24, 2004, we acquired Maxxar
Corporation for a cash price of $6.5 million. In connection
with the acquisition, we incurred approximately $175,000 of
acquisition related costs. This acquisition will be recorded
under the purchase method with the total consideration allocated
to the fair value of assets acquired and goodwill. This
acquisition expanded our complementary product offerings to
include a comprehensive suite of interactive voice information
solutions and computer telephony integration products.

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Recently Issued Accounting
Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. This issue addresses
revenue recognition for arrangements with multiple deliverables
which should be considered as separate units of accounting if
the deliverables meet certain criteria as described in
EITF 00-21. This issue is effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. Early adoption is permitted. The adoption of
this standard on July 1, 2003, did not have a material
impact on our financial statements.

In January 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. This interpretation
addresses the consolidation of business enterprises (variable
interest entities) to which the usual condition of consolidation
does not apply. This interpretation focuses on financial
interests that indicate control. Variable interests may arise
from financial instruments, service contracts, nonvoting
ownership interests and other arrangements. If an enterprise
holds a majority of the variable interests of an entity, it
would be considered the primary beneficiary. The primary
beneficiary would be required to include assets, liabilities and
the results of operations of the variable interest entity in its
financial statements. In December 2003, the FASB issued a
revision to FIN 46 (FIN 46R). FIN 46R
defers the effective date of FIN 46 until the scope of the
American Institution of Certified Public Accountants
(AICPA) accounting and auditing guide is clarified.
We have no interest in an entity which would qualify as a
variable interest entity. As a result, the adoption of this
standard will not have a material impact on the accompanying
financial statements.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 changes the accounting for
certain financial instruments that, under previous guidance,
could be classified as equity or mezzanine equity,
including mandatorily redeemable instruments, by now requiring
those instruments to be classified as liabilities in the
statement of financial position. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and
settlement alternatives. SFAS No. 150 is effective for
all interim periods beginning after June 15, 2003. The
adoption of this standard did not have a material impact on our
other financial instruments.

In May 2003, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue No. 03-5,
Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software. This issue addresses revenue
recognition for arrangements that include non-software
deliverables, such as hardware, that are more than incidental to
the products or services as a whole. The consensus indicates
that, if the software is not essential to the functionality of
the non-software deliverable, the non-software deliverable is
excluded from the scope of SOP 97-2. We expect that the
impact of applying EITF 03-5 on our gross margin will
depend on the timing and magnitude of our hardware sales. Under
EITF 03-5, hardware revenue, previously bundled with
software and recognized on a percentage of completion basis, may
be recognized upon delivery of the hardware. In certain cases,
this may result in earlier recognition of revenue than when the
revenue was recognized under the previous methodology. However,
the completion of the check imaging arrangements are normally
not of long duration, so this impact was not material.

In December 2003, the SEC issued SAB
No. 104, Revenue Recognition. SAB 104
revises or rescinds portions of the interpretive guidance
included in Topic 13 of the codification of Staff Accounting
Bulletins in order to make this interpretive guidance consistent
with current authoritative accounting and auditing guidance and
SEC rules and regulations. It also rescinds the Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers document issued in conjunction with Topic 13.
Selected portions of that document have been incorporated into
Topic 13. The adoption of SAB No. 104 in the fourth quarter
of 2003 had no material impact on our financial position,
results of operations or cash flows.

Critical Accounting Policies and
Estimates

The accompanying consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States, which
require that management make numerous estimates

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and assumptions. Actual results could differ from
those estimates and assumptions, impacting our reported results
of operations and financial position. Our significant accounting
policies are more fully described in Note 2 to our
consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. The critical accounting
policies described below are those that are most important to
the depiction of our financial condition and results of
operations and their application requires managements most
subjective judgment in making estimates about the effect of
matters that are inherently uncertain.




| |                    
| | -------------------
| | Revenue Recognition

We generate revenues from licensing the rights to
use our software products and certain third-party software
products to clients. We also generate revenues from
installation, training, maintenance and support services
provided to clients, and from outsourcing center services and
hardware sales related to our check imaging business.

We recognize revenue in accordance with AICPA
Statement of Position 97-2, Software Revenue Recognition. Under
SOP 97-2, we recognize software license revenue when a
noncancelable license agreement has been executed, fees are
fixed and determinable, the software has been delivered,
accepted by the client if acceptance is required by the contract
and other than perfunctory, and collection is considered
probable. The software licenses are sold in conjunction with
professional services for installation, training, maintenance
and support. For these arrangements, a portion of the total
contract value is attributed first to the maintenance
arrangement based on its fair value, which is derived from
renewal rates. Another portion of the contract value is then
attributed to installation and training services based on
estimated fair value, which is derived from rates charged for
similar services provided on a stand-alone basis multiplied by
estimated hours to complete. Our software license agreements
generally do not require significant modification or
customization of the underlying software, and accordingly,
installation and training services are not considered essential
to functionality. The remainder of the total contract value is
then attributed to the software licenses based on the residual
method described in SOP 98-9, Modification of
SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions. The estimated hours and hourly rate for
installation and training services affect the timing and amount
of revenue recognized from license fees and installation and
training services. Due to the uncertainties inherent in the
estimation process, actual hours to complete installation and
training services or the estimated hourly rate of these services
may differ from estimates. If customization of our software is
required, we recognize revenue using the
percentage-of-completion method. The complexity of some software
license agreements requires us to routinely apply judgments
regarding the application of software recognition accounting
principles to specific agreements and transactions.

Revenues from software maintenance are typically
generated under five-year agreements and are recognized ratably
over the life of the agreements. Revenues from installation and
training services are recognized as services are performed. We
calculate revenue recognition for installation and training
services based on the ratio of hours incurred to estimated total
hours for the project. Accordingly, we must estimate the hours
to complete the installation and training, and it is possible
that estimates may be revised. These revisions are recognized in
the period in which the revisions are determined, and changes in
these estimates could have a material effect on our financial
statements.

Deferred revenue is comprised of payments
received related to product delivery, maintenance and other
services, which have been paid by customers prior to the
recognition of revenue. Deferred revenue relates primarily to
cash received for maintenance contracts in advance of services
performed, which is recognized as revenue ratably as services
are performed. Deferred costs are comprised of costs incurred
prior to the recognition of related revenue.

Data center revenues associated with allowing
customers to utilize our software products on an outsourced
basis are recognized in accordance with Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial
Statements. Revenues associated with installation of data center
arrangements are recognized as services are performed, and
revenues from data center services are recognized over the term
of the arrangement, typically three to five years. The total
contract value is allocated based on the relative fair value of
the installation and data center services.

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We are receiving payments under certain license
and marketing agreements with resellers. We have provided a
master license to our two primary resellers BISYS, Inc. and
Connecticut On-Line Computer Center, Inc., or COCC, and do
not have any other continuing obligation to provide additional
products or services, other than the provision of client support
and maintenance. We recognize revenue when the revenue
recognition criteria under SOP No. 97-2 are met, including
when evidence of an arrangement exists, fees are fixed and
determinable, collectibility is reasonably assured, and delivery
has occurred.

We recognize hardware revenue related to our
check imaging products on a percentage-of-completion basis
because installation services related to these arrangements and
the software related to these arrangements are considered
essential to the functionality of certain of the hardware.
Percentage-of-completion for services related to our check
imaging product arrangements is measured by the total hours
incurred to date for each contract compared to the estimated
total hours to complete that contract. We record provisions for
estimated losses on contracts in the period in which such losses
become known. Changes in estimates of sales, costs, and profits
are recognized in the period which they are determined using the
cumulative catch-up method of accounting. If the software is not
essential to the functionality of the hardware, we recognize
hardware revenue upon delivery.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our clients
to make required payments. The amount of our reserve is based on
historical experience and our analysis of the accounts
receivable balance outstanding. If the financial condition of
our clients were to deteriorate, resulting in their inability to
make payments, additional allowances may be required which would
result in an additional expense in the period that this
determination was made. While credit losses have historically
been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same
credit loss rates that we have in the past.



| |                   
| | ------------------
| | Stock Compensation

We apply the intrinsic value recognition and
measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and
related interpretations and comply with the disclosure
provisions of statement of SFAS No. 123, Accounting
for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure. Under
APB 25, compensation expense is recognized over the vesting
period to the extent that the fair market value of the
underlying stock on the date of grant exceeds the exercise price
of the employee stock option. The calculation of the intrinsic
value of a stock award is based on managements estimate of
the fair value of our common stock. Changes in this estimate
could have a material impact on stock compensation expense in
our financial statements.



| |                           
| | --------------------------
| | Software Development Costs

Software development costs for new software
products and additional modules for existing software are
expensed as incurred until technological feasibility is
established, in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed. Technological feasibility is established
when a working model of the product has been completed and
completeness of the working model and its consistency with the
product design has been confirmed by testing. Internal software
development costs qualifying for capitalization under
SFAS No. 86 have not been significant.



| |                                                  
| | -------------------------------------------------
| | Accounting for Purchase Business
    Combinations

All of our acquisitions were accounted for as
purchase transactions, and the purchase price was allocated to
the assets acquired and liabilities assumed based on the fair
value of the acquired companys then-current assets,
purchased technology, property and equipment and liabilities.
The excess of the purchase price over the fair value of net
assets acquired or net liabilities assumed has been allocated to
goodwill. The fair value of amortizable intangibles, primarily
consisting of purchased technology, was determined using an
estimate of

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discounted future cash flows related to the
technology. Actual future cash flows from purchased technology
could differ from estimated future cash flows. The allocation
between amortizable intangibles and goodwill impacts future
amortization expense in the financial statements.


We amortize intangibles over their estimated
economic lives. While we believe it is unlikely that any
significant changes to the useful lives of our tangible and
intangible assets will occur in the near term, rapid changes in
technology or changes in market conditions could result in
revisions to such estimates that could materially affect the
carrying value of these assets and our future operating results.



| |                                                      
| | -----------------------------------------------------
| | Long-Lived Assets, Intangible Assets
    and Goodwill

We assess the impairment of identifiable
intangibles and long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
Factors we consider important which could trigger an impairment
review include the following:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to expected
    historical or projected future operating results,                  
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall
    business, and
|
| |  | significant negative industry or economic trends.                                                                        

We also perform an annual impairment test of
goodwill in accordance with SFAS No. 142, Goodwill and
Intangible Assets. We assess potential impairment based on a
number of factors including past operating results, budgets,
economic projections, market trends, product development cycles,
and estimated future cash flows. Changes in these assumptions
and estimates could cause a material impact on our financial
statements.

Factors That May Affect Future
Results

The risks and uncertainties described below are
not the only risks we face. Additional risks and uncertainties
not presently known to us or that are currently deemed
immaterial may also impair our business operations. If any of
the following risks actually occur, our financial condition and
operating results could be materially adversely affected.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on the banking and credit
    union industry, and changes within that industry could reduce
    demand for our products and services.

The majority of our revenues are derived from
financial institutions in the banking and credit union industry,
primarily small to mid-size banks and thrifts and credit unions
of all sizes, and we expect to continue to derive substantially
all of our revenues from these institutions for the foreseeable
future. Unfavorable economic conditions adversely impacting the
banking and credit union industry could have a material adverse
effect on our business, financial condition and results of
operations. For example, financial institutions in the banking
and credit union industry have experienced, and may continue to
experience, cyclical fluctuations in profitability as well as
increasing challenges to improve their operating efficiencies.
Due to the entrance of non-traditional competitors and the
current environment of low interest rates, the profit margins of
commercial banks, thrifts and credit unions have narrowed. As a
result, some banks have slowed, and may continue to slow, their
capital spending, including spending on computer software and
hardware, which can negatively impact license sales of our core
and complementary products to new and existing clients.
Decreases in or reallocation of capital expenditures by our
current and potential clients, unfavorable economic conditions
and new or persisting competitive pressures could adversely
affect our business, financial condition and results of
operations.

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| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidation in the banking and financial
    services industry could adversely impact our business by
    eliminating a number of our existing and potential
    clients.

There has been and continues to be merger,
acquisition and consolidation activity in the banking and
financial services industry. Mergers or consolidations of banks
and financial institutions in the future could reduce the number
of our clients and potential clients. A smaller market for our
services could have a material adverse impact on our business
and results of operations. In addition, it is possible that the
larger banks or financial institutions which result from mergers
or consolidations could decide to perform themselves some or all
of the services which we currently provide or could provide. If
that were to occur, it could have a material adverse impact on
our business and results of operations.



| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our success depends on decisions by
    potential clients to replace their legacy computer systems, and
    their failure to do so would adversely affect demand for our
    products and services.

We primarily derive our revenues from two
sources: license fees for software products and fees for a full
range of services complementing our products, including
outsourcing, installation, training, maintenance and support
services. A large portion of these fees are either directly
attributable to licenses of our core software system or are
generated over time by clients using our core software. Banks
and credit unions historically have been slow to adapt to and
accept new technologies. Many of these financial institutions
have traditionally met their information technology needs
through legacy computer systems, in which they have often
invested significant resources. As a result, these financial
institutions may be inclined to resist replacing their legacy
systems with our core software system. Our future financial
performance will depend in part on the successful development,
introduction and client acceptance of new and enhanced versions
of our core software system and our other complementary
products. A decline in demand for, or failure to achieve broad
market acceptance of, our core software system or any enhanced
version as a result of competition, technological change or
otherwise, will have a material adverse effect on our business,
financial condition and results of operations.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to expand our outsourcing
    business and other sources of recurring revenue, we may be
    unable to successfully implement our business
    strategy.

We can host a financial institutions data
processing functions at our outsourcing centers. Our outsourcing
centers currently serve clients using our core software and our
Internet banking, ATM, cView, cash management, collections,
automated clearing house, or ACH, processing, and check and item
processing products. In the future, we plan to offer all of our
products in our outsourcing centers and continue to market our
outsourcing services aggressively.

Our outsourcing services provide a source of
recurring revenue which can grow as the number of accounts
processed for a client increases. We also seek to generate
recurring revenue through our licensing model, which generates
additional fees for us as a clients business grows or it
adds more software applications, as well as through the
provision of maintenance, support and other professional
services. Our maintenance revenues are the largest of these
revenue components, and we expect that these revenues will
continue to be a significant portion of our total revenues as
our client base grows due to their recurring nature. We
anticipate that the revenue from outsourcing centers hosted by
resellers will comprise a greater proportion of total revenues
in future periods due to the amendment and restatement of our
agreement with BISYS, Inc., which became effective as of
September 1, 2003. To the extent we fail to persuade new or
existing clients to purchase our outsourcing services or we are
unable to offer some or all of our products to clients on an
outsourced basis, we will be unable to implement our strategy
and our revenue may be less predictable.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | We have had few profitable quarters, and
    may never achieve sustained profitability.

We were incorporated in May 1992 and did not
release our first product until 1995. Accordingly, our prospects
must be considered in light of the risks, expenses and
difficulties frequently encountered by companies with limited
operating histories. Although we have been profitable in some
recent quarters, we may not be profitable in future periods,
either on a short or long-term basis. We incurred operating
losses of

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approximately $3.0 million,
$10.3 million and $15.3 million for the years ended
December 31, 2002, 2001 and 2000, respectively. As of
December 31, 2003, we had an accumulated deficit of
approximately $47.0 million. There can be no assurance that
operating losses will not recur in the future or that we will
ever sustain profitability on a quarterly or annual basis. To
the extent that revenues do not grow at anticipated rates,
increases in operating expenses precede or are not subsequently
followed by commensurate increases in revenues or we are unable
to adjust operating expense levels accordingly, our business,
financial condition and results of operations will be materially
adversely affected.




| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to adapt our products and
    services to changes in technology or in the marketplace, we
    could lose existing clients and be unable to attract new
    business.

The markets for our software products and
services are characterized by technological change, frequent new
product introductions and evolving industry standards. The
introduction of products embodying new technologies and the
emergence of new industry standards can render our existing
products obsolete and unmarketable in short periods of time. We
expect new products and services, and enhancements to existing
products and services, to continue to be developed and
introduced by others, which will compete with, and reduce the
demand for, our products and services. Our products life
cycles are difficult to estimate. Our future success will
depend, in part, on our ability to enhance our current products
and to develop and introduce new products that keep pace with
technological developments and emerging industry standards and
to address the increasingly sophisticated needs of our clients.
There can be no assurance that we will be successful in
developing, marketing, licensing and selling new products or
product enhancements that meet these changing demands, that we
will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these
products or that our new products and product enhancements will
adequately meet the demands of the marketplace and achieve
market acceptance.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We encounter a long sales and
    implementation cycle requiring significant capital commitments
    by our clients which they may be unwilling or unable to
    make.

The implementation of our core software system
involves significant capital commitments by our clients.
Potential clients generally commit significant resources to an
evaluation of available software and require us to expend
substantial time, effort and money educating them as to the
value of our software. Sales of our core processing software
products require an extensive education and marketing effort
throughout a clients organization because decisions
relating to licensing our core processing software generally
involve the evaluation of the software by senior management and
a significant number of client personnel in various functional
areas, each having specific and often conflicting requirements.

We may expend significant funds and management
resources during the sales cycle and ultimately fail to close
the sale. Our core software product sales cycle generally ranges
between six to nine months, and our implementation cycle for our
core software generally ranges between six to nine months. Our
sales cycle for all of our products and services is subject to
significant risks and delays over which we have little or no
control, including:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | our clients budgetary constraints,                                                                                         
|
| |  | the timing of our clients budget cycles and
    approval processes,                                                        
|
| |  | our clients willingness to replace their
    core software solution vendor,                                                
|
| |  | the success and continued support of our
    strategic marketing partners sales efforts, and                               
|
| |  | the timing and expiration of our clients
    current license agreements or outsourcing agreements for similar
    services.

If we are unsuccessful in closing sales after
expending significant funds and management resources or if we
experience delays as discussed above, it could have a material
adverse effect on our business, financial condition and results
of operations.

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| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We utilize certain key technologies from
    third parties, and may be unable to replace those technologies
    if they become obsolete or incompatible with our
    products.

Our proprietary software is designed to work in
conjunction with certain third-party software products,
including Microsoft and Oracle relational databases. Although we
believe that there are alternatives to these products generally
available to us, any significant interruption in the supply of
such third-party software could have a material adverse effect
on our sales unless and until we can replace the functionality
provided by these products. In addition, we are dependent upon
these third parties abilities to enhance their current
products, to develop new products on a timely and cost-effective
basis and to respond to emerging industry standards and other
technological changes. There can be no assurance that we would
be able to replace the functionality provided by the third-party
software currently offered in conjunction with our products in
the event that such software becomes obsolete or incompatible
with future versions of our products or is otherwise not
adequately maintained or updated. The absence of, or any
significant delay in, the replacement of that functionality
could have a material adverse effect on our business, financial
condition and results of operations. Furthermore, delays in the
release of new and upgraded versions of third-party software
products, particularly the Oracle relational database management
system, could have a material adverse effect on our revenues and
results of operations. Because of the complexities inherent in
developing sophisticated software products and the lengthy
testing periods associated with these products, no assurance can
be given that our future product introductions will not be
delayed.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We operate in a competitive business
    environment, and if we are unable to compete effectively, we may
    face price reductions and decreased demand for our
    products.

The market for our products and services is
intensely competitive and subject to technological change.
Competitors vary in size and in the scope and breadth of the
products and services they offer. We encounter competition from
a number of sources, all of which offer core software systems to
the banking and credit union industry. We expect additional
competition from other established and emerging companies as the
market for core processing software solutions and complementary
products continues to develop and expand. We also expect that
competition will increase as a result of software industry
consolidation, including particularly the acquisition of any of
our competitors or any of the retail banking system providers by
one of the larger service providers to the banking industry. We
encounter competition in the United States from a number of
sources, including Fiserv, Inc., Jack Henry &
Associates, Inc., Fidelity National Financial Corporation
and John H. Harland Company, all of which offer core processing
systems or outsourcing alternatives to banks, thrifts and credit
unions. Some of our current, and many of our potential,
competitors have longer operating histories, greater name
recognition, larger client bases and significantly greater
financial, engineering, technical, marketing and other resources
than we do. As a result, these companies may be able to respond
more quickly to new or emerging technologies and changes in
client demands or to devote greater resources to the
development, promotion and sale of their products than we can.

