##### 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, 2004                                                 
|  
|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





Open Solutions Inc.


(Exact name of registrant as specified in its charter)





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




(860) 652-3155


(Registrants telephone number, including area code)





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)





þ o


o


þ






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 19, 2005 |  | III      









---










INDEX


|                                                               |  |                                                                                                                      |    |      |    | 
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                               |  |                                                                                                                      |    | Page |   
|                                                               |  |                                                                                                                      |    |      |   
|Special Note Regarding Forward-Looking
    Statements          |  |                                                                                                                      | 1  |     
|PART I                                                        
|Item 1.                                                        |  | Business                                                                                                             |    |      | 2  | 
|Item 2.                                                        |  | Properties                                                                                                           |    |      | 17 | 
|Item 3.                                                        |  | Legal Proceedings                                                                                                    |    |      | 17 | 
|Item 4.                                                        |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 17 | 
|PART II                                                       
|Item 5.                                                        |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 18 | 
|Item 6.                                                        |  | Selected Financial Data                                                                                              |    |      | 19 | 
|Item 7.                                                        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 20 | 
|Item 7A.                                                       |  | Quantitative and Qualitative Disclosure
    about Market Risk                                                        |    |      | 46 | 
|Item 8.                                                        |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 47 | 
|Item 9.                                                        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 47 | 
|Item 9A.                                                       |  | Controls and Procedures                                                                                              |    |      | 47 | 
|Item 9B.                                                       |  | Other Information                                                                                                    |    |      | 48 | 
|PART III                                                      
|Item 10.                                                       |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 48 | 
|Item 11.                                                       |  | Executive Compensation                                                                                               |    |      | 49 | 
|Item 12.                                                       |  | Security Ownership of Certain Beneficial
    Owners and Management                                                   |    |      | 49 | 
|Item 13.                                                       |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 49 | 
|Item 14.                                                       |  | Principal Accounting Fees and Services                                                                               |    |      | 49 | 
|PART IV                                                       
|Item 15.                                                       |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 49 | 
|Signatures                                                     |  |                                                                                                                      | 51 |     
|Index to Consolidated Financial
    Statements                 |  |                                                                                                                      | 52 |     
|Ex-2.7 Asset Purchase Agreement                               
|Ex-10.9 Form of Restricted Stock unit Agreement               
|Ex-10.14 Lease with Carl Foster                               
|Ex-10.17 Compensatory Arrangements with Executive Officers    
|Ex-10.18 Compensatory Arrangements with Non-Employee Directors
|Ex-21.1 List of Subsidiaries                                  
|Ex-23.1 Consent of PricewaterhouseCoopers  LLP                
|Ex-31.1 Sect. 302 Certification of C.E.O.                     
|Ex-31.2 Sect. 302 Certification of the C.F.O.                 
|Ex-32.1 Section 906 Certification of the C.E.O.               
|Ex-32.2 Sect. 906 Certification of the C.F.O.                 






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS




1



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##### Table of Contents






PART I







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

Overview












2



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##### Table of Contents



www.sec.gov.




Industry Background








3



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| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                     





Our Solution




4



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| |                                   
| | ----------------------------------
| | 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
    reseller 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.

5



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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






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 535 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                                                                                               

6



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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 reseller
    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.                                                                                                                                                                                                                                                                                                           

7



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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                                     
|June 2004              |  | Eastpoint Technologies, LLC                          |  | Core processing software for banks                                                                              
|July 2004              |  | re:Member Data Services, Inc.                        |  | Core processing software for credit unions                                                                      
|July 2004              |  | Omega Systems of North America LLC                   |  | Document processing product                                                                                     
|October 2004           |  | Datawest Solutions Inc.                              |  | Core processing software for credit unions and software for
    payment processing in Canada and internationally

Technology








| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                  

8



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Products and Services






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

The Complete Banking Solution and The Complete Credit Union
Solution.




9



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| |   |                                                           
| | - | ----------------------------------------------------------
| |  | 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.                                 





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



cView.




| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



10



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Channel Management Center.


eCommerce Banker  Consumer and eCommerce
Banker  Business.




| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                       
|
| |  | 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.                                                                                                                                                    



Check Imaging.


Loan Origination.


11



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 System provides
    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.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                         

12



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| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



| |                  
| | -----------------
| | Payments Products



POSH (Point of Sale Handler).




| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Transaction Routing. Card-based transactions can be
    routed for approval to international networks, local processors,
    and in-house and remote hosts. Transactions are all managed with
    the integrity required by international standards.                                                 
|
| |  | Data Security. All mandated processing relating to the
    security of cardholder information and PINs is included in POSH.                                                                                                                                                                          
|
| |  | Settlement and Reconciliation. POSH tracks and reports on
    all transaction activity and can provide all the needed
    information to ensure ongoing integrity in all processing and
    financial relationships with outside partners and agencies.                                              
|
| |  | Merchant/ ISO Management. Fees, statements, and
    information provision are handled by POSH to allow all
    downstream partners in either a proprietary or service bureau
    business model to receive all their payments, revenues, and
    control information.                                
|
| |  | POSHweb. A variety of integrated information services are
    available over the public world-wide web, subject to security
    controls. These include: report distribution, financial and
    transaction history, cash positions, monitoring status, history,
    and statistics, and news alerts.

ConCentre Application Monitoring.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Flexible Error Detection. The ConCentre Interface Agent
    provides testing of resources, application relationships,
    timing, and statuses of any application environment. This
    information is collected in a non-intrusive way to ensure no
    noticeable degradation in the application environment being
    monitored.                                                                                          
|
| |  | Automated Remediation. In addition to merely reporting
    errors in the environment, ConCentre can be configured to
    automatically attempt to repair errors. This feature can
    increase overall availability and reduce resource costs.                                                                                                                                                                               
|
| |  | Behavioral Analysis . The TRAFC component of ConCentre is
    designed to observe transactional activity and detect patterns
    of unusual or suspicious behavior. This service is particularly
    useful when monitoring dial-up POS terminals and can be
    beneficial in detecting errors outside of the range of the
    customers own environment. It is also helpful in detecting
    signs of fraudulent activity.



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



13



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##### Table of Contents







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

Installation and Training.




Professional Services.


Support Services.


Clients




Sales and Marketing






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



14



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##### Table of Contents







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











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





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | 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.                                 

15



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##### Table of Contents



Product Development




Competition




Intellectual Property and Other Proprietary Rights






Employees




Infrastructure




16



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##### Table of Contents










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



|                            |  |                      |                                    |             |             |       |            |      |  |  |      | 
|--------------------------- |  | -------------------- | ---------------------------------- | ----------- | ----------- | ----- | ---------- | ---- |  |  | ---- | 
|                            |  |                      |                                    |             |             | Lease |           
|                            |  |                      |                                    | Approximate |             |       | Expiration |     
|Location                    |  | Operations Conducted |                                    |             | Square Feet |       |            | Date | 
|                            |  |                      |                                    |             |             |       |            |      | 
|Glastonbury, Connecticut    |  |                      | Executive offices                  |             |             |       | 12,000     |      |  |  | 2005 | 
|Glastonbury, Connecticut    |  |                      | Executive offices                  |             |             |       | 30,000     |      |  |  | 2005 | 
|Windsor Locks, Connecticut  |  |                      | Item processing center             |             |             |       | 5,000      |      |  |  | 2010 | 
|Shelton, Connecticut        |  |                      | Sales office                       |             |             |       | 4,000      |      |  |  | 2006 | 
|Atlanta, Georgia            |  |                      | Support and data processing center |             |             |       | 21,000     |      |  |  | 2008 | 
|Marietta, Georgia           |  |                      | Sales office                       |             |             |       | 6,000      |      |  |  | 2006 | 
|Dryden, New York            |  |                      | Sales office                       |             |             |       | 1,000      |      |  |  | 2007 | 
|Whitesboro, New York        |  |                      | Item processing center             |             |             |       | 2,000      |      |  |  | 2007 | 
|Indianapolis, Indiana       |  |                      | Support and data processing center |             |             |       | 60,000     |      |  |  | 2010 | 
|Wixom, Michigan             |  |                      | Sales office                       |             |             |       | 12,000     |      |  |  | 2007 | 
|Bedford, New Hampshire      |  |                      | Sales office                       |             |             |       | 14,000     |      |  |  | 2006 | 
|Vancouver, British Columbia |  |                      | Canadian executive offices         |             |             |       | 6,000      |      |  |  | 2005 | 
|Vancouver, British Columbia |  |                      | Support and data processing center |             |             |       | 29,000     |      |  |  | 2007 | 
|Missassauga, Ontario        |  |                      | Development office                 |             |             |       | 2,000      |      |  |  | 2005 | 
|Oakville, Ontario           |  |                      | Payment processing center          |             |             |       | 30,000     |      |  |  | 2009 | 






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








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



17



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PART II







|        |                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                                                                 |  |      |       |  |     |   |       | 
|---------------------------------------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                                                 |  | High |       |  | Low |  
|                                                                 |  |      |       |  |     |  
|November 26, 2003 (inception of trading) 
    December 31, 2003 |  | $    | 19.78 |  |     | $ | 15.65 | 
|First Quarter 2004                                               |  | $    | 26.07 |  |     | $ | 17.40 | 
|Second Quarter 2004                                              |  | $    | 25.75 |  |     | $ | 19.42 | 
|Third Quarter 2004                                               |  | $    | 25.86 |  |     | $ | 20.33 | 
|Fourth Quarter 2004                                              |  | $    | 28.60 |  |     | $ | 23.66 | 





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






18



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





|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |        |        | 
|-------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------- | ------ | ------ | ------- | - | ------- | ------ | ------ | - | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                                                                 |                                   | Year Ended December 31,               |       
|                                                                                                                                 |                                   |                                       |       
|                                                                                                                                 |                                   | 2004                                  |        |        | 2003    |   |         | 2002   |        |   | 2001   |        |        | 2000 |        
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|                                                                                                                                 |                                   | (In thousands, except per share data) |       
|Statement of Operations Data:                                                                                                    |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |       
|Revenues:                                                                                                                        |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |       
|                                                                                                                                 | Software license                  |                                       | $      | 33,032 |         |   | $       | 21,391 |        |   | $      | 13,449 |        |      | $       | 9,971  |        |   | $       | 8,595  |       
|                                                                                                                                 | Service, maintenance and hardware |                                       |        | 74,151 |         |   |         | 42,461 |        |   |        | 30,896 |        |      |         | 17,295 |        |   |         | 11,625 |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|                                                                                                                                 |                                   | Total revenues                        |        |        | 107,183 |   |         |        | 63,852 |   |        |        | 44,345 |      |         |        | 27,266 |   |         |        | 20,220 | 
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Cost of revenues:                                                                                                                |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |       
|                                                                                                                                 | Software license                  |                                       |        | 6,705  |         |   |         | 5,341  |        |   |        | 3,152  |        |      |         | 1,592  |        |   |         | 2,165  |       
|                                                                                                                                 | Service, maintenance and hardware |                                       |        | 37,919 |         |   |         | 23,540 |        |   |        | 18,430 |        |      |         | 10,084 |        |   |         | 7,229  |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|                                                                                                                                 |                                   | Total cost of revenues                |        |        | 44,624  |   |         |        | 28,881 |   |        |        | 21,582 |      |         |        | 11,676 |   |         |        | 9,394  | 
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Operating expenses (including restricted stock expense and
    related taxes of $3,444 for the year ended December 31,
    2003) |                                   |                                       | 46,396 |        |         |   | 33,471  |        |        |   | 25,773 |        |        |      | 25,929  |        |        |   | 26,152  |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Income (loss) from operations                                                                                                    |                                   |                                       | 16,163 |        |         |   | 1,500   |        |        |   | (3,010 | )      |        |      | (10,339 | )      |        |   | (15,326 | )     
|Interest income and other, net                                                                                                   |                                   |                                       | 1,520  |        |         |   | 43      |        |        |   | 145    |        |        |      | 428     |        |        |   | 661     |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Income (loss) before income taxes                                                                                                |                                   |                                       | 17,683 |        |         |   | 1,543   |        |        |   | (2,865 | )      |        |      | (9,911  | )      |        |   | (14,665 | )     
|Income tax (provision) benefit                                                                                                   |                                   |                                       | 7,441  |        |         |   | (234    | )      |        |   | (32    | )      |        |      | 250     |        |        |   |        |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Net income (loss)                                                                                                                |                                   |                                       | 25,124 |        |         |   | 1,309   |        |        |   | (2,897 | )      |        |      | (9,661  | )      |        |   | (14,665 | )     
|Preferred stock accretion charge                                                                                                 |                                   |                                       |       |        |         |   | (31,500 | )      |        |   |       |        |        |      |        |        |        |   |        |       
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Net income (loss) attributable to common stockholders                                                                            |                                   | $                                     | 25,124 |        |         | $ | (30,191 | )      |        | $ | (2,897 | )      |        | $    | (9,661  | )      |        | $ | (14,665 | )     
|                                                                                                                                 |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |        
|Net income (loss) per common share                                                                                               |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |       
|                                                                                                                                 |  Basic                           |                                       | $      | 1.37   |         |   | $       | (7.74  | )      |   | $      | (1.18  | )      |      | $       | (4.71  | )      |   | $       | (7.42  | )     
|                                                                                                                                 |  Diluted                         |                                       |        | 1.26   |         |   |         | (7.74  | )      |   |        | (1.18  | )      |      |         | (4.71  | )      |   |         | (7.42  | )     
|Weighted average common shares used to compute net income (loss)
    per common share                                            |                                   |                                       |        |        |         |   |         |        |        |   |        |        |        |      |         |        |        |   |         |       
|                                                                                                                                 |  Basic                           |                                       |        | 18,313 |         |   |         | 3,903  |        |   |        | 2,453  |        |      |         | 2,051  |        |   |         | 1,977  |       
|                                                                                                                                 |  Diluted                         |                                       |        | 19,896 |         |   |         | 3,903  |        |   |        | 2,453  |        |      |         | 2,051  |        |   |         | 1,977  |       

19



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|                                                   |  |                                       |         |  |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------- |  | ------------------------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                   |  | December 31,                          |        
|                                                   |  |                                       |        
|                                                   |  | 2004                                  |         |  | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                   |  |                                       |         |  |      |   |         |      |  |   |         |   |  |      |        
|                                                   |  | (In thousands, except per share data) |        
|Balance Sheet Data:                                |  |                                       |         |  |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                          |  | $                                     | 49,447  |  |      | $ | 14,853  |      |  | $ | 11,414  |   |  | $    | 11,552  |   |  | $ | 8,522   |  
|Working capital                                    |  |                                       | 59,084  |  |      |   | 73,305  |      |  |   | 1,486   |   |  |      | 3,261   |   |  |   | 5,051   |  
|Total assets                                       |  |                                       | 225,474 |  |      |   | 133,071 |      |  |   | 35,839  |   |  |      | 33,745  |   |  |   | 20,905  |  
|Long-term debt, current portion                    |  |                                       | 1,239   |  |      |   |        |      |  |   | 750     |   |  |      | 748     |   |  |   |        |  
|Long-term debt, less current portion               |  |                                       | 1,736   |  |      |   |        |      |  |   | 700     |   |  |      |        |   |  |   |        |  
|Mandatorily redeemable convertible preferred stock |  |                                       |        |  |      |   |        |      |  |   | 31,100  |   |  |      | 31,100  |   |  |   | 20,084  |  
|Redeemable convertible preferred stock             |  |                                       |        |  |      |   |        |      |  |   | 26,480  |   |  |      | 26,480  |   |  |   | 24,744  |  
|Stockholders equity (deficit)                     |  |                                       | 178,313 |  |      |   | 105,419 |      |  |   | (43,261 | ) |  |      | (40,699 | ) |  |   | (33,751 | )






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





Overview








| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



20



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21



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##### Table of Contents



Results of Operations


|                                  |                                                                                                                                         |                         |        |         |      |   |        |        |  |   |        |        | 
|--------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                  |                                                                                                                                         | Year Ended December 31, |       
|                                  |                                                                                                                                         |                         |       
|                                  |                                                                                                                                         | 2004                    |        |         | 2003 |   |        | 2002   | 
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|                                  |                                                                                                                                         | (In thousands)          |       
|Statement of Operations Data:     |                                                                                                                                         |                         |        |         |      |   |        |        |  |   |        |       
|Revenues:                         |                                                                                                                                         |                         |        |         |      |   |        |        |  |   |        |       
|                                  | Software license                                                                                                                        |                         | $      | 33,032  |      |   | $      | 21,391 |  |   | $      | 13,449 | 
|                                  | Service, maintenance and hardware                                                                                                       |                         |        | 74,151  |      |   |        | 42,461 |  |   |        | 30,896 | 
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|                                  | Total revenues                                                                                                                          |                         |        | 107,183 |      |   |        | 63,852 |  |   |        | 44,345 | 
|Cost of revenues:                 |                                                                                                                                         |                         |        |         |      |   |        |        |  |   |        |       
|                                  | Software license                                                                                                                        |                         |        | 6,705   |      |   |        | 5,341  |  |   |        | 3,152  | 
|                                  | Service, maintenance and hardware                                                                                                       |                         |        | 37,919  |      |   |        | 23,540 |  |   |        | 18,430 | 
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|Total cost of revenues            |                                                                                                                                         |                         | 44,624 |         |      |   | 28,881 |        |  |   | 21,582 |       
|Operating expenses:               |                                                                                                                                         |                         |        |         |      |   |        |        |  |   |        |       
|                                  | Sales and marketing                                                                                                                     |                         |        | 14,272  |      |   |        | 10,729 |  |   |        | 9,533  | 
|                                  | Product development                                                                                                                     |                         |        | 11,001  |      |   |        | 6,854  |  |   |        | 6,223  | 
|                                  | General and administrative (includes restricted stock expense
    and related taxes of $3,444 for the year ended December 31,
    2003) |                         |        | 21,123  |      |   |        | 15,888 |  |   |        | 10,017 | 
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|                                  | Total operating expenses                                                                                                                |                         |        | 46,396  |      |   |        | 33,471 |  |   |        | 25,773 | 
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|Income (loss) from operations     |                                                                                                                                         |                         | 16,163 |         |      |   | 1,500  |        |  |   | (3,010 | )     
|Interest income and other, net    |                                                                                                                                         |                         | 1,520  |         |      |   | 43     |        |  |   | 145    |       
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|Income (loss) before income taxes |                                                                                                                                         |                         | 17,683 |         |      |   | 1,543  |        |  |   | (2,865 | )     
|Income tax (provision) benefit    |                                                                                                                                         |                         | 7,441  |         |      |   | (234   | )      |  |   | (32    | )     
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 
|Net income (loss)                 |                                                                                                                                         | $                       | 25,124 |         |      | $ | 1,309  |        |  | $ | (2,897 | )     
|                                  |                                                                                                                                         |                         |        |         |      |   |        |        | 

|                             |                                   |                         |  |       |      |  |  |       |  |  |  |       | 
|---------------------------- | --------------------------------- | ----------------------- |  | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                             |                                   | Year Ended December 31, | 
|                             |                                   |                         | 
|                             |                                   | 2004                    |  |       | 2003 |  |  | 2002  | 
|                             |                                   |                         |  |       |      |  |  |       | 
|As a Percentage of Revenues: |                                   |                         |  |       |      |  |  |       |  |  |  |      
|Revenues:                    |                                   |                         |  |       |      |  |  |       |  |  |  |      
|                             | Software license                  |                         |  | 30.8  |      |  |  | 33.5  |  |  |  | 30.3  | 
|                             | Service, maintenance and hardware |                         |  | 69.2  |      |  |  | 66.5  |  |  |  | 69.7  | 
|                             |                                   |                         |  |       |      |  |  |       | 
|                             | Total revenues                    |                         |  | 100.0 |      |  |  | 100.0 |  |  |  | 100.0 | 

22



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|                                      |                                   |                         |      |      |      |  |      |      |  |  |      |      | 
|------------------------------------- | --------------------------------- | ----------------------- | ---- | ---- | ---- |  | ---- | ---- |  |  | ---- | ---- | 
|                                      |                                   | Year Ended December 31, |     
|                                      |                                   |                         |     
|                                      |                                   | 2004                    |      |      | 2003 |  |      | 2002 | 
|                                      |                                   |                         |      |      |      |  |      |      | 
|Cost of revenues:                     |                                   |                         |      |      |      |  |      |      |  |  |      |     
|                                      | Software license                  |                         |      | 6.3  |      |  |      | 8.4  |  |  |      | 7.1  | 
|                                      | Service, maintenance and hardware |                         |      | 35.3 |      |  |      | 36.9 |  |  |      | 41.6 | 
|                                      |                                   |                         |      |      |      |  |      |      | 
|                                      | Total cost of revenues            |                         |      | 41.6 |      |  |      | 45.3 |  |  |      | 48.7 | 
|Operating expenses:                   |                                   |                         |      |      |      |  |      |      |  |  |      |     
|                                      | Sales and marketing               |                         |      | 13.3 |      |  |      | 16.8 |  |  |      | 21.5 | 
|                                      | Product development               |                         |      | 10.3 |      |  |      | 10.7 |  |  |      | 14.0 | 
|                                      | General and administrative        |                         |      | 19.7 |      |  |      | 24.9 |  |  |      | 22.6 | 
|                                      |                                   |                         |      |      |      |  |      |      | 
|                                      | Total operating expenses          |                         |      | 43.3 |      |  |      | 52.4 |  |  |      | 58.1 | 
|                                      |                                   |                         |      |      |      |  |      |      | 
|Income (loss) from operations         |                                   |                         | 15.1 |      |      |  | 2.3  |      |  |  | (6.8 | )   
|Interest income and other, net        |                                   |                         | 1.4  |      |      |  | 0.1  |      |  |  | 0.3  |     
|                                      |                                   |                         |      |      |      |  |      |      | 
|Net income (loss) before income taxes |                                   |                         | 16.5 |      |      |  | 2.4  |      |  |  | (6.5 | )   
|                                      |                                   |                         |      |      |      |  |      |      | 
|Income tax (provision) benefit        |                                   |                         | 6.9  |      |      |  | (0.4 | )    |  |  | (0.1 |     
|                                      |                                   |                         |      |      |      |  |      |      | 
|Net income (loss)                     |                                   |                         | 23.4 | %    |      |  | 2.0  | %    |  |  | (6.6 | )%  
|                                      |                                   |                         |      |      |      |  |      |      | 



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Revenues.


Cost of Revenues.


23



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##### Table of Contents







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

Sales and Marketing.


Product Development.


General and Administrative.


Interest Income and Other, net.


Income Tax (Benefit) Provision.


24



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

Revenues.


Cost of Revenues.




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

Sales and Marketing.


Product Development.


General and Administrative.


Interest and Other Income (Expense), net.


25



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Income Tax Benefit (Provision).


Liquidity and Capital Resources






|                                                    |  |                         |         |   |      |   |         |      |  |   |        |  
|--------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                    |  | Year Ended December 31, |        
|                                                    |  |                         |        
|                                                    |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                                    |  |                         |         |   |      |   |         |      | 
|                                                    |  | (In thousands)          |        
|Net cash provided by operating activities           |  | $                       | 19,767  |   |      | $ | 10,069  |      |  | $ | 2,702  |  
|Net cash used in investing activities               |  |                         | (22,201 | ) |      |   | (87,682 | )    |  |   | (2,280 | )
|Net cash provided by (used in) financing activities |  |                         | 37,024  |   |      |   | 81,052  |      |  |   | (560   | )



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





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







26



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











Off Balance Sheet Arrangements




Contractual Obligations as of December 31, 2004


|                              |  |                        |            |           |        |   |           |           |           |   |           |  |  |         |           |  |  |   |           | 
|----------------------------- |  | ---------------------- | ---------- | --------- | ------ | - | --------- | --------- | --------- | - | --------- |  |  | ------- | --------- |  |  | - | --------- | 
|                              |  | Payments Due by Period |           
|                              |  |                        |           
|                              |  |                        |            | Less than |        |   |           |           | More than |  
|Contractual Obligations       |  | Total                  |            |           | 1 Year |   |           | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years |          
|                              |  |                        |            |           |        |   |           |           |           |   |           |  |  |         |          
|Long-Term Debt to Customers   |  | $                      | 2,963,000  |           |        | $ | 1,086,000 |           |           | $ | 1,317,000 |  |  | $       | 560,000   |  |  | $ |          | 
|Capital Lease Obligations     |  |                        | 1,034,000  |           |        |   | 788,000   |           |           |   | 211,000   |  |  |         | 35,000    |  |  |   |          | 
|Operating Leases              |  |                        | 19,002,000 |           |        |   | 4,312,000 |           |           |   | 6,664,000 |  |  |         | 4,799,000 |  |  |   | 3,227,000 | 
|                              |  |                        |            |           |        |   |           |           |           |   |           |  |  |         |          
|Total Contractual Obligations |  | $                      | 22,999,000 |           |        | $ | 6,186,000 |           |           | $ | 8,192,000 |  |  | $       | 5,394,000 |  |  | $ | 3,227,000 | 
|                              |  |                        |            |           |        |   |           |           |           |   |           |  |  |         |          

27



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Income Taxes








Acquisitions








28



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29



---



##### Table of Contents











Critical Accounting Policies and Estimates






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



30



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31



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





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





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





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







32



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





| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                    





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







33



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##### Table of Contents



Factors That May Affect Future Results






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





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





| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



34



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| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 have had several consecutive profitable quarters, but
    we may not achieve continued sustained profitability.





| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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



35



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| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 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.





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





36



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| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | An impairment of the value of our goodwill, capitalized
    software costs and other intangible assets could significantly
    reduce our earnings.





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





| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | 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.                                   



37



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





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





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





| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



38



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





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





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



39



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| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our indebtedness could adversely affect our financial
    health and prevent us from fulfilling our obligations under our
    senior subordinated convertible notes.





| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | make it more difficult for us to satisfy our obligations with
    respect to our notes,                                                                                                                                                                                                                         
|
| |  | increase our vulnerability to general adverse economic and
    industry conditions,                                                                                                                                                                                                                             
|
| |  | require us to dedicate a substantial portion of our cash flow
    from operations to payments on our indebtedness, thereby
    reducing the availability of our cash flow to fund working
    capital, capital expenditures, acquisitions, product development
    efforts and other general corporate purposes,
|
| |  | limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate,                                                                                                                                                                                        
|
| |  | place us at a disadvantage compared to our competitors that have
    less debt, and                                                                                                                                                                                                                             
|
| |  | limit our ability to borrow additional funds.                                                                                                                                                                                                                                                                   





| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.









40



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##### Table of Contents





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





| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 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.





| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | 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,      

41



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##### Table of Contents





| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | the impairment of relationships with employees and clients as a
    result of any integration of new management and other personnel,
|
| |  | the inability to maintain relationships 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.                             





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | We may not have sufficient funds available to pay amounts
    due under our senior subordinated convertible notes.





| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | upon purchase of the notes by us at the option of holders on
    February 2 in each of 2012, 2015, 2020, 2025 and 2030, in an
    amount equal to the issue price and accrued original issue
    discount plus accrued and unpaid cash interest and liquidated
    damages, if any,
|
| |  | upon purchase of the notes by us at the option of holders upon
    some changes of control, in an amount equal to the issue price
    and accrued original issue discount plus accrued and unpaid cash
    interest and liquidated damages, if any,                                
|
| |  | at maturity of the notes, in an amount equal to the entire
    outstanding principal amount, and                                                                                                                                                                                   
|
| |  | in the event that we elect to pay cash in lieu of the delivery
    of shares of common stock upon conversion of the notes, upon
    conversion, in an amount up to the conversion value of the notes.                                                                              





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We face risks associated with our Canadian operations that
    could harm our financial condition and results of
    operations.





| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | difficulties and costs of staffing and managing foreign
    operations,        
|
| |  | differing regulatory and industry standards and certification
    requirements,

42



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| |   |                                               
| | - | ----------------------------------------------
| |  | the complexities of foreign tax jurisdictions,
|
| |  | currency exchange rate fluctuations, and      
|
| |  | import or export licensing requirements.      



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | To service our indebtedness, we will require a significant
    amount of cash. Our ability to generate cash depends on many
    factors beyond our control.







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





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





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to continue to comply with all of the requirements
    imposed by Section 404 of the Sarbanes-Oxley Act of 2002
    could result in a negative market reaction.



43



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| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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





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

44



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





| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                 





| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



45



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





| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our board of directors is classified into three classes, each of
    which serves for a staggered three year term,                                            
|
| |  | 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.                                                                                             





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








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







46



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##### Table of Contents








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








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








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



| |                                                  
| | -------------------------------------------------
| | Evaluation of Disclosure Controls and Procedures.





| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control over Financial
    Reporting





| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting





| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of our assets;                                                                                                                                                                                   
|
| |  | Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
|
| |  | Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.                                                                                                                           

47



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##### Table of Contents





Internal
Control-Integrated Framework.













|         |                  
|-------- | -----------------
|Item 9B. | Other Information










PART III







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



48



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##### Table of Contents












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










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








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








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






PART IV







|         |                                          
|-------- | -----------------------------------------
|Item 15. | Exhibit and Financial Statement Schedules





| |                                                                            
| | ---------------------------------------------------------------------------
| | 1. Financial Statements                                                    
|
| | The following consolidated financial statements are included in
    Item 8:



| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Balance Sheets as of December 31, 2004 and 2003                                                      
|
| |  | Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002                    
|
| |  | Consolidated Statements of Stockholders Equity (Deficit)
    for the years ended December 31, 2004, 2003 and 2002
|
| |  | Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                    
|
| |  | Notes to Consolidated Financial Statements.                                                                       

49



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##### Table of Contents



Exhibits




Financial Statement Schedules




50



---



##### Table of Contents






SIGNATURES




|                     |  |                                                                                                              
|-------------------- |  | -------------------------------------------------------------------------------------------------------------
|                    
|                     |  | OPEN SOLUTIONS INC.                                                                                          
|Date: March 16, 2005 |  | By: /s/ Louis
    Hernandez, Jr.Louis
    Hernandez, Jr.Chairman of the Board and
    Chief Executive Officer



|                                                 |  |                                                                                                                                 |  |                |  | 
|------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Name                                             |  | Capacity                                                                                                                        |  | Date          
|                                                 |  |                                                                                                                                 |  |               
|                                                
|/s/ LOUIS HERNANDEZ, JR.Louis
    Hernandez, Jr. |  | Chairman of the Board and
    Chief Executive Officer
    (Principal Executive Officer)                                         |  | March 16, 2005
|                                                
|/s/ CARL D. BLANDINOCarl
    D. Blandino         |  | Senior Vice President, Chief Financial Officer and Treasurer
    (Principal Financial Officer and Principal Accounting Officer) |  | March 16, 2005
|                                                
|/s/ DOUGLAS K. ANDERSONDouglas
    K. Anderson   |  | Director                                                                                                                        |  | March 16, 2005
|                                                
|/s/ HOWARD L. CARVERHoward
    L. Carver         |  | Director                                                                                                                        |  | March 16, 2005
|                                                
|/s/ DENNIS F. LYNCHDennis
    F. Lynch           |  | Director                                                                                                                        |  | March 16, 2005
|                                                
|/s/ SAMUEL F. MCKAYSamuel
    F. McKay           |  | Director                                                                                                                        |  | March 16, 2005
|                                                
|/s/ CARLOS P. NAUDONCarlos
    P. Naudon         |  | Director                                                                                                                        |  | March 16, 2005
|                                                
|/s/ RICHARD P. YANAKRichard
    P. Yanak         |  | Director                                                                                                                        |  | March 16, 2005

51



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INDEX TO FINANCIAL STATEMENTS


|                                                                                                                       |  |      |     | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                       |  | Page |    
|                                                                                                                       |  |      |    
|Open Solutions Inc.                                                                                                    |  |      |     | 
|Report of Independent Registered Public
    Accounting Firm                                                            |  |      | F-1 | 
|Consolidated Balance Sheets at
    December 31, 2004 and 2003                                                          |  |      | F-3 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2004, 2003 and 2002                         |  |      | F-4 | 
|Consolidated Statements of
    Stockholders Equity (Deficit) for the years ended
    December 31, 2004, 2003 and 2002 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002                         |  |      | F-6 | 
|Notes to Consolidated Financial
    Statements                                                                         |  |      | F-7 | 

52



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control  Integrated Framework Internal Control 
Integrated Framework




F-1



---



##### Table of Contents









| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP
| |                               
| | PricewaterhouseCoopers LLP    





F-2



---



##### Table of Contents






OPEN SOLUTIONS INC.


CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                          |                                            |   |         |         |  |   |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ------- | ------- |  | - | ------- | ------- | 
|                                     |                                                                                                                                                                          | December 31,                               |  
|                                     |                                                                                                                                                                          |                                            |  
|                                     |                                                                                                                                                                          | 2004                                       |   |         | 2003    | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     |                                                                                                                                                                          | (In thousands, except                      |  
|                                     |                                                                                                                                                                          | share and per share data)                  |  
|ASSETS                              
|Current assets:                      |                                                                                                                                                                          |                                            |   |         |         |  |   |        
|                                     | Cash and cash equivalents                                                                                                                                                |                                            | $ | 49,447  |         |  | $ | 14,853  |        
|                                     | Investments in marketable securities                                                                                                                                     |                                            |   | 12,736  |         |  |   | 70,100  |        
|                                     | Accounts receivable, net                                                                                                                                                 |                                            |   | 19,975  |         |  |   | 10,267  |        
|                                     | Deferred costs                                                                                                                                                           |                                            |   | 2,067   |         |  |   | 1,563   |        
|                                     | Prepaid expenses and other current assets                                                                                                                                |                                            |   | 3,922   |         |  |   | 2,409   |        
|                                     | Deferred tax assets                                                                                                                                                      |                                            |   | 12,356  |         |  |   |        |        
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                    
|                                     |                                                                                                                                                                          | Total current assets                       |   |         | 100,503 |  |   |         | 99,192  | 
|                                     | Fixed assets, net                                                                                                                                                        |                                            |   | 14,410  |         |  |   | 5,500   |        
|                                     | Investments in marketable securities                                                                                                                                     |                                            |   |        |         |  |   | 7,807   |        
|                                     | Capitalized software cost, net                                                                                                                                           |                                            |   | 6,211   |         |  |   | 2,964   |        
|                                     | Other intangible assets, net                                                                                                                                             |                                            |   | 31,168  |         |  |   | 6,421   |        
|                                     | Goodwill                                                                                                                                                                 |                                            |   | 66,548  |         |  |   | 11,187  |        
|                                     | Deferred tax assets                                                                                                                                                      |                                            |   | 4,560   |         |  |   |        |        
|                                     | Other assets                                                                                                                                                             |                                            |   | 2,074   |         |  |   |        |        
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                    
|                                     |                                                                                                                                                                          | Total assets                               |   | $       | 225,474 |  |   | $       | 133,071 | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                          |                                            |   |         |         |  |   |        
|                                     | Accounts payable                                                                                                                                                         |                                            | $ | 2,521   |         |  | $ | 1,800   |        
|                                     | Accrued expenses                                                                                                                                                         |                                            |   | 15,338  |         |  |   | 8,368   |        
|                                     | Deferred revenue, current portion                                                                                                                                        |                                            |   | 21,586  |         |  |   | 15,324  |        
|                                     | Long-term debt from customers, current portion                                                                                                                           |                                            |   | 1,239   |         |  |   |        |        
|                                     | Capital lease obligations, current portion                                                                                                                               |                                            |   | 735     |         |  |   | 395     |        
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     |                                                                                                                                                                          | Total current liabilities                  |   |         | 41,419  |  |   |         | 25,887  | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     | Long-term debt from customers, less current portion                                                                                                                      |                                            |   | 1,736   |         |  |   |        |        
|                                     | Capital lease obligations, less current portion                                                                                                                          |                                            |   | 223     |         |  |   | 64      |        
|                                     | Deferred revenue, less current portion                                                                                                                                   |                                            |   | 2,706   |         |  |   | 1,479   |        
|                                     | Other long-term liabilities                                                                                                                                              |                                            |   | 1,077   |         |  |   | 222     |        
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     |                                                                                                                                                                          | Total liabilities                          |   |         | 47,161  |  |   |         | 27,652  | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                    
|                                     | Commitments and contingencies (Note 13)                                                                                                                                  |                                            |   |         |         |  |   |         |        
|Stockholders Equity                 |                                                                                                                                                                          |                                            |   |         |         |  |   |        
|                                     | Preferred stock, $0.01 par value; 5,000,000 shares
    authorized; no shares issued and outstanding at
    December 31, 2004 and 2003, respectively                      |                                            |   |        |         |  |   |        |        
|                                     | Common stock, $0.01 par value; 95,000,000 shares
    authorized; 19,379,701 and 16,786,329 shares issued and
    outstanding at December 31, 2004 and 2003, respectively |                                            |   | 194     |         |  |   | 168     |        
|                                     | Additional paid-in capital                                                                                                                                               |                                            |   | 199,272 |         |  |   | 152,274 |        
|                                     | Accumulated other comprehensive income (loss)                                                                                                                            |                                            |   | 718     |         |  |   | (28     | )      
|                                     | Accumulated deficit                                                                                                                                                      |                                            |   | (21,871 | )       |  |   | (46,995 | )      
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     |                                                                                                                                                                          | Total stockholders equity                 |   |         | 178,313 |  |   |         | 105,419 | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 
|                                     |                                                                                                                                                                          | Total liabilities and stockholders equity |   | $       | 225,474 |  |   | $       | 133,071 | 
|                                     |                                                                                                                                                                          |                                            |   |         |         | 



F-3



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##### Table of Contents






OPEN SOLUTIONS INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |        |        | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------- | ------ | ------ | ------- | - | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                       |                                                                                                                                                  | Year Ended December 31,               |       
|                                                                                       |                                                                                                                                                  |                                       |       
|                                                                                       |                                                                                                                                                  | 2004                                  |        |        | 2003    |   |         | 2002   |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                       |                                                                                                                                                  | (In thousands, except per share data) |       
|Revenues:                                                                              |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |       
|                                                                                       | Software license                                                                                                                                 |                                       | $      | 33,032 |         |   | $       | 21,391 |        |   | $      | 13,449 |       
|                                                                                       | Service, maintenance and hardware                                                                                                                |                                       |        | 74,151 |         |   |         | 42,461 |        |   |        | 30,896 |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                       |                                                                                                                                                  | Total revenues                        |        |        | 107,183 |   |         |        | 63,852 |   |        |        | 44,345 | 
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                      
|Cost of revenues:                                                                      |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |       
|                                                                                       | Software license                                                                                                                                 |                                       |        | 6,705  |         |   |         | 5,341  |        |   |        | 3,152  |       
|                                                                                       | Service, maintenance and hardware                                                                                                                |                                       |        | 37,919 |         |   |         | 23,540 |        |   |        | 18,430 |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                       |                                                                                                                                                  | Total cost of revenues                |        |        | 44,624  |   |         |        | 28,881 |   |        |        | 21,582 | 
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                       | Gross profit                                                                                                                                     |                                       |        | 62,559 |         |   |         | 34,971 |        |   |        | 22,763 |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                      
|Operating expenses:                                                                    |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |       
|                                                                                       | Sales and marketing                                                                                                                              |                                       |        | 14,272 |         |   |         | 10,729 |        |   |        | 9,533  |       
|                                                                                       | Product development                                                                                                                              |                                       |        | 11,001 |         |   |         | 6,854  |        |   |        | 6,223  |       
|                                                                                       | General and administrative (includes restricted stock expense
    and related taxes of $3,444 for the year ended December 31,
    2003: Note 11) |                                       |        | 21,123 |         |   |         | 15,888 |        |   |        | 10,017 |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|                                                                                       |                                                                                                                                                  | Total operating expenses              |        |        | 46,396  |   |         |        | 33,471 |   |        |        | 25,773 | 
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Income (loss) from operations                                                          |                                                                                                                                                  |                                       | 16,163 |        |         |   | 1,500   |        |        |   | (3,010 | )     
|                                                                                       | Interest income and other, net                                                                                                                   |                                       |        | 1,645  |         |   |         | 197    |        |   |        | 172    |       
|                                                                                       | Interest expense                                                                                                                                 |                                       |        | (125   | )       |   |         | (154   | )      |   |        | (27    | )     
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Income (loss) before income taxes                                                      |                                                                                                                                                  |                                       | 17,683 |        |         |   | 1,543   |        |        |   | (2,865 | )     
|Income tax (provision) benefit                                                         |                                                                                                                                                  |                                       | 7,441  |        |         |   | (234    | )      |        |   | (32    | )     
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Net income (loss)                                                                      |                                                                                                                                                  |                                       | 25,124 |        |         |   | 1,309   |        |        |   | (2,897 | )     
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Preferred stock accretion charge (Note 10)                                             |                                                                                                                                                  |                                       |       |        |         |   | (31,500 | )      |        |   |       |       
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Net income (loss) attributable to common stockholders                                  |                                                                                                                                                  | $                                     | 25,124 |        |         | $ | (30,191 | )      |        | $ | (2,897 | )     
|                                                                                       |                                                                                                                                                  |                                       |        |        |         |   |         |        |       
|Net income (loss) per common share:                                                    |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |       
|                                                                                       |  Basic                                                                                                                                          |                                       | $      | 1.37   |         |   | $       | (7.74  | )      |   | $      | (1.18  | )     
|                                                                                       |  Diluted                                                                                                                                        |                                       |        | 1.26   |         |   |         | (7.74  | )      |   |        | (1.18  | )     
|Weighted average common shares used to compute net income (loss)
    per common share: |                                                                                                                                                  |                                       |        |        |         |   |         |        |        |   |        |       
|                                                                                       |  Basic                                                                                                                                          |                                       |        | 18,313 |         |   |         | 3,903  |        |   |        | 2,453  |       
|                                                                                       |  Diluted                                                                                                                                        |                                       |        | 19,896 |         |   |         | 3,903  |        |   |        | 2,453  |       



F-4



---



##### Table of Contents






OPEN SOLUTIONS INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |   |  |   |         |   |  |   |        |  
|------------------------------------------------------------- |  | --------------------------------- | ---------- |  | ---------- | - | --- | -------- |  | ------------- | ------------ | - | ----- | ----------- | ------------- | ------- | ------- | ------- | --- | --------- |  | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                              |  |                                   |            |  |            |   |     |          |  | Accumulated   |              |   |       |             |               |         |        
|                                                              |  |                                   |            |  |            |   |     | Other    |  |               |              |   | Total |             |               | Compre- |        
|                                                              |  | Common Stock                      |            |  | Additional |   |     |          |  | Comprehensive |              |   |       |             | Stockholders |         |         | hensive |    
|                                                              |  |                                   |            |  | Paid-In    |   |     | Deferred |  |               | Income       |   |       | Accumulated |               |         | Equity  |         |     | Income    | 
|                                                              |  | Shares                            |            |  | Amount     |   |     | Capital  |  |               | Compensation |   |       | (Loss)      |               |         | Deficit |         |     | (Deficit) |  |   | (Loss)  |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|                                                              |  | (In thousands, except share data) |           
|Balance at December 31, 2001                                  |  |                                   | 2,386,754  |  |            | $ | 24  |          |  | $             | 4,684        |   |       | $           |              |         |         | $       |    |           |  | $ | (45,407 | ) |  | $ | (40,699 | ) |  |   |        |  
|Exercise of stock options                                     |  |                                   | 88,163     |  |            |   | 1   |          |  |               | 187          |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 188     |   |  |   |        |  
|Reversal of accrued compensation from exercise or forfeiture  |  |                                   |           |  |            |   |    |          |  |               | 147          |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 147     |   |  |   |        |  
|Net loss                                                      |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         |    |           |  |   | (2,897  | ) |  |   | (2,897  | ) |  | $ | (2,897 | )
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Comprehensive loss                                            |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |   |  |   |         |   |  | $ | (2,897 | )
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Balance at December 31, 2002                                  |  |                                   | 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   |   |  |   |        |  
|Reversal of accrued compensation from exercise or forfeiture  |  |                                   |           |  |            |   |    |          |  |               | 60           |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 60      |   |  |   |        |  
|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 | ) |  |   |        |  
|Conversion of preferred stock                                 |  |                                   | 8,052,939  |  |            |   | 80  |          |  |               | 89,036       |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 89,116  |   |  |   |        |  
|Deemed preferred stock dividends and accretion                |  |                                   |           |  |            |   |    |          |  |               | (37          | ) |       |             |              |         |         |         |    |           |  |   |        |   |  |   | (37     | ) |  |   |        |  
|Unrealized loss on marketable securities                      |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         | (28 | )         |  |   |        |   |  |   | (28     | ) |  |   | (28    | )
|Net income                                                    |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         |    |           |  |   | 1,309   |   |  |   | 1,309   |   |  |   | 1,309  |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Comprehensive income                                          |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |   |  |   |         |   |  | $ | 1,281  |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Balance at December 31, 2003                                  |  |                                   | 16,786,329 |  |            | $ | 168 |          |  | $             | 152,274      |   |       | $           |              |         |         | $       | (28 | )         |  | $ | (46,995 | ) |  | $ | 105,419 |   |  |   |        |  
|Exercise of stock options                                     |  |                                   | 880,820    |  |            |   | 9   |          |  |               | 3,911        |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 3,920   |   |  |   |        |  
|Issuance of common stock through employee stock purchase plan |  |                                   | 47,086     |  |            |   |    |          |  |               | 799          |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 799     |   |  |   |        |  
|Reversal of accrued compensation from exercise or forfeiture  |  |                                   |           |  |            |   |    |          |  |               | 321          |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 321     |   |  |   |        |  
|Issuance of common stock                                      |  |                                   | 1,665,466  |  |            |   | 17  |          |  |               | 34,000       |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 34,017  |   |  |   |        |  
|Issuance cost from sale of common stock                       |  |                                   |           |  |            |   |    |          |  |               | (578         | ) |       |             |              |         |         |         |    |           |  |   |        |   |  |   | (578    | ) |  |   |        |  
|Unrealized loss on marketable securities, net of tax effects  |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         | (9  | )         |  |   |        |   |  |   | (9      | ) |  | $ | (9     | )
|Valuation of stock options issued in acquisition              |  |                                   |           |  |            |   |    |          |  |               | 789          |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 789     |   |  |   |        |  
|Tax benefit related to stock options                          |  |                                   |           |  |            |   |    |          |  |               | 7,756        |   |       |             |              |         |         |         |    |           |  |   |        |   |  |   | 7,756   |   |  |   |        |  
|Cumulative translation adjustment                             |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         | 755 |           |  |   |        |   |  |   | 755     |   |  |   | 755    |  
|Net income                                                    |  |                                   |           |  |            |   |    |          |  |               |             |   |       |             |              |         |         |         |    |           |  |   | 25,124  |   |  |   | 25,124  |   |  |   | 25,124 |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Comprehensive income                                          |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |   |  |   |         |   |  | $ | 25,870 |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  
|Balance at December 31, 2004                                  |  |                                   | 19,379,701 |  |            | $ | 194 |          |  | $             | 199,272      |   |       | $           |              |         |         | $       | 718 |           |  | $ | (21,871 | ) |  | $ | 178,313 |   |  |   |        |  
|                                                              |  |                                   |            |  |            |   |     |          |  |               |              |   |       |             |               |         |         |         |     |           |  |   |         |  



F-5



---



##### Table of Contents






OPEN SOLUTIONS INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |        |       |        |  
|------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------ | ----- | ------ | -
|                                                                               |                                                                                              | Year Ended December 31,                   |                                                    
|                                                                               |                                                                                              |                                           |                                                    
|                                                                               |                                                                                              | 2004                                      |                                                     |         | 2003   |         |        | 2002    |       
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|                                                                               |                                                                                              | (In thousands, except                     |                                                    
|                                                                               |                                                                                              | share and per share data)                 |                                                    
|Cash flows from operating activities                                           |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |       
|                                                                               | Net income (loss)                                                                            |                                           | $                                                   | 25,124  |        |         | $      | 1,309   |        |         | $      | (2,897 | )    
|                                                                               | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities: |                                           |                                                     |         |        |         |        |         |        |         |        |        |      
|                                                                               |                                                                                              | Depreciation and amortization             |                                                     |         | 6,434  |         |        |         | 3,901  |         |        |        | 3,236 |       
|                                                                               |                                                                                              | Stock-based compensation expense          |                                                     |         | 388    |         |        |         | 3,542  |         |        |        | 84    |       
|                                                                               |                                                                                              | Tax benefit on restricted stock           |                                                     |         |       |         |        |         | 72     |         |        |        |      |       
|                                                                               |                                                                                              | Deferred tax provision                    |                                                     |         | (8,057 | )       |        |         |       |         |        |        |      |       
|                                                                               |                                                                                              | Provision for doubtful accounts           |                                                     |         | 156    |         |        |         | 205    |         |        |        | 270   |       
|                                                                               | Changes in operating assets and liabilities, excluding effects
    from acquisitions:        |                                           |                                                     |         |        |         |        |         |        |         |        |        |      
|                                                                               |                                                                                              | Accounts receivable                       |                                                     |         | (3,950 | )       |        |         | (1,038 | )       |        |        | (292  | )     
|                                                                               |                                                                                              | Prepaid expenses and other current assets |                                                     |         | (604   | )       |        |         | (1,299 | )       |        |        | (614  | )     
|                                                                               |                                                                                              | Other assets                              |                                                     |         | (139   | )       |        |         |       |         |        |        |      |       
|                                                                               |                                                                                              | Accounts payable and accrued expenses     |                                                     |         | (394   | )       |        |         | 2,586  |         |        |        | (180  | )     
|                                                                               |                                                                                              | Deferred revenue                          |                                                     |         | 809    |         |        |         | 791    |         |        |        | 3,095 |       
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|                                                                               |                                                                                              |                                           | Net cash provided by operating activities           |         |        | 19,767  |        |         |        | 10,069  |        |        |       | 2,702  |  
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|Cash flows from investing activities                                           |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |       
|                                                                               | Purchases of fixed assets                                                                    |                                           |                                                     | (5,555  | )      |         |        | (1,469  | )      |         |        | (1,666 | )    
|                                                                               | Purchase of developed software                                                               |                                           |                                                     |        |        |         |        | (20     | )      |         |        | (50    | )    
|                                                                               | Purchase of marketable securities                                                            |                                           |                                                     | (62,016 | )      |         |        | (78,156 | )      |         |        |       |      
|                                                                               | Sale of marketable securities                                                                |                                           |                                                     | 127,375 |        |         |        |        |        |         |        |       |      
|                                                                               | Business acquisitions, net of cash received                                                  |                                           |                                                     | (82,005 | )      |         |        | (8,037  | )      |         |        |       |      
|                                                                               | Business acquired from related party                                                         |                                           |                                                     |        |        |         |        |        |        |         |        | (564   | )    
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|                                                                               |                                                                                              |                                           | Net cash used in investing activities               |         |        | (22,201 | )      |         |        | (87,682 | )      |        |       | (2,280 | )
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|Cash flows from financing activities                                           |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |       
|                                                                               | Repayment of long-term debt from customers                                                   |                                           |                                                     | (459    | )      |         |        |        |        |         |        |       |      
|                                                                               | Proceeds from exercise of stock options                                                      |                                           |                                                     | 3,920   |        |         |        | 10      |        |         |        | 188    |      
|                                                                               | Proceeds from issuance of common stock through employee stock
    purchase plan              |                                           |                                                     | 799     |        |         |        |        |        |         |        |       |      
|                                                                               | Proceeds from issuance of long-term debt                                                     |                                           |                                                     |        |        |         |        | 1,661   |        |         |        |       |      
|                                                                               | Repayment of long-term debt                                                                  |                                           |                                                     |        |        |         |        | (5,014  | )      |         |        | (748   | )    
|                                                                               | Repayment of capital lease obligation                                                        |                                           |                                                     | (676    | )      |         |        | (207    | )      |         |        |       |      
|                                                                               | Purchase of common stock                                                                     |                                           |                                                     |        |        |         |        | (1,800  | )      |         |        |       |      
|                                                                               | Proceeds from sale of common stock                                                           |                                           |                                                     | 33,439  |        |         |        | 86,402  |        |         |        |       |      
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|                                                                               |                                                                                              |                                           | Net cash provided by (used in) financing activities |         |        | 37,023  |        |         |        | 81,052  |        |        |       | (560   | )
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|Effect of exchange rate on cash and cash equivalents                           |                                                                                              |                                           | 5                                                   |         |        |         |       |         |        |         |       |       
|Net increase (decrease) in cash and cash equivalents                           |                                                                                              |                                           | 34,594                                              |         |        |         | 3,439  |         |        |         | (138   | )     
|Cash and cash equivalents, beginning of period                                 |                                                                                              |                                           | 14,853                                              |         |        |         | 11,414 |         |        |         | 11,552 |       
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|Cash and cash equivalents, end of period                                       |                                                                                              | $                                         | 49,447                                              |         |        | $       | 14,853 |         |        | $       | 11,414 |       
|                                                                               |                                                                                              |                                           |                                                     |         |        |         |        |         |       
|Supplemental disclosures                                                       |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |       
|                                                                               | Cash paid for interest                                                                       |                                           | $                                                   | 125     |        |         | $      | 178     |        |         | $      |       |      
|                                                                               | Cash paid for income taxes                                                                   |                                           |                                                     | 506     |        |         |        | 118     |        |         |        | 32     |      
|See Notes 4, 9, 10 and 11 for investing and financing
    non-cash disclosures |                                                                                              |                                           |                                                     |         |        |         |        |         |        |         |        |       



F-6



---



##### Table of Contents






OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




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









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



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





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





| |                                              
| | ---------------------------------------------
| | Foreign Currency Translation and Transactions





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

Disclosures about Segments of an Enterprise and Related
Information.


F-7



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                  |  |                         |             |  |      |   |            |      |  |   |            | 
|----------------------------------------------------------------- |  | ----------------------- | ----------- |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                                                  |  | Year Ended December 31, |            
|                                                                  |  |                         |            
|                                                                  |  | 2004                    |             |  | 2003 |   |            | 2002 | 
|                                                                  |  |                         |             |  |      |   |            |      | 
|Software license                                                  |  | $                       | 33,032,000  |  |      | $ | 21,391,000 |      |  | $ | 13,449,000 | 
|                                                                  |  |                         |             |  |      |   |            |      | 
|Installation, training and professional services                  |  |                         | 17,754,000  |  |      |   | 10,686,000 |      |  |   | 9,519,000  | 
|Maintenance, support, data center and payment processing services |  |                         | 51,561,000  |  |      |   | 28,507,000 |      |  |   | 17,180,000 | 
|Hardware and other                                                |  |                         | 4,836,000   |  |      |   | 3,268,000  |      |  |   | 4,197,000  | 
|                                                                  |  |                         |             |  |      |   |            |      | 
|Service, maintenance and hardware                                 |  |                         | 74,151,000  |  |      |   | 42,461,000 |      |  |   | 30,896,000 | 
|                                                                  |  |                         |             |  |      |   |            |      | 
|Total revenue                                                     |  | $                       | 107,183,000 |  |      | $ | 63,852,000 |      |  | $ | 44,345,000 | 
|                                                                  |  |                         |             |  |      |   |            |      | 



|              |  |                         |             |  |      |   |            |      |  |   |            | 
|------------- |  | ----------------------- | ----------- |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|              |  | Year Ended December 31, |            
|              |  |                         |            
|              |  | 2004                    |             |  | 2003 |   |            | 2002 | 
|              |  |                         |             |  |      |   |            |      | 
|Revenues:     |  |                         |             |  |      |   |            |      |  |   |            | 
|United States |  | $                       | 101,717,000 |  |      | $ | 63,852,000 |      |  | $ | 44,345,000 | 
|Canada        |  |                         | 5,466,000   |  |      |   |           |      |  |   |           | 
|              |  |                         |             |  |      |   |            |      | 
|              |  | $                       | 107,183,000 |  |      | $ | 63,852,000 |      |  | $ | 44,345,000 | 
|              |  |                         |             |  |      |   |            |      | 

|                   |  |                    |            |  |      |   |           | 
|------------------ |  | ------------------ | ---------- |  | ---- | - | --------- | 
|                   |  | As of December 31, |           
|                   |  |                    |           
|                   |  | 2004               |            |  | 2003 |  
|                   |  |                    |            |  |      |  
|Long-lived assets: |  |                    |            |  |      |   |           | 
|United States      |  | $                  | 48,368,000 |  |      | $ | 5,500,000 | 
|Canada             |  |                    | 38,801,000 |  |      |   |          | 
|                   |  |                    |            |  |      |  
|                   |  | $                  | 87,169,000 |  |      | $ | 5,500,000 | 
|                   |  |                    |            |  |      |  



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







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

Accounting for Certain Investments in Debt and Equity
Securities.


F-8



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





|                                 |  |            |         |           |                 |   |         |                |  |             |   |  |               |   |         |  |  |   |         | 
|-------------------------------- |  | ---------- | ------- | --------- | --------------- | - | ------- | -------------- |  | ----------- | - |  | ------------- | - | ------- |  |  | - | ------- | 
|                                 |  |            |         | 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,         |  |            |         |           |                 |   |         |                |  |             |   |  |               |   |         |  |  |   |         | 
|2004                             |  | $          | 420,000 |           |                 | $ | 156,000 |                |  | $           |  |  |               | $ | 45,000  |  |  | $ | 531,000 | 
|2003                             |  |            | 418,000 |           |                 |   | 205,000 |                |  |             |  |  |               |   | 203,000 |  |  |   | 420,000 | 
|2002                             |  |            | 573,000 |           |                 |   | 270,000 |                |  |             |  |  |               |   | 425,000 |  |  |   | 418,000 | 



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



|                               |  |  |               | 
|------------------------------ |  |  | ------------- | 
|Computer equipment             |  |  | 3 to 5  years | 
|Office furniture and equipment |  |  | 7 years       | 
|Leasehold improvements         |  |  | 7 years       | 







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

Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed.


F-9



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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





| |                               
| | ------------------------------
| | Goodwill and Other Intangibles





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



F-10



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















F-11



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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



Participating Securities and the Two 
Class Method Under FASB Statement No. 128, Earnings
Per Share




|                                                                              |  |                          |            |  |      |   |             |      |  |   |            |  
|----------------------------------------------------------------------------- |  | ------------------------ | ---------- |  | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                              |  | Years Ended December 31, |           
|                                                                              |  |                          |           
|                                                                              |  | 2004                     |            |  | 2003 |   |             | 2002 | 
|                                                                              |  |                          |            |  |      |   |             |      | 
|Net income (loss) available to common stockholders                            |  | $                        | 25,124,000 |  |      | $ | (30,191,000 | )    |  | $ | (2,897,000 | )
|Basic net income per share  weighted average common
    shares outstanding   |  |                          | 18,312,997 |  |      |   | 3,903,252   |      |  |   | 2,452,848  |  
|Dilutive effect of stock options and warrants                                 |  |                          | 1,583,450  |  |      |   |            |      |  |   |           |  
|                                                                              |  |                          |            |  |      |   |             |      | 
|Diluted net income per share  weighted average common
    shares outstanding |  |                          | 19,896,447 |  |      |   | 3,903,252   |      |  |   | 2,452,848  |  
|                                                                              |  |                          |            |  |      |   |             |      | 

F-12



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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





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





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





|                                                                                                     |         |                         |            |      |      |   |             |       |   |   |            |       |  
|---------------------------------------------------------------------------------------------------- | ------- | ----------------------- | ---------- | ---- | ---- | - | ----------- | ----- | - | - | ---------- | ----- | -
|                                                                                                     |         | Year Ended December 31, |           
|                                                                                                     |         |                         |           
|                                                                                                     |         | 2004                    |            |      | 2003 |   |             | 2002  |  
|                                                                                                     |         |                         |            |      |      |   |             |       |  
|Net loss attributable to common stockholders, as reported                                            |         | $                       | 25,124,000 |      |      | $ | (30,191,000 | )     |   | $ | (2,897,000 | )    
|Add: Stock compensation expense, net of tax effect, included in
    reported net loss                |         |                         | 212,000    |      |      |   | 3,542,000   |       |   |   | 84,000     |      
|Subtract: Total stock compensation expense determined under fair
    value method, net of tax effect |         |                         | (2,658,000 | )    |      |   | (5,630,000  | )     |   |   | (1,933,000 | )    
|                                                                                                     |         |                         |            |      |      |   |             |       |  
|Pro forma net income (loss)                                                                          |         | $                       | 22,678,000 |      |      | $ | (32,279,000 | )     |   | $ | (4,746,000 | )    
|                                                                                                     |         |                         |            |      |      |   |             |       |  
|Reported net loss per share                                                                          |         |                         |            |      |      |   |             |       |   |   |            |      
|                                                                                                     | Basic   |                         | $          | 1.37 |      |   | $           | (7.74 | ) |   | $          | (1.18 | )
|                                                                                                     | Diluted |                         |            | 1.26 |      |   |             | (7.74 | ) |   |            | (1.18 | )
|Pro forma net income (loss) per share                                                                |         |                         |            |      |      |   |             |       |   |   |            |      
|                                                                                                     | Basic   |                         | $          | 1.24 |      |   | $           | (8.27 | ) |   | $          | (1.93 | )
|                                                                                                     | Diluted |                         |            | 1.17 |      |   |             | (8.27 | ) |   |            | (1.93 | )

F-13



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Reclassifications





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

Share-Based Payment: an amendment of FASB Statements
No. 123 and 95


Accounting
Issues Related to Certain Features of Contingently Convertible
Debt and the Effect on Diluted Earnings Per Share


Application of SFAS No. 109, Accounting for Income
Taxes, to the Tax Deduction on Qualified Production Activities
Provided by the American Jobs Creation Act of 2004


F-14



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                          |  |           |            |       |            |   |       |            |  |   |            |   |  |   |            | 
|------------------------- |  | --------- | ---------- | ----- | ---------- | - | ----- | ---------- |  | - | ---------- | - |  | - | ---------- | 
|                          |  |           |            | Gross |            |   | Gross |            |  |  
|                          |  | Amortized |            |       | Unrealized |   |       | Unrealized |  |   |           
|                          |  | Cost      |            |       | Gains      |   |       | Losses     |  |   | Fair Value |  
|                          |  |           |            |       |            |   |       |            |  |   |            |  
|December 31, 2004         |  |           |            |       |            |   |       |            |  |   |            |   |  |   |            | 
|Corporate notes and bonds |  | $         | 9,797,000  |       |            | $ |      |            |  | $ | (42,000    | ) |  | $ | 9,755,000  | 
|Federal notes and bonds   |  |           | 2,000,000  |       |            |   |      |            |  |   | (14,000    | ) |  |   | 1,986,000  | 
|Municipal notes and bonds |  |           | 1,000,000  |       |            |   |      |            |  |   | (5,000     | ) |  |   | 995,000    | 
|                          |  |           |            |       |            |   |       |            |  |   |            |  
|Total                     |  | $         | 12,797,000 |       |            | $ |      |            |  | $ | (61,000    | ) |  | $ | 12,736,000 | 
|December 31, 2003         |  |           |            |       |            |   |       |            |  |   |            |   |  |   |            | 
|Corporate notes and bonds |  | $         | 77,935,000 |       |            | $ | 3,000 |            |  | $ | (31,000    | ) |  | $ | 77,907,000 | 





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



|                         |  |           |             |   |         |   |           |               |  |   |              |   |  |               |            |   |                |   |           |           |  |   |            |   |  |   |           |  
|------------------------ |  | --------- | ----------- | - | ------- | - | --------- | ------------- |  | - | ------------ | - |  | ------------- | ---------- | - | -------------- | - | --------- | --------- |  | - | ---------- | - |  | - | --------- | -
|                         |  |           |             |   |         |   |           |               |  |   |              |   |  | HNC           |           
|                         |  | Datawest  |             |   | Omega   |   |           | re:Member     |  |   | Eastpoint    |   |  | Maxxar        |            |   | Liberty FiTech |   |           | Financial | 
|                         |  | Solutions |             |   | Systems |   |           | Data Services |  |   | Technologies |   |  | Corporatation |            |   | Systems        |   |           | Solutions | 
|                         |  | (2004)    |             |   | (2004)  |   |           | (2004)        |  |   | (2004)       |   |  | (2004)        |            |   | (2003)         |   |           | (2002)    | 
|                         |  |           |             |   |         |   |           |               |  |   |              |   |  |               |            |   |                |   |           |           | 
|Tangible assets acquired |  | $         | 13,814,000  |   |         | $ | 477,000   |               |  | $ | 2,670,000    |   |  | $             | 1,284,000  |   |                | $ | 1,789,000 |           |  | $ | 4,006,000  |   |  | $ | 1,074,000 |  
|Purchased technology     |  |           | 2,223,000   |   |         |   | 250,000   |               |  |   | 750,000      |   |  |               | 290,000    |   |                |   | 760,000   |           |  |   | 530,000    |   |  |   | 1,193,000 |  
|Goodwill                 |  |           | 32,105,000  |   |         |   | 2,004,000 |               |  |   | 12,100,000   |   |  |               | 5,225,000  |   |                |   | 4,268,000 |           |  |   | 4,843,000  |   |  |   | 772,000   |  
|Other intangibles        |  |           | 11,476,000  |   |         |   | 200,000   |               |  |   | 11,440,000   |   |  |               | 1,990,000  |   |                |   | 700,000   |           |  |   | 6,700,000  |   |  |   |          |  
|Liabilities assumed      |  |           | (12,039,000 | ) |         |   | (472,000  | )             |  |   | (4,206,000   | ) |  |               | (2,025,000 | ) |                |   | (642,000  | )         |  |   | (4,089,000 | ) |  |   | (986,000  | )
|                         |  |           |             |   |         |   |           |               |  |   |              |   |  |               |            |   |                |   |           |           | 
|Purchase price           |  | $         | 47,579,000  |   |         | $ | 2,459,000 |               |  | $ | 22,754,000   |   |  | $             | 6,764,000  |   |                | $ | 6,875,000 |           |  | $ | 11,990,000 |   |  | $ | 2,053,000 |  
|                         |  |           |             |   |         |   |           |               |  |   |              |   |  |               |            |   |                |   |           |           | 





| |                        
| | -----------------------
| | Datawest Solutions Inc.



F-15



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                   
| | ----------------------------------
| | Omega Systems of North America LLC





| |                              
| | -----------------------------
| | re:Member Data Services, Inc.





| |                            
| | ---------------------------
| | Eastpoint Technologies, LLC





| |                   
| | ------------------
| | Maxxar Corporation



F-16



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







| |                              
| | -----------------------------
| | HNC Financial Solutions, Inc.







F-17



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                            
| | -------------------------------------------
| | Pro Forma Financial Information (unaudited)



|                                         |  |                         |             |  |      |   |             |  
|---------------------------------------- |  | ----------------------- | ----------- |  | ---- | - | ----------- | -
|                                         |  | Year Ended December 31, |            
|                                         |  |                         |            
|                                         |  | 2004                    |             |  | 2003 |  
|                                         |  |                         |             |  |      |  
|Pro forma revenues                       |  | $                       | 142,560,000 |  |      | $ | 127,574,000 |  
|Pro forma net income (loss)              |  |                         | 25,055,000  |  |      |   | (32,254,000 | )
|Pro forma net income per share  basic   |  | $                       | 1.36        |  |      | $ | (8.26       | )
|Pro forma net income per share  diluted |  |                         | 1.25        |  |      |   | (8.26       | )



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



|                                |  |              |             |   |      |   |            |  
|------------------------------- |  | ------------ | ----------- | - | ---- | - | ---------- | -
|                                |  | December 31, |            
|                                |  |              |            
|                                |  | 2004         |             |   | 2003 |  
|                                |  |              |             |   |      |  
|Computer equipment and software |  | $            | 19,266,000  |   |      | $ | 10,552,000 |  
|Office furniture and equipment  |  |              | 2,946,000   |   |      |   | 1,628,000  |  
|Leasehold improvements          |  |              | 1,391,000   |   |      |   | 1,020,000  |  
|Construction in progress        |  |              | 2,186,000   |   |      |   |           |  
|                                |  |              |             |   |      |  
|                                |  |              | 25,789,000  |   |      |   | 13,200,000 |  
|Less: accumulated depreciation  |  |              | (11,379,000 | ) |      |   | (7,700,000 | )
|                                |  |              |             |   |      |  
|                               
|                                |  | $            | 14,410,000  |   |      | $ | 5,500,000  |  
|                                |  |              |             |   |      |  





|   |                                                       
|-- | ------------------------------------------------------
|6. | Capitalized Software Costs and Other Intangible Assets



F-18



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |              |            |   |      |   |            |  
|------------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                               |  | December 31, |           
|                               |  |              |           
|                               |  | 2004         |            |   | 2003 |  
|                               |  |              |            |   |      |  
|Purchased technology           |  | $            | 10,148,000 |   |      | $ | 5,921,000  |  
|Internal use software          |  |              | 1,746,000  |   |      |   | 1,746,000  |  
|Purchased third-party software |  |              | 442,000    |   |      |   | 442,000    |  
|                               |  |              |            |   |      |  
|                               |  |              | 12,336,000 |   |      |   | 8,109,000  |  
|Less: accumulated amortization |  |              | (6,125,000 | ) |      |   | (5,145,000 | )
|                               |  |              |            |   |      |  
|                               |  | $            | 6,211,000  |   |      | $ | 2,964,000  |  
|                               |  |              |            |   |      |  



|                               |  |              |            |   |      |   |           |  
|------------------------------ |  | ------------ | ---------- | - | ---- | - | --------- | -
|                               |  | December 31, |           
|                               |  |              |           
|                               |  | 2004         |            |   | 2003 |  
|                               |  |              |            |   |      |  
|Customer relationships         |  | $            | 32,175,000 |   |      | $ | 6,700,000 |  
|Tradenames                     |  |              | 626,000    |   |      |   | 276,000   |  
|Other intangible assets        |  |              | 160,000    |   |      |   |          |  
|                               |  |              |            |   |      |  
|                               |  |              | 32,961,000 |   |      |   | 6,976,000 |  
|Less: accumulated amortization |  |              | (1,793,000 | ) |      |   | (555,000  | )
|                               |  |              |            |   |      |  
|                               |  | $            | 31,168,000 |   |      | $ | 6,421,000 |  
|                               |  |              |            |   |      |  





|     |  |                |           |  |             |   |           | 
|---- |  | -------------- | --------- |  | ----------- | - | --------- | 
|     |  | Capitalized    |           |  | Other       |  
|     |  | Software Costs |           |  | Intangibles |  
|     |  |                |           |  |             |  
|2005 |  | $              | 1,460,000 |  |             | $ | 2,562,000 | 
|2006 |  |                | 1,412,000 |  |             |   | 2,562,000 | 
|2007 |  |                | 1,385,000 |  |             |   | 2,562,000 | 
|2008 |  |                | 1,302,000 |  |             |   | 2,562,000 | 
|2009 |  |                | 694,000   |  |             |   | 2,451,000 | 

F-19



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|                         |  |              |            |  |      |   |           | 
|------------------------ |  | ------------ | ---------- |  | ---- | - | --------- | 
|                         |  | December 31, |           
|                         |  |              |           
|                         |  | 2004         |            |  | 2003 |  
|                         |  |              |            |  |      |  
|Compensation             |  | $            | 5,984,000  |  |      | $ | 4,036,000 | 
|Third party license fees |  |              | 4,246,000  |  |      |   | 2,027,000 | 
|Hardware purchases       |  |              | 229,000    |  |      |   | 491,000   | 
|Professional fees        |  |              | 653,000    |  |      |   | 527,000   | 
|Sales tax payable        |  |              | 931,000    |  |      |   | 498,000   | 
|Other                    |  |              | 3,295,000  |  |      |   | 789,000   | 
|                         |  |              |            |  |      |  
|                         |  | $            | 15,338,000 |  |      | $ | 8,368,000 | 
|                         |  |              |            |  |      |  



|   |                              
|-- | -----------------------------
|8. | Long-Term Debt from Customers





| |                                                                   
| | ------------------------------------------------------------------
| | Long-term debt consists of the following at
    December 31, 2004:

|                                                                                                                                  |  |   |           | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | - | --------- | 
|Prepayments from customers for data services, bearing interest
    at rates ranging from prime plus 2.0% to a fixed rate of 11.0% |  | $ | 2,975,000 | 
|                                                                                                                                  |  |   |          
|Less current portion                                                                                                              |  |   | 1,239,000 | 
|                                                                                                                                  |  |   |          
|Long-term debt                                                                                                                    |  | $ | 1,736,000 | 
|                                                                                                                                  |  |   |          



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





|                                                  |  |              |          |   |              |   |          |  
|------------------------------------------------- |  | ------------ | -------- | - | ------------ | - | -------- | -
|                                                  |  | December 31, |          |   | December 31, |  
|                                                  |  | 2004         |          |   | 2003         |  
|                                                  |  |              |          |   |              |  
|Computer equipment lease                          |  | $            | 931,000  |   |              | $ | 459,000  |  
|Automobile lease                                  |  |              | 27,000   |   |              |   |         |  
|                                                  |  |              |          |   |              |  
|                                                  |  |              | 958,000  |   |              |   | 459,000  |  
|Less: current portion                             |  |              | (735,000 | ) |              |   | (395,000 | )
|                                                  |  |              |          |   |              |  
|Capital lease obligations, net of current portion |  | $            | 223,000  |   |              | $ | 64,000   |  
|                                                  |  |              |          |   |              |  

F-20



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |      |   |           |         | 
|--------------------------------------- | ---- | - | --------- | ------- | 
|Year Ended December 31,                 |      |   |           |        
|                                        | 2005 |   | $         | 788,000 | 
|                                        | 2006 |   |           | 112,000 | 
|                                        | 2007 |   |           | 99,000  | 
|                                        | 2008 |   |           | 35,000  | 
|                                        |      |   |          
|Total minimum lease payments            |      |   | 1,034,000 |        
|Amounts representing interest           |      |   | (76,000   | )      
|                                        |      |   |          
|Present value of minimum lease payments |      | $ | 958,000   |        
|                                        |      |   |          



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



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





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





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



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





F-21



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

















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



F-22



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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





F-23



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |           |                  |           |                  |                |   |       |       | 
|-------------------------------- | --------- | ---------------- | --------- | ---------------- | -------------- | - | ----- | ----- | 
|                                 |           |                  |           | Weighted Average |               
|                                 |           | Number of Shares |           |                  | Exercise Price |  
|                                 |           |                  |           |                  |                |  
|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  |                  |           | (49,544          | )              |   |       | 6.35  | 
|                                 | Exercised |                  |           | (7,943           | )              |   |       | 1.35  | 
|                                 |           |                  |           |                  |                |  
|Outstanding at December 31, 2003 |           |                  | 2,910,292 |                  |                |   | 5.32  |      
|                                 | Granted   |                  |           | 1,095,710        |                |   |       | 22.60 | 
|                                 | Canceled  |                  |           | (82,757          | )              |   |       | 14.64 | 
|                                 | Exercised |                  |           | (880,820         | )              |   |       | 4.41  | 
|                                 |           |                  |           |                  |                |  
|Outstanding at December 31, 2004 |           |                  | 3,042,425 |                  |                | $ | 11.55 |      



|     |                                                                  |                 |  |           |                  |                  |   |               |  |  |   |       | 
|---- | ---------------------------------------------------------------- | --------------- |  | --------- | ---------------- | ---------------- | - | ------------- |  |  | - | ----- | 
|     |                                                                  |                 |  |           |                  | Weighted Average |  
|     |                                                                  |                 |  |           |                  | SFAS 123         |  
|     |                                                                  | Numbers of      |  |           | Weighted Average |                  |   | Fair Value    | 
|     |                                                                  | Options Granted |  |           | Exercise Price   |                  |   | at Grant Date | 
|     |                                                                  |                 |  |           |                  |                  |   |               | 
|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  | 
|2004 |                                                                  |                 |  |           |                  |                  |   |               |  |  |   |      
|     | Options granted with an exercise price equal to market value     |                 |  | 1,043,862 |                  |                  |   | 23.08         |  |  |   | 12.98 | 
|     | Options granted with an exercise price less than market value    |                 |  | 51,848    |                  |                  |   | 12.86         |  |  |   | 8.34  | 



F-24



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |                     |           |  |                     |  |     |                  |  |        |                   |  |  |  |           | 
|----------------------- |  | ------------------- | --------- |  | ------------------- |  | --- | ---------------- |  | ------ | ----------------- |  |  |  | --------- | 
|                        |  | Options Outstanding |           |  | Options Exercisable | 
|                        |  |                     |           |  |                     | 
|                        |  | Number              |           |  | Weighted Average    |  |     |                  |  |       
|                        |  | Outstanding at      |           |  | Remaining           |  |     |                  |  | Number |                  
|                        |  | December 31,        |           |  | Contractual Life    |  |     | Weighted Average |  |        | Exercisable at    | 
|Range of Exercise Price |  | 2004                |           |  | in Years            |  |     | Exercise Price   |  |        | December 31, 2004 | 
|                        |  |                     |           |  |                     |  |     |                  |  |        |                   | 
|$ 0.00 -  3.00          |  |                     | 550,548   |  |                     |  | 7.4 |                  |  | $      | 2.55              |  |  |  | 196,875   | 
|3.01 -  4.50            |  |                     | 38,075    |  |                     |  | 2.9 |                  |  |        | 3.99              |  |  |  | 38,075    | 
|4.51 -  6.75            |  |                     | 428,312   |  |                     |  | 4.8 |                  |  |        | 5.80              |  |  |  | 428,312   | 
|6.76 - 10.00            |  |                     | 930,200   |  |                     |  | 6.5 |                  |  |        | 7.26              |  |  |  | 763,900   | 
|10.01 - 15.00           |  |                     | 88,958    |  |                     |  | 8.7 |                  |  |        | 12.91             |  |  |  | 24,353    | 
|15.01 - 22.50           |  |                     | 674,832   |  |                     |  | 9.0 |                  |  |        | 21.40             |  |  |  | 9,702     | 
|22.51 - 28.17           |  |                     | 331,500   |  |                     |  | 9.6 |                  |  |        | 26.41             |  |  |  |          | 
|                        |  |                     |           |  |                     |  |     |                  |  |        |                   | 
|                        |  |                     | 3,042,425 |  |                     |  | 7.3 |                  |  | $      | 11.55             |  |  |  | 1,461,217 | 
|                        |  |                     |           |  |                     |  |     |                  |  |        |                   | 





|                        |  |      |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | ---- | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | 2004 |         |   | 2003 |  |         | 2002 | 
|                        |  |      |         |   |      |  |         |      | 
|Risk free interest rate |  |      | 3.28    | % |      |  | 2.99    | %    |  |  | 3.32    | %
|Expected dividend yield |  |      | None    |   |      |  | None    |      |  |  | None    |  
|Expected life of option |  |      | 5 years |   |      |  | 6 years |      |  |  | 6 years |  
|Expected volatility     |  |      | 66      | % |      |  | 74      | %    |  |  | 72      | %





12.     401(k) Plan




F-25



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                          |  |   |            | 
|------------------------- |  | - | ---------- | 
|2005                      |  | $ | 4,312,000  | 
|2006                      |  |   | 3,778,000  | 
|2007                      |  |   | 2,886,000  | 
|2008                      |  |   | 2,618,000  | 
|2009                      |  |   | 2,181,000  | 
|Thereafter                |  |   | 3,227,000  | 
|                          |  |   |           
|Total minimum obligations |  | $ | 19,002,000 | 
|                          |  |   |           







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





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



|                                                                                                                                 |  |                         |             |   |      |   |         |      |  |   |        | 
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ------- | ---- |  | - | ------ | 
|                                                                                                                                 |  | Year Ended December 31, |            
|                                                                                                                                 |  |                         |            
|                                                                                                                                 |  | 2004                    |             |   | 2003 |   |         | 2002 | 
|                                                                                                                                 |  |                         |             |   |      |   |         |      | 
|Net income                                                                                                                       |  | $                       | (7,441,000  | ) |      | $ | 234,000 |      |  | $ | 32,000 | 
|Goodwill, for recognition of tax benefit of stock option
    deduction related to an acquisition                                 |  |                         | (110,000    | ) |      |   |        |      |  |   |       | 
|Goodwill, for initial recognition of acquired tax benefits that
    previously were included in the valuation allowance          |  |                         | (774,000    | ) |      |   |        |      |  |   |       | 
|Stockholders equity, for tax benefit related to deductions
    in excess of amounts recognized for financial reporting purposes |  |                         | (7,756,000  | ) |      |   |        |      |  |   |       | 
|Other comprehensive income, for unrealized loss on marketable
    securities                                                     |  |                         | (24,000     | ) |      |   |        |      |  |   |       | 
|                                                                                                                                 |  |                         |             |   |      |   |         |      | 
|Total                                                                                                                            |  | $                       | (16,105,000 | ) |      | $ | 234,000 |      |  | $ | 32,000 | 
|                                                                                                                                 |  |                         |             |   |      |   |         |      | 

F-26



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |         |                         |            |            |      |   |         |        |  |   |        |        | 
|--------- | ------- | ----------------------- | ---------- | ---------- | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|          |         | Year Ended December 31, |           
|          |         |                         |           
|          |         | 2004                    |            |            | 2003 |   |         | 2002   | 
|          |         |                         |            |            |      |   |         |        | 
|Current:  |         |                         |            |            |      |   |         |        |  |   |        |       
|          | Federal |                         | $          | 328,000    |      |   | $       | 72,000 |  |   | $      |       | 
|          | State   |                         |            | 288,000    |      |   |         | 69,000 |  |   |        | 32,000 | 
|Deferred: |         |                         |            |            |      |   |         |        |  |   |        |       
|          | Federal |                         |            | (6,284,000 | )    |   |         | 81,000 |  |   |        |       | 
|          | State   |                         |            | (2,143,000 | )    |   |         | 12,000 |  |   |        |       | 
|          | Foreign |                         |            | 370,000    |      |   |         |       |  |   |        |       | 
|          |         |                         |            |            |      |   |         |        | 
|Total     |         | $                       | (7,441,000 | )          |      | $ | 234,000 |        |  | $ | 32,000 |       
|          |         |                         |            |            |      |   |         |        | 



|                                                      |                                            |              |            |            |      |   |             |            | 
|----------------------------------------------------- | ------------------------------------------ | ------------ | ---------- | ---------- | ---- | - | ----------- | ---------- | 
|                                                      |                                            | December 31, |           
|                                                      |                                            |              |           
|                                                      |                                            | 2004         |            |            | 2003 |  
|                                                      |                                            |              |            |            |      |  
|Gross deferred tax asset                              |                                            |              |            |            |      |   |             |           
|                                                      | Net operating loss carryforwards           |              | $          | 29,776,000 |      |   | $           | 16,480,000 | 
|                                                      | Research and development and other credits |              |            | 1,791,000  |      |   |             | 1,273,000  | 
|                                                      | Stock compensation expense                 |              |            | 48,000     |      |   |             | 197,000    | 
|                                                      | Deferred revenue                           |              |            | 577,000    |      |   |             | 1,507,000  | 
|                                                      | Accrued expenses                           |              |            | 390,000    |      |   |             | 301,000    | 
|                                                      | Accounts receivable                        |              |            | 357,000    |      |   |             | 164,000    | 
|                                                      | Accelerated depreciation                   |              |            | 693,000    |      |   |             | 38,000     | 
|                                                      | Other                                      |              |            | 74,000     |      |   |             | 162,000    | 
|                                                      |                                            |              |            |            |      |  
|Deferred tax assets, gross                            |                                            |              | 33,706,000 |            |      |   | 20,122,000  |           
|Less: Valuation allowance                             |                                            |              | (9,380,000 | )          |      |   | (19,955,000 | )         
|                                                      |                                            |              |            |            |      |  
|Total deferred tax assets, net of valuation allowance |                                            |              | 24,326,000 |            |      |   | 167,000     |           
|Gross deferred tax liabilities                        |                                            |              |            |            |      |   |             |           
|                                                      | Intangible assets                          |              |            | (7,410,000 | )    |   |             | 260,000    | 
|                                                      |                                            |              |            |            |      |  
|Net deferred tax asset (liability)                    |                                            | $            | 16,916,000 |            |      | $ | (93,000     | )         
|                                                      |                                            |              |            |            |      |  



F-27



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##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |      |             |    |      |   |          |      |  |   |           |   
|---------------------------------------------- |  | ---- | ----------- | -- | ---- | - | -------- | ---- |  | - | --------- | --
|                                               |  | 2004 |             |    | 2003 |   |          | 2002 | 
|                                               |  |      |             |    |      |   |          |      | 
|Computed expected tax expense (benefit)      |  | $    | 6,012,000   |    |      | $ | 525,000  |      |  | $ | (974,000  | ) 
|State income taxes, net of federal tax benefit |  |      | (1,224,000  | )  |      |   | 100,000  |      |  |   | (309,000  | ) 
|Non-deductible expenses                        |  |      | 104,000     |    |      |   | 67,000   |      |  |   | 50,000    |   
|Deferred compensation                          |  |      | 28,000      |    |      |   | 78,000   |      |  |   |          |   
|Losses benefitted                              |  |      | (12,414,000 | )  |      |   | (513,000 | )    |  |   | 1,192,000 |   
|Foreign tax rate differential                  |  |      | 15,000      |    |      |   |         |      |  |   |          |   
|Other                                          |  |      | 38,000      |    |      |   | (23,000  | )    |  |   | 73,000    |   
|                                               |  |      |             |    |      |   |          |      | 
|Income tax (benefit) expense                   |  | $    | (7,441,000  | )  |      | $ | 234,000  |      |  | $ | 32,000    |   
|                                               |  |      |             |    |      |   |          |      | 
|Computed expected tax expense                |  |      | 34.0        | %  |      |   | 34.0     | %    |  |   | 34.0      | % 
|State income taxes, net of federal tax benefit |  |      | (6.9        | )% |      |   | 6.5      | %    |  |   | 10.8      | % 
|Non-deductible expenses                        |  |      | 0.6         | %  |      |   | 4.3      | %    |  |   | (1.7      | )%
|Deferred compensation                          |  |      | 0.1         | %  |      |   | 5.1      | %    |  |   |          |   
|Losses benefitted                              |  |      | (70.2       | )% |      |   | (33.2    | )%   |  |   | (41.6     | )%
|Foreign tax rate differential                  |  |      | 0.1         | %  |      |   |         | %    |  |   |          |   
|Other                                          |  |      | 0.2         | %  |      |   | (1.5     | )%   |  |   | (2.5      | )%
|                                               |  |      |             |    |      |   |          |      | 
|Income tax (benefit) expense                   |  |      | (42.1       | )% |      |   | 15.2     | %    |  |   | (1.1      | )%
|                                               |  |      |             |    |      |   |          |      | 







F-28



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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











|    |                  
|--- | -----------------
|17. | Subsequent Events



| |                                      
| | -------------------------------------
| | Senior Subordinated Convertible Notes



F-29



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                     
| | --------------------
| | Business Acquisition



F-30



---



##### Table of Contents



OPEN SOLUTIONS INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|     |                                                                     |               |   |            |                |  |   |               |  |  |                |            |  |  |   |             |  
|---- | ------------------------------------------------------------------- | ------------- | - | ---------- | -------------- |  | - | ------------- |  |  | -------------- | ---------- |  |  | - | ----------- | -
|     |                                                                     | First Quarter |   |            | Second Quarter |  |   | Third Quarter |  |  | Fourth Quarter |           
|     |                                                                     |               |   |            |                |  |   |               |  |  |                |           
|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)                                                   |               |   | 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       | )
|2004 |                                                                     |               |   |            |                |  |   |               |  |  |                |            |  |  |   |            
|     | Revenue                                                             |               | $ | 20,950,000 |                |  | $ | 21,820,000    |  |  | $              | 28,332,000 |  |  | $ | 36,081,000  |  
|     | Gross profit                                                        |               |   | 11,895,000 |                |  |   | 12,735,000    |  |  |                | 16,821,000 |  |  |   | 21,108,000  |  
|     | Income from operations                                              |               |   | 2,925,000  |                |  |   | 3,006,000     |  |  |                | 4,362,000  |  |  |   | 5,870,000   |  
|     | Net income                                                          |               |   | 3,002,000  |                |  |   | 3,139,000     |  |  |                | 4,470,000  |  |  |   | 14,513,000  |  
|     | Basic income per share                                              |               |   | 0.18       |                |  |   | 0.18          |  |  |                | 0.23       |  |  |   | 0.75        |  
|     | Diluted income per share                                            |               |   | 0.16       |                |  |   | 0.16          |  |  |                | 0.21       |  |  |   | 0.70        |  

F-31



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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          |  | 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).                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 2  | .3          |  | Asset Purchase Agreement, dated as of June 18, 2004,
    between Eastpoint Technologies, LLC and EP Acquisition Corp.
    (Incorporated by reference to the Registrants Current
    Report on Form 8-K dated June 18, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 2  | .4          |  | Stock Purchase Agreement, dated as of July 8, 2004, by and
    among David B. Becker, John E. Taylor, as Trustee of the David
    B. Becker Family Trust and David B. Becker, as Trustee of the
    David B. Becker Charitable Remainder Unitrust, as shareholders
    of re:Member Data Services, Inc., and RD Acquisition Corp.
    (Incorporated by reference to the Registrants Current
    Report on Form 8-K dated July 8, 2004).                                                                                                                                                                                                                                                
|       
|        | 2  | .5          |  | Asset Purchase Agreement, dated as of July 23, 2004, among
    Omega Systems of North America LLC, Evan P. Lewis, as sole
    trustee of Omega Systems of North America Voting Trust, Evan P.
    Lewis, as sole trustee of Omega Systems of North America Holding
    Trust, Tri-Core Systems Enterprises, LLC, Evan P. Lewis, as sole
    trustee of Tri-Core Holding Trust, Evan P. Lewis and Open
    Solutions Inc. (Incorporated by reference to the
    Registrants Current Report on Form 8-K dated July 23,
    2004).                                                                                                                                                        
|       
|        | 2  | .6          |  | Acquisition Agreement, dated as of August 25, 2004, between
    Open Solutions Inc., 6259936 Canada Inc. and Datawest Solutions
    Inc. (Incorporated by reference to the Registrants Current
    Report on Form 8-K dated August 25, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 2  | .7          |  | Asset Purchase Agreement, dated as of March 10, 2005,
    between CGI-AMS Inc. and OS Acquisition Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 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)).                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 4  | .2          |  | Indenture, dated as of February 2, 2005, between the
    Registrant and U.S. Bank National Association, as Trustee
    (Incorporated by reference to the Registrants Current
    Report on Form 8-K dated February 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 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)).                                                                                                                                                                                                                                                                                                                                                                                                                                            



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##### Table of Contents



|        |     |     |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | --- | --- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |     |            
|Number  |     |     | Description
|        |     |     |            
|       
|        | 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  |             | Form of Incentive Stock Option Agreement for the
    Registrants 2000 Stock Incentive Plan (Incorporated by
    reference to the Registrants Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 10  | .6  |             | Form of Nonstatutory Stock Option Agreement for the
    Registrants 2000 Stock Incentive Plan (Incorporated by
    reference to the Registrants Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10  | .7  |             | Form of Incentive Stock Option Agreement for the
    Registrants 2003 Stock Incentive Plan (Incorporated by
    reference to the Registrants Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 10  | .8  |             | Form of Nonstatutory Stock Option Agreement for the
    Registrants 2003 Stock Incentive Plan (Incorporated by
    reference to the Registrants Quarterly Report on Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10  | .9  |             | Form of Restricted Stock Unit Agreement for the
    Registrants 2003 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | 10  | .10 |             | 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  | .11 |             | 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 | .12 |             | 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)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10  | .13 |             | 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  | .14 |             | 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, as amended by the Second Amendment to Lease
    between Open Solutions Inc. and Carl Foster, LLC dated
    November 30, 2004, as amended by the Third Amendment to
    Lease between Open Solutions Inc. and Carl Foster, LLC dated
    December 16, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 10  | .15 |             | Lease between Open Solutions Inc. and WB Development Partnership
    dated May 4, 2004 (Incorporated by reference to Amendment
    No. 2 to the Registrants registration statement on
    Form S-1, filed with the Securities and Exchange Commission
    on May 6, 2004 (File No. 333-114704)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10  | .16 |             | Registration Rights Agreement, dated as of February 2,
    2005, among the Registrant and the initial purchasers named
    therein (Incorporated by reference to the Registrants
    Current Report on Form 8-K dated February 2, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10  | .17 |             | Compensatory Arrangements with Executive Officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 10  | .18 |             | Compensatory Arrangements with Non-Employee Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 21  | .1  |             | List of Subsidiaries of Open Solutions Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | 23  | .1  |             | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



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##### Table of Contents



|        |    |    |             |                                                                                                                                                                                                                                                                 
|------- | -- | -- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |            
|Number  |    |    | Description
|        |    |    |            
|       
|        | 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 granted as to certain portions, which
    portions have been omitted and filed separately with the
    Securities and Exchange Commission.