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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

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

For the fiscal year ended December 31, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from         to

Commission file number: 000-24931

S1 CORPORATION


(Exact name of registrant as specified in its charter)


|                                                                                         |  |                                                
|---------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)                  |  | 58-2395199
(I.R.S. Employer
Identification No.)
|                                                                                        
|3500 Lenox Road, NE, Suite 200
Atlanta, Georgia
(Address of principal executive offices) |  | 30326
(Zip Code)                               

Registrants telephone number, including area code: (404) 923-3500

Securities registered pursuant to Section 12(b) of the Act:
Not Applicable

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Title of Class

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes  
x  No  o

Aggregate market value of the common stock held by non-affiliates of the
Registrant, computed using the closing price on the New York Stock Exchange for
the Registrants common stock on June 28, 2002, was
$ 500,152,783.

Shares of
common stock outstanding as of March 21, 2003: 69,242,204.

Documents Incorporated by Reference

List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated:
Portions of the definitive proxy statement for the annual meeting of
shareholders to be held May 22, 2003, which the registrant intends to file no
later than 120 days after December 31, 2002, are incorporated by reference in
Part III.



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TABLE OF CONTENTS



|                                                   |                                                                                                |  |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|PART I                                            
|                                                   | Item 1. Business.                                                                             
|                                                   | Item 2. Properties.                                                                           
|                                                   | Item 3. Legal Proceedings.                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                
|                                                   | Item 6. Selected Financial Data.                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                   | Item 7A. Qualitative and Quantitative Disclosures about Market Risk.                          
|                                                   | Item 8. Financial Statements and Supplementary Data.                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant.                                  
|                                                   | Item 11. Executive Compensation.                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                                                   | Item 13. Certain Relationships and Related Transactions.                                      
|                                                   | Item 14. Controls and Procedures                                                              
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                     
|SIGNATURES                                        
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT            
|EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP     
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO & CFO



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S1 CORPORATION AND SUBSIDIARIES

FOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS




PART I

|                                                                                              |          |  |      |  | 
|--------------------------------------------------------------------------------------------- | -------- |  | ---- |  | 
|                                                                                              |          |  | Page
|                                                                                              |          |  |     
|Item 1. Business                                                                              |          |  | 1    | 
|Item 2. Properties                                                                            |          |  | 16   | 
|Item 3. Legal Proceedings                                                                     |          |  | 16   | 
|Item 4. Submission of Matters to a Vote of Security Holders                                   |          |  | 16   | 
|                                                                                              | PART II  |  |      |  | 
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters                 |          |  | 17   | 
|Item 6. Selected Financial Data                                                               |          |  | 18   | 
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations |          |  | 19   | 
|Item 7A. Qualitative and Quantitative Disclosures About Market Risk                           |          |  | 37   | 
|Item 8. Financial Statements and Supplementary Data                                           |          |  | 38   | 
|Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |          |  | 71   | 
|                                                                                              | PART III |  |      |  | 
|Item 10. Directors and Executive Officers of the Registrant                                   |          |  | 71   | 
|Item 11. Executive Compensation                                                               |          |  | 71   | 
|Item 12. Security Ownership of Certain Beneficial Owners and Management                       |          |  | 71   | 
|Item 13. Certain Relationships and Related Transactions                                       |          |  | 71   | 
|Item 14. Controls and Procedures                                                              |          |  | 71   | 
|                                                                                              | PART IV  |  |      |  | 
|Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |          |  | 71   | 
|Signatures                                                                                    |          |  | 77   | 





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PART I




Item 1.Business.

This annual report on Form 10-K and the documents incorporated into this
annual report on Form 10-K by reference contain forward-looking statements
within the safe harbor provisions of the Private Securities Litigation Reform
Act. These statements include statements with respect to our financial
condition, results of operations and business. The words believes, expects,
may, will, should, projects, contemplates, anticipates,
forecasts, intends or similar terminology identify forward-looking
statements. These statements are based on our beliefs as well as assumptions
made using information currently available to us. Because these statements
reflect our current views concerning future events, they involve risks,
uncertainties and assumptions. Therefore, actual results may differ
significantly from the results discussed in the forward-looking statements. The
risk factors described below provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. Except as provided
by law, we undertake no obligation to update any forward-looking statement.

Business Overview

We provide enterprise software solutions for financial organizations
including banks, credit unions, investment firms and insurance companies on a
global basis. Our solutions automate the channels by which financial
institutions interact with their customers. These channels include (1)
full-service channels that support person-to-person interactions such as
talking to a teller in a bank branch or working with an insurance agent or a
customer support representative over the phone, (2) self-service channels, or
person-to-machine interactions, such as the Internet or interactive voice
response (IVR) units and (3) automated, or machine-to-machine, interactions.
Our applications are designed to support all of the financial institutions
market segments from retail end-users to small businesses to large
corporations, as well as financial institution employees including bank
tellers, insurance agents, contact center representatives and financial
advisors.

We provide a comprehensive set of solutions for banking, brokerage and
insurance, as well as customer relationship management (CRM), for global,
national, regional and local financial organizations. We also provide statutory
financial reporting software solutions.

Our products are designed to run on-premise at a financial institution
location or be hosted in a data center (either S1s data center or a third
partys facility). The products can be easily branded and extended to meet the
specifications of the financial institution. We offer a variety of services to
assist in implementing and supporting our applications, as well as hosting
services that allow a financial institution to outsource, to S1, the ongoing
operations and maintenance of their applications. We provide professional
services for the installation and integration of our products, including
on-premise installation at the financial institutions location, installation
at S1s data center or installation at third-party data processing centers. In
addition, we provide training, consulting and product enhancement services,
enabling our customers to customize applications to meet particular business
needs and strategies.

General Background

We derive a significant portion of our revenues from licensing our
solutions and providing professional services. We generate recurring data
center revenues by charging our data center customers a monthly fixed fee or a
fee based on the number of their end users who use the solutions we provide,
subject to a minimum charge. We also generate recurring revenue by charging
customers who license our products a periodic fee for software maintenance.

Over the last three years, we made six strategic acquisitions that were
undertaken to provide additional technology, product and service offerings,
industry expertise, a broader customer base and an expanded geographic
presence. In March 2002, we acquired the assets and subsidiaries of Point
Holdings, Ltd., a Dublin, Ireland based multi-channel CRM application provider.
In February 2002, we acquired Regency Systems, Inc., a Dallas, Texas based
provider of telephone and Internet banking applications and web design services
for community and mid-market banks. In September 2001, we acquired Software
Dynamics Inc. (SDI), a West Hills, California based provider of branch
automation, teller, call center and CRM solutions for financial institutions.
In November 2000, we acquired Level Next, Inc., a provider of global trade
finance systems. In April 2000, we acquired Davidge Data Systems, Inc., a New
York, New York based provider of order routing

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services to brokerage firms and Q-Up Systems, Inc., an Austin, Texas
based provider of Internet financial services solutions to community and
mid-market banks.

Industry Background

Financial institutions interact with their customers through a variety of
channels, including but not limited to the branch, call center, phone, ATM and
the Internet. As each of these channels was introduced and proliferated,
financial institutions took a tactical approach in expanding their offerings,
incrementally adding these new channels as they fit in with their evolving
business plans. By and large, each channel became an independent product, with
little crossover between lines of business or little integration between the
channels themselves, which led to operating inefficiencies, little or no
ability to share customer information and inconsistent customer experiences.
Todays consumers demand increased access to their finances. Some want instant
and ubiquitous access to account information. Others want to pay bills,
transfer funds, receive alerts and trade stocks  anytime, anywhere. Still
other consumers prefer real-time services, requesting to see transactions, make
credit applications and receive rate quotes as they happen. Consumers want
services to be available to them through all of these channels at their
convenience and understand enough about technology to expect the financial
institution to be able to deliver this. In addition, the increased competition
in the financial services industry due to new entrants and convergence also put
pressure on financial institutions to be able to deliver products and services
that allow them to retain their current customers and increase their
share-of-wallet while decreasing their costs.

We believe that a key point of competitive advantage will center on how
well financial institutions provide a unified experience for their customers
across multiple points of interaction. Financial institutions will need to
deliver a consistent and compelling experience to their customers and provide
them with products and services that better meet their needs and are relevant
to their stage in life. While this sounds straightforward, we believe it is
very challenging to a financial institution dealing with multiple channels,
using different technologies, all of which must be integrated with a variety of
legacy applications. Financial institutions are driven by technology and must
attempt to keep up with the rapid pace of change. They must determine how to
leverage their existing solutions while moving to new technologies that will
protect their investments and better position them for the future. Continuing
economic pressures and cost and resource cutting have forced them to try and do
more with less. In addition, many financial institutions are struggling to
absorb acquired businesses and rationalize the technologies and systems
involved.

We believe these factors will drive financial institutions to pursue an
enterprise solution that helps them automate and integrate their channels while
leveraging single points of integration to their back office systems and better
sharing customer information. This type of solution would reduce costs by using
single points of integration to the legacy applications, decreasing operational
complexity and eliminating multi-vendor coordination, as well as drive revenue
by enhancing cross-selling opportunities, and increasing customer loyalty. We
are in the process of delivering a fully integrated solution that automates and
integrates the front-office applications, while providing a technology platform
to simplify integration and operations as well as speed implementation and time
to market. Our activities during 2001 and 2002 were focused on execution of our
strategy around the delivery and implementation of this type of enterprise
application.

The S1 Solution

In 2002, we continued to evolve the focus of our solutions from the
Internet to a multi-channel approach across multiple front-office applications.
During 2002, we implemented our initial S1 Enterprise offerings: S1 Personal
Banking and S1 Business Banking. In addition, we continued to develop the S1
Enterprise Platform as the foundation for a financial institutions
multi-channel integration initiatives.

Our direction for the S1 Enterprise is to take a holistic approach to
unifying the multiple channels, applications, and customer segments that define
a financial institution. By taking a customer-centric view, we expect that the
S1 Enterprise will enable financial institutions to deliver a personalized,
compelling experience to their retail, small business and corporate customers.
By supporting all customer interaction channels  including full-service
channels such as branches, agents and call centers; self-service channels such
as IVR and the Web; and automated interactions such as Open Financial Exchange
(OFX)  we intend that S1 Enterprise will enable financial institutions to
deliver a common customer experience while helping them rapidly deploy new
products and services. S1 Enterprise offers banking, investment, insurance and
CRM applications that can be used by both financial institution customers and
internal users, such as tellers, agents, brokers, and customer service
representatives. We provide flexible, customizable solutions with a modular
approach so financial institutions can innovate their enterprise at their own
pace, while increasing revenue, lowering costs and building stronger customer
loyalty.

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We believe that the S1 Enterprise, when fully implemented, will offer a
number of important benefits to our customers, including the following:



| |  |  | S1 Enterprise Will Turn Static Financial Institution Data into
Actionable Information Financial institutions have a wealth of
valuable customer information stored throughout their organizations.
Their customers also have multiple financial relationships with other
providers. S1 Enterprise will help financial institutions collect the
data from internal and external systems, giving greater insight into
customers and the ability to deliver more personalized service. S1
Enterprise will feature fully integrated CRM capabilities so that our
financial institution customers can leverage customer information and
marketing programs across all customer touch points, helping them create
profitable and satisfying customer interactions. Our CRM approach goes
beyond the traditional approach by turning information such as alerts,
awards and promotions into actionable information at the delivery
channel of choice for the financial institutions customer. This
includes multiple delivery channels  not just the call center.                 
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Enterprise Will Deliver Compelling, Personalized Products and
Services In order to build customer loyalty, financial institutions
need to deliver personalized products and services that are timely,
relevant and accurate. S1 Enterprise will help them understand their
customers buying behaviors, attitudes toward technology and short and
long-term financial goals. S1 Enterprise will help financial
institutions create more cross-selling opportunities, while maximizing
the existing relationships they have established to up-sell additional
products and services and to reduce customer churn. Such personalized
service will increase opportunities for cross sell and create more
effective push marketing.                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | S1 Enterprise Will Provide Cost Effective Integration of Multiple
Applications and Channels The S1 Enterprise will deliver integrated
solutions across self-service channels such as the Web and phone, and
will provide tools to support the full-service channels, including
tellers, insurance agents, brokers, call center representatives and
private bankers. Delivering all of these services from a common platform
will enable financial institutions to achieve significant cost savings
over time. With the deployment of one application, they get the most
comprehensive functionality on an open, flexible, and operable industry
platform. With multiple applications, they begin to see true economies
of scale with the single platform. While this not only reduces
integration, maintenance and implementation costs, it can also leverage
the cross-channel CRM capabilities for more effective personalization
and sales opportunities. All of this capability will be delivered while
leveraging existing investments in back-office system interfaces.

S1 Vision and Strategy

Our objective is to be the leading global provider of integrated
enterprise solutions that enable financial institutions to improve the way they
service their customers by integrating all delivery channels, expanding the
total financial relationship and increasing profits. To achieve this objective,
we intend to pursue the following initiatives:

Achieve Financial and Operational Stability through a Combination of Enterprise
Revenue Growth and Continued Cost Control

Continued strengthening of S1s financial and operational stability was a
key priority in 2002. We made significant progress in this effort,
demonstrated most clearly by the $0.02 in earnings per share we generated in
the fourth quarter of 2002, the companys first profitable quarter ever.
Revenues from continuing operations increased 7% in 2002 to $248.0 million. We
reduced our annual net loss to $0.24 per share in 2002, compared with a net
loss of $3.74 per share in 2001. Perhaps most importantly, we generated $21
million in cash from operations, a key indicator of the financial health of our
organization.

Our most strategic revenue stream, and the one that we expect to be the
primary growth driver of revenue in future periods, is derived from our
Enterprise suite of applications. In 2002, we generated $30 million of revenue
from our S1 Enterprise solutions. We also generated additional revenue from
the acquisitions of SDI, Regency and Point, all key components of our
Enterprise strategy. The growth achieved from the execution of our Enterprise
strategy, however, was partially offset by declining revenues from certain
customers whose relationship with S1 was based on S1s original data center and
Internet banking business model. Revenues from these legacy customers declined
during 2002 and will decline further in 2003, as S1 continues the transition
away from our original business model, and toward our new enterprise
software model. (See further discussion of this transition in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Overview). As a result of this transition, we expect flat to
relatively modest revenue growth in 2003.

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We expect to leverage this modest revenue growth through continued efforts
to control our operating costs. Total operating costs, including direct costs,
selling and marketing costs, product development costs and general and
administrative costs, declined slightly to $219.2 million in 2002 from $221.7
in 2001, despite the inclusion of operating costs of approximately $32.0
million from the SDI, Regency and Point acquisitions.

We believe that the combination of new Enterprise revenue and our
continuing focus on rationalizing costs will result in the generation of
continued positive cash flow from operations and profits for 2003.

Continue to Enhance our Technological Architecture to Realize the Full
Potential of our Enterprise Solutions

Due to rapid growth and numerous acquisitions, S1 products encompassed
several overlapping technologies and applications. In order to realize the full
potential of our solution, and make the most effective use of our development
resources, it was imperative to re-write the technological architecture
underlying many of our products. Our initial focus was on converging our
Internet-based products to a single platform as delivered in early 2002. From
that point, we began to focus on integrating products serving other channels
into the single platform so we can leverage their functionality and deliver
true multi-channel integration.

A key component of the S1 Enterprise family of products is the S1
Enterprise Platform, which not only provides integration across all of a
financial institutions channels, but enables the financial institution to
leverage the interfaces built to their back end systems, share customer data
across the organization, and deliver comprehensive, integrated marketing
programs. S1 Enterprise Platform technology features an open, flexible and
operable architecture that incorporates existing legacy and third-party
applications, while also helping the financial institution move toward a
standard platform that unifies its channel strategy. This platform provides the
most robust transactional and CRM capabilities for both end-user customers and
internal users alike. An n-tier, component-based architecture, the S1
Enterprise Platform utilizes common industry standards such as J2EE and XML for
integrating third-party solutions, existing systems and evolving technology
standards. In addition, the S1 Enterprise Platform facilitates a common
customer experience by supporting multiple delivery channels, such as Web, call
centers, wireless, branch and advisors.

The S1 Enterprise Platform serves as a common base for S1 product
deployments. Its layered framework ensures that all applications are consistent
in their interpretation and presentation of all data and that they can be
extended, upgraded, maintained and operated.

Increase Revenues by Cross-Selling our Products and Services to Existing
Customers

We intend to generate revenues by selling additional S1 products and
services to our existing customer base of over 4,000 financial institutions.
We believe that opportunities for cross-selling our products and services will
increase as we deliver more of our applications on the S1 Enterprise Platform,
and as we continue to add and enhance products through acquisition and internal
development. In addition to the sale of new products, the migration of our
customer base from single-channel solutions to the integrated Enterprise
applications will offer further revenue growth opportunities.

Increase Emphasis on Selling Packaged Products

We are increasing our emphasis on selling packaged solutions instead of
highly-customized, tool-kit-oriented solutions. The market is moving from early
adopters to the mainstream majority. Our customers are increasingly focused on
implementing packages that can be extended and customized as opposed to buying
tool-kits that require a high degree of customization and result in more
expensive ongoing maintenance and issues with other vendors software upgrades.

Grow Our Sales Channel Program through Strategic Alliances with Key Partners

In 2002, we continued to expand our relationship with International
Business Machines Corporation. We ported some Internet-based products to the
IBM P-series platform (AIX) and have been working jointly with IBM to implement
this solution for one of our customers. We believe IBM will be a key
distribution partner for us and we expect they will perform a significant
amount of implementation and integration work associated with the S1 Enterprise
family of products. During 2002, we also began working more closely with BEA
Systems, Inc. BearingPoint, Inc. (formerly KPMG Consulting, Inc.) and
anticipate strengthening those relationships in 2003. In 2003, we began working
with Viecore, Inc. We also signed with numerous resellers globally to increase
our sales presence in areas where we do not have extensive direct sales
coverage including South America, the Middle East region, Italy and the Asia
Pacific region. We plan to continue adding key partners to extend our sales
channel program.

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Pursue Strategic Initiatives to Enhance our Core Product Offerings and Increase
our Customer Base

In February 2002, we acquired Regency Systems, Inc., which will strengthen
our solutions set with telephone banking applications targeted at the community
and regional segment of the bank market. In addition, the Regency acquisition
brought approximately 1,500 new financial institutions into the S1 customer
base. In March 2002, we acquired the assets and subsidiaries of Point Holdings,
Ltd., which will expand our presence in Europe. We plan to pursue strategic
acquisitions that will (i) provide additional technology, product and service
offerings and industry expertise, (ii) broaden our customer base and (iii)
expand our geographic presence. As we have done in the past, we may divest
non-core product lines in order to more effectively focus on our business.

S1 Products

We generate revenues from two principal product groups: S1 Enterprise (or
multi-channel) financial solutions and legacy (or single channel) financial
solutions. We define S1 Enterprise revenue as fees that we earn from sales of
our recently released S1 Enterprise applications, such as S1 Personal Banking
or S1 Business Banking, as well as fees that we earn from customers who have
signed an S1 Enterprise agreement and have purchased more than one major
application.

Our products are classified in five major families: Banking Solutions,
Insurance Solutions, Voice Solutions, CRM Solutions and Financial Reporting
Solutions.

S1 Banking Solutions

In the first quarter of 2002, we delivered the general availability
releases of our S1 Personal Banking and S1 Business Banking products running on
the new S1 Enterprise Platform. These products are primarily focused on meeting
the needs of the regional to global financial institution. Going forward they
will be integrated with the branch and CRM applications as part of the S1
Enterprise supporting both the interaction and transaction needs of financial
institutions and facilitating integration and optimization across all delivery
channels.



| |  | S1 Personal Banking gives individual consumers anytime, anywhere
access to all of their banking accounts, including deposit, credit
card and loan accounts. Functions include the ability to view
statements, account activity, and cleared and pending transactions
online, to transfer funds between accounts and to pay bills
electronically.                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | S1 Business Banking is a comprehensive banking product geared to the
unique needs of small business owner-operators. Available services
include daily account balance and transaction reporting, disbursement
services, payroll, account transfers, wires, and electronic tax
payments. Personalization options simplify cash management tasks for
easy organization and management of company funds.

S1 is committed to delivering products that meet the needs of financial
institutions of all sizes. The smaller community banks and credit unions need
products that deliver basic functionality in a cost effective manner. S1
provides the S1 Internet Banking System (IBS) family of products to meet the
specific needs of this market segment.



| |  | S1 Internet Banking System (IBS) is targeted towards the community banking market. Functions include the ability to view
statements, account activity, and cleared and pending transactions online, to transfer funds between accounts and to pay
bills electronically.                                   
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | S1 IBS Cash Management System is targeted towards the community banking market. Functions include integrated front and
back office systems, multiple payment vehicles such as domestic and SWIFT wires, ACH, and EFTPS, integration with the IBS
retail Internet banking application and EDI data display.

In the commercial banking area, we offer the following Internet-based applications:



| |  | S1 Corporate Banking is a comprehensive Internet-based cash management solution for large corporations. This application
offers multi-lingual, multi-currency and multi-delivery channel capability to perform such functions as information
reporting, global payments, check services, file services and customer administration on a global basis.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | S1 Trade Finance is an international trade finance system providing the ability to generate a wide range of
trade-specific documents and over 100 customer reports, as well as delivering a complete Bank Site web application.                                                                                                                    

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In the branch automation space, S1 currently offers the following
rich-client, Java-based products. In the future, we will focus on delivery of
J2EE-based branch applications and expect to deliver a teller application in
late 2003.



| |  | S1 Teller provides the complete set of transactions and core
services necessary for fulfilling the rigorous requirements of todays
teller environment, including host communications, sharing and storing
of information, cumulative totals, electronic journal, transaction
security and approval, and balancing aids.                                                                  
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | S1 Sales and Service Platform includes an extensive set of
transactions, sales tools, and core services that expedite selling new
products, as well as servicing existing accounts.                                                                                                                                                                                                       
| 
| |  | S1 Banking Call Center provides the customer information, sales and
service capabilities, process flows, reporting, and fulfillment
management that are exclusive to call center operations. The S1
Banking Call Center application integrates with other call center
technologies, including IVR systems, computer telephony integration
servers, and automatic call distributor systems.

S1 Insurance Solutions

S1 Insurance solutions include products for both the customer and the
agent or intermediary. The applications support product sales capabilities as
well as self-service capabilities for the property and casualty and life and
annuity markets.



| |  | S1 Consumer Insurance provides the features and functionality to enable insurance providers to improve customer
service, acquire new business and reduce costs by providing anytime, anywhere access to meet insurance needs.
Customers can view policy information, request changes to their policies, initiate the claims process and get
insurance quotes as well as apply and purchase products online.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

S1 Voice Solutions



| |  | S1 Voice Banking delivers IVR functionality in a stable, flexible, Windows-based application. With the push of a
button or through simple voice commands, users can check on a deposit or account balance, find a CD rate, pay bills
or transfer funds.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

S1 CRM Solutions



| |  | S1 Customer Center a virtual financial lobby, the S1 Customer Center provides customers with a destination web site
or portal giving them access to product information, news and other content, as well as community pages and bulletin
boards. The S1 Customer Center enables financial institutions to efficiently create, manage and quantify their web
presence.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | S1 Marketing Center supports the planning and execution of marketing campaigns based on multiple segmentations of
customers and prospects. Includes robust inbound and outbound telemarketing features that can be combined with
advanced CTI functionality to enhance the efficiency of your marketing personnel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | S1 Sales Center supports sales associates and managers in a telesales or field sales environment by tracking all
relevant information and proactively guiding the associate through
initiating, closing and tracking opportunities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
| |  | S1 Support Center enables customer service representatives and
managers to create, assign and manage customer support requests such
as incidents, problems and resolutions. It provides details of the
problem, the ability to request status and history and the ability to
suggest products for cross-sell and up-sell.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
| |  | Edify vCSR the Edify vCSR (virtual customer service representative)
family of products provides applications that provide real-time
fulfillment and complete knowledge of the customer allowing financial
institutions to understand what the customer says and what they type,
rate their satisfaction with the service and their importance as a
customer, fulfill their request and speak, email, fax, or send to
their wireless device of choice, the information they need, inform the
human CSR about the reason for a customer call and suggest action,
speak to the customer, help the customers find what they need on the
web site, or connect them with the most qualified person to provide
assistance. These solutions are sold into the financial services
market by the S1 sales organization.

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| |  | S1 Analyticsfeatures easy to use analytical and segmentation tools,
comprehensive campaign development and management capabilities, and a
unique methodology to drive the results of CRM out to all channels. It
permits real time access to customer contact and value information, as
well as target campaigns, and significantly enhances the value of CRM
efforts.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Financial Reporting Solutions

Our financial reporting application, FiRE, aims to ease the burden of
regulatory reporting for banks, mutual funds, pension brokers, and other
financial institutions. It benefits organizations by empowering them to comply
with the reporting stipulations of central banks, monetary authorities, and
other financial regulators in up to 21 countries. It also provides
comptrollers, regulatory specialists, managers, and other internal staff with a
set of value-added tools for building a financial data warehouse and generating
financial reports.

Account Aggregation

Through our reseller agreement with Yodlee, Inc., which is described in
Note 19 to our consolidated financial statements included elsewhere in this
report, we provide account aggregation capabilities, which allow the delivery
of an integrated balance sheet consolidating, organizing and presenting a
consumers personal account information, from a variety of providers, for
confidential viewing and access.

S1 Services

We provide services to assist our customers in the planning,
implementation and customization of their applications as well as ongoing
maintenance and support and, if desired, application hosting services.

S1 Hosting Services

Our hosting services provide operational management and control across the
full range of banking, brokerage, insurance, loan, credit card and content
applications and information. We host S1 applications on behalf of our
customers in our global data center facility in Atlanta. We also provide
smaller-scale hosting services in our data centers in Austin, New York,
Singapore and the United Kingdom. Our mature data center operating environment
was created to address mission-critical operational issues for financial
applications, such as security, recovery and availability. Our data centers are
hardened facilities that can scale to support large volumes of customers.

S1 Customer Support

The S1 Customer Support team offers various levels of service to meet an
organizations support needs and budgets:



| |  | Technical Support Customer support engineers will work to provide solutions on S1 products;                                                                                                                                                          
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Software Release Software upgrades that include enhancements to the software as well as operations and performance
improvements; and                                                                                                                 
| 
| |  | Online Support The S1 Support Website is designed to provide one-stop access to technical information for S1 products.
The S1 Support Website provides access to technical FAQs, download patches, the latest documentation, and support
bulletins.

S1 Professional Services

Our professional services team helps financial institutions bring their
solutions to market  rapidly and efficiently. Our professional services
organization is engaged in the following activities:



| |  | Project Management Our project manager is responsible for keeping a
project on schedule and within budget throughout the implementation
cycle;                                         
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Custom Software Development Our developers will customize our
solutions to meet the specific business requirements of our customers
 from analysis and design to building and testing;

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| |  | Technical Services Our team will design, implement and test the
servers and network infrastructure to support our solutions. Our
expertise includes software integration, database services, networking
and the applications skills required to deliver secure, robust
solutions;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Educational Services Our training professionals help financial
institutions train their employees to use our solutions to better
serve their customers; and                                                                                                                      
| 
| |  | Web Design Services S1 Web Technologies is available to assist with
delivery of a complete web presence for financial institutions.                                                                                                                                              

Customers and Markets

We provide solutions to global financial services organizations as well as
regional and local financial institutions. Currently, we serve more than 4,000
banks, credit unions, insurance providers and investment firms. In 2000, 2001
and 2002, we reported revenues from continuing operations of $190.0 million,
$231.8 million and $248.0 million, respectively.

During 2002, we had two major customers (defined as those who individually
contribute more than 10% of total revenues). We provided implementation,
hosting and product enhancement services to State Farm Mutual Automobile
Insurance Company. Revenues from this customer were 38%, 33% and 26% of our
revenues from continuing operations during the years ended December 31, 2000,
2001 and 2002, respectively. We expect revenues from this customer to decline
to approximately 20% of our revenues from continuing operations in 2003.

The other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 17% of our revenues from continuing
operations during the year ended December 31, 2002. These revenues were derived
from agreements to provide a subscription license, data center services and
professional services, all of which end during 2003. This customer contributed
less than 10% of our total revenues 2000 and 2001.

Strategic Alliances and Partners

We have built a global network of alliances, allowing us to more fully
extend our expertise, capabilities, and reach within the financial services
industry. We have established strategic, technology, and channel relationships
with a number of organizations. We have alliances with companies such as
K2Solutions, IBM and BearingPoint as well as with numerous core processing
vendors, bill payment providers, credit card processing vendors and printed
product vendors. In certain geographies, such as Asia and the Middle East, we
are using partners as our primary sales channel to increase our market reach.

Sales and Marketing

We sell our solutions to small, mid-sized and large financial
organizations. Our sales force is comprised of professionals structured in
three major regional groups: (i) the Americas region, (ii) the Europe, Middle
East and Africa region (EMEA) and (iii) the Asia-Pacific and Japan (APJ)
region. We reported revenues of $190.0 million, $231.8 million
and $248.0 million in 2000, 2001 and 2002, respectively, of which
79%, 71% and
71%, respectively, were attributed to sales in the United States.

In the Americas region our sales force is a mix of named account support,
geographic support and inside sales support depending on the size of the
financial institution. The named accounts sales force focuses on developing
long-term relationships with senior management of financial institutions. Once
we have established a relationship with these organizations and their senior
management teams, the sales team continues to market additional products and
services to them. The sales cycle for large financial institutions generally
lasts from 6 to 18 months. Contracts with these large financial organizations
typically have multi-year terms. The sales cycle for these small to mid-sized
financial organizations typically lasts from six to nine months, and the
contracts entered into with them typically provide for direct delivery and
service requirements. In addition, we have relationships with distribution
partners, thereby maximizing our market penetration through the reseller
channel.

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In the EMEA region, we sell through both a named account structure in
specific territories such as the United Kingdom, Belgium, the Netherlands,
Luxemburg and Germany and through resellers in other territories such as Italy
and the Middle East. In the APJ region our sales efforts are focused primarily
on resellers.

Within each group are trained sales support personnel who provide
functional and technical expertise to maximize the customers understanding of
S1s solutions.

In addition to internal sales efforts and joint efforts with distribution
partners, S1 markets its products and services in other ways to build awareness
of the S1 brand. Our marketing efforts include participating in and exhibiting
at industry conferences and trade shows, maintaining memberships in key
industry organizations and establishing close relationships with industry
analysts to help guide product development and marketing efforts.

Product Development

Our product development efforts are focused on:



| |  | Creating Centers of Development Excellence.In 2002, we significantly
restructured our development organization and created centers of
development excellence that focus on development and delivery of
specific pieces of our product line. These development centers include
Charlotte, North Carolina for banking; Littleton, Massachusetts for
insurance; West Hills, California for branch automation; Dublin,
Ireland for CRM and the Enterprise Platform; Dallas, Texas for voice
banking; Austin, Texas for community banking and Pune, India which
provides general development support to the other centers. Atlanta,
Georgia serves as the integration center supporting the development
centers. In order to optimize available research and development
resources and meet development timeframes, we established a
relationship with an Indian based development organization in 2001 to
assist us with portions of our product development. In 2002, we
expanded this relationship and established a development center in
Pune, India.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Enhancing the S1 Enterprise Platform.In the spring of 2002, we
delivered the initial release of the S1 Enterprise Platform. Through
the rest of 2002 we continued with enhancements and subsequent
releases. Utilizing leading industry standards such as J2EE, the S1
Enterprise Platform is an open, flexible and scalable architecture
that will serve as a common base for S1 product deployments. Its
layered framework ensures that all applications are consistent in
their interpretation and presentation of all data and that they can be
consistently extended, upgraded, maintained and operated. It also
allows all applications and channels to access customer information
via a single database.                                                                                                                                                                                                                                                                                                                                     
| 
| |  | Enhancing Existing Products and Services.We are developing new
functions and features across our entire product line in order to
provide a broader range of capabilities and continue to best meet our
customers needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

We spent approximately $60.8 million, $40.8 million and $39.4 million on
product development efforts for continuing operations in 2000, 2001 and 2002,
respectively. During 2003, we expect product development costs to be
approximately $35 million.

Competition

The market for financial software is competitive, rapidly evolving and
subject to technological change. We currently perceive our primary competition
as coming from three areas: (1) in-house development organizations of financial
institutions, (2) best of breed solution providers and (3) core processing
vendors. We believe that these strategies are inefficient for financial
organizations, particularly during a time when many financial institutions are
seeking to integrate their offerings across their multiple delivery channels.

In-house Development Organizations

We believe financial organizations may encounter the following challenges
when building financial software in-house:



| |  | building, maintaining and upgrading an in-house solution can be very costly;                                                  
|- |  | ------------------------------------------------------------------------------------------------------------------------------
| 
| |  | attracting and retaining the necessary technical personnel can be difficult and costly; and                                   
| 
| |  | technological development may be too far outside the financial organizations core competencies to be effective or
successful.

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Best of Breed Solution Providers

These vendors offer solutions for a specific line of business and/or
channel for the financial institution. In the retail Internet banking space, we
compete with Digital Insight Corporation, Financial Fusion (a division of
Sybase, Inc.) and Corillian Corporation. In branch banking, we compete with
Argo Data Resource, Inc. and WebTone Technologies, Inc. In business banking, we
compete with Fundtech Ltd., Politzer & Haney and Metavante Corporation. In CRM
we compete with Siebel Systems, Inc., PeopleSoft, Inc. and Onyx Software
Corporation. We believe the disadvantages associated with a best of breed
solution approach include:



| |  | integrating additional applications and channels with multiple vendors greatly lengthens a financial organizations
time-to-market;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------
| 
| |  | operating and upgrading solutions from multiple vendors is very costly; and                                                        
| 
| |  | a combination of best of breed solutions across different channels does not provide an integrated view of the customer.            

Core Processing Vendors

These vendors offer data processing services and outsourcing for financial
institutions systems of record. In this space we compete with companies such
as Metavante, Fiserv, Inc. and Jack Henry and Associates, Inc. Many of these
companies offer front-office products at a sharp discount to augment their
back-office capabilities. We believe the primary disadvantage of this approach
is that these front office applications will lag behind the market to some
degree in terms of functions and features and are of secondary focus to the
vendor behind their back-office products and services.

Business Held for Sale

Through our Edify Corporation subsidiary, we provide a variety of CRM
applications that allow organizations in various industries to automate,
integrate, personalize and analyze interactions with customers across touch
points such as phone, web, wireless, email, fax and kiosk. In July 2002, we
announced our plan to sell this business together with the non-financial
institutions business of Point Information Systems, a leading European CRM
application provider that we acquired in March 2002. The addition of Points
product suite provides Edify with a full CRM suite, including marketing, sales
and service automation, and will enhance Edifys up-sell and cross-sell
functionality within its multi-channel customer service solutions.

As of March 21, 2003, Edify employed 171 people worldwide. Edifys
business is based in Santa Clara, California with offices located in Dallas,
Texas; London, United Kingdom; Edinburgh, United Kingdom and Dublin, Ireland.

Following the planned divestiture of this combined business, which we
expect to occur before July 1, 2003, all of our remaining businesses will be
focused on the financial institutions market.

Government Regulation

We are subject to examination, and are indirectly regulated by, the Office
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision and the various state financial regulatory agencies that supervise
and regulate the banks and thrift institutions
for which we provide data processing services. Matters subject to review and
examination by federal and state financial institution regulatory agencies
include our internal controls in connection with our performance of data
processing services and the agreements giving rise to those processing
activities.

Laws and regulations that apply to communications and commerce over the
Internet are becoming more prevalent. Currently, there are Internet laws
regarding copyrights, taxation and the transmission of specified types of
material. Congress also adopted legislation imposing obligations on financial
institutions to notify their customers of the institutions privacy practices,
restrict the sharing of non-public customer data with non-affiliated parties at
the customers request, and establish procedures and practices to protect and
secure customer data. These privacy provisions are implemented by regulations
with which compliance is now required. Additionally, there are many legislative
and regulatory actions pending at the state and federal level with respect to
privacy. Further, our customers and we may be faced with state and federal
requirements that differ drastically, and in some cases conflict. In addition,
the European Union enacted its own privacy regulations and is currently
considering other Internet-related legislation. The law of the Internet,
however, remains largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet. In addition, the growth and

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development of the market
for online financial services, including online banking, may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. We
are also subject to encryption and security export laws which, depending on
future developments, could adversely affect our business.

Employees

As of March 21, 2003, we had approximately 1,219 employees in our
continuing operations, including 626 in customer support, hosting services and
professional services, 153 in sales and marketing and 296 in product
development. In addition to full-time employees, we have used the services of
various independent contractors for professional services projects and product
development. We have 93 contractors in our Pune facility working on product
development activities.

Available Information

Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports filed or furnished
pursuant Section 13(a) of the Securities Exchange Act of 1934 are
available free of charge at our web site at www.s1.com as soon as
reasonably practicable after we electronically file such materials
with, or furnish to, the Securities and Exchange Commission.

Risk Factors

You should consider carefully the following risks before you decide to buy
our common stock. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In that
case, the trading price of our common stock could decline, and you may lose all
or a part of the money you paid to buy our common stock.

Our quarterly operating results may fluctuate and any fluctuations could
adversely affect the price of our common stock

Our quarterly operating results have fluctuated significantly to date. If
we fail to meet the expectations of securities analysts or investors as a
result of any future fluctuations in our quarterly operating results, the
market price of our common stock would likely decline. We may experience
fluctuations in future quarters because:



| |  | we cannot accurately predict the number and timing of contracts we will sign in a period, in part because the budget
constraints and internal review processes of existing and potential customers are not within our control;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the length of our sales cycle to large financial organizations generally lasts from 6 to 18 months, which adds an element
of uncertainty to our ability to forecast revenues;                                                 
| 
| |  | if we fail to introduce new or enhanced products, or if our competitors introduce new or enhanced products, sales of our
products and services may not achieve expected levels and/or may decline;                            
| 
| |  | our ability to expand the mix of distribution channels through which our products are sold may be limited;                                                                                                                    
| 
| |  | our products may not achieve widespread consumer acceptance, which could cause our revenues to be lower than expected;                                                                                                        
| 
| |  | we have significant contracts with legacy customers that are winding down and we may not be able to replace this revenue
and/or the gross margins associated with this revenue;                                               
| 
| |  | our sales may be constrained by the timing of releases of third-party software that works with our products; and                                                                                                              
| 
| |  | a significant percentage of our expenses is relatively fixed, and we may be unable to reduce expenses in the short term if
revenues decrease.                                                                                 

Acquisitions and divestitures may be costly and difficult to integrate /
divest, divert management resources or dilute stockholder value

We acquired three companies in 2000, one company in 2001 and two companies
in the first quarter of 2002. The integration of these companies and any
future acquisitions into our existing operations is a complex, time-consuming
and expensive process and may disrupt our business. We have encountered
substantial difficulties, costs and delays in integrating the acquired
operations with our own and may continue to do so in the future. Among the
issues related to integration are:



| |  | potential incompatibility of business cultures;                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------
| 
| |  | potential delays in rationalizing diverse technology platforms;                                                     
| 
| |  | potential difficulties in coordinating geographically separated organizations;                                      
| 
| |  | potential difficulties in re-training sales forces to market all of our products across all of our intended markets;
| 
| |  | potential difficulties implementing common internal business systems and processes;                                 
| 
| |  | potential conflicts in third-party relationships; and                                                               
| 
| |  | the loss of key employees and diversion of the attention of management from other ongoing business concerns.        

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We sold one company in January 2001. We are currently holding a business
unit for sale. We anticipate the completion of this sale by June 30, 2003.

We depend on a limited number of customers for a significant portion of our
revenue and if any of those customers terminates its contract our revenues and
financial performance would decline

We derive significant revenues from two customers. We had one customer
that accounted for 38%, 33% and 26% of our total revenue from continuing
operations in 2000, 2001 and 2002, respectively. We expect revenues from this
customer to decline to approximately 20% of our revenues from continuing
operations in 2003. In 2002, we had one customer that accounted for 17% of our
total revenues from continuing operations. Revenues from this customer are
derived from a subscription license, professional services and a hosting
agreement all of which end in 2003. There is no assurance that we will be able
to replace the declining revenues from these two customers.

A substantial number of our customer contracts require payment of
liquidated damages upon early termination. These damages are usually
insufficient to replace the ongoing revenue we would have otherwise earned.

We have experienced substantial losses and may not maintain profitable
operations in the future

Although we incurred losses in fiscal years 2000, 2001 and 2002, we were
profitable in the fourth quarter of 2002. In the past, we approved
restructuring plans related to the streamlining of our worldwide operations.
We continue to review our cost structure on a worldwide basis and look for
additional ways to streamline our operations. We believe our efforts to
streamline operations, including headcount reductions and consolidation of our
operating facilities, have resulted in costs savings that have improved our
margins and our cash flows from operating activities during 2001 and 2002. We
cannot ensure that our efforts to streamline our operations will improve our
financial performance, or that we will be able to achieve profitability on a
quarterly or annual basis in the future. We generally are unable to reduce our
expenses significantly in the short-term to compensate for any unexpected delay
or decrease in anticipated revenues. As a result, we may experience losses,
which could negatively impact the value of our common stock.

Market volatility may affect the price of our common stock

The trading prices of technology stocks in general, and ours in
particular, have experienced extreme price fluctuations. Our stock price has
declined significantly since reaching a high in 2000. Any further negative
change in the publics perception of the prospects of technology based
companies, particularly those which are associated with the Internet or
e-commerce such as ours, could further depress our stock price regardless of
our results of operations. Other broad market and industry factors may
decrease the trading price of our common stock, regardless of our operating
performance. Market fluctuations, as well as general political and economic
conditions such as a recession or interest rate or currency rate fluctuations,
also may decrease the trading price of our common stock. In addition, our
stock price could be subject to wide fluctuations in response to the following
factors:



| |  | actual or anticipated variations in our quarterly operating results;                                                              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------
| 
| |  | announcements of new products, product enhancements, technological innovations or new services by us or our competitors;          
| 
| |  | changes in financial estimates by securities analysts;                                                                            
| 
| |  | conditions or trends in the computer software, electronic commerce and Internet industries;                                       
| 
| |  | changes in the market valuations of other technology companies;                                                                   
| 
| |  | developments in Internet regulations;                                                                                             
| 
| |  | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital
commitments;
| 
| |  | unscheduled system downtime of our products in either a hosted or in-house environment;                                           
| 
| |  | additions or departures of key personnel; and                                                                                     
| 
| |  | sales of our common stock or other securities in the open market.                                                                 

Future sales of our common stock in the public market could negatively affect
our stock price

If our stockholders sell substantial amounts of our common stock,
including shares issued when options and warrants are exercised or shares of
our preferred stock are converted into common stock, the market price of our
common stock could fall. As of March 21, 2003, we had 69.3 million shares of
common stock outstanding, assuming no exercise of outstanding

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options or warrants or conversion of preferred stock. As of March 21, 2003, there were
outstanding employee stock options to purchase 18.0 million shares of our
common stock, options and warrants to acquire 0.1 million shares of our common
stock, and 1.4 million shares of preferred stock convertible into an aggregate
of 1.7 million shares of our common stock. The common stock issuable after
vesting and upon exercise of these options and warrants and upon conversion of
this preferred stock will be eligible for sale in the public market from time
to time. The possible sale of a significant number of these shares may cause
the market price of our common stock to fall. Some of the holders of restricted
shares of our common stock, our preferred stock and vested options or warrants
have rights that may require us to register shares of common stock with the
Securities and Exchange Commission. By exercising their registration rights and
causing a large number of shares to be sold in the public market, these
stockholders could cause the market price of our common stock to fall.

A significant portion of our customers are in the rapidly consolidating
financial services industry, which is subject to economic changes that could
reduce demand for our products and services

For the foreseeable future, we expect to derive most of our revenue from
products and services we provide to the banking industry and other financial
services firms such as insurance and securities brokerage companies. Changes
in economic conditions and unforeseen events, like recession or inflation,
could occur and reduce consumers use of banking services. Any event of this
kind, or implementation for any reason by banks of cost reduction measures,
could result in significant decreases in demand for our products and services.
Mergers and acquisitions are pervasive in todays banking industry. Our
existing customers may be acquired by or merged into other financial
institutions that have their own financial software solution or decide to
terminate their relationships with us for other reasons. As a result, our
sales could decline if an existing customer is merged into or acquired by
another company.

Network or Internet security problems could damage our reputation and business

Despite our security measures, the core of our network infrastructure
could be vulnerable to unforeseen technology problems. Although we have taken
steps to mitigate much of the risk, we may in the future experience
interruptions in service as a result of the accidental or intentional actions
of Internet users, current and former employees or others. Unknown security
risks may result in liability to us and also may deter financial organizations
from licensing our software and services. Although we intend to continue to
implement and establish security measures, there can be no assurance that
measures we have implemented will not be circumvented in the future, which
could have a material adverse effect on our business, financial condition or
results of operations. The occurrence of any of these problems could reduce
product demand from potential customers and cause existing customers to
terminate their license or data center contracts with us. These problems could
also require us to spend significant capital to remedy any failure and could
subject us to costly litigation with customers or their end users.

Our market is highly competitive and, if we are unable to keep pace with
evolving technology, our revenue and future prospects may decline

The market for our products and services is characterized by rapidly
changing technology, intense competition and evolving industry standards. We have many competitors who offer various
components of our suite of applications or who use a different technology
platform to accomplish similar tasks. In some cases, our existing customers
also use some of our competitors products. Our future success will depend on
our ability to develop, sell and support enhancements of current products and
new software products in response to changing customer needs. If the
completion of the next version of any of our products is delayed, our revenue
and future prospects could be harmed. In addition, competitors may develop
products or technologies that the industry considers more attractive than those
we offer or that render our technology obsolete.

We are engaged in offshore software development activities, which may not be
successful and which may put our intellectual property at risk

In order to optimize available research and development resources and meet
development timeframes, we established a relationship with an Indian based
development organization in 2001 to outsource portions of our product
development. We expanded this relationship in 2002 to a newly created
development center in India. While our experience to date with these
activities has been positive, there is no assurance that this will continue.
Specifically, there are a number of risks associated with this activity,
including but not limited to the following:



| |  | communications and information flow may be less efficient and accurate as a consequence of the time, distance and language
differences between our primary development organization and the Indian based activities, resulting in delays in
development or errors in the software developed;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | potential disruption from the
involvement of the United States in the conflicts in the Middle East
region;                                                                                                   
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | ramp-up time for our Indian based development efforts may adversely impact the ability to meet anticipated schedules;                                                                                        
| 
| |  | the quality of the development efforts undertaken off-shore do not meet our requirements because of language, cultural and
experiential differences, resulting in potential product errors and/or delays; and
| 
| |  | there is the potential for misappropriation of our intellectual property that might not be readily discoverable.                                                                                             

We are involved in litigation over proprietary rights, which may be costly and
time consuming

We have received a claim that our products, trademarks or other
proprietary rights require a license of intellectual property rights or
infringe, or may infringe, on the intellectual property rights of others.
Those claims, with or without merit, could:



| |  | be time-consuming;                                                   
|- |  | ---------------------------------------------------------------------
| 
| |  | result in costly litigation;                                         
| 
| |  | cause product shipment delays;                                       
| 
| |  | require us to enter into royalty or licensing agreements; or         
| 
| |  | result in an injunction being issued against the use of our products.

Royalty or licensing agreements, if required, may not be available on
terms acceptable to us, or at all, which could harm our business, financial
condition and results of operations. Litigation to determine the validity of
any claims could result in significant expense to us and divert the efforts of
our technical and management personnel from productive tasks, whether or not
the litigation is determined in our favor. In the event of an adverse ruling,
we may be required to:



| |  | pay substantial damages;                                             
|- |  | ---------------------------------------------------------------------
| 
| |  | discontinue the use and sale of infringing products;                 
| 
| |  | expend significant resources to develop non-infringing technology; or
| 
| |  | obtain licenses to infringing technology.                            

Our failure to develop or license a substitute technology could
significantly harm our business. We expect software to be increasingly subject
to third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Third
parties may have, or may eventually be issued, patents that would be infringed
by our products or technology. Any of these third parties could make a claim
of infringement against us with respect to our products or technology. In
addition, we may become involved in costly and time-consuming litigation to
protect the validity of our intellectual property rights.

Infringement of our proprietary technology could hurt our competitive position
and income potential

Our success depends upon our proprietary technology and information. We
rely on a combination of patent,
copyright, trademark and trade secret laws and confidentiality procedures
to protect our proprietary technology and information. Because it is difficult
to police unauthorized use of software, the steps we have taken to protect our
services and products may not prevent misappropriation of our technology. Any
misappropriation of our proprietary technology or information could reduce any
competitive advantages we may have or result in costly litigation. We now also
have a significant international presence. The laws of some foreign countries
may not protect our proprietary technology as well as the laws of the United
States. Our ability to protect our proprietary technology abroad may not be
adequate.

International operations and currency exchange rate fluctuations may adversely
affect us

We conduct our business worldwide and may be adversely affected by changes
in demand resulting from:



| |  | fluctuations in currency exchange rates;                                   
|- |  | ---------------------------------------------------------------------------
| 
| |  | governmental currency controls;                                            
| 
| |  | changes in various regulatory requirements;                                
| 
| |  | political and economic changes and disruptions;                            
| 
| |  | difficulties in enforcing our contracts in foreign jurisdictions;          
| 
| |  | export/import controls;                                                    
| 
| |  | tariff regulations;                                                        
| 
| |  | difficulties in staffing and managing foreign sales and support operations;

14



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| |  | greater difficulties in trade accounts receivable collection; and
|- |  | -----------------------------------------------------------------
| 
| |  | possible adverse tax consequences.                               

In addition, we maintain our international executive offices and a
significant portion of our maintenance, consulting, and research and
development operations in Europe. Therefore, our operations may also be
affected by economic conditions in Europe. These risks associated with
international operations may harm our business.

If we are unable to attract and retain highly skilled technical employees, we
may not be able to compete

Based on the significant growth in our operations and the need for highly
skilled technical employees, we believe that our future success will depend in
large part on our ability to attract and retain highly skilled technical
personnel. Because the development of our software requires knowledge of
computer hardware, as well as a variety of software applications, we need to
attract and retain technical personnel who are proficient in all these
disciplines. There is substantial competition for employees with the technical
skills we require. If we cannot hire and retain talented technical personnel,
this could adversely affect our growth prospects and future success.

We are subject to government regulation

We are subject to examination, and are indirectly regulated, by the Office
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision and the various state financial regulatory agencies that supervise
and regulate the banks and thrift institutions for which we provide data
processing services. Matters subject to review and examination by federal and
state financial institution regulatory agencies include our internal controls
in connection with our performance of data processing services and the
agreements giving rise to those processing activities.

The adoption or modification of laws or regulations relating to the Internet,
or interpretations of existing law, could adversely affect our business

Laws and regulations which apply to communications and commerce over the
Internet are becoming more prevalent. Currently, there are Internet laws
regarding copyrights, taxation and the transmission of specified types of
material. Congress also adopted legislation imposing obligations on financial
institutions to notify their customers of the institutions privacy practices,
restrict the sharing of non-public customer data with non-affiliated parties at
the customers request, and establish procedures and practices to protect and
secure customer data. These privacy provisions are implemented by regulations
with which compliance is now required. Additionally, there are many legislative
and regulatory actions pending at the state and federal level with respect to
privacy. Further, our customers and we may be faced with state and federal
requirements that differ drastically, and in some cases conflict. In addition,
the European Union enacted its own privacy regulations and is currently
considering other Internet-related legislation. The law of the Internet,
however, remains largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing laws
such as those governing intellectual property,
privacy, libel and taxation apply to the Internet. In addition, the growth and
development of the market for online financial services, including online
banking, may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online.

Restrictions on our export of encrypted technology could cause us to incur
delays in international sales

Our solutions use encrypted technology, the export of which is regulated
by the United States government. If the United States government were to adopt
new legislation restricting the export of software or encryption technology, we
could experience delays or reductions in our shipments of products
internationally. In addition, existing or future export regulations could
limit our ability to distribute our solutions outside of the United States.

System failures or performance problems with our products could cause demand
for these products to decrease, require us to make significant capital
expenditures or impair customer relations

There are many factors that could adversely affect the performance,
quality and desirability of our products and could delay or prevent these
products from gaining market acceptance. These factors include, but are not
limited to the following:



| |  | extraordinary end-user volumes or other events could cause systems to fail;
|- |  | ---------------------------------------------------------------------------

15



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##### Table of Contents





| |  | our products could contain errors, or bugs, which could impair the services we provide;                                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | during the initial implementation of some products, we have experienced significant delays in
implementing and integrating software, and we may experience similar difficulties or delays in
connection with future implementations and upgrades to new versions; and
| 
| |  | many of our products require integration with third-party products and systems, and we may not
be able to integrate these products with new or existing products.                                                                                                    




Item 2.Properties.

Our executive offices are located in Atlanta, Georgia. Our primary office
for EMEA operations is in the United Kingdom, and our primary office for APJ
operations is in Singapore. Our global data center is located in the Atlanta
metropolitan area. We also have data center operations in Austin, New York,
London and Singapore. We maintain additional domestic offices in Boston,
Charlotte, Austin, Dallas, New York, and West Hills. We maintain additional
international offices in Brussels, Dublin, Hong Kong, Lisbon, London,
Luxembourg, Madrid, Melbourne, Munich, Paris, Rotterdam and Sydney. We lease
all of our office space as well as our data center facilities.




Item 3.Legal Proceedings.

S1 and its subsidiaries are subject to legal proceedings that arise from
time to time in the normal course of business. Included among these are the
following:



| |  |  | S1 Corporation and its subsidiary Davidge Data Systems are
involved in litigation with Scottrade, Inc. and an affiliate company,
Computer Research, Inc., relating to a software development project.
The action was initially filed in March 2002 in the U.S. District
Court for the Eastern District of Missouri. Amended complaints were
filed by the plaintiffs in November of 2002 and January of 2003. The
plaintiffs have made a claim for a refund of all amounts paid to S1
and Davidge as well as all damages flowing from the dispute,
including service bureau expenses incurred because of the allege
failure to perform, the sum of which could exceed a million dollars.
S1 and Davidge have filed a counterclaim for unpaid amounts under the
contract. We believe the plaintiffs claims are not meritorious and
intend to vigorously defend the suit.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of
America Corporation and Bank of America National Association. We
believe that the plaintiffs claims are not meritorious and intend
to vigorously defend the suit.                                                                                                                                                                                                                                                                                                                                                                                                                               

While we do not believe that any of the
above matters or any other pending litigation will be material to our
financial position or results operations, there can be no
assurance on the ultimate outcome of these matters.




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



| | (a) |  | Not applicable.
| | --- |  | ---------------
|
| | (b) |  | Not applicable.
|
| | (c) |  | Not applicable.
|
| | (d) |  | Not applicable.

16



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PART II




Item 5.Market for Registrants Common Equity and Related Stockholder Matters.

(a)  Our common stock is quoted on the Nasdaq National Market under the
symbol SONE. The following table shows, for the periods indicated, the high
and low prices per share of our common stock as reported on the Nasdaq National
Market.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2001           |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 11.25 |     |  | $ | 5.00  | 
|Second Quarter |  |      | 14.59 |     |  |   | 4.50  | 
|Third Quarter  |  |      | 15.13 |     |  |   | 5.71  | 
|Fourth Quarter |  |      | 19.00 |     |  |   | 7.80  | 
|2002           |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 20.13 |     |  | $ | 13.35 | 
|Second Quarter |  |      | 15.45 |     |  |   | 5.16  | 
|Third Quarter  |  |      | 7.30  |     |  |   | 3.76  | 
|Fourth Quarter |  |      | 6.70  |     |  |   | 3.41  | 

As of the close of business on
March 21, 2003, there were 658 holders of
record of our common stock. We have never paid or declared cash dividends on
our common stock or preferred stock and do not anticipate paying cash dividends
on our capital stock in the foreseeable future.

(b) Not applicable.

17



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##### Table of Contents






Item 6.Selected Financial Data.

The following table presents selected statement of operations data,
selected balance sheet data and other selected data for S1 on a consolidated
basis. We derived the selected historical consolidated financial data presented
below from our audited consolidated financial statements and related notes. You
should read this data together with our audited consolidated financial
statements and related notes.

|                                                                       |  |                         |         |      |  |                                       |          |      |  |      |            |   |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ------------------------------------- | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | - |  | - | ------- | -
|                                                                       |  | Year Ended December 31,
|                                                                       |  |                        
|                                                                       |  | 1998                    |         | 1999 |  | 2000                                  |          | 2001 |  | 2002
|                                                                       |  |                         |         |      |  |                                       |          |      |  |     
|                                                                       |  |                         |         |      |  | (in thousands, except per share data) |          |      |  |     
|Statement of Operations Data:                                          |  |                         |         |      |  |                                       |          |      |  |      |            |   |  |   |          |   |  |   |         |  
|Total revenues                                                         |  | $                       | 24,180  |      |  | $                                     | 84,940   |      |  | $    | 190,029    |   |  | $ | 231,765  |   |  | $ | 247,977 |  
|Loss from continuing operations                                        |  |                         | (28,558 | )    |  |                                       | (121,718 | )    |  |      | (1,138,197 | ) |  |   | (195,186 | ) |  |   | (6,529  | )
|Net loss                                                               |  |                         | (30,805 | )    |  |                                       | (125,087 | )    |  |      | (1,177,678 | ) |  |   | (221,543 | ) |  |   | (16,397 | )
|Basic and diluted net loss per common share from
continuing operations |  |                         | (1.30   | )    |  |                                       | (4.16    | )    |  |      | (21.04     | ) |  |   | (3.30    | ) |  |   | (0.10   | )
|Basic and diluted net loss per common share                            |  |                         | (1.40   | )    |  |                                       | (4.28    | )    |  |      | (21.77     | ) |  |   | (3.74    | ) |  |   | (0.24   | )

|                                                    |                |                    |        |      |  |      |           |      |  |      |         |  |  |   |         |  |  |   |         | 
|--------------------------------------------------- | -------------- | ------------------ | ------ | ---- |  | ---- | --------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                    |                | As of December 31,
|                                                    |                |                   
|                                                    |                | 1998               |        | 1999 |  | 2000 |           | 2001 |  | 2002
|                                                    |                |                    |        |      |  |      |           |      |  |     
|                                                    | (in thousands)
|Balance Sheet Data:                                 |                |                    |        |      |  |      |           |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                           |                | $                  | 14,504 |      |  | $    | 67,850    |      |  | $    | 153,504 |  |  | $ | 119,632 |  |  | $ | 127,842 | 
|Short-term investments                              |                |                    |       |      |  |      |          |      |  |      | 19,762  |  |  |   | 28,818  |  |  |   | 14,843  | 
|Working capital                                     |                |                    | 19,074 |      |  |      | 96,226    |      |  |      | 165,704 |  |  |   | 129,827 |  |  |   | 141,652 | 
|Working capital, excluding deferred revenues        |                |                    | 29,452 |      |  |      | 116,695   |      |  |      | 193,175 |  |  |   | 157,326 |  |  |   | 176,485 | 
|Goodwill, net                                       |                |                    | 238    |      |  |      | 788,293   |      |  |      | 195,428 |  |  |   | 79,723  |  |  |   | 89,640  | 
|Total assets                                        |                |                    | 48,293 |      |  |      | 1,132,487 |      |  |      | 606,704 |  |  |   | 372,037 |  |  |   | 376,974 | 
|Notes payable                                       |                |                    |       |      |  |      | 6,351     |      |  |      | 3,822   |  |  |   |        |  |  |   |        | 
|Capital lease obligation, excluding current portion |                |                    | 159    |      |  |      | 1,086     |      |  |      | 6,226   |  |  |   | 1,450   |  |  |   | 185     | 
|Stockholders equity                                |                |                    | 17,229 |      |  |      | 990,807   |      |  |      | 467,745 |  |  |   | 274,618 |  |  |   | 279,761 | 

|                                                             |                |                         |         |      |  |      |         |      |  |      |           |   |  |   |        |  |  |   |        | 
|------------------------------------------------------------ | -------------- | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | --------- | - |  | - | ------ |  |  | - | ------ | 
|                                                             |                | Year Ended December 31,
|                                                             |                |                        
|                                                             |                | 1998                    |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                             |                |                         |         |      |  |      |         |      |  |     
|                                                             | (in thousands)
|Other Selected Data:                                         |                |                         |         |      |  |      |         |      |  |      |           |   |  |   |        |  |  |   |        | 
|Cash (used in) provided by continuing operations             |                | $                       | (11,904 | )    |  | $    | (30,037 | )    |  | $    | (150,712  | ) |  | $ | 11,894 |  |  | $ | 21,421 | 
|Depreciation                                                 |                |                         | 5,347   |      |  |      | 6,515   |      |  |      | 23,598    |   |  |   | 26,880 |  |  |   | 21,404 | 
|Amortization and impairment of acquisition
intangible assets |                |                         | 4,384   |      |  |      | 36,272  |      |  |      | 1,048,654 |   |  |   | 60,587 |  |  |   | 15,943 | 
|Weighted average number of common shares outstanding         |                |                         | 22,037  |      |  |      | 29,228  |      |  |      | 54,096    |   |  |   | 59,242 |  |  |   | 67,725 | 

18



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

This annual report contains forward-looking statements and information
relating to us, including our subsidiaries. The words believes, expects,
may, will, should, projects, contemplates, anticipates,
forecasts, intends or similar terminology identify forward-looking
statements. These statements are based on our beliefs as well as assumptions
made using information currently available to us. Because these statements
reflect our current views concerning future events, they involve risks,
uncertainties and assumptions. Therefore, actual results may differ
significantly from the results discussed in the forward-looking statements. For
a summary of significant risks, you should read the risk factors described
under the caption Risk Factors in Item 1 of Part I of this report. Except as
required by law, we undertake no obligation to update publicly any
forward-looking statement for any reason, even if new information becomes
available.

The following discussion should be read in conjunction with the audited
consolidated financial statements and notes appearing elsewhere in this report.

Overview

We derive a significant portion of our revenues from licensing our
solutions and providing professional services. We generate recurring data
center revenues by charging our data center customers a monthly fixed fee or a
fee based on the number of their end users who use the solutions we provide,
subject to a minimum charge. We also generate recurring revenues by charging
our customers a periodic fee for maintenance.

We generate revenues from two principal product groups: S1 Enterprise (or
multi-channel) financial solutions and legacy (or single channel) financial
solutions. We define S1 Enterprise revenue as those fees that we earn from
sales of our recently released S1 Enterprise applications, such as S1 Personal
Banking or S1 Business Banking, as well as fees that we earn from customers who
have signed an