In addition, current and potential competitors
have established or may establish cooperative relationships
among themselves or with third parties to increase the ability
of their products to address the needs of our prospective
clients. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and acquire significant
market share. We expect that the banking and credit union
software market will continue to attract new competitors and new
technologies, possibly involving alternative technologies that
are more sophisticated and cost-effective than our technology.
There can be no assurance that we will be able to compete
successfully against current or future competitors or that
competitive pressures faced by us will not materially adversely
affect our business, financial condition and results of
operations.

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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly revenues, operating results
    and profitability will vary from quarter to quarter, which may
    result in volatility in our stock price.

Our quarterly revenues, operating results and
profitability have varied in the past and are likely to continue
to vary significantly from quarter to quarter. This may lead to
volatility in our stock price. These fluctuations are due to
several factors relating to the license and sale of our
products, including:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | the timing, size and nature of our licensing
    transactions,                                                        
|
| |  | lengthy and unpredictable sales cycles,                                                                               
|
| |  | the timing of introduction and market acceptance
    of new products or product enhancements by us or our competitors,
|
| |  | the timing of acquisitions by us of businesses
    and products,                                                      
|
| |  | product and price competition,                                                                                        
|
| |  | the relative proportions of revenues derived from
    license fees and services,                                      
|
| |  | changes in our operating expenses,                                                                                    
|
| |  | software bugs or other product quality
    problems, and                                                              
|
| |  | personnel changes and fluctuations in economic
    and financial market conditions.                                   

We believe that period-to-period comparisons of
our results of operations are not necessarily meaningful. There
can be no assurance that future revenues and results of
operations will not vary substantially. It is also possible that
in future quarters, our results of operations will be below the
expectations of public market analysts and investors. In either
case, the price of our common stock could be materially
adversely affected.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | We face a lengthy sales cycle for our core
    software, which may cause fluctuations in our revenues from
    quarter to quarter.

We may not be able to increase revenue or
decrease expenses to meet expectations for a given quarter. We
recognize software license revenues upon delivery and, if
required by the underlying agreement, upon client acceptance, if
such criteria is other than perfunctory, which does not always
occur in the same quarter in which the software license
agreement for the system is signed. As a result, we are
constrained in our ability to increase our software license
revenue in any quarter if there are unexpected delays in
delivery or required acceptance of systems for which software
licenses were signed in previous quarters. Implementation of our
core software system typically occurs over six to nine months.
Delays in the delivery, implementation or any required
acceptance of our products could materially adversely affect our
quarterly results of operations. Revenues from software license
sales accounted for 33.5% of revenues for the year ended
December 31, 2003, 30.3% of revenues for the year ended
December 31, 2002, and 36.6% of revenues for the year ended
December 31, 2001. We expect that revenues from software
license sales will continue to provide a significant percentage
of our revenues in future periods, and our ability to close
license sales, as well as the timing of those sales, may have a
material impact on our quarterly results. In addition, increased
sales and marketing expenses for any given quarter may
negatively impact operating results of that quarter due to lack
of recognition of associated revenues until the delivery of the
product in a subsequent quarter.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Our level of fixed expenses may cause us to
    incur operating losses if we are unsuccessful in maintaining our
    current revenue levels.

Our expense levels are based, in significant
part, on our expectations as to future revenues and are largely
fixed in the short term. As a result, we may be unable to adjust
spending in a timely manner to compensate for any unexpected
shortfall in revenues. Accordingly, any significant shortfall of
revenues in relation to our expectations would have an immediate
and materially adverse effect on our business, financial
condition and results of operations. In addition, as we expand
we would anticipate increasing our operating expenses to expand
our installation, product development, sales and marketing and
administrative organizations. The time

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of such expansion and the rate at which new
personnel become productive could cause material losses to the
extent we do not generate additional revenue.




| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We rely on our direct sales force to
    generate revenue, and may be unable to hire additional sales
    personnel in a timely manner.

We rely primarily on our direct sales force to
sell licenses of our core software system. We may need to hire
additional sales, client care and implementation personnel in
the near-term and beyond if we are to achieve revenue growth in
the future. Competition for such personnel is intense, and there
can be no assurance that we will be able to retain our existing
sales, customer service and implementation personnel or will be
able to attract, assimilate or retain additional highly
qualified personnel in the future. If we are unable to hire or
retain qualified sales personnel on a timely basis, our
business, financial condition and results of operations could be
materially adversely affected.



| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We receive a portion of our revenues from
    relationships with strategic marketing partners, and if we lose
    one or more of these marketing partners or fail to add new ones
    it could have a negative impact on our business.

We expect that revenues generated from the sale
of our products and services by our strategic marketing partners
will account for a meaningful portion of our revenues for the
foreseeable future. In particular, we expect that
BISYS, Inc., a major national outsourcing center, and
Connecticut On-Line Computer Center, Inc., or COCC, a major
regional outsourcing center, will account for a meaningful
portion of our revenues over time. During the year ended
December 31, 2003, BISYS represented approximately
$5.8 million, or 9.1%, of our total revenues, and COCC
represented approximately $1.5 million, or 2.4%, of our
total revenues. On September 30, 2003, we amended and
restated our software license agreement with BISYS, Inc.,
effective as of September 1, 2003. We expect that, as a
result of this amendment and restatement, in the future BISYS
will account for a greater portion of our revenues than it has
historically.

Our strategic marketing partners pay us license
fees based on the volume of products and services that they
sell. If we lose one or more of our major strategic marketing
partners, we may be unable in a timely manner, or at all, to
replace them with another entity with comparable client bases
and user demographics, which would adversely affect our
business, financial condition and results of operations. In
addition, we plan to supplement our existing distribution
partners with other national and regional outsourcing centers.
If we are unable to identify appropriate resellers and enter
into arrangements with them for the outsourcing of our products
and services to financial institutions, we may not be able to
sustain or grow our business.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not retain our senior management
    and other key employees, we may not be able to successfully
    implement our business strategy.

We have grown significantly in recent years, and
our management remains concentrated in a small number of key
employees. Our future success depends to a significant extent on
our executive officers and key employees, including our sales
force and software professionals, particularly project managers,
software engineers and other senior technical personnel. The
loss of the services of any of these individuals or group of
individuals could have a material adverse effect on our
business, financial condition and results of operations.
Competition for qualified personnel in the software industry is
intense and we compete for these personnel with other software
companies that have greater financial and other resources than
we do. Our future success will depend in large part on our
ability to attract, retain and motivate highly qualified
personnel, and there can be no assurance that we will be able to
do so. Any difficulty in hiring needed personnel could have a
material adverse effect on our business, financial condition and
results of operations.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | We rely on internally developed software
    and systems as well as third-party products, any of which may
    contain errors and bugs.

Our software may contain undetected errors,
defects or bugs. Although we have not suffered significant harm
from any errors or defects to date, we may discover significant
errors or defects in the future that we may

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or may not be able to correct. Our products
involve integration with products and systems developed by third
parties. Complex software programs of third parties may contain
undetected errors or bugs when they are first introduced or as
new versions are released. There can be no assurance that errors
will not be found in our existing or future products or
third-party products upon which our products are dependent, with
the possible result of delays in or loss of market acceptance of
our products, diversion of our resources, injury to our
reputation and increased service and warranty expenses and/or
payment of damages.




| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could be sued for contract or product
    liability claims and lawsuits may disrupt our business, divert
    managements attention or have an adverse effect on our
    financial results.

Failures in a clients system could result
in an increase in service and warranty costs or a claim for
substantial damages against us. There can be no assurance that
the limitations of liability set forth in our contracts would be
enforceable or would otherwise protect us from liability for
damages. We maintain general liability insurance coverage,
including coverage for errors and omissions in excess of an
applicable deductible amount. There can be no assurance that
this coverage will continue to be available on acceptable terms
or will be available in sufficient amounts to cover one or more
large claims, or that the insurer will not deny coverage as to
any future claim. The successful assertion of one or more large
claims against us that exceeds available insurance coverage, or
the occurrence of changes in our insurance policies, including
premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect
on our business, financial condition and results of operations.
Furthermore, litigation, regardless of its outcome, could result
in substantial cost to us and divert managements attention
from our operations. Any contract liability claim or litigation
against us could, therefore, have a material adverse effect on
our business, financial condition and results of operations. In
addition, because many of our projects are business-critical
projects for financial institutions, a failure or inability to
meet a clients expectations could seriously damage our
reputation and affect our ability to attract new business.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Government regulation of our business could
    cause us to incur significant expenses, and failure to comply
    with applicable regulations could make our business less
    efficient or impossible.

The financial services industry is subject to
extensive and complex federal and state regulation. Financial
institutions, including banks, thrifts and credit unions,
operate under high levels of governmental supervision. Our
clients must ensure that our products and services work within
the extensive and evolving regulatory requirements applicable to
them, including those under federal and state truth-in-lending
and truth-in-deposit rules, usury laws, the Equal Credit
Opportunity Act, the Fair Housing Act, the Electronic Fund
Transfer Act, the Fair Credit Reporting Act, the Bank Secrecy
Act, the Community Reinvestment Act, the Gramm-Leach-Bliley Act
of 1999, the USA Patriot Act and other state and local laws and
regulations. The compliance of our products and services with
these requirements may depend on a variety of factors, including
the product at issue and whether the client is a bank, thrift,
credit union or other type of financial institution.

Neither federal depository institution regulators
nor other federal or state regulators of financial services
require us to obtain any licenses. We are subject to examination
by federal depository institution regulators under the Bank
Service Company Act and the Examination Parity and Year 2000
Readiness for Financial Institutions Act. Although we believe we
are not subject to direct supervision by federal and state
banking agencies relating to other regulations, we have from
time to time agreed to examinations of our business and
operations by these agencies. These regulators have broad
supervisory authority to remedy any shortcomings identified in
any such examination.

Federal, state or foreign authorities could also
adopt laws, rules or regulations relating to the financial
services industry that affect our business, such as requiring us
or our clients to comply with data, record keeping and
processing and other requirements. It is possible that laws and
regulations may be enacted or modified with respect to the
Internet, covering issues such as end-user privacy, pricing,
content, characteristics, taxation and quality of services and
products. Adoption of these laws, rules or regulations could
render our business or operations more costly and burdensome or
less efficient and could require us to modify our current or
future products or services.

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| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our limited ability to protect our
    proprietary technology and other rights may adversely affect our
    ability to compete.

We rely on a combination of copyright, trademark
and trade secret laws, as well as licensing agreements,
third-party nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual
property rights. There can be no assurance that these
protections will be adequate to prevent our competitors from
copying or reverse-engineering our products, or that our
competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. To
protect our trade secrets and other proprietary information, we
require employees, consultants, advisors and collaborators to
enter into confidentiality agreements. We cannot assure you that
these agreements will provide meaningful protection for our
trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of
such trade secrets, know-how or other proprietary information.
We do not include in our products any mechanism to prevent
unauthorized copying and any such unauthorized copying could
have a material adverse effect on our business, financial
condition and results of operations. We have no patents, and
existing copyright laws afford only limited protection for our
intellectual property rights and may not protect such rights in
the event competitors independently develop products similar to
ours. In addition, the laws of certain countries in which our
products are or may be licensed do not protect our products and
intellectual property rights to the same extent as the laws of
the United States.



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are found to infringe the proprietary
    rights of others, we could be required to redesign our products,
    pay royalties or enter into license agreements with third
    parties.

Although we have never been the subject of a
material intellectual property dispute, there can be no
assurance that a third party will not assert that our technology
violates its intellectual property rights in the future. As the
number of software products in our target market increases and
the functionality of these products further overlap, we believe
that software developers may become increasingly subject to
infringement claims. Any claims, whether with or without merit,
could:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | be expensive and time consuming to defend,                                                                                  
|
| |  | cause us to cease making, licensing or using
    products that incorporate the challenged intellectual property,            
|
| |  | require us to redesign our products, if feasible,                                                                           
|
| |  | divert managements attention and
    resources, and                                                                        
|
| |  | require us to enter into royalty or licensing
    agreements in order to obtain the right to use necessary
    technologies.

There can be no assurance that third parties will
not assert infringement claims against us in the future with
respect to our current or future products or that any such
assertion will not require us to enter into royalty arrangements
(if available) or litigation that could be costly to us.



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have entered into and may continue to
    enter into or seek to enter into business combinations and
    acquisitions which may be difficult to integrate, disrupt our
    business, dilute stockholder value or divert management
    attention.

Since 2000, we have acquired several businesses.
As part of our business strategy, we may enter into additional
business combinations and acquisitions in the future. We have
limited experience in making acquisitions. In addition,
acquisitions are typically accompanied by a number of risks,
including:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | the difficulty of integrating the operations and
    personnel of the acquired companies,
|
| |  | the maintenance of acceptable standards,
    controls, procedures and policies,          
|
| |  | the potential disruption of our ongoing business
    and distraction of management,      

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| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | the impairment of relationships with employees
    and clients as a result of any integration of new management and
    other personnel,
|
| |  | the inability to maintain a relationship with
    clients of the acquired business,                                                     
|
| |  | the difficulty of incorporating acquired
    technology and rights into our products and services,                                      
|
| |  | the failure to achieve the expected benefits of
    the combination or acquisition,                                                     
|
| |  | expenses related to the acquisition,                                                                                                    
|
| |  | potential unknown liabilities associated with
    acquired businesses, and                                                              
|
| |  | unanticipated expenses related to acquired
    technology and its integration into existing technology.                                 

If we are not successful in completing
acquisitions that we may pursue in the future, we would be
required to reevaluate our growth strategy and we may have
incurred substantial expenses and devoted significant management
time and resources in seeking to complete the acquisitions. In
addition, with future acquisitions, we could use substantial
portions of our available cash as all or a portion of the
purchase price. We could also issue additional securities as
consideration for these acquisitions, which could cause our
stockholders to suffer significant dilution. Any future
acquisitions may not generate additional revenue for us.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If we fail to effectively manage our
    growth, our financial results could be adversely
    affected.

We have expanded our operations rapidly in recent
years. For example, our aggregate revenues increased from
approximately $27.3 million in 2001 to approximately
$44.3 million in 2002 to approximately $63.9 million
in 2003. As of March 5, 2004, we had 406 employees, up from
278 as of December 31, 2002. In addition, we continue to
explore ways to extend our target markets, including to larger
financial institutions, international clients, and clients in
the payroll services, insurance and brokerage industries. Our
growth may place a strain on our management systems, information
systems and resources. Our ability to successfully offer
products and services and implement our business plan requires
adequate information systems and resources and oversight from
our senior management. We will need to continue to improve our
financial and managerial controls, reporting systems and
procedures as we continue to grow and expand our business. As we
grow, we must also continue to hire, train, supervise and manage
new employees. We may not be able to hire, train, supervise and
manage sufficient personnel or develop management and operating
systems to manage our expansion effectively. If we are unable to
manage our growth, our operations and financial results could be
adversely affected.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | The requirements of being a public company
    may strain our resources and distract management.

As a public company, we are subject to the
reporting requirements of the Securities Exchange Act of 1934
and the Sarbanes-Oxley Act of 2002. These requirements may place
a strain on our systems and resources. The Securities Exchange
Act requires, among other things, that we file annual, quarterly
and current reports with respect to our business and financial
condition. The Sarbanes-Oxley Act requires, among other things,
that we maintain effective disclosure controls and procedures
and internal controls for financial reporting. We currently do
not have an internal audit group. In order to maintain and
improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting,
significant resources and management oversight will be required.
As a result, managements attention may be diverted from
other business concerns, which could have a material adverse
effect on our business, financial condition, results of
operations and cash flows. In addition, we will need to hire
additional accounting and financial staff with appropriate
public company experience and technical accounting knowledge and
we cannot assure you that we will be able to do so in a timely
fashion.]



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The design of other core vendors
    software or their use of financial incentives may make it more
    difficult for clients to use our complementary
    products.

Currently, some core software vendors design
their software so that it is difficult or infeasible to use
third-party complementary products, including ours. Some core
software vendors use financial incentives to

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encourage their core software clients to purchase
their proprietary complementary products. For example, in the
past a core software vendor has charged disproportionately high
fees to integrate third-party complementary products such as
ours, thereby providing a financial incentive for clients of
that vendors core software to use its complementary
products. We have responded to this practice by emphasizing to
prospective clients the features and functionality of our
products, lowering our price or offering to perform the relevant
integration services ourselves. We cannot assure you that these
competitors, or other vendors of core software, will not begin
or continue to construct technical, or implement financial,
obstacles to the purchase of our products. These obstacles could
make it more difficult for us to sell our complementary products
and could have a material adverse effect on our business and
results of operations.




| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Operational failures in our outsourcing
    centers could cause us to lose clients.

Damage or destruction that interrupts our
provision of outsourcing services could damage our relationship
with our clients and may cause us to incur substantial
additional expense to repair or replace damaged equipment.
Although we have installed back-up systems and procedures to
prevent or reduce disruption, we cannot assure you that we will
not suffer a prolonged interruption of our data processing
services. In the event that an interruption of our network
extends for more than several hours, we may experience data loss
or a reduction in revenues by reason of such interruption. In
addition, a significant interruption of service could have a
negative impact on our reputation and could lead our present and
potential clients to choose service providers other than us.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Unauthorized disclosure of data, whether
    through breach of our computer systems or otherwise, could
    expose us to protracted and costly litigation or cause us to
    lose clients.

In our outsourcing centers, we collect and store
sensitive data, including names, addresses, social security
numbers, checking and savings account numbers and payment
history records, such as account closures and returned checks.
If a person penetrates our network security or otherwise
misappropriates sensitive data, we could be subject to liability
or our business could be interrupted. Penetration of the network
security of our outsourcing centers could have a negative impact
on our reputation and could lead our present and potential
clients to choose service providers other than us.



| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need additional capital in the
    future, which may not be available to us, and if we raise
    additional capital, it may dilute your ownership in
    us.

We may need to raise additional funds through
public or private debt or equity financings in order to meet
various objectives, such as:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | taking advantage of growth opportunities,
    including more rapid expansion,
|
| |  | acquiring complementary businesses and products,                             
|
| |  | making capital improvements to increase our
    servicing capacity,          
|
| |  | developing new services or products, and                                     
|
| |  | responding to competitive pressures.                                         

In addition, we may need additional financing if
we decide to undertake new sales and/or marketing initiatives,
if we are required to defend or enforce our intellectual
property rights, or if sales of our products do not meet our
expectations.

Any debt incurred by us could impair our ability
to obtain additional financing for working capital, capital
expenditures or further acquisitions. Covenants governing any
indebtedness we incur would likely restrict our ability to take
specific actions, including our ability to pay dividends or
distributions on, or redeem or repurchase our capital stock,
enter into transactions with affiliates, merge, consolidate or
sell our assets or make capital expenditure investments. In
addition, the use of a substantial portion of the cash generated
by our operations to cover debt service obligations and any
security interests we grant on our assets could limit our
financial and business flexibility.

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Any additional capital raised through the sale of
equity or convertible debt securities may dilute investors
ownership percentage in us. Furthermore, any additional debt or
equity financing we may need may not be available on terms
favorable to us, or at all. If future financing is not available
or is not available on acceptable terms, we may not be able to
raise additional capital, which could significantly limit our
ability to implement our business plan. In addition, we may have
to issue securities, including debt securities that may have
rights, preferences and privileges senior to our common stock.



| |                                                   
| | --------------------------------------------------
| | The price of our common stock may be
    volatile.

In the past three years, technology stocks listed
on the Nasdaq National Market have experienced high levels of
volatility and significant declines in value from their historic
highs. The trading price of our common stock may fluctuate
substantially, depending on many factors, some of which are
beyond our control and may not be related to our operating
performance. The fluctuations could cause you to lose part or
all of your investment in our shares of common stock. Those
factors that could cause fluctuations in the trading price of
our common stock include, but are not limited to, the following:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | price and volume fluctuations in the overall
    stock market from time to time,                                                             
|
| |  | significant volatility in the market price and
    trading volume of financial services companies,                                           
|
| |  | actual or anticipated changes in our earnings or
    fluctuations in our operating results or in the expectations of
    securities analysts,
|
| |  | general economic conditions and trends,                                                                                                      
|
| |  | major catastrophic events,                                                                                                                   
|
| |  | loss of a significant client or clients,                                                                                                     
|
| |  | sales of large blocks of our stock, or                                                                                                       
|
| |  | departures of key personnel.                                                                                                                 

In the past, following periods of volatility in
the market price of a companys securities, securities
class action litigation has often been brought against that
company. Due to the potential volatility of our stock price, we
may therefore be the target of securities litigation in the
future. Securities litigation could result in substantial costs
and divert managements attention and resources from our
business.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If a substantial number of shares of our
    common stock become available for sale and are sold in a short
    period of time, the market price of our common stock could
    decline significantly.

If our stockholders sell substantial amounts of
our common stock in the public market, the market price of our
common stock could decrease significantly. The perception in the
public market that our stockholders might sell shares of common
stock could also depress the market price of our common stock.
As of March 23, 2004, we have 17,063,452 shares of
common stock outstanding. In addition, as of March 23,
2004, we had options to purchase a total of
3,241,439 shares of our common stock outstanding under our
1994 Stock Incentive Plan, 2000 Stock Incentive Plan and 2003
Stock Incentive Plan, of which 1,558,407 were vested. We have
filed Form S-8 registration statements to register all of
the shares of our common stock issuable under these plans. A
number of our stockholders are subject to lock-up agreements
with the underwriters in our initial public offering, which
expire on May 23, 2004. After all of these agreements
expire and applicable holding periods have elapsed, an aggregate
of 7,249,977 additional shares will be eligible for resale in
the public market, subject to the restrictions incurred under
Rule 144 of the Securities Act. The market price of shares
of our common stock may drop significantly when the restrictions
on resale by those stockholders lapse and they are able to sell
shares of our common stock into the market. A decline in the
price of shares of our common stock might impede our ability to
raise capital through the issuance of additional shares of our
common stock or other equity securities.

43



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##### Table of Contents





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Insiders have substantial control over us
    and could limit your ability to influence the outcome of key
    transactions, including a change of control.

Our principal stockholders, directors and
executive officers, and entities affiliated with them, own
approximately 36.5% of the outstanding shares of our common
stock as of March 15, 2003. As a result, these
stockholders, if acting together, may be able to influence or
control matters requiring approval by our stockholders,
including the election of directors and the approval of mergers,
acquisitions or other extraordinary transactions. They may also
have interests that differ from yours and may vote in a way with
which you disagree and which may be adverse to your interests.
The concentration of ownership may have the effect of delaying,
preventing or deterring a change of control of our company,
could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of a sale of our company
and might ultimately affect the market price of our common stock.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Some provisions in our certificate of
    incorporation and by-laws may deter third parties from acquiring
    us.

Our restated certificate of incorporation and our
amended and restated by-laws contain provisions that may make
the acquisition of our company more difficult without the
approval of our board of directors, including the following:



| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our board of directors is classified into three
    classes, each of which will serve for staggered three year terms,                                         
|
| |  | only our board of directors, the chairman of our
    board of directors or our president may call special meetings of
    our stockholders,                   
|
| |  | our stockholders may take action only at a
    meeting of our stockholders and not by written consent,                                                        
|
| |  | we have authorized undesignated preferred stock,
    the terms of which may be established and shares of which may be
    issued without stockholder approval,
|
| |  | our stockholders have only limited rights to
    amend our by-laws, and                                                                                       
|
| |  | we require advance notice requirements for
    stockholder proposals.                                                                                         

These anti-takeover defenses could discourage,
delay or prevent a transaction involving a change in control of
our company. These provisions could also discourage proxy
contests and make it more difficult for you and other
stockholders to elect directors of your choosing and cause us to
take other corporate actions you desire.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Section 203 of the Delaware General
    Corporation Law may delay, defer or prevent a change in control
    that our stockholders might consider to be in their best
    interest.

We are subject to Section 203 of the
Delaware General Corporation Law which, subject to certain
exceptions, prohibits business combinations between
a publicly-held Delaware corporation and an interested
stockholder, which is generally defined as a stockholder
who becomes a beneficial owner of 15% or more of a Delaware
corporations voting stock for a three-year period
following the date that such stockholder became an interested
stockholder. Section 203 could have the effect of delaying,
deferring or preventing a change in control of our company that
our stockholders might consider to be in their best interests.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We transact business with clients almost
exclusively in the United States and receive payment for our
services exclusively in United States dollars. As a result, our
financial results are unlikely to be affected by factors such as
changes in foreign currency exchange rates or weak economic
conditions in foreign markets.

Our interest expense is generally not sensitive
to changes in the general level of interest rates in the United
States, particularly because a substantial majority of our
indebtedness is at fixed rates. A 10% increase or decrease in
interest rates would not have a material adverse effect on our
financial condition.

44



---



##### Table of Contents



We do not hold derivative financial or commodity
instruments, nor engage in any foreign currency transactions,
and all of our cash and cash equivalents are held on deposit
with banks and highly liquid marketable securities with
maturities of three months or less.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The information required by this item may be
found on page F-1 thru F-29 of this Annual Report on
Form 10-K.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a.) Evaluation of Disclosure Controls
and Procedures.Our management, with
the participation of our Chief Executive Officer, or CEO, and
Chief Financial Officer, or CFO, evaluated the effectiveness of
our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act) as of December 31, 2003. In designing and evaluating
our disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving their objectives, and our management necessarily
applied its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Based on this evaluation,
our CEO and CFO concluded that, as of December 31, 2003,
our disclosure controls and procedures were (1) designed to
ensure that material information relating to us, including our
consolidated subsidiaries, is made known to our CEO and CFO by
others within those entities, particularly during the period in
which this report was being prepared and (2) effective, in
that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.

(b.) Changes in Internal
Controls.No change in our internal
control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act) occurred during the fiscal quarter ended December 31,
2003 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The response to this item is contained in our
proxy statement for the Annual Meeting of Stockholders to be
held on May 25, 2004 under the captions Proposal
One  Election of Directors and Executive
Officers, and is incorporated herein by reference.
Information relating to certain filings on Forms 3, 4 and 5
is contained in our 2004 proxy statement under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance, and is incorporated herein by reference.
Information required by this item pursuant to Item 401(h)
and 401(i) of Regulation S-K relating to an audit committee
financial expert and identification of the audit committee of
our board of directors is contained in our 2004 proxy statement
under the caption Corporate Governance, and is
incorporated herein by reference.

We have adopted a written code of business
conduct and ethics that applies to our principal executive
officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions.
We have posted on our website a copy of our code of business
conduct and ethics. We intend to disclose any amendments to, or
waivers from, our code of business conduct and ethics on our
website which is located at www.opensolutions.com.

45



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The response to this item is contained in our
2004 proxy statement under the captions Compensation of
Directors, Information About Executive
Compensation, Employment Agreements and
Compensation Committee Interlocks and Insider
Participation, and is incorporated herein by reference.

The sections entitled Report of the
Compensation Committee and Comparative Stock
Performance Graph in our 2004 proxy statement are not
incorporated herein by reference.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The response to this item is contained in our
2004 proxy statement under the caption Stock
Ownership Information, and Securities
Authorized for Issuance Under Equity Compensation Plans,
and is incorporated herein by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The response to this item is contained in our
2004 proxy statement under the caption Certain
Relationships and Related Transactions, and is
incorporated herein by reference.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The response to this item is contained in our
2004 proxy statement under the caption Independent
Auditors Fees, and is incorporated herein by
reference.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following are filed as part of this
Annual Report on Form 10-K:

1. Financial Statements



| |                                                                            
| | ---------------------------------------------------------------------------
| | The following consolidated financial statements
    are included in Item 8:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                                                                 
|
| |  | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001                                                                   
|
| |  | Consolidated Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity (Deficit) for the
    years ended December 31, 2003, 2002 and 2001
|
| |  | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                                                   
|
| |  | Notes to Consolidated Financial Statements.                                                                                                                      

(b) Reports on Form 8-K

None.

(c) Exhibits

The exhibits listed in the Exhibit Index
immediately preceding the exhibits are filed as part of this
Annual Report on Form 10-K.

(d) Financial Statement Schedules

The information required by this item is
contained in the financial statements included in this Annual
Report on Form 10-K.

46



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##### Table of Contents






SIGNATURES

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



| |                    
| | -------------------
| | OPEN SOLUTIONS INC.



| |     |                         
| | --- | ------------------------
| | By: | /s/ LOUIS HERNANDEZ, JR.

| |                          
| | -------------------------
| |                          
| | Louis Hernandez, Jr.     
| | Chairman of the Board and
| | Chief Executive Officer  

Date: March 30, 2004

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

|                                             |  |                                                                                                                                                |  |                |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                                                                |  |               
|Name                                         |  | Capacity                                                                                                                                       |  | Date          
|                                             |  |                                                                                                                                                |  |               
|                                            
|/s/ LOUIS HERNANDEZ, JR.Louis Hernandez, Jr. |  | Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer)                                                            |  | March 30, 2004
|                                            
|/s/ CARL D. BLANDINOCarl D. Blandino         |  | Senior Vice President, Chief Financial Officer,
    Treasurer and Secretary (Principal Financial Officer and
    Principal Accounting Officer) |  | March 30, 2004
|                                            
|/s/ DOUGLAS K. ANDERSONDouglas K. Anderson   |  | Director                                                                                                                                       |  | March 30, 2004
|                                            
|/s/ DOUGLAS C. CARLISLEDouglas C. Carlisle   |  | Director                                                                                                                                       |  | March 30, 2004
|                                            
|/s/ DAVID DAMEDavid Dame                     |  | Director                                                                                                                                       |  | March 30, 2004
|                                            
|/s/ SAMUEL F. MCKAYSamuel F. McKay           |  | Director                                                                                                                                       |  | March 30, 2004
|                                            
|/s/ CARLOS P. NAUDONCarlos P. Naudon         |  | Director                                                                                                                                       |  | March 30, 2004
|                                            
|/s/ RICHARD P. YANAKRichard P. Yanak         |  | Director                                                                                                                                       |  | March 30, 2004

47



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##### Table of Contents






INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                                                  |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                  |  | Page
|                                                                                                                                                                  |  |     
|Open Solutions Inc.                                                                                                                                               |  |      |     | 
|Report of Independent Auditors                                                                                                                                    |  |      | F-1 | 
|Consolidated Balance Sheets at December 31,
    2003 and 2002                                                                                                     |  |      | F-2 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001                                                                    |  |      | F-3 | 
|Consolidated Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity (Deficit) for the
    years ended December 31, 2003, 2002 and 2001 |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                                                    |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                                                                        |  |      | F-6 | 

48



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

of Open Solutions Inc.:


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of cash flows and of redeemable convertible
preferred stock and stockholders equity
(deficit) present fairly, in all material respects, the
financial position of Open Solutions Inc. and its subsidiaries
at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP

/s/ PRICEWATERHOUSECOOPERS LLP

Hartford, Connecticut

February 24, 2004


F-1



---



##### Table of Contents



OPEN SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |         |         |  
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------ | - | ------- | ------- |  | - | ------- | ------- | -
|                                                                                               |                                                                                                                                                                                            |                                                                                                 
|                                                                                               |                                                                                                                                                                                            | December 31,                                                                                    
|                                                                                               |                                                                                                                                                                                            |                                                                                                 
|                                                                                               |                                                                                                                                                                                            | 2003                                                                                             |   | 2002   
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |        
|                                                                                               |                                                                                                                                                                                            |                                                                                                 
|                                                                                               |                                                                                                                                                                                            | (In thousands, except                                                                           
|                                                                                               |                                                                                                                                                                                            | share and per share data)                                                                       
|ASSETS                                                                                        
|Current assets:                                                                                |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Cash and cash equivalents                                                                                                                                                                  |                                                                                                  | $ | 84,953  |         |  | $ | 11,414  |        
|                                                                                               | Accounts receivable, net                                                                                                                                                                   |                                                                                                  |   | 10,267  |         |  |   | 7,946   |        
|                                                                                               | Deferred costs                                                                                                                                                                             |                                                                                                  |   | 1,563   |         |  |   | 1,220   |        
|                                                                                               | Prepaid expenses and other current assets                                                                                                                                                  |                                                                                                  |   | 2,188   |         |  |   | 885     |        
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total current assets                                                                             |   |         | 98,971  |  |   |         | 21,465  |  
|                                                                                               | Fixed assets, net                                                                                                                                                                          |                                                                                                  |   | 5,500   |         |  |   | 4,577   |        
|                                                                                               | Investments in marketable securities                                                                                                                                                       |                                                                                                  |   | 8,028   |         |  |   |        |        
|                                                                                               | Capitalized software cost, net                                                                                                                                                             |                                                                                                  |   | 2,964   |         |  |   | 3,574   |        
|                                                                                               | Other intangible assets, net                                                                                                                                                               |                                                                                                  |   | 6,421   |         |  |   |        |        
|                                                                                               | Goodwill                                                                                                                                                                                   |                                                                                                  |   | 11,187  |         |  |   | 6,223   |        
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total assets                                                                                     |   | $       | 133,071 |  |   | $       | 35,839  |  
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                              
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
    STOCK
    AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities:                                                                           |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Accounts payable                                                                                                                                                                           |                                                                                                  | $ | 1,800   |         |  | $ | 2,161   |        
|                                                                                               | Accrued expenses                                                                                                                                                                           |                                                                                                  |   | 8,368   |         |  |   | 4,818   |        
|                                                                                               | Deferred revenue, current portion                                                                                                                                                          |                                                                                                  |   | 15,324  |         |  |   | 12,250  |        
|                                                                                               | Long-term debt from related party, current portion                                                                                                                                         |                                                                                                  |   |        |         |  |   | 750     |        
|                                                                                               | Capital lease obligations, current portion                                                                                                                                                 |                                                                                                  |   | 395     |         |  |   |        |        
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total current liabilities                                                                        |   |         | 25,887  |  |   |         | 19,979  |  
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Long-term debt from related party, less current
    portion                                                                                                                                |                                                                                                  |   |        |         |  |   | 700     |        
|                                                                                               | Capital lease obligations, less current portion                                                                                                                                            |                                                                                                  |   | 64      |         |  |   |        |        
|                                                                                               | Deferred revenue, less current portion                                                                                                                                                     |                                                                                                  |   | 1,479   |         |  |   | 722     |        
|                                                                                               | Other long-term liabilities                                                                                                                                                                |                                                                                                  |   | 222     |         |  |   | 119     |        
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total liabilities                                                                                |   |         | 27,652  |  |   |         | 21,520  |  
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Commitments and contingencies
    (Note 13)                                                                                                                                                |                                                                                                  |   |         |         |  |   |         |        
|Redeemable Convertible Preferred Stock                                                         |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Mandatorily redeemable convertible preferred stock                                                                                                                                         |                                                                                                  |   |        |         |  |   | 31,100  |        
|                                                                                               | Redeemable convertible preferred stock                                                                                                                                                     |                                                                                                  |   |        |         |  |   | 26,480  |        
|Stockholders Equity (Deficit)                                                                 |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               | Common stock, $0.01 par value; 95,000,000
    and 45,000,000 shares authorized; 16,786,329 and
    2,474,917 shares issued and outstanding at
    December 31, 2003 and 2002, respectively |                                                                                                  |   | 168     |         |  |   | 25      |        
|                                                                                               | Additional paid-in capital                                                                                                                                                                 |                                                                                                  |   | 152,274 |         |  |   | 5,018   |        
|                                                                                               | Accumulated other comprehensive loss                                                                                                                                                       |                                                                                                  |   | (28     | )       |  |   |        |        
|                                                                                               | Accumulated deficit                                                                                                                                                                        |                                                                                                  |   | (46,995 | )       |  |   | (48,304 | )      
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total stockholders equity (deficit)                                                             |   |         | 105,419 |  |   |         | (43,261 | )
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        
|                                                                                               |                                                                                                                                                                                            | Total liabilities, redeemable convertible
    preferred stock and stockholders equity (deficit) |   | $       | 133,071 |  |   | $       | 35,839  |  
|                                                                                               |                                                                                                                                                                                            |                                                                                                  |   |         |         |  |   |        

The accompanying notes are an integral part of
these consolidated financial statements.

F-2



---



##### Table of Contents



OPEN SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |           |        | 
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ------- | --------- | ------ | ---- | ------ | --------- | ------ | - | ------- | --------- | ------ | 
|                                                                              |                                                                                                                                                  |                          
|                                                                              |                                                                                                                                                  | Year Ended December 31,  
|                                                                              |                                                                                                                                                  |                          
|                                                                              |                                                                                                                                                  | 2003                      |         | 2002      |        | 2001
|                                                                              |                                                                                                                                                  |                           |         |           |        |     
|                                                                              |                                                                                                                                                  |                          
|                                                                              |                                                                                                                                                  | (In thousands, except    
|                                                                              |                                                                                                                                                  | share and per share data)
|Revenues:                                                                     |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              | Software license                                                                                                                                 |                           | $       | 21,391    |        |      | $      | 13,449    |        |   | $       | 9,971     |       
|                                                                              | Service, maintenance and hardware                                                                                                                |                           |         | 42,461    |        |      |        | 30,896    |        |   |         | 17,295    |       
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              |                                                                                                                                                  | Total revenues            |         |           | 63,852 |      |        |           | 44,345 |   |         |           | 27,266 | 
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Cost of revenues:                                                             |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              | Software license                                                                                                                                 |                           |         | 5,341     |        |      |        | 3,152     |        |   |         | 1,592     |       
|                                                                              | Service, maintenance and hardware                                                                                                                |                           |         | 23,540    |        |      |        | 18,430    |        |   |         | 10,084    |       
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              |                                                                                                                                                  | Total cost of revenues    |         |           | 28,881 |      |        |           | 21,582 |   |         |           | 11,676 | 
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              | Gross profit                                                                                                                                     |                           |         | 34,971    |        |      |        | 22,763    |        |   |         | 15,590    |       
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Operating expenses:                                                           |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              | Sales and marketing                                                                                                                              |                           |         | 10,729    |        |      |        | 9,533     |        |   |         | 8,771     |       
|                                                                              | Product development                                                                                                                              |                           |         | 6,854     |        |      |        | 6,223     |        |   |         | 7,643     |       
|                                                                              | General and administrative (includes restricted
    stock expense and related taxes of $3,444 for the year ended
    December 31, 2003: Note 11) |                           |         | 15,888    |        |      |        | 10,017    |        |   |         | 9,068     |       
|                                                                              | In-process research and development                                                                                                              |                           |         |          |        |      |        |          |        |   |         | 447       |       
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              |                                                                                                                                                  | Total operating expenses  |         |           | 33,471 |      |        |           | 25,773 |   |         |           | 25,929 | 
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Income (loss) from operations                                                 |                                                                                                                                                  |                           | 1,500   |           |        |      | (3,010 | )         |        |   | (10,339 | )        
|                                                                              | Interest income and other, net                                                                                                                   |                           |         | 197       |        |      |        | 172       |        |   |         | 432       |       
|                                                                              | Interest expense                                                                                                                                 |                           |         | (154      | )      |      |        | (27       | )      |   |         | (4        | )     
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Income (loss) before income taxes                                             |                                                                                                                                                  |                           | 1,543   |           |        |      | (2,865 | )         |        |   | (9,911  | )        
|Income tax (provision) benefit                                                |                                                                                                                                                  |                           | (234    | )         |        |      | (32    | )         |        |   | 250     |          
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Net income (loss)                                                             |                                                                                                                                                  |                           | 1,309   |           |        |      | (2,897 | )         |        |   | (9,661  | )        
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Preferred stock accretion charge (Note 10)                                    |                                                                                                                                                  |                           | (31,500 | )         |        |      |       |           |        |   |        |          
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Net loss attributable to common stockholders                                  |                                                                                                                                                  | $                         | (30,191 | )         |        | $    | (2,897 | )         |        | $ | (9,661  | )        
|                                                                              |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|Net loss per common share:                                                    |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              |  Basic                                                                                                                                          |                           | $       | (7.74     | )      |      | $      | (1.18     | )      |   | $       | (4.71     | )     
|                                                                              |  Diluted                                                                                                                                        |                           |         | (7.74     | )      |      |        | (1.18     | )      |   |         | (4.71     | )     
|Weighted average common shares used to compute
    net loss per common share: |                                                                                                                                                  |                           |         |           |        |      |        |           |        |   |         |          
|                                                                              |  Basic                                                                                                                                          |                           |         | 3,903,252 |        |      |        | 2,452,848 |        |   |         | 2,050,606 |       
|                                                                              |  Diluted                                                                                                                                        |                           |         | 3,903,252 |        |      |        | 2,452,848 |        |   |         | 2,050,606 |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



---



##### Table of Contents



OPEN SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS EQUITY
(DEFICIT)


|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |           |     |  |  |   |         |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | --------------------- | ---------- | --------------------- |  | ------------ | ------- | ---------- |  | ----------------------------------------------- | ---------- | ------------- |  | ----------- | ------- | ------------- |  | ---- | ---------- | ------- |  | --------- | --- |  |  | - | ------- | - |  | - | ------ | - |  | - | --- | - |  | - | ------- | - |  | - | ------- | -
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |        
|                                                               |  | Mandatorily           |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |     
|                                                               |  | Redeemable            |            | Redeemable            |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |     
|                                                               |  | Convertible Preferred |            | Convertible Preferred |  |              |         |            |  |                                                 |            | Accumulated   |  |             |         | Total        
|                                                               |  | Stock                 |            | Stock                 |  | Common Stock |         | Additional |  |                                                 |            | Other         |  |             |         | Stockholders
|                                                               |  |                       |            |                       |  |              |         | Paid-In    |  | Deferred                                        |            | Comprehensive |  | Accumulated |         | Equity       
|                                                               |  | Shares                |            | Amount                |  | Shares       |         | Amount     |  | Shares                                          |            | Amount        |  | Capital     |         | Compensation  |  | Loss |            | Deficit |  | (Deficit)
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |          
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                
|                                                               |  |                       |            |                       |  |              |         |            |  | (In thousands, except share and per share data)
|Balance at December 31, 2000                                   |  |                       | 2,167,385  |                       |  | $            | 20,084  |            |  |                                                 | 6,055,671  |               |  | $           | 24,744  |               |  |      | 2,004,697  |         |  | $         | 20  |  |  | $ | 1,975   |   |  | $ |       |   |  | $ |    |   |  | $ | (35,746 | ) |  | $ | (33,751 | )
|Sale of mandatorily redeemable convertible
    preferred stock |  |                       | 1,190,986  |                       |  |              | 11,016  |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   |        |  
|Exercise of stock warrants                                     |  |                       |           |                       |  |              |        |            |  |                                                 | 204,513    |               |  |             | 1,013   |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   |        |  
|Exercise of stock options                                      |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      | 12,071     |         |  |           |    |  |  |   | 30      |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 30      |  
|Issuance of stock for acquisitions                             |  |                       |           |                       |  |              |        |            |  |                                                 | 80,472     |               |  |             | 723     |               |  |      | 369,986    |         |  |           | 4   |  |  |   | 2,679   |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 2,683   |  
|Net loss                                                       |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   |    |   |  |   | (9,661  | ) |  |   | (9,661  | )
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |           |     |  |  |   |         |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                                   |  |                       | 3,358,371  |                       |  |              | 31,100  |            |  |                                                 | 6,340,656  |               |  |             | 26,480  |               |  |      | 2,386,754  |         |  |           | 24  |  |  |   | 4,684   |   |  |   |       |   |  |   |    |   |  |   | (45,407 | ) |  |   | (40,699 | )
|Exercise of stock options                                      |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      | 88,163     |         |  |           | 1   |  |  |   | 187     |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 188     |  
|Expiration of vested stock options                             |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | 147     |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 147     |  
|Net loss                                                       |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   |    |   |  |   | (2,897  | ) |  |   | (2,897  | )
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |           |     |  |  |   |         |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2002                                   |  |                       | 3,358,371  |                       |  |              | 31,100  |            |  |                                                 | 6,340,656  |               |  |             | 26,480  |               |  |      | 2,474,917  |         |  |           | 25  |  |  |   | 5,018   |   |  |   |       |   |  |   |    |   |  |   | (48,304 | ) |  |   | (43,261 | )
|Exercise of stock options                                      |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      | 7,943      |         |  |           |    |  |  |   | 10      |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 10      |  
|Issuance of restricted stock                                   |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      | 680,530    |         |  |           | 7   |  |  |   | 3,269   |   |  |   | (3,276 | ) |  |   |    |   |  |   |        |   |  |   |        |  
|Amortization of deferred compensation                          |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   | 3,276  |   |  |   |    |   |  |   |        |   |  |   | 3,276   |  
|Tax provision related to restricted stock                      |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | 72      |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 72      |  
|Issuance of common stock                                       |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      | 5,570,000  |         |  |           | 56  |  |  |   | 87,891  |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 87,947  |  
|Issuance cost from sale of common stock                        |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | (1,545  | ) |  |   |       |   |  |   |    |   |  |   |        |   |  |   | (1,545  | )
|Preferred stock accretion charge                               |  |                       |           |                       |  |              | 31,500  |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | (31,500 | ) |  |   |       |   |  |   |    |   |  |   |        |   |  |   | (31,500 | )
|Conversion of preferred stock                                  |  |                       | (3,358,371 | )                     |  |              | (62,600 | )          |  |                                                 | (6,340,656 | )             |  |             | (26,480 | )             |  |      | 8,052,939  |         |  |           | 80  |  |  |   | 89,036  |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 89,116  |  
|Deemed preferred stock dividends and accretion                 |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | (37     | ) |  |   |       |   |  |   |    |   |  |   |        |   |  |   | (37     | )
|Unrealized loss on marketable securities                       |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   | (28 | ) |  |   |        |   |  |   | (28     | )
|Forfeiture of stock options                                    |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   | 60      |   |  |   |       |   |  |   |    |   |  |   |        |   |  |   | 60      |  
|Net income                                                     |  |                       |           |                       |  |              |        |            |  |                                                 |           |               |  |             |        |               |  |      |           |         |  |           |    |  |  |   |        |   |  |   |       |   |  |   |    |   |  |   | 1,309   |   |  |   | 1,309   |  
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |           |     |  |  |   |         |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2003                                   |  |                       |           |                       |  | $            |        |            |  |                                                 |           |               |  | $           |        |               |  |      | 16,786,329 |         |  | $         | 168 |  |  | $ | 152,274 |   |  | $ |       |   |  | $ | (28 | ) |  | $ | (46,995 | ) |  | $ | 105,419 |  
|                                                               |  |                       |            |                       |  |              |         |            |  |                                                 |            |               |  |             |         |               |  |      |            |         |  |           |     |  |  |   |         |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of
these consolidated financial statements.

F-4



---



##### Table of Contents



OPEN SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |        |       |        |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | -
|                                                              |                                                                                                        |                                                              
|                                                              |                                                                                                        | Year Ended December 31,                                      
|                                                              |                                                                                                        |                                                              
|                                                              |                                                                                                        | 2003                                                          |                                                         | 2002   |        | 2001   
|                                                              |                                                                                                        |                                                               |                                                         |        |        |        
|                                                              |                                                                                                        |                                                              
|                                                              |                                                                                                        | (In thousands, except                                        
|                                                              |                                                                                                        | share and per share data)                                    
|Cash flows from operating activities                          |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              | Net income (loss)                                                                                      |                                                               | $                                                       | 1,309  |        |         | $      | (2,897 | )     |        | $      | (9,661 | )    
|                                                              | Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                               |                                                         |        |        |         |        |        |       |        |        |        |      
|                                                              |                                                                                                        | Depreciation and amortization                                 |                                                         |        | 3,901  |         |        |        | 3,236 |        |        |        | 3,023 |       
|                                                              |                                                                                                        | Compensation expense related to stock and options
    granted |                                                         |        | 3,542  |         |        |        | 84    |        |        |        | 156   |       
|                                                              |                                                                                                        | Tax benefit on restricted stock                               |                                                         |        | 72     |         |        |        |      |        |        |        |      |       
|                                                              |                                                                                                        | In-process research and development                           |                                                         |        |       |         |        |        |      |        |        |        | 447   |       
|                                                              |                                                                                                        | Provision for doubtful accounts                               |                                                         |        | 205    |         |        |        | 270   |        |        |        | 195   |       
|                                                              | Changes in operating assets and liabilities,
    excluding effects from acquisitions:                  |                                                               |                                                         |        |        |         |        |        |       |        |        |        |      
|                                                              |                                                                                                        | Accounts receivable                                           |                                                         |        | (1,038 | )       |        |        | (292  | )      |        |        | 407   |       
|                                                              |                                                                                                        | Prepaid expenses and other current assets                     |                                                         |        | (1,299 | )       |        |        | (614  | )      |        |        | (475  | )     
|                                                              |                                                                                                        | Accounts payable and accrued expenses                         |                                                         |        | 2,586  |         |        |        | (180  | )      |        |        | 260   |       
|                                                              |                                                                                                        | Deferred revenue                                              |                                                         |        | 791    |         |        |        | 3,095 |        |        |        | 2,316 |       
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              |                                                                                                        |                                                               | Net cash provided by (used in) operating
    activities |        |        | 10,069  |        |        |       | 2,702  |        |        |       | (3,332 | )
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|Cash flows from investing activities                          |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              | Purchases of fixed assets                                                                              |                                                               |                                                         | (1,469 | )      |         |        | (1,666 | )     |        |        | (1,889 | )    
|                                                              | Purchase of developed software                                                                         |                                                               |                                                         | (20    | )      |         |        | (50    | )     |        |        | (320   | )    
|                                                              | Purchase of marketable securities                                                                      |                                                               |                                                         | (8,056 | )      |         |        |       |       |        |        |       |      
|                                                              | Business acquisitions, net of cash received                                                            |                                                               |                                                         | (8,037 | )      |         |        |       |       |        |        | (3,397 | )    
|                                                              | Business acquired from related party                                                                   |                                                               |                                                         |       |        |         |        | (564   | )     |        |        |       |      
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              |                                                                                                        |                                                               | Net cash used in investing activities                   |        |        | (17,582 | )      |        |       | (2,280 | )      |        |       | (5,606 | )
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|Cash flows from financing activities                          |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              | Proceeds from sale of mandatorily redeemable
    convertible preferred stock                           |                                                               |                                                         |       |        |         |        |       |       |        |        | 11,100 |      
|                                                              | Issuance costs related to sale of mandatorily
    redeemable preferred stock                           |                                                               |                                                         |       |        |         |        |       |       |        |        | (84    | )    
|                                                              | Proceeds from exercise of stock options                                                                |                                                               |                                                         | 10     |        |         |        | 188    |       |        |        | 30     |      
|                                                              | Proceeds from exercise of warrants                                                                     |                                                               |                                                         |       |        |         |        |       |       |        |        | 1,013  |      
|                                                              | Proceeds from issuance of long-term debt                                                               |                                                               |                                                         | 1,661  |        |         |        |       |       |        |        |       |      
|                                                              | Repayment of long-term debt                                                                            |                                                               |                                                         | (5,014 | )      |         |        | (748   | )     |        |        | (91    | )    
|                                                              | Repayment of capital lease obligation                                                                  |                                                               |                                                         | (207   | )      |         |        |       |       |        |        |       |      
|                                                              | Purchase of common stock                                                                               |                                                               |                                                         | (1,800 | )      |         |        |       |       |        |        |       |      
|                                                              | Proceeds from sale of common stock                                                                     |                                                               |                                                         | 87,947 |        |         |        |       |       |        |        |       |      
|                                                              | Issuance costs from sale of common stock                                                               |                                                               |                                                         | (1,545 | )      |         |        |       |       |        |        |       |      
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              |                                                                                                        |                                                               | Net cash provided by (used in) financing
    activities |        |        | 81,052  |        |        |       | (560   | )      |        |       | 11,968 |  
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|Net increase (decrease) in cash and cash
    equivalents      |                                                                                                        |                                                               | 73,539                                                  |        |        |         | (138   | )      |       |        | 3,030  |       
|Cash and cash equivalents, beginning of period                |                                                                                                        |                                                               | 11,414                                                  |        |        |         | 11,552 |        |       |        | 8,522  |       
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|Cash and cash equivalents, end of period                      |                                                                                                        | $                                                             | 84,953                                                  |        |        | $       | 11,414 |        |       | $      | 11,552 |       
|                                                              |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|Supplemental disclosures                                      |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       
|                                                              | Cash paid for interest                                                                                 |                                                               | $                                                       | 178    |        |         | $      |       |       |        | $      | 3      |      
|                                                              | Cash paid for income taxes                                                                             |                                                               |                                                         | 118    |        |         |        | 32     |       |        |        | 2      |      
|See Notes 4, 9 and 10 for additional
    non-cash disclosures |                                                                                                        |                                                               |                                                         |        |        |         |        |        |       |        |        |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



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##### Table of Contents



OPEN SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |            
|-- | -----------
|1. | The Company

Open Solutions Inc., (the Company),
is a provider of software and services that allow financial
institutions to compete and service their customers more
effectively. The Company develops, markets, licenses and
supports an enterprise-wide suite of software and services that
performs a financial institutions data processing and
information management functions. The Companys software
can be operated either by the financial institution itself on an
outsourced basis in one of the Companys outsourcing
centers or through an outsourcing center hosted by one of the
Companys resellers.

The Company was incorporated in 1992 and operates
principally in Glastonbury, Connecticut. On December 2,
2003, the Company completed an initial public offering raising
proceeds, net of expenses, of $86,402,000.

On November 24, 2003, the Company effected a
1:1.45 reverse stock split of the Companys common stock,
par value $.01 per share. All share and per share amounts
for all years presented have been adjusted for the reverse stock
split.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain
reclassifications to the prior year information have been made
to conform with the current year classifications.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries Open
Solutions Imaging Systems, Inc. (successor-in-interest to
Imagic Corporation), Sound Software Development, Inc. and
Open Solutions FiTech, Inc. (successor-in-interest to
Liberty FiTech Systems, Inc.). All significant accounts,
transactions and profits between the consolidated companies have
been eliminated in consolidation. Significant accounts and
transactions between the Company, including its subsidiaries,
and its directors, officers, and stockholders, are disclosed as
related party transactions (see Note 15).



| |                  
| | -----------------
| | Segment Reporting

The Company applies the provisions of Statement
of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information. The Company views its operations and
manages its business as one segment, the development and
marketing of computer software and related services. Factors
used to identify the Companys single operating segment
include the organizational structure of the Company and the
financial information available for evaluation by the chief
operating decision-maker in making decisions about how to
allocate resources and assess performance. The Company

F-6



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

operates primarily in one geographical area, the
United States of America. The Company provides the following
disclosures of revenues from products and services:

|                                                 |  |                         |            |      |  |      |            |  |  |   |            | 
|------------------------------------------------ |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                                 |  |                        
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 2003                    |            | 2002 |  | 2001
|                                                 |  |                         |            |      |  |     
|Software license                                 |  | $                       | 21,391,000 |      |  | $    | 13,449,000 |  |  | $ | 9,971,000  | 
|                                                 |  |                         |            |      |  |      |            |  |  |   |            | 
|Installation, training and professional services |  |                         | 10,686,000 |      |  |      | 9,519,000  |  |  |   | 7,362,000  | 
|Maintenance, support and data center services    |  |                         | 28,507,000 |      |  |      | 17,180,000 |  |  |   | 9,560,000  | 
|Hardware                                         |  |                         | 3,268,000  |      |  |      | 4,197,000  |  |  |   | 373,000    | 
|                                                 |  |                         |            |      |  |      |            |  |  |   |            | 
|Service, maintenance and hardware                |  |                         | 42,461,000 |      |  |      | 30,896,000 |  |  |   | 17,295,000 | 
|                                                 |  |                         |            |      |  |      |            |  |  |   |            | 
|Total revenue                                    |  | $                       | 63,852,000 |      |  | $    | 44,345,000 |  |  | $ | 27,266,000 | 
|                                                 |  |                         |            |      |  |      |            |  |  |   |            | 



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit
with banks, and all highly liquid marketable securities with
original maturities of three months or less at the date of
acquisition. The Company also classifies short term commercial
paper with monthly call dates as cash equivalents.



| |                                         
| | ----------------------------------------
| | Investments in Marketable
    Securities

The Companys investments consist primarily
of corporate bonds that are held with a major financial
institution. At December 31, 2003, Open
Solutions, Inc. classified its entire investment portfolio
as available-for-sale as defined in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The specific identification method is used to
determine the cost basis and calculate unrealized gains and
losses. Securities are recorded at fair value, and unrealized
gains and losses on these investments are included as a separate
component of accumulated other comprehensive income (loss), net
of any related tax effect.



| |                    
| | -------------------
| | Accounts Receivable

The Company makes judgments as to its ability to
collect outstanding receivables and provide allowances for the
portion of receivables when collection becomes doubtful.
Provisions are made based upon a specific review of all
significant outstanding invoices and recorded in the allowance
for doubtful accounts. Receivables are presented net of the
allowance for doubtful accounts.

The following table represents the activity for
the allowance for doubtful accounts during the years ended
December 31, 2003, 2002 and 2001:

|                                 |  |            |         |                 |  |                |         |             |  |               |   |  |  |   |         |  |  |   |         | 
|-------------------------------- |  | ---------- | ------- | --------------- |  | -------------- | ------- | ----------- |  | ------------- | - |  |  | - | ------- |  |  | - | ------- | 
|                                 |  |            |         |                 |  |                |         |            
|                                 |  |            |         | Additions       |  |                |         |            
|                                 |  | Balance at |         |                 |  |                |         |            
|                                 |  | Beginning  |         | Charge to Costs |  | Charge to      |         | Deductions, |  | Balance at   
|Description                      |  | of Period  |         | and Expenses    |  | Other Accounts |         | Net         |  | End of Period
|                                 |  |            |         |                 |  |                |         |             |  |              
|Allowance for Doubtful Accounts: |  |            |         |                 |  |                |         |             |  |               |   |  |  |   |         |  |  |   |         | 
|Years ended December 31,         |  |            |         |                 |  |                |         |             |  |               |   |  |  |   |         |  |  |   |         | 
|2003                             |  | $          | 418,000 |                 |  | $              | 205,000 |             |  | $             |  |  |  | $ | 203,000 |  |  | $ | 420,000 | 
|2002                             |  |            | 573,000 |                 |  |                | 270,000 |             |  |               |  |  |  |   | 425,000 |  |  |   | 418,000 | 
|2001                             |  |            | 645,000 |                 |  |                | 195,000 |             |  |               |  |  |  |   | 267,000 |  |  |   | 573,000 | 

F-7



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |             
| | ------------
| | Fixed Assets

Fixed assets are stated at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets as follows:

|                               |  |  |          | 
|------------------------------ |  |  | -------- | 
|Computer Equipment             |  |  | 5  years | 
|Office furniture and equipment |  |  | 7  years | 
|Leasehold Improvements         |  |  | 7  years | 

Leasehold improvements are amortized over the
shorter of the term of the lease or the useful life of the asset.



| |                           
| | --------------------------
| | Capitalized Software Costs

Capitalized software costs are primarily
comprised of the costs associated with purchased technology
acquired in acquisitions, software directly purchased from
third-party vendors and internally developed software (see
discussion in Note 4 and Note 6). Capitalized costs
related to software to be sold, leased, or otherwise marketed
are accounted for pursuant to SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed. These costs are amortized
over the estimated economic useful life of the software, which
is generally 5 to 7 years. The Companys policy is to
record amortization for purchased technology based on the
greater of the amount computed using (a) the ratio that
current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining
estimated economic life of the product, including the period
being reported on. The Company reassesses this estimate
periodically. At each balance sheet date, the Company compares
the carrying value of the capitalized software to the net
realizable value of the product, determined using
managements estimate of discounted cash flows. Any excess
of carrying value over net realizable value is written off. To
date, the Company has not recorded any impairment on its
capitalized software.

The Company capitalizes certain costs related to
the development and purchase of internal-use software pursuant
to Statement of Position No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use. Under SOP No. 98-1, computer software costs
incurred in the preliminary project stage are expensed as
incurred until the capitalization criteria have been met. The
criteria for capitalization is defined as the point the
preliminary project stage is complete and management commits to
funding a computer software project and it is probable that the
project will be completed and the software will be used to
perform the function intended. Capitalization ceases at the
point that the computer software project is substantially
complete and ready for its intended use. The capitalized costs
are amortized using the straight-line method over the estimated
economic life of the product, generally three years.



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development costs, which are
described as product development costs in the consolidated
statement of operations, are expensed as incurred. Software
development costs for new software products and additional
modules for existing software are expensed as incurred until
technological feasibility is established, in accordance with
SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed.
Technological feasibility is established at the point in which a
working model of the product has been completed and completeness
of the working model and its consistency with the product design
has been confirmed by testing. The establishment of
technological feasibility of our products has substantially
coincided with the general release of such software. As a
result, internal software development costs qualifying for
capitalization under SFAS No. 86 have not been
significant.

F-8



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | Long-Lived Assets

The Company evaluates its long-lived assets,
which are comprised primarily of fixed assets and capitalized
internal-use software, for impairment whenever events or changes
in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset group to future undiscounted net cash flows expected
to be generated by the asset group. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. The Company did not
recognize any impairment loss for long-lived assets in 2003,
2002 or 2001.



| |                                   
| | ----------------------------------
| | Goodwill and other
    Intangibles

In 2001, the Company adopted
SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible
Assets, for its business combinations, goodwill, and other
intangible assets. The acquisitions described in Note 4
were accounted for using the purchase method with a total of
$11,187,000 assigned to goodwill. The recorded goodwill related
to the Companys acquisitions was acquired after the
adoption of SFAS No. 142 and, as a result, has not
been subject to amortization. Other intangible assets, such as
purchased technology, continue to be amortized over their useful
lives (see Note 6). The Company performs an annual
impairment test of its goodwill at December 31. To
accomplish this, the Company identifies its reporting units and
determines the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units and
comparing such amounts to the respective fair values of each
reporting unit. As of December 31, 2003, the Company had
four reporting units. Based on the results of the annual
impairment analysis, the Company has determined that no
impairment existed for its reporting units.



| |                    
| | -------------------
| | Revenue Recognition

The Company generates revenues from licensing the
rights to use its software products and certain third-party
software products to end-users. The Company also generates
revenues from customer support and maintenance, installation,
professional service and training services provided to
customers, data center services and hardware sales related to
its imaging business. The Companys maintenance and support
arrangements offer call center support and unspecified upgrades
and enhancements on software products on a when-and-if-available
basis.

The Company recognizes revenue in accordance with
AICPA Statement of Position (SOP) 97-2, Software
Revenue Recognition. Under SOP 97-2, the Company
recognizes software license revenue when a non-cancelable
license agreement has been executed, fees are fixed and
determinable, the software has been delivered, accepted by the
customer if acceptance is required by the contract and is other
than perfunctory, and collection is considered probable.

The Company sells software licenses in
conjunction with professional services for installation and
maintenance. For these arrangements, the total contract value is
attributed first to the maintenance arrangement based on its
fair value, which is derived from renewal rates. The contract
value is then attributed to installation and training services
based on estimated fair value, which is derived from the rates
charged for similar services provided on a stand-alone basis
multiplied by estimated hours to complete. The Companys
software license agreements generally do not require significant
modification or customization of the underlying software, and
accordingly, installation and training services are not
considered essential to functionality. The remainder of the
total contract value is then attributed to the software license
and other delivered elements based on the residual method
described in SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain
Transactions. If customization of the Companys
software is required, the Company recognizes revenue using the
percentage-of-completion method. Maintenance revenues are
recognized ratably over the maintenance period, generally five
years. Revenues from installation and

F-9



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

training services are recognized as services are
performed. The Company warrants its products will function
substantially in accordance with documentation provided to
customers. To date, the Company has not incurred any significant
expenses related to warranty claims.

Deferred revenue is comprised of payments
received related to product delivery, maintenance and other
services, which have been paid by customers prior to the
recognition of revenue. Deferred costs are comprised of costs
incurred prior to the recognition of the related revenue.

Data center revenues associated with allowing
customers to utilize our software products on an outsourced
basis are recognized in accordance with Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial
Statements. Specifically, revenues are recognized when
evidence of an arrangement exists, fees are fixed and
determinable, collectibility is reasonably assured, and delivery
has occurred. The Company obtains signed contracts, which
indicate the key terms, as well as the fixed and determinable
fees, in each arrangement. Revenues associated with installation
of data center arrangements are recognized as services are
performed, and revenues from data center services are recognized
over the term of the arrangement, typically 3 to 5 years.
The total contract value is allocated based on the relative fair
value of the installation and data center services.

The Company is receiving payments under certain
license and marketing agreements with resellers. The Company has
provided a master license to its two primary resellers and does
not have any other continuing obligation to provide additional
products or services, other than the provision of client support
and maintenance. The Company recognizes license revenue when the
revenue recognition criteria under SOP No. 97-2 are met,
including when evidence of an arrangement exists, fees are fixed
and determinable, collectibility is reasonably assured, and
delivery has occurred. The revenue for client support and
maintenance is recognized ratably over the period of
maintenance, generally 3 to 5 years.

Pursuant to its amended license agreement with
BISYS, Inc. (BISYS) on September 30, 2003
(see Note 16), the Company is entitled to non-refundable
license fees, payable at the beginning of each quarter. The
Company also receives additional license fees for amounts that
are sold above the minimum license fee threshold, which are
payable at the end of each quarter. The Company records the
quarterly minimum license fee and the additional license fees as
revenue in the period in which they are due and payable.

From January 1, 2002 through
December 31, 2003, the Company had received license fees
from BISYS, which were due and payable upon the occurrence of
certain events which were communicated by BISYS. The Company
recognized these license fees when non-refundable amounts were
due and payable under the agreement, assuming that all other
revenue recognition criteria were met. Prior to January 1,
2002, BISYS paid license fees over a period of 36 months,
and the Company recognized these fees ratably over the payment
term.

Pursuant to its amended license agreement with
its regional reseller on May 15, 2003 (see Note 16),
the Company receives payments upon signing and upon conversion
of a financial institution. The Company recognizes revenue upon
signing of a financial institution, assuming all other revenue
recognition criteria have been met.

Prior to May 15, 2003, the Company received
payments from its regional reseller upon conversion of a
financial institution. For these arrangements, the Company
recognized revenue upon the conversion of the financial
institution, assuming all other revenue recognition was met.

The Companys hardware revenue related to
its check imaging products is recognized on a
percentage-of-completion basis under the method described in
SOP 81-1, because installation services and the related
software to these arrangements are considered essential to the
functionality of certain of the hardware.
Percentage-of-completion for services related to the
Companys check imaging product arrangements is measured by
the total hours incurred to date for each contract compared to
the estimated total hours to

F-10



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

complete that contract. The Company records
provisions for estimated losses on contracts in the period in
which such losses become known. Changes in estimates of sales,
costs, and profits are recognized in the period which they are
determined using the cumulative catch-up method of accounting.
If the software is not essential to the functionality of the
hardware, the Company recognizes hardware revenue upon delivery.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for
Income Taxes. Under SFAS 109, an asset and liability
approach is used to recognize deferred tax assets and
liabilities for the future tax consequences of items that have
already been recognized in its financial statements and tax
returns. A valuation allowance is established against net
deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the net
deferred tax assets will not be realized.



| |                              
| | -----------------------------
| | Net Income and Loss Per Share

The Company reports net income or loss per share
in accordance with SFAS No. 128, Earnings per Share(EPS). Under SFAS No. 128, basic EPS,
which excludes dilution, is computed by dividing income or loss
available to common stockholders by the weighted average number
of common shares outstanding for the period. Net income or loss
available to common stockholders represents reported net income
or loss less accretion of mandatorily redeemable convertible
preferred stock. All earnings per share and weighted average
shares outstanding have been restated to reflect the 1:1.45
reverse stock split which was effected on December 2, 2003.

Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Diluted EPS
includes in-the-money stock options and warrants using the
treasury stock method and also includes the assumed conversion
of preferred stock using the if-converted method. During a loss
period, the assumed exercise of in-the-money stock options and
warrants and the conversion of convertible preferred stock has
an anti-dilutive effect, and therefore, these instruments are
excluded from the computation of dilutive EPS. Weighted average
common shares of 7,168,026, 9,025,381, and 8,800,303 were
excluded from the computation of diluted EPS the years ended
December 31, 2003, 2002, and 2001, respectively, as they
would have been anti-dilutive.



| |                     
| | --------------------
| | Comprehensive Income

SFAS No. 130, Reporting
Comprehensive Income,requires that items defined as
comprehensive income or loss be separately classified in the
financial statements and that the accumulated balance of other
comprehensive income or loss be reported separately from
accumulated deficit and additional paid-in capital in the equity
section of the balance sheet.

The following table summarizes the Companys
comprehensive income (loss):

|                                         |                                   |                          |           |           |  |      |            |            |   |   |            |            |  
|---------------------------------------- | --------------------------------- | ------------------------ | --------- | --------- |  | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                         |                                   |                         
|                                         |                                   | Years Ended December 31,
|                                         |                                   |                         
|                                         |                                   | 2003                     |           | 2002      |  | 2001
|                                         |                                   |                          |           |           |  |     
|Net income (loss)                        |                                   | $                        | 1,309,000 |           |  | $    | (2,897,000 | )          |   | $ | (9,661,000 | )         
|Unrealized loss on marketable securities |                                   |                          | (28,000   | )         |  |      |           |            |   |   |           |           
|                                         |                                   |                          |           |           |  |      |            |            |   |   |            |           
|                                         | Total comprehensive income (loss) |                          | $         | 1,281,000 |  |      | $          | (2,897,000 | ) |   | $          | (9,661,000 | )
|                                         |                                   |                          |           |           |  |      |            |            |   |   |            |           



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments that potentially expose the
Company to concentrations of credit risk are limited to accounts
receivable. No individual customer accounted for 10% or more of
total revenues for the years ended

F-11



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

December 31, 2003 or 2002. During 2001,
revenue from an individual customer accounted for approximately
11% of total revenues.

For the years ended December 31, 2003 and
2001, no customer accounted for 10% or more of the total
accounts receivable balance. For the year ended
December 31, 2002 an individual customer accounted for 25%
of the account receivable balance. The Company maintains
allowances for potential credit risks and otherwise controls
this risk through monitoring procedures.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The carrying amount of cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate
fair value because of the short maturity of those instruments.
The carrying amount of long-term debt approximates fair value,
and a fluctuation in interest rates would not be material to the
Companys financial position.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. This issue
addresses revenue recognition for arrangements with multiple
deliverables which should be considered as separate units of
accounting if the deliverables meet certain criteria as
described in EITF 00-21. This issue is effective for
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. Early adoption is permitted. The
adoption of this standard on July 1, 2003 did not have a
material impact on the consolidated financial statements.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. This interpretation addresses the
consolidation of business enterprises (variable interest
entities) to which the usual condition of consolidation does not
apply. This interpretation focuses on financial interests that
indicate control. Variable interests may arise from financial
instruments, service contracts, nonvoting ownership interests
and other arrangements. If an enterprise holds a majority of the
variable interests of an entity, it would be considered the
primary beneficiary. The primary beneficiary would be required
to include assets, liabilities and the results of operations of
the variable interest entity in its financial statements. In
December 2003, the FASB issued a revision to FIN 46
(FIN 46R). FIN 46R defers the effective
date of FIN 46 until the scope of the American Institution
of Certified Public Accountants (AICPA)
accounting and auditing guide is clarified. As of
December 31, 2003 and 2002, the Company had no interest in
an entity which would qualify as a variable interest entity. As
a result, the adoption of this standard will not have a material
impact on the accompanying financial statements.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 changes the accounting for
certain financial instruments that, under previous guidance,
could be classified as equity or mezzanine equity,
including certain mandatorily redeemable instruments, by now
requiring those instruments to be classified as liabilities in
the statement of financial position. Further,
SFAS No. 150 requires disclosure regarding the terms
of those instruments and settlement alternatives. The Statement
is effective for all interim periods beginning after
June 15, 2003. The Company applied SFAS No. 150
to the shares subject to the put and call agreement issued to FS
Acquisition, Inc., the successor-in-interest to Liberty
FiTech Systems, Inc. for which redemption occurred on
December 2, 2003. The adoption of this standard did not
have a material impact on the Companys other financial
instruments.

In May 2003, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue No. 03-5,
Applicability of AICPA Statement of Position 97-2 to
Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software. This issue addresses revenue
recognition for arrangements that include non-software
deliverables, such as hardware, that are more than incidental to
the products or services

F-12



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

as a whole. The consensus indicates that, if the
software is not essential to the functionality of the
non-software deliverable, the non-software deliverable is
excluded from the scope of SOP 97-2. The Company expects
that the impact of applying EITF 03-5 on its gross margin
will depend on the timing and magnitude of its hardware sales.
Under EITF 03-5, hardware revenue, previously bundled with
software and recognized on a percentage of completion basis, may
be recognized upon delivery of the hardware. In certain cases,
this results in earlier recognition of revenue than when the
revenue was recognized under the previous methodology. However,
the completion of the check imaging arrangements are normally
not of long duration, so this impact was not material.

In December 2003, the SEC issued SAB
No. 104, Revenue Recognition. SAB 104
revises or rescinds portions of the interpretive guidance
included in Topic 13 of the codification of Staff Accounting
Bulletins in order to make this interpretive guidance consistent
with current authoritative accounting and auditing guidance and
SEC rules and regulations. It also rescinds the Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers document issued in conjunction with Topic 13.
Selected portions of that document have been incorporated into
Topic 13. The adoption of SAB No. 104 in the fourth quarter
of 2003 had no material impact on the Companys financial
position, results of operations or cash flows.



| |                   
| | ------------------
| | Stock Compensation

At December 31, 2003, the Company has stock
compensation plans which are more fully described in
Note 11 to the Financial Statements. The Company applies
the intrinsic value recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and complies with the
disclosure provisions of statement of SFAS No. 123, as
amended by SFAS No. 148. Under APB 25,
compensation expense is recognized over the vesting period to
the extent that the fair market value of the underlying stock on
the date of grant exceeds the exercise price of the employee
stock option.

The following table illustrates the effect on net
income (loss) if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock
compensation:

|                                                                                  |         |              |             |       |   |      |            |       |   |   |             |       |  
|--------------------------------------------------------------------------------- | ------- | ------------ | ----------- | ----- | - | ---- | ---------- | ----- | - | - | ----------- | ----- | -
|                                                                                  |         |             
|                                                                                  |         | December 31,
|                                                                                  |         |             
|                                                                                  |         | 2003         |             | 2002  |   | 2001
|                                                                                  |         |              |             |       |   |     
|Net loss attributable to common stockholders, as
    reported                     |         | $            | (30,191,000 | )     |   | $    | (2,897,000 | )     |   | $ | (9,661,000  | )    
|Add: Stock compensation expense included in
    reported net loss                 |         |              | 3,542,000   |       |   |      | 84,000     |       |   |   | 156,000     |      
|Subtract: Total stock compensation expense
    determined under fair value method |         |              | (5,630,000  | )     |   |      | (1,933,000 | )     |   |   | (1,704,000  | )    
|                                                                                  |         |              |             |       |   |      |            |       |   |   |             |      
|Pro forma net loss                                                                |         | $            | (32,279,000 | )     |   | $    | (4,746,000 | )     |   | $ | (11,209,000 | )    
|                                                                                  |         |              |             |       |   |      |            |       |   |   |             |      
|Reported net loss per share                                                       |         |              |             |       |   |      |            |       |   |   |             |      
|                                                                                  | Basic   |              |             | (7.74 | ) |      |            | (1.18 | ) |   |             | (4.71 | )
|                                                                                  | Diluted |              |             | (7.74 | ) |      |            | (1.18 | ) |   |             | (4.71 | )
|Pro forma net loss per share                                                      |         |              |             |       |   |      |            |       |   |   |             |      
|                                                                                  | Basic   |              |             | (8.27 | ) |      |            | (1.93 | ) |   |             | (5.47 | )
|                                                                                  | Diluted |              |             | (8.27 | ) |      |            | (1.93 | ) |   |             | (5.47 | )

The above pro forma results are not necessarily
indicative of future pro forma results. Other disclosures
required by SFAS No. 123 have been included in
Note 11.

F-13



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                                     
|-- | ------------------------------------
|3. | Investments in Marketable Securities

The following table summarizes the Companys
available for sale investments:

|                          |  |                   |           |            |  |            |       |            |  |   |         |   |  |   |           | 
|------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ----- | ---------- |  | - | ------- | - |  | - | --------- | 
|                          |  |                  
|                          |  | December 31, 2003
|                          |  |                  
|                          |  |                   |           | Gross      |  | Gross      |       |           
|                          |  | Amortized         |           | Unrealized |  | Unrealized |       |           
|                          |  | Cost              |           | Gains      |  | Losses     |       | Fair Value
|                          |  |                   |           |            |  |            |       |           
|Corporate notes and bonds |  | $                 | 7,835,000 |            |  | $          | 3,000 |            |  | $ | (31,000 | ) |  | $ | 7,807,000 | 
|Accrued investment income |  |                   |          |            |  |            |      |            |  |   |        |   |  |   | 221,000   | 
|                          |  |                   |           |            |  |            |       |            |  |   |         |   |  |   |           | 
|Total                     |  | $                 | 7,835,000 |            |  | $          | 3,000 |            |  | $ | (31,000 | ) |  | $ | 8,028,000 | 
|                          |  |                   |           |            |  |            |       |            |  |   |         |   |  |   |           | 

The Companys investments in corporate notes
and bonds are scheduled to mature in one to two years.



|   |             
|-- | ------------
|4. | Acquisitions

The Company entered into four acquisitions which
are summarized below:

|                                    |  |         |            |           |  |        |           |          |  |   |            |   |  |   |           |  
|----------------------------------- |  | ------- | ---------- | --------- |  | ------ | --------- | -------- |  | - | ---------- | - |  | - | --------- | -
|                                    |  | Liberty |            | HNC       |  |        |           |         
|                                    |  | FiTech  |            | Financial |  |        |           | Sound   
|                                    |  | Systems |            | Solutions |  | Imagic |           | Software
|                                    |  | (2003)  |            | (2002)    |  | (2001) |           | (2001)  
|                                    |  |         |            |           |  |        |           |         
|Tangible assets acquired            |  | $       | 4,006,000  |           |  | $      | 1,074,000 |          |  | $ | 2,198,000  |   |  | $ | 270,000   |  
|Purchased technology                |  |         | 530,000    |           |  |        | 1,193,000 |          |  |   | 1,880,000  |   |  |   | 832,000   |  
|In-process research and development |  |         |           |           |  |        |          |          |  |   |           |   |  |   | 447,000   |  
|Goodwill                            |  |         | 4,843,000  |           |  |        | 772,000   |          |  |   | 3,969,000  |   |  |   | 1,603,000 |  
|Other intangibles                   |  |         | 6,700,000  |           |  |        |          |          |  |   | 80,000     |   |  |   | 196,000   |  
|Liabilities assumed                 |  |         | (4,089,000 | )         |  |        | (986,000  | )        |  |   | (3,897,000 | ) |  |   | (383,000  | )
|                                    |  |         |            |           |  |        |           |          |  |   |            |   |  |   |           |  
|Purchase price                      |  | $       | 11,990,000 |           |  | $      | 2,053,000 |          |  | $ | 4,230,000  |   |  | $ | 2,965,000 |  
|                                    |  |         |            |           |  |        |           |          |  |   |            |   |  |   |           |  

Each of these acquisitions was accounted for as a
purchase transaction. Accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based
on estimates of fair value. The fair value of purchased
technology was determined based on managements valuation
analysis utilizing an income approach that takes into account
future cash flows. The excess of the purchase price over the
fair value of the net assets acquired has been allocated to
goodwill. The operating results of each business acquired have
been included in the Companys consolidated financial
statements from respective dates of acquisition.



| |                                 
| | --------------------------------
| | Liberty FiTech
    Systems, Inc.

On July 1, 2003, the Company acquired from
Liberty Enterprises, Inc. (Liberty)
substantially all of the operating assets, and assumed certain
liabilities, of Liberty FiTech Systems, Inc.
(FiTech), a provider of core processing software and
related services for credit unions, for consideration of
$11,704,000, consisting of $8,000,000 in cash, a promissory note
in the amount of $1,904,000 and 133,195 shares of the
Companys common stock. In conjunction with the
acquisition, the Company incurred approximately $286,000 of
acquisition-related costs. The purchased technology related to
this acquisition is being amortized over its estimated useful
life of five years. The other intangible assets of $6,700,000,
comprised of customer lists, are being amortized approximately
$140,000 per quarter over their useful life of
12 years. Total amortization expense for the year ended
December 31, 2003 was $279,000.

The common stock issued to FiTech was subject to
a put and call agreement whereby the Company had the right to
purchase, and FiTech had the right to sell, the common stock to
the other party at $13.51 per share, or approximately
$1,800,000. On September 3, 2003, FS
Acquisition, Inc., the successor-in-interest to

F-14



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Liberty FiTech Systems, Inc., exercised its
put right pursuant to this put and call agreement with respect
to these shares. In December 2003, the Company purchased these
133,195 shares at a price of $13.51 per share, or an
aggregate of $1,800,000.

The financial information in the table below
summarizes the combined results of operations of the Company and
FiTech on a pro forma basis, as though the companies had been
combined as of the beginning of the period being presented
below. This pro forma financial information is presented for
informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved had the
acquisition actually taken place as of the beginning of the
period being presented below.

|                                                        |  |                         |             |      |  |   |            |  
|------------------------------------------------------- |  | ----------------------- | ----------- | ---- |  | - | ---------- | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|                                                        |  | 2003                    |             | 2002
|                                                        |  |                         |             |     
|Pro forma revenues                                      |  | $                       | 70,732,000  |      |  | $ | 60,775,000 |  
|Pro forma net loss available to common
    shareholders |  | $                       | (32,274,000 | )    |  | $ | (5,819,000 | )
|Pro forma per share  basic and diluted                 |  | $                       | (8.27       | )    |  | $ | (2.37      | )

Pro forma results of operations have not been
presented for the acquisition of Sound Software and HNC
Financial Solutions, as results of operations of the acquired
businesses are not significant to the Company.



| |                        
| | -----------------------
| | HNC Financial Solutions

During 2002, the Company acquired certain
business operations from HNC Financial Solutions, Inc.
HNC Financial Solutions, a division of HNC Software
Inc. (HNC Software) and an investor in the Company.
These acquisitions were completed in March 2002 and October 2002.

On March 29, 2002, the Company acquired
fixed assets and intellectual property rights of HNC
Financial Solutions, and assumed certain future software
maintenance and support obligations in exchange for a $500,000
promissory note. Concurrent with the acquisition, the Company
entered into a license and service agreement with HNC Financial
Solutions for additional software. For these rights, the Company
paid $564,000 in cash. Upon the acquisition of this business,
the Company employed HNC Financial Solutions employees
involved with this business, including sales, development,
implementation and customer support personnel. This acquisition
expanded the Companys product offering to include
financial accounting, asset/ liability, management and financial
planning products.

On October 31, 2002, the Company
subsequently purchased from HNC Software the underlying
intellectual property rights to the additional software that had
been licensed in the March 2002 transaction, accounts
receivable, fixed assets and related future software maintenance
and support obligations in exchange for a $950,000 promissory
note. Upon the acquisition of this business, the Company
employed additional employees of HNC Financial Solutions
involved with this business. The purchased technology related to
the March 2002 and October 2002 transaction is amortized on a
straight-line basis over its estimated useful life of seven
years. In conjunction with these transactions, the Company
incurred approximately $39,000 of acquisition-related costs.
This acquisition expanded the Companys financial product
offering to include profitability analysis.



| |       
| | ------
| | Imagic

On December 14, 2001, the Company acquired
Imagic Corporation (Imagic) in exchange for
$1,830,000 in cash and 314,486 shares of Company common
stock. The assumed liabilities included a note payable of
$748,000 that was subsequently paid in full in January 2002.
Imagic was acquired to expand the Companys product
offerings to include check imaging software and services. The
acquisition was consummated on December 14, 2001, but for
accounting purposes the transaction was treated as effective
December 1, 2001. The activity during the intervening
period was not material. In conjunction with the

F-15



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

acquisition, the Company incurred approximately
$120,000 of acquisition-related costs. The purchased technology
related to this transaction is amortized over its estimated
useful life of seven years.

The financial information in the table below
summarizes the combined results of operations of the Company and
Imagic on a pro forma basis, as though the companies had been
combined as of the beginning of the period being presented
below. This pro forma financial information is presented for
informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved had the
acquisition actually taken place as of the beginning of the
period being presented below.

|                                                        |  |              |             |  
|------------------------------------------------------- |  | ------------ | ----------- | -
|                                                        |  | Year Ended  
|                                                        |  | December 31,
|                                                        |  | 2001        
|                                                        |  |             
|Pro forma revenues                                      |  | $            | 33,888,000  |  
|Pro forma net loss available to common
    shareholders |  |              | (11,089,000 | )
|Pro forma basic and diluted loss per share              |  |              | (3.87       | )



| |               
| | --------------
| | Sound Software

On August 3, 2001, the Company completed the
acquisition of Sound Software Development, Inc.
(Sound Software) in exchange for $1,700,000 in cash,
80,472 shares of Series G Preferred Stock and
55,496 shares of common stock. Sound Software was acquired
to expand the Companys product offering to include loan
origination software. In conjunction with the acquisition, the
Company incurred approximately $113,000 of acquisition-related
costs. The purchased technology related to this transaction is
amortized over its estimated useful life of two to five years.

The Company recorded a one-time write-off of
$447,000 in August 2001 relating to the value of in-process
research and development acquired as part of the purchase that
had not yet reached technological feasibility and had no
alternative future use. Accordingly, this amount was charged to
expense in the consolidated statement of operations upon
consummation of the acquisition. The value assigned to acquired
in-process technology was determined by identifying any research
projects at Sound Software for which technological feasibility
had not been established. One such project was identified and
related to the upgrade of Sound Softwares mortgage
product. The value of in-process research and development was
determined based on managements projected incremental cash
flow estimated to be derived from the completed project
discounted back to their present value using a discount rate of
20%. The discount rate was determined after consideration of the
Companys rate of return on equity capital, the weighted
average return on invested capital and the risk associated with
achieving anticipated sales related to the Sound Software
technology acquired. The project was approximately 50% complete
at the date of acquisition.



|   |             
|-- | ------------
|5. | Fixed Assets

|                               |  |              |            |      |  |   |            |  
|------------------------------ |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2003         |            | 2002
|                               |  |              |            |     
|Computer equipment             |  | $            | 10,552,000 |      |  | $ | 7,340,000  |  
|Office furniture and equipment |  |              | 1,628,000  |      |  |   | 1,534,000  |  
|Leasehold improvements         |  |              | 1,020,000  |      |  |   | 941,000    |  
|                               |  |              |            |      |  |   |            |  
|                               |  |              | 13,200,000 |      |  |   | 9,815,000  |  
|Less: accumulated depreciation |  |              | (7,700,000 | )    |  |   | (5,238,000 | )
|                               |  |              |            |      |  |   |            |  
|                               |  | $            | 5,500,000  |      |  | $ | 4,577,000  |  
|                               |  |              |            |      |  |   |            |  

Depreciation and amortization expense was
$2,462,000, $1,860,000 and $1,284,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

F-16



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |                           
|-- | --------------------------
|6. | Capitalized Software Costs

Capitalized software costs include completed
technology acquired in business combinations. Additions to
capitalized purchased technology costs were $530,000, $1,193,000
and $2,712,000 for the years ended December 31, 2003, 2002
and 2001, respectively.

Capitalized software costs also include costs
associated with purchased third-party software. Additions to
purchased third-party software were $20,000, $50,000, and
$320,000 for the years ended December 31, 2003, 2002 and
2001, respectively. Capitalized software costs also include
costs related to the development and purchase of internal-use
software.

A summary of the components of capitalized
software costs is as follows:

|                               |  |              |            |      |  |   |            |  
|------------------------------ |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2003         |            | 2002
|                               |  |              |            |     
|Purchased technology           |  | $            | 5,921,000  |      |  | $ | 5,391,000  |  
|Internal use software          |  |              | 1,746,000  |      |  |   | 1,746,000  |  
|Purchased third-party software |  |              | 442,000    |      |  |   | 422,000    |  
|                               |  |              |            |      |  |   |            |  
|                               |  |              | 8,109,000  |      |  |   | 7,559,000  |  
|Less: accumulated amortization |  |              | (5,145,000 | )    |  |   | (3,985,000 | )
|                               |  |              |            |      |  |   |            |  
|                               |  | $            | 2,964,000  |      |  | $ | 3,574,000  |  
|                               |  |              |            |      |  |   |            |  

Amortization expense related to capitalized
software costs was $1,160,000, $1,376,000, and $1,738,000 for
the years ended December 31, 2003, 2002 and 2001,
respectively.

Amortization expense for each of the next five
years ended December 31 is expected to approximate:

|     |       |   |         |           | 
|---- | ----- | - | ------- | --------- | 
|2004 |       | $ | 763,000 |          
|2005 |       |   | 616,000 |          
|2006 |       |   | 558,000 |          
|2007 |       |   | 529,000 |          
|2008 |       |   | 445,000 |          
|     |       |   |         |          
|     | Total |   | $       | 2,911,000 | 
|     |       |   |         |          



|   |                 
|-- | ----------------
|7. | Accrued Expenses

|                           |  |              |           |      |  |   |           | 
|-------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                           |  |             
|                           |  | December 31,
|                           |  |             
|                           |  | 2003         |           | 2002
|                           |  |              |           |     
|Compensation               |  | $            | 4,036,000 |      |  | $ | 2,506,000 | 
|Third party license fees   |  |              | 2,027,000 |      |  |   | 741,000   | 
|Accrued hardware purchases |  |              | 491,000   |      |  |   | 476,000   | 
|Sales tax payable          |  |              | 498,000   |      |  |   | 319,000   | 
|Other                      |  |              | 1,316,000 |      |  |   | 776,000   | 
|                           |  |              |           |      |  |   |           | 
|                           |  | $            | 8,368,000 |      |  | $ | 4,818,000 | 
|                           |  |              |           |      |  |   |           | 

F-17



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |               
|-- | --------------
|8. | Long-Term Debt



| |                                           
| | ------------------------------------------
| | Line of Credit and Equipment Term
    Loan

On April 29, 2003, the Company secured a
credit facility upon which it can draw an aggregate amount of
$4,000,000. The facility provides for funding of up to
$2,000,000 for an Equipment Term Loan and $2,000,000 for a
Working Capital Line. The Equipment Term Loan bears interest at
the greater of the prime rate plus 1% or 5.75%. The Working
Capital Line bears interest at the greater of the prime rate
plus 0.5% or 5.25%. The Company borrowed $1.7 million
against the equipment portion of the facility, which was paid in
full in December 2003 from the proceeds of the initial public
offering. The facilities were collateralized by the tangible
assets of the Company, excluding assets of its subsidiaries, and
are subject to certain restrictive covenants. The Company
terminated the facility in February 2004.



| |               
| | --------------
| | Long-Term Debt

On December 14, 2001, the Company assumed a
note payable in conjunction with the acquisition of Imagic of
$748,000. The note was subsequently paid in full in January 2002.

On March 29, 2002, the Company entered into
a promissory note agreement for $500,000 with HNC Financial
Solutions, a division of HNC Software and an investor in the
Company, in conjunction with the acquisition of a business (see
Note 4). The promissory note agreement specified an
interest rate of 6% with the principal and interest balance due
in full on March 29, 2004. The promissory note was
collateralized by the purchased assets. This note was paid in
full in December 2003 with proceeds from the initial public
offering.

On October 31, 2002, the Company entered
into a promissory note agreement for $950,000 with HNC Software
as part of an additional business acquisition. The promissory
note agreement specified an interest rate of 4.5%, and that the
principal balance and interest were due in full on
October 31, 2005. The promissory note was collateralized by
purchased assets. This promissory note was paid in full in
December 2003 from proceeds from the Companys initial
public offering.

On July 1, 2003, the Company entered into a
promissory note agreement with FiTech as part of a business
acquisition. The promissory note had an interest rate of 5% and
was due in two installments, $1,704,000 on June 30, 2004
and $200,000 on December 31, 2004. In December 2003, this
note was paid in full with proceeds from the Companys
initial public offering.



| |                                              
| | ---------------------------------------------
| | Long-term debt consists of the
    following:

|                                                                                                                                                        |  |              |   |      |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | ---- |  | - | ------- | 
|                                                                                                                                                        |  |             
|                                                                                                                                                        |  | December 31,
|                                                                                                                                                        |  |             
|                                                                                                                                                        |  | 2003         |   | 2002
|                                                                                                                                                        |  |              |   |     
|Promissory note from related party bearing
    interest at 6% due in full March 29, 2004                                                                |  | $            |  |      |  | $ | 500,000 | 
|Promissory note from related party bearing
    interest at 4.5% due in full October 31, 2005; $750,000 is
    classified as current, as described above |  |              |  |      |  |   | 950,000 | 
|                                                                                                                                                        |  |              |   |      |  |   |         | 
|Less current portion                                                                                                                                    |  |              |  |      |  |   | 750,000 | 
|                                                                                                                                                        |  |              |   |      |  |   |         | 
|Long-term debt                                                                                                                                          |  | $            |  |      |  | $ | 700,000 | 
|                                                                                                                                                        |  |              |   |      |  |   |         | 



|   |                          
|-- | -------------------------
|9. | Capital Lease Obligations

In conjunction with the July 1, 2003
acquisition of FiTech, the Company assumed two capital leases
for computer equipment. The capital leases are payable in
monthly installments through March 2005 and have incremental
borrowing rates of 5.5 and 7.5 percent. Both capital lease
obligations are collateralized by the equipment under these
leases.

F-18



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Capital lease obligations are comprised of the
following:

|                         |  |              |          |  
|------------------------ |  | ------------ | -------- | -
|                         |  | December 31,
|                         |  | 2003        
|                         |  |             
|Computer equipment lease |  | $            | 459,000  |  
|Less: current maturities |  |              | (395,000 | )
|                         |  |              |          |  
|                         |  | $            | 64,000   |  
|                         |  |              |          |  

Future minimum payments under these leases are as
follows:

|                                        |      |   |         |         | 
|--------------------------------------- | ---- | - | ------- | ------- | 
|Year Ended December 31,                 |      |   |         |        
|                                        | 2004 |   | $       | 468,000 | 
|                                        | 2005 |   |         | 78,000  | 
|                                        |      |   |         |        
|Total minimum lease payments            |      |   | 546,000 |        
|Amounts representing interest           |      |   | (87,000 | )      
|                                        |      |   |         |        
|Present value of minimum lease payments |      | $ | 459,000 |        
|                                        |      |   |         |        

The capitalized cost and accumulated amortization
of assets acquired under capital leases included in the amounts
presented above, are summarized as follows:

|                         |  |              |          |  
|------------------------ |  | ------------ | -------- | -
|                         |  | December 31,
|                         |  | 2003        
|                         |  |             
|Computer equipment       |  | $            | 711,000  |  
|Accumulated amortization |  |              | (203,000 | )
|                         |  |              |          |  
|                         |  | $            | 508,000  |  
|                         |  |              |          |  

Amortization expense for property and equipment
under capital leases amounted to approximately $203,000 for the
twelve months ended December 31, 2003.



|    |                                                             
|--- | ------------------------------------------------------------
|10. | Capital Stock and Redeemable Convertible
    Preferred Stock



| |              
| | -------------
| | Capital Stock

As of December 31, 2003, the Companys
Certificate of Incorporation authorizes up to
95,000,000 shares of common stock.

The Company has reserved shares of common stock
as follows:

|                              |  |              |           |      |  |  |            | 
|----------------------------- |  | ------------ | --------- | ---- |  |  | ---------- | 
|                              |  |             
|                              |  | December 31,
|                              |  |             
|                              |  | 2003         |           | 2002
|                              |  |              |           |     
|Conversion of preferred stock |  |              |          |      |  |  | 8,406,358  | 
|Exercise of options           |  |              | 7,965,786 |      |  |  | 5,082,194  | 
|                              |  |              |           |      |  |  |            | 
|                              |  |              | 7,965,786 |      |  |  | 13,488,552 | 
|                              |  |              |           |      |  |  |            | 

F-19



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                           
| | ------------------------------------------
| | Redeemable Convertible Preferred
    Stock

|                                                        |                                                                                                                                                                                                            |              |   |      |  |   |            |            | 
|------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | - | ---- |  | - | ---------- | ---------- | 
|                                                        |                                                                                                                                                                                                            |             
|                                                        |                                                                                                                                                                                                            | December 31,
|                                                        |                                                                                                                                                                                                            |             
|                                                        |                                                                                                                                                                                                            | 2003         |   | 2002
|                                                        |                                                                                                                                                                                                            |              |   |     
|Mandatorily Redeemable Convertible Preferred
    Stock: |                                                                                                                                                                                                            |              |   |      |  |   |            |           
|                                                        | Series F preferred stock, $0.01 par
    value; 3,498,479 shares authorized, 3,358,371 issued and
    outstanding at $9.32 per share (redemption value
    $31,300,000, liquidation preference $62,600,000) |              | $ |     |  |   | $          | 31,100,000 | 
|                                                        |                                                                                                                                                                                                            |              |   |      |  |   |            |           
|Redeemable Convertible Preferred Stock:                 |                                                                                                                                                                                                            |              |   |      |  |   |            |           
|                                                        | Series A-1 preferred stock, $0.01 par
    value; 1,000,000 share authorized, 1,000,000 issued and
    outstanding at $1.50 per share; (no stated redemption
    value, liquidation preference $1,500,000)  |              |   |     |  |   |            | 1,500,000  | 
|                                                        | Series A-2 preferred stock, $0.01 par
    value; 583,333 shares authorized, 583,333 issued and
    outstanding at $3.00 per share; (redemption value $500,000,
    liquidation preference $1,750,000)      |              |   |     |  |   |            | 1,656,000  | 
|                                                        | Series B preferred stock, $0.01 par
    value; 1,736,250 shares authorized, 1,736,250 issued and
    outstanding at $3.00 per share; (redemption value
    $5,402,000, liquidation preference $5,209,000)  |              |   |     |  |   |            | 5,363,000  | 
|                                                        | Series C preferred stock, $0.01 par
    value; 1,375,000 shares authorized, 1,361,111 issued and
    outstanding at $4.50 per share; (redemption value
    $6,333,000, liquidation preference $6,125,000)  |              |   |     |  |   |            | 6,315,000  | 
|                                                        | Series D preferred stock, $0.01 par
    value; 1,250,000 shares authorized, 833,333 issued and
    outstanding at $6.00 per share; (redemption value and
    liquidation preference $5,000,000)            |              |   |     |  |   |            | 4,978,000  | 
|                                                        | Series E preferred stock, $0.01 par
    value; 746,157 shares authorized, 746,157 issued and
    outstanding at $8.00 per share; (redemption and liquidation
    preference $5,969,000)                    |              |   |     |  |   |            | 5,945,000  | 
|                                                        | Series G preferred stock, $0.01 par
    value; 2,000,000 shares authorized, 80,472 issued and
    outstanding at $9.32 per share; (redemption and liquidation
    preference $750,000)                     |              |   |     |  |   |            | 723,000    | 
|                                                        |                                                                                                                                                                                                            |              |   |      |  |   |            |           
|                                                        |                                                                                                                                                                                                            | $            |  |      |  | $ | 26,480,000 |           
|                                                        |                                                                                                                                                                                                            |              |   |      |  |   |            |           

As of December 31, 2003 all warrants issued
have been exercised or have expired.

Concurrent with the closing of the Companys
initial public offering in December 2003 all preferred stock
converted into shares of common stock.

In April 2001, the Company issued a group of
investors an additional 1,190,986 shares of Series F
Mandatorily Redeemable Convertible Preferred Stock at
$9.32 per share for approximately $11,100,000.

The conversion formula for the Series F
preferred stock provided for adjustment of the Series F
preferred stock conversion price in the event that the
Companys initial public offering price was less than
$27.03 per share. Holders of Series F preferred stock
received shares of common stock from the initial public offering
with an aggregate value of $62,600,000. The recorded value of
Series F preferred stock was $31,100,000 and as a result,
upon the closing of the initial public offering, the Company
recorded an accretion charge of $31,500,000 in
stockholders equity (deficit). This accretion charge
resulted in a non-cash deduction from income attributable to
holders of common stock and a deduction in related earnings per
share.

In August 2001, the Company issued
80,472 shares of Series G Preferred Stock as
consideration in the purchase of certain assets and liabilities
of Sound Software Development, Inc. (Note 4).

F-20



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                              
| | ---------------------------------------------
| | Rights and Preferences of Preferred
    Stock

The Series C, Series D and
Series E had similar redemption features as the
Series B. The rights of CII and the holders of
Series B, Series C, Series D, Series E and
Series F Preferred Stock to redeem their shares if the
Company fails to maintain a Connecticut presence, terminated
upon the closing of the Companys initial public offering.

Each share of the Series A-1,
Series A-2, Series B, Series C, Series D,
Series E, Series F and Series G was convertible
at any time into shares of common stock as determined by
dividing the original issuance price for such series by the
conversion price in effect at the time of conversion. The
initial conversion price was the original issuance price,
subject to certain antidilution provisions, including the
reverse stock split which was effected prior to the closing of
the offering.

The holders of preferred stock were entitled to
receive non-cumulative cash dividends when and as declared by
the Board of Directors and have similar voting rights as common
stockholders in addition to certain other defined voting rights.
In the event of any voluntary or involuntary liquidation of the
Company, including change of control, the holders of
Series A-1, Series A-2, Series B, Series C,
Series D, Series E, Series F and Series G
Preferred Stock would have been entitled to all unpaid dividends
at the time of liquidation and $1.50, $3.00, $3.00, $4.50,
$6.00, $8.00, $18.64 and $9.32, respectively, per share as a
liquidating distribution prior to any liquidating distribution
to the common stockholders. Upon the completion of the required
per share distribution, the remaining assets would have been
distributed pro rata among the holders of preferred stock and
common stock based on the number of shares of common stock held
by each, assuming conversion of all preferred stock.



|    |                   
|--- | ------------------
|11. | Stock Option Plans



| |                       
| | ----------------------
| | 1994 Stock Option Plan

The Company established the 1994 Stock Option
Plan (the 1994 Plan) for employees, officers,
directors, and consultants to the Company under which the Board
of Directors granted incentive stock options and non-qualified
stock options. Incentive stock options were granted at the fair
value of the Common Stock at the time of grant, as determined by
the Board of Directors. Generally, incentive stock options vest
25% on the first anniversary of the date of grant and then
ratably on a monthly basis over the subsequent three years.
Non-qualified stock options have a vesting period as determined
by the Board of Directors generally vesting 25% on the first
anniversary of the date of grant and then ratably on a monthly
basis over the subsequent three years. The stock options are
exercisable over a period of ten years from the date of grant.

The Companys 1994 Plan was amended by the
Board of Directors in March 2000 to provide for acceleration of
vesting upon an acquisition event, as defined, subject to
revision by the Board of Directors. The maximum number of shares
that were issuable under the 1994 Plan was 2,068,965. Upon the
closing of the initial public offering in December 2003 no
further option grants are expected to be made under the 1994
Plan.



| |                          
| | -------------------------
| | 2000 Stock Incentive Plan

The Companys 2000 Stock Incentive Plan (the
2000 Plan) was adopted by the Board of Directors and
approved by the stockholders in December 2000. A maximum of
3,790,220 shares of common stock are issuable under the
plan. This maximum number of 3,790,220 shares increases
each January 1 during the term of the plan by an additional
number of shares of common stock equal to 5% of the total number
of shares of common stock issued and outstanding as of the close
of business on the preceding December 31. An amendment to
the 2000 Plan was adopted by the Board of Directors in August
2003 and approved by the stockholders in October 2003 to limit
the aggregate number of shares of common stock issuable under
the plan to 10,344,827 shares, notwithstanding the annual
increase in the number of shares issuable under the plan. No

F-21



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

participant in this plan may in any year be
granted stock options or awards with respect to more than
344,827 shares of common stock.

Under the 2000 Plan, in May 2003, the Company
granted 680,530 shares of restricted common stock to its
officers, directors and certain key employees which vest at the
end of seven years or would vest immediately upon a change in
control or initial public offering. The weighted average fair
value of restricted stock granted was $4.81 at the time of
grant. Upon issuance of the restricted stock, deferred
compensation equivalent to the $3,276,000 market value at the
date of grant was charged to shareholders equity and
subsequently amortized over seven years. Upon the closing of the
Companys initial public offering in December 2003, vesting
was automatically accelerated and the Company recorded
additional compensation expense of $3,003,000 and employer tax
expense of approximately $168,000 related to the restricted
stock in the fourth quarter of 2003.

The 2000 Plan is administered by the compensation
committee of the Board of Directors, which has the authority to
determine which individuals are eligible to receive options or
restricted stock awards, and the terms of those options or
awards. The exercise price of non-qualified stock options
granted under this plan may not be less than 85% of the fair
market value of a share of common stock on the date of grant, or
100%, in the case of incentive stock options. The options become
exercisable at such time or times as are determined by the
compensation committee and expire after a specified period that
may not exceed ten years.

Upon the acquisition of 50% or more of the
Companys outstanding common stock pursuant to a hostile
tender offer, each option granted to an officer of the Company,
if it has been outstanding for at least six months, will
automatically be canceled in exchange for a cash distribution to
the officer based upon the difference between the tender offer
price and the exercise price of the option.

In the event the Company is acquired, vesting of
options and restricted stock awards granted under the 2000 Plan
will accelerate to the extent that the options or the
Companys repurchase rights with respect to restricted
stock awards are not assumed by or assigned to the acquiring
entity. The compensation committee also has discretion to
provide for accelerated vesting of options and restricted stock
awards upon the occurrence of certain changes in control.
Accelerated vesting may be conditioned upon subsequent
termination of the affected optionees service.

With the consent of an option holder, the
compensation committee can cancel that holders options and
replace them with new options for the same or a different number
of shares having an exercise price based upon the fair market
value of the Companys common stock on the new grant date.
The Company has not canceled and reissued any options as of
December 31, 2003.

The Companys board of directors may amend
or modify the 2000 Plan at any time subject to the rights of
holders of outstanding options. This plan will terminate on
December 20, 2010.



| |                          
| | -------------------------
| | 2003 Stock Incentive Plan

The Companys 2003 Stock Incentive Plan (the
2003 Plan) was adopted by the Board of Directors in
August 2003 and approved by the stockholders in October 2003.
This plan provides for the grant of incentive stock options,
nonqualified stock options and restricted stock awards to the
Companys employees, officers, directors, consultants and
advisors. A maximum of 2,068,965 shares of common stock
will be reserved for issuance under this plan. No participant in
this plan may in any year be granted stock options or awards
with respect to more than 344,827 shares of common stock.

The 2003 Plan will be administered by the Board
of Directors, which has the authority to determine which
individuals are eligible to receive options or restricted stock
awards and the terms of those options or awards.

Upon the acquisition of 50% or more of the
Companys outstanding common stock pursuant to a hostile
tender offer, each option granted to an officer of the Company,
if it has been outstanding for at least six

F-22



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

months, will automatically be canceled in
exchange for a cash distribution to the officer based upon the
difference between the tender offer price and the exercise price
of the option.

In the event the Company is acquired or the
Companys common stock is exchanged for other
consideration, vesting of options and restricted stock awards
granted under the 2003 Stock Incentive Plan will accelerate to
the extent that the options or the Companys repurchase
rights with respect to restricted stock awards are not assumed
by or assigned to the acquiring entity. The Board of Directors
can additionally cause any options or restricted stock awards to
become fully exercisable at any other time. With the consent of
an option holder, the Board of Directors can cancel that
holders options and replace them with new options for the
same or a different number of shares having an exercise price
based upon the fair market value of the Companys common
stock on the new grant date.

The Board of Directors may amend or modify the
2003 Plan at any time subject to the rights of holders of
outstanding options. This plan will terminate in August 2013. As
of December 31, 2003, no options or awards were issued
pursuant to the 2003 Plan.



| |                                      
| | -------------------------------------
| | 2003 Employee Stock Purchase
    Plan

The Companys 2003 Employee Stock Purchase
Plan (the 2003 ESPP) was adopted by the Board of
Directors in August 2003 and approved by the stockholders in
October 2003. The purchase plan authorizes the issuance of up to
a total of 1,379,310 shares of the Companys common
stock to participating employees through payroll deductions. The
plan is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code.

Employees are eligible to participate in the
purchase plan at the beginning of each six-month offering
period. Employees may elect to withhold up to 10% of their
compensation to purchase shares of the Companys common
stock at a price equal to 85% of the fair market value of the
stock on the first and last day of the offering period,
whichever is lower. As of December 31, 2003, no shares or
awards were issued pursuant to the 2003 ESPP.

A summary of stock option activity under the 1994
Plan, 2000 Plan and 2003 Plan is as follows.

|                                 |           |                  |           |                  |   |   |      |      | 
|-------------------------------- | --------- | ---------------- | --------- | ---------------- | - | - | ---- | ---- | 
|                                 |           |                  |           | Weighted Average
|                                 |           | Number of Shares |           | Exercise Price  
|                                 |           |                  |           |                 
|Outstanding at December 31, 2000 |           |                  | 1,394,923 |                  |   | $ | 3.90 |     
|                                 | Granted   |                  |           | 926,858          |   |   |      | 7.25 | 
|                                 | Canceled  |                  |           | (120,708         | ) |   |      | 6.77 | 
|                                 | Exercised |                  |           | (12,071          | ) |   |      | 0.85 | 
|                                 |           |                  |           |                  |   |   |      |     
|Outstanding at December 31, 2001 |           |                  | 2,189,002 |                  |   |   | 5.18 |     
|                                 | Granted   |                  |           | 491,886          |   |   |      | 7.25 | 
|                                 | Canceled  |                  |           | (288,683         | ) |   |      | 6.57 | 
|                                 | Exercised |                  |           | (88,163          | ) |   |      | 0.87 | 
|                                 |           |                  |           |                  |   |   |      |     
|Outstanding at December 31, 2002 |           |                  | 2,304,042 |                  |   |   | 5.60 |     
|                                 | Granted   |                  |           | 663,737          |   |   |      | 4.32 | 
|                                 | Canceled  |                  |           | (49,545          | ) |   |      | 6.35 | 
|                                 | Exercised |                  |           | (7,942           | ) |   |      | 1.35 | 
|                                 |           |                  |           |                  |   |   |      |     
|Outstanding at December 31, 2003 |           |                  | 2,910,292 |                  |   | $ | 5.32 |     
|                                 |           |                  |           |                  |   |   |      |     

F-23



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table summarizes information
regarding stock options granted during the years ended
December 31, 2003, 2002 and 2001:

|     |                                                                      |                 |  |                  |  |                  |   |       |  |  |   |      | 
|---- | -------------------------------------------------------------------- | --------------- |  | ---------------- |  | ---------------- | - | ----- |  |  | - | ---- | 
|     |                                                                      |                 |  |                  |  | Weighted Average
|     |                                                                      |                 |  |                  |  | SFAS 123        
|     |                                                                      | Numbers of      |  | Weighted Average |  | Fair Value      
|     |                                                                      | Options Granted |  | Exercise Price   |  | at Grant Date   
|     |                                                                      |                 |  |                  |  |                 
|2001 |                                                                      |                 |  |                  |  |                  |   |       |  |  |   |     
|     | Options granted with an exercise price equal to
    market value     |                 |  | 926,858          |  |                  | $ | 7.25  |  |  | $ | 4.85 | 
|2002 |                                                                      |                 |  |                  |  |                  |   |       |  |  |   |     
|     | Options granted with an exercise price greater
    than market value |                 |  | 491,886          |  |                  |   | 7.25  |  |  |   | 1.39 | 
|2003 |                                                                      |                 |  |                  |  |                  |   |       |  |  |   |     
|     | Options granted with an exercise price equal to
    market value     |                 |  | 88,959           |  |                  |   | 13.05 |  |  |   | 8.71 | 
|     | Options granted with an exercise price greater
    than market value |                 |  | 11,019           |  |                  |   | 7.25  |  |  |   | 1.89 | 
|     | Options granted with an exercise price less than
    market value    |                 |  | 563,759          |  |                  |   | 2.89  |  |  |   | 4.58 | 

As of December 31, 2003 and 2002, there were
1,780,740 and 1,291,789 shares exercisable at a weighted
average exercise price of $5.16 and $4.45, respectively.

The following table summarizes additional
information about stock options outstanding at December 31,
2003:

|                        |  |                     |           |                  |  |                  |      |                   |  |   |       |  |  |  |           | 
|----------------------- |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | ----------------- |  | - | ----- |  |  |  | --------- | 
|                        |  |                    
|Options Outstanding     |  | Options Exercisable
|                        |  |                    
|                        |  | Number              |           | Weighted Average |  |                  |      |                  
|                        |  | Outstanding at      |           | Remaining        |  |                  |      | Number           
|                        |  | December 31,        |           | Contractual Life |  | Weighted Average |      | Exercisable at   
|Range of Exercise Price |  | 2003                |           | in Years         |  | Exercise Price   |      | December 31, 2003
|                        |  |                     |           |                  |  |                  |      |                  
|$0.00-2.28              |  |                     | 386,082   |                  |  |                  | 1.50 |                   |  | $ | 0.33  |  |  |  | 386,082   | 
|2.28-4.56               |  |                     | 635,631   |                  |  |                  | 8.60 |                   |  |   | 3.03  |  |  |  | 81,173    | 
|4.56-6.83               |  |                     | 546,130   |                  |  |                  | 5.80 |                   |  |   | 5.80  |  |  |  | 546,130   | 
|6.83-9.11               |  |                     | 1,253,490 |                  |  |                  | 7.50 |                   |  |   | 7.26  |  |  |  | 767,355   | 
|11.39-13.67             |  |                     | 88,959    |                  |  |                  | 9.90 |                   |  |   | 13.05 |  |  |  |          | 
|                        |  |                     |           |                  |  |                  |      |                   |  |   |       |  |  |  |           | 
|                        |  |                     | 2,910,292 |                  |  |                  | 6.70 |                   |  | $ | 5.32  |  |  |  | 1,780,740 | 
|                        |  |                     |           |                  |  |                  |      |                   |  |   |       |  |  |  |           | 

The weighted average SFAS No. 123 fair
value at grant date was $5.09, $1.39 and $4.85 for options
granted in the years ended December 31, 2003, 2002 and
2001, respectively.

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for options granted
during the applicable period:

|                        |  |      |          |      |  |      |          |   |  |  |          |  
|----------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                        |  | 2003 |          | 2002 |  | 2001
|                        |  |      |          |      |  |     
|Risk free interest rate |  |      | 2.99     | %    |  |      | 3.32     | % |  |  | 4.89     | %
|Expected dividend yield |  |      | None     |      |  |      | None     |   |  |  | None     |  
|Expected life of option |  |      | 6  years |      |  |      | 6  years |   |  |  | 6  years |  
|Expected volatility     |  |      | 74       | %    |  |      | 72       | % |  |  | 71       | %

F-24



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The fair value method requires the input of
highly subjective assumptions, including expected stock price
volatility. Changes in the subjective input assumptions can
materially affect the fair value estimate. See Note 2 for
additional disclosures required by SFAS No. 123 and
SFAS No. 148.

The Company has issued stock options with an
exercise price less than the then-current fair market value of
common stock. Compensation expense related to such option grants
is being recognized ratably over the four-year vesting period
and totaled $266,000, $84,000 and $156,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. Accrued
compensation of $60,000 and $147,000 was reversed against
Additional Paid-In Capital related to expiration of vested stock
options for the years ended December 31, 2003 and 2002,
respectively.



|    |            
|--- | -----------
|12. | 401(k) Plan

The Company has established a voluntary 401(k)
plan in which all full-time employees are eligible to
participate. The Company provides matching contributions of 25%
of the first four percent of the employees compensation
that is deferred under the plan which is funded on an annual
basis. Eligible employees who elect to participate in the 401(k)
plan are generally vested in the Companys matching
contributions after three years of service. Company
contributions for the years ended December 31, 2003, 2002
and 2001 were $186,000, $130,000, and $114,000, respectively.



|    |                              
|--- | -----------------------------
|13. | Commitments and Contingencies

At December 31, 2003, the Company was
committed under facility and various other operating leases,
which expire at various dates through 2005. Minimum future lease
payments under non-cancelable leases with a remaining term of
greater than one year at December 31, 2003 are
approximately as follows:

|                          |  |   |           | 
|------------------------- |  | - | --------- | 
|2004                      |  | $ | 1,365,000 | 
|2005                      |  |   | 917,000   | 
|2006                      |  |   | 2,000     | 
|                          |  |   |           | 
|Total minimum obligations |  | $ | 2,284,000 | 
|                          |  |   |           | 

Rent expense under operating leases was
$1,417,000, $1,072,000 and $977,000 for the years ended December
2003, 2002 and 2001, respectively. The Company recognizes rent
expense on a straight-line basis relating to a five-year lease
agreement with escalating payment terms expiring April 2005,
which results in accrued rent expense of $130,000 and $119,000
as of December 31, 2003 and 2002, respectively.

In May 2002, the Company entered into an
employment agreement with its Chief Executive Officer
(CEO). Under this agreement, which has a three-year
term, the Company agreed to pay the CEO an annual base salary of
$321,200 and a bonus based on the achievement of certain
performance targets. The agreement provides for severance pay if
employment terminates without cause or good reason equal to a
years salary and the full amount of the CEOs target
bonus.



| |                  
| | -----------------
| | Legal Proceedings

The Company is from time to time a party to legal
proceedings which arise in the normal course of business. The
Company is not currently involved in any material litigation,
the outcome of which would, in managements judgment based
on information currently available, have a material adverse
effect on the Companys results of operations or financial
condition, nor is management aware of any such litigation.

In November 2000, a small consulting firm,
Enserv, Inc. (Enserv), filed a complaint
against the Company, alleging that the Company breached the
terms of the value-added reseller agreement. The consulting firm
alleged damages of approximately $6,000,000. In October 2003,
the Company and Enserv

F-25



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

settled this complaint. Pursuant to the
settlement, which includes mutual releases of the parties:
(1) the Company made a payment to Enserv in the amount of
$233,333; and (2) the Company and Enserv entered into a
consulting agreement whereby Enserv is obligated to provide
technical consulting services to the Company for two years for
which Enserv will be paid $133,333 per year. The Company
had earlier provided a $50,000 reserve for this matter in
October 2003 and recorded an additional settlement expense of
$183,333. The Company will record the $266,666 consulting
expense ratably during the twenty-four months following
execution of the settlement documents as Enserv performs its
obligations under the consulting agreement. The Company has the
right to cancel the consulting agreement if Enserv does not
perform under the terms of the agreement.



|    |             
|--- | ------------
|14. | Income Taxes

The income tax provision (benefit) consists of
the following:

|          |         |                         |         |        |  |      |        |        |  |   |          |          |  
|--------- | ------- | ----------------------- | ------- | ------ |  | ---- | ------ | ------ |  | - | -------- | -------- | -
|          |         |                        
|          |         | Year Ended December 31,
|          |         |                        
|          |         | 2003                    |         | 2002   |  | 2001
|          |         |                         |         |        |  |     
|Current:  |         |                         |         |        |  |      |        |        |  |   |          |         
|          | Federal |                         | $       | 72,000 |  |      | $      |       |  |   | $        |         |  
|          | State   |                         |         | 69,000 |  |      |        | 32,000 |  |   |          | (250,000 | )
|Deferred: |         |                         |         |        |  |      |        |        |  |   |          |         
|          | Federal |                         |         | 81,000 |  |      |        |       |  |   |          |         |  
|          | State   |                         |         | 12,000 |  |      |        |       |  |   |          |         |  
|          |         |                         |         |        |  |      |        |        |  |   |          |         
|Total     |         | $                       | 234,000 |        |  | $    | 32,000 |        |  | $ | (250,000 | )       
|          |         |                         |         |        |  |      |        |        |  |   |          |         

The components of the Companys deferred
income taxes at December 31, 2003 and 2002 are as follows:

|                                                          |                                                  |                         |             |            |  |   |             |            | 
|--------------------------------------------------------- | ------------------------------------------------ | ----------------------- | ----------- | ---------- |  | - | ----------- | ---------- | 
|                                                          |                                                  |                        
|                                                          |                                                  | Year Ended December 31,
|                                                          |                                                  |                        
|                                                          |                                                  | 2003                    |             | 2002      
|                                                          |                                                  |                         |             |           
|Gross deferred tax asset                                  |                                                  |                         |             |            |  |   |             |           
|                                                          | Net operating loss carryforwards                 |                         | $           | 16,480,000 |  |   | $           | 14,725,000 | 
|                                                          | Research and development carryforwards           |                         |             | 868,000    |  |   |             | 1,059,000  | 
|                                                          | State credits  non research and
    development |                         |             | 405,000    |  |   |             | 280,000    | 
|                                                          | Stock compensation expense                       |                         |             | 197,000    |  |   |             | 164,000    | 
|                                                          | Deferred revenue                                 |                         |             | 1,507,000  |  |   |             | 1,429,000  | 
|                                                          | Accrued expenses                                 |                         |             | 301,000    |  |   |             | 86,000     | 
|                                                          | Accounts receivable                              |                         |             | 164,000    |  |   |             | 163,000    | 
|                                                          | Accelerated depreciation                         |                         |             | 38,000     |  |   |             |           | 
|                                                          | Other                                            |                         |             | 162,000    |  |   |             | 66,000     | 
|                                                          |                                                  |                         |             |            |  |   |             |           
|Deferred tax assets, gross                                |                                                  |                         | 20,122,000  |            |  |   | 17,972,000  |           
|Less: Valuation allowance                                 |                                                  |                         | (19,955,000 | )          |  |   | (17,305,000 | )         
|                                                          |                                                  |                         |             |            |  |   |             |           
|Total deferred tax assets, net of valuation
    allowance |                                                  |                         | 167,000     |            |  |   | 667,000     |           
|                                                         
|Gross deferred tax liabilities                            |                                                  |                         |             |            |  |   |             |           
|                                                          | Intangible assets                                |                         |             | 260,000    |  |   |             | 502,000    | 
|                                                          | Accelerated depreciation                         |                         |             |           |  |   |             | 165,000    | 
|                                                          |                                                  |                         |             |            |  |   |             |           
|                                                          |                                                  |                         | 260,000     |            |  |   | 667,000     |           
|                                                          |                                                  |                         |             |            |  |   |             |           
|Net deferred tax asset (liability)                        |                                                  | $                       | (93,000     | )          |  | $ |            |           
|                                                          |                                                  |                         |             |            |  |   |             |           

F-26



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The deferred tax liability at December 31,
2003 has been classified as other long-term liabilities in the
accompanying balance sheet.

The valuation allowance increased by $2,650,000
during 2003 of which $513,000 is attributable to the current
operations and $3,163,000 is attributable to the deferred tax
benefit associated with the vesting of 680,530 of restricted
stock previously issued under the Companys 2000 Stock
Incentive Plan, and thus was charged to paid in capital. A tax
benefit of $72,000 was recorded to additional paid-in capital in
2003 relating to the transaction.

Realization of the net deferred tax asset is
dependent on the Company generating sufficient taxable income
prior to the expiration of the loss carryforwards and general
business credits, where applicable. The Company has provided a
valuation allowance for the full amount of the deferred tax
asset, since management has not determined that these future
benefits will more likely than not be realized as of
December 31, 2003. The valuation allowance could be reduced
in the near term if estimates of future taxable income during
the carryforward period are realized.

The difference between the Companys
expected tax expense as computed by applying the
U.S. Federal corporate income tax rate of 34% to income
(loss) before taxes are as follows:

|                                               |  |      |          |      |  |   |           |   
|---------------------------------------------- |  | ---- | -------- | ---- |  | - | --------- | --
|                                               |  | 2003 |          | 2002
|                                               |  |      |          |     
|Computed expected tax expense
    (benefit)  |  | $    | 525,000  |      |  | $ | (974,000  | ) 
|State income taxes, net of federal tax benefit |  |      | 100,000  |      |  |   | (309,000  | ) 
|Non-deductible expenses                        |  |      | 67,000   |      |  |   | 50,000    |   
|Deferred compensation                          |  |      | 78,000   |      |  |   |          |   
|Research and development tax credit            |  |      |         |      |  |   | (100,000  | ) 
|Change in valuation allowance                  |  |      | (513,000 | )    |  |   | 1,192,000 |   
|Decrease in prior expected R&D tax credit      |  |      |         |      |  |   | 106,000   |   
|Other                                          |  |      | (25,000  | )    |  |   | 67,000    |   
|                                               |  |      |          |      |  |   |           |   
|Income tax expense                             |  | $    | 232,000  |      |  | $ | 32,000    |   
|                                               |  |      |          |      |  |   |           |   
|Computed expected tax expense
    (benefit)  |  |      | 34.0     | %    |  |   | 34.0      | % 
|State income taxes, net of federal tax benefit |  |      | 6.5      | %    |  |   | 10.8      | % 
|Non-deductible expenses                        |  |      | 4.3      | %    |  |   | (1.7      | )%
|Deferred compensation                          |  |      | 5.1      | %    |  |   |          |   
|Research and development tax credit            |  |      |         |      |  |   | 3.5       | % 
|Change in valuation allowance                  |  |      | (33.2    | )%   |  |   | (41.6     | )%
|Decrease in prior expected R&D tax credit      |  |      |         |      |  |   | (3.7      | )%
|Other                                          |  |      | (1.6     | )%   |  |   | (2.3      | )%
|                                               |  |      |          |      |  |   |           |   
|Income tax expense                             |  |      | 15.0     | %    |  |   | (1.1      | )%
|                                               |  |      |          |      |  |   |           |   

At December 31, 2003, the Company had
approximately $43,206,000 of federal net operating loss
carryforwards that begin expiring in 2007 and had approximately
$35,793,000 of state net operating loss carryforwards, which
begin to expire in 2004. At December 31, 2003, the Company
had approximately $513,000 of federal research and development
credit carryforwards that begin to expire in 2007, and
approximately $355,000 of state research and development
carryforwards with an unlimited carryforward period, and
approximately $405,000 of state non-research and development
credit carryforwards which begin to expire in 2004.

F-27



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As defined in the Internal Revenue Code, certain
ownership changes limit the annual utilization of federal net
operating loss and tax credit carryforwards. The Company
experienced such an ownership change in December 1995 which
limits approximately $3,200,000 of federal net operating loss
carryforwards and $149,000 of research tax credits to a $307,000
annual Section 382 limitation. Management believes that the
initial public offering did not cause any additional
Section 382 limitation.



|    |                
|--- | ---------------
|15. | Related Parties

A director of the Company is a member of
management at one of the Companys clients. For the years
ended December 31, 2003, 2002 and 2001, revenues from the
client were $599,000, $885,000, and $1,240,000, respectively. As
of December 31, 2003 and 2002, $0 and $5,000 was due from
this client, respectively. Additionally, the Company holds its
main operating bank account with this client.

On September 30, 2003, the Company amended
and restated its existing software license agreement (see
Note 16) with BISYS, a subsidiary of the BISYS
Group, Inc., a holder of the Companys common stock.
This agreement amended and restated a prior software license and
marketing and distribution agreement between the Company and
BISYS. The Group President, Information Services of The
BISYS Group, Inc. was a member of the Companys Board
of Directors through November 2003. For the years ended
December 31, 2003, 2002 and 2001, revenues of $5,836,000,
$2,919,000 and $1,336,000 were recognized under these
agreements, respectively. As of December 31, 2003 and 2002,
$784,000 and $603,000, respectively, were due from BISYS under
the marketing and distribution agreement.

During 2002, the Company acquired certain assets
and intellectual property rights from HNC Software (see
Note 4), who is also a holder of the Companys common
stock. The Vice President of Corporate Development of Fair Isaac
Corporation, the successor-in-interest to HNC Software Inc., was
a member of the Board of Directors of the Company through
November 2003.



|    |                            
|--- | ---------------------------
|16. | Amended Reseller Agreements

On September 30, 2003, the Company amended
and restated its existing software license agreement with BISYS,
one of its resellers. Effective September 1, 2003, BISYS
became the Companys national outsourcing reseller to
provide data processing services to banks and thrifts in the
United States using the Companys The Complete Banking
Solution software through BISYS outsourcing centers. In
addition, BISYS will offer the Companys complementary
products and services, which will be BISYS exclusive
offering for such products and services, to those banks and
thrifts purchasing TotalCS. The agreement has a term of five
years, with an option to renew for another five years by mutual
consent or at BISYS option.

Under the terms of the agreement, BISYS pays the
Company non-refundable minimum license fees related to the
achievement of certain minimum sales requirements for both unit
sales and license fees. BISYS also pays an annual maintenance
fee for each customer contract that BISYS maintains that uses
the Companys products or services. The Company has agreed
not to compete with BISYS for the sale of data processing
services using The Complete Banking Solution software on an
outsourced basis to banks and thrifts in the United States,
except in certain limited circumstances. The Company will also
not provide any third-party reseller of The Complete Banking
Solution software in the United States with more favorable
prices and pricing terms, in the aggregate, than are provided to
BISYS under the agreement. If, after September 30, 2005,
BISYS fails to achieve the minimum sales requirements, the
Company may terminate the limited non-compete and favorable
price and pricing term obligations, but the Company will no
longer be entitled to receive minimum license fee payments from
BISYS. BISYS also has the right to terminate the minimum payment
requirements after September 30, 2005 if it fails to
achieve the minimum sales requirements, but BISYS will have an
obligation for additional non-refundable minimum license fees in
order to exercise this right. BISYS termination of the
minimum payment requirements will automatically cancel the
limited non-

F-28



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

compete and favorable price and pricing term
obligations. The Company has also agreed not to enter into a
similar reseller agreement with any one of six named BISYS
competitors before March 1, 2005.

The Company has recorded $2,716,000 in revenue
from BISYS in 2003 related to licenses fees under the new
arrangement.

On May 15, 2003, the Company amended its
existing software license agreement with its primary regional
reseller. This amendment removes the maximum fee limit from the
original agreement for sales after December 9, 2002, and
provides for payments to the Company upon both contract signing
and the conversion of the end user financial institution.



|    |                 
|--- | ----------------
|17. | Subsequent Event

On February 24, 2004, the Company acquired
the stock of Maxxar Corporation for cash consideration of
$6.5 million. In connection with the acquisition, the
Company incurred approximately $175,000 of acquisition related
costs. This acquisition will be recorded under the purchase
method with the total consideration allocated to the fair value
of assets acquired and goodwill. This acquisition expanded the
Companys complementary product offerings to include a
comprehensive suite of interactive voice solutions and computer
telephony integration products.



|    |                                                  
|--- | -------------------------------------------------
|18. | Selected Quarterly Financial Data
    (Unaudited)

|     |                                                                     |               |   |                |   |               |   |                |   |  |   |            |   |  |   |             |  
|---- | ------------------------------------------------------------------- | ------------- | - | -------------- | - | ------------- | - | -------------- | - |  | - | ---------- | - |  | - | ----------- | -
|     |                                                                     | First Quarter |   | Second Quarter |   | Third Quarter |   | Fourth Quarter
|     |                                                                     |               |   |                |   |               |   |               
|2002 |                                                                     |               |   |                |   |               |   |                |   |  |   |            |   |  |   |            
|     | Revenue                                                             |               | $ | 9,309,000      |   |               | $ | 10,676,000     |   |  | $ | 11,318,000 |   |  | $ | 13,042,000  |  
|     | Gross Profit                                                        |               |   | 4,237,000      |   |               |   | 5,681,000      |   |  |   | 5,721,000  |   |  |   | 7,124,000   |  
|     | Income (loss) from operations                                       |               |   | (2,289,000     | ) |               |   | (1,059,000     | ) |  |   | (227,000   | ) |  |   | 565,000     |  
|     | Net income (loss)                                                   |               |   | (2,255,000     | ) |               |   | (1,034,000     | ) |  |   | (219,000   | ) |  |   | 611,000     |  
|     | Basic income (loss) per share                                       |               |   | (0.94          | ) |               |   | (0.42          | ) |  |   | (0.09      | ) |  |   | 0.25        |  
|     | Diluted income (loss) per share                                     |               |   | (0.94          | ) |               |   | (0.42          | ) |  |   | (0.09      | ) |  |   | 0.06        |  
|2003 |                                                                     |               |   |                |   |               |   |                |   |  |   |            |   |  |   |            
|     | Revenue                                                             |               | $ | 12,340,000     |   |               | $ | 13,601,000     |   |  | $ | 17,427,000 |   |  | $ | 20,484,000  |  
|     | Gross Profit                                                        |               |   | 6,659,000      |   |               |   | 7,572,000      |   |  |   | 9,023,000  |   |  |   | 11,717,000  |  
|     | Income (loss) from operations                                       |               |   | 95,000         |   |               |   | 864,000        |   |  |   | 915,000    |   |  |   | (374,000    | )
|     | Net income (loss) (Note 11)                                         |               |   | 77,000         |   |               |   | 790,000        |   |  |   | 806,000    |   |  |   | (364,000    | )
|     | Net income (loss) attributable to common
    stockholders (Note 10) |               |   | 77,000         |   |               |   | 790,000        |   |  |   | 806,000    |   |  |   | (31,864,000 | )
|     | Basic income (loss) per share                                       |               |   | 0.03           |   |               |   | 0.32           |   |  |   | 0.32       |   |  |   | (3.94       | )
|     | Diluted income (loss) per share                                     |               |   | 0.01           |   |               |   | 0.08           |   |  |   | 0.08       |   |  |   | (3.94       | )

F-29



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##### Table of Contents



EXHIBIT INDEX

|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        | 2   | .1          |  | Asset Purchase Agreement between Liberty FiTech
    Systems, Inc., Liberty Enterprises, Inc., Open
    Solutions FiTech, Inc. and Open Solutions Inc. dated
    June 30, 2003, together with Promissory Note made by Open
    Solutions FiTech, Inc. in favor of Liberty FiTech
    Systems, Inc. for the principal sum of $1,700,000 dated
    June 30, 2003, together with Security Agreement between
    Open Solutions FiTech, Inc. and Liberty FiTech
    Systems, Inc. dated June 30, 2003 (Incorporated by
    reference to the Registrants registration statement on
    Form S-1, filed with the Securities and Exchange Commission
    on August 28, 2003 (File No. 333-108293)).
|        | 2   | .2          |  | Agreement and Plan of Merger and Reorganization
    between Open Solutions Inc., OSI Merger Corporation, Imagic
    Corporation and the stockholders listed therein dated
    December 14, 2001 (Incorporated by reference to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on August 28,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                 
|        | 2   | .3          |  | Stock Purchase Agreement among Open Solutions
    Inc., OSI Acquisition Sub, Inc., Maxxar Corporation and the
    Stockholders listed on Schedule 1 thereto, dated as of
    February 24, 2004 (Incorporated by reference to the
    Registrants Current Report on Form 8-K dated
    February 24, 2004 (File No. 0-02333)).                                                                                                                                                                                                                                                                                                                                                               
|        | 3   | .1          |  | Restated Certificate of Incorporation of the
    Registrant (Incorporated by reference to Amendment No. 3 to
    the Registrants registration statement on Form S-1,
    filed with the Securities and Exchange Commission on
    November 7, 2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 3   | .2          |  | Amended and Restated By-Laws of the Registrant
    (Incorporated by reference to Amendment No. 3 to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on November 7,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4   | .1          |  | Specimen certificate for shares of the
    Registrants Common Stock (Incorporated by reference to
    Amendment No. 3 to the Registrants registration
    statement on Form S-1, filed with the Securities and
    Exchange Commission on November 7, 2003 (File
    No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10  | .1          |  | 1994 Stock Option Plan, as amended (Incorporated
    by reference to Amendment No. 1 to the Registrants
    registration statement on Form S-1, filed with the
    Securities and Exchange Commission on October 7, 2003 (File
    No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10  | .2          |  | 2000 Stock Incentive Plan, as amended
    (Incorporated by reference to Amendment No. 1 to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on October 7,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10  | .3          |  | 2003 Stock Incentive Plan (Incorporated by
    reference to Amendment No. 1 to the Registrants
    registration statement on Form S-1, filed with the
    Securities and Exchange Commission on October 7, 2003 (File
    No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10  | .4          |  | 2003 Employee Stock Purchase Plan (Incorporated
    by reference to Amendment No. 6 to the Registrants
    registration statement on Form S-1, filed with the
    Securities and Exchange Commission on November 24, 2003
    (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10  | .5          |  | Amended and Restated Investors Rights
    Agreement between Open Solutions Inc. and the Investors (as
    defined therein) dated March 17, 2000 (Incorporated by
    reference to the Registrants registration statement on
    Form S-1, filed with the Securities and Exchange Commission
    on August 28, 2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                
|        | 10  | .6          |  | Employment Agreement between Open Solutions Inc.
    and Louis Hernandez, Jr. dated May 6, 2002
    (Incorporated by reference to the Registrants registration
    statement on Form S-1, filed with the Securities and
    Exchange Commission on August 28, 2003 (File
    No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .7          |  | Software License Agreement between Open Solutions
    Inc. and BISYS, Inc. dated as of September 1, 2003
    (Incorporated by reference to Amendment No. 5 to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on November 21,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                               



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .8          |  | Gross Lease between Open Solutions Inc. and
    Principal Mutual Life Insurance Company dated February 29,
    1996, as amended by the First Amendment to Lease between Open
    Solutions Inc. and Principal Mutual Life Insurance Company dated
    January 27, 1998, as amended by the Second Amendment to
    Lease between Open Solutions Inc. and Principal Life Insurance
    Company (f/k/a Principal Mutual Life Insurance Company)
    dated May 25, 1999, as amended by the Third Amendment to
    Lease between Open Solutions Inc. and Foster Properties, LLC (as
    successor-in-interest to Principal Life Insurance Company) dated
    September 16, 1999, as amended by the Fourth Amendment to
    Lease between Open Solutions Inc. and Foster Properties, LLC
    dated November 29, 2000 (Incorporated by reference to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on August 28,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                      
|        | 10 | .9          |  | Lease between Open Solutions Inc. and Carl
    Foster, LLC dated February 14, 2000, as amended by the
    Amendment of Lease between Open Solutions Inc. and Carl Foster,
    LLC dated May 8, 2000 (Incorporated by reference to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on August 28,
    2003 (File No. 333-108293)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .10         |  | Lease Agreement between FiTech Systems, Inc.
    and Piedmont/ Maple, L.L.C. dated January 22, 1998, as
    amended by the First Amendment to Lease Agreement between FiTech
    Systems, Inc. and Piedmont/ Maple, L.L.C. dated
    February 10, 1999, as amended by the Second Amendment to
    Lease Agreement between FiTech Systems, L.P. and Piedmont/
    Maple, L.L.C. dated September 3, 1999, as amended by the
    Assignment of Lease between FiTech Systems, L.P. (as assignor)
    and Liberty FiTech Systems, Inc. (as assignee) dated
    August 31, 2000, as amended by the Third Amendment to Lease
    Agreement between Liberty FiTech Systems, Inc. and
    Piedmont/ Maple, L.L.C. dated May 29, 2001, as amended by
    the Fourth Amendment to Lease Agreement between Liberty FiTech
    Systems, Inc. and Piedmont/ Maple, L.L.C. dated
    January 21, 2002, as amended by the Assignment and
    Assumption of Lease Agreement between Liberty FiTech
    Systems, Inc. (as assignor), Open Solutions
    FiTech, Inc. (as assignee) and Piedmont/ Maple, L.L.C.
    dated June 30, 2003 (Incorporated by reference to the
    Registrants registration statement on Form S-1, filed
    with the Securities and Exchange Commission on August 28,
    2003 (File No. 333-108293)).
|        | 21 | .1          |  | List of Subsidiaries of Open Solutions Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 31 | .1          |  | Certification of Louis Hernandez, Jr.,
    Chairman of the Board and Chief Executive Officer, pursuant to
    Rules 13a-14(a) and 15d-14(a) of the Exchange Act, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 31 | .2          |  | Certification of Carl D. Blandino, Senior Vice
    President, Chief Financial Officer, Treasurer and Secretary,
    pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange
    Act, as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 32 | .1          |  | Certification of Louis Hernandez, Jr.,
    Chairman of the Board and Chief Executive Officer, pursuant to
    18 U.S.C. section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 32 | .1          |  | Certification of Carl D. Blandino, Senior Vice
    President, Chief Financial Officer, Treasurer and Secretary,
    pursuant to 18 U.S.C. section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



---



|  |                                                                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment requested as to certain
    portions of this Exhibit pursuant to Rule 406 promulgated
    under the Securities Act. Such portions have been omitted and
    filed separately with the Securities and Exchange Commission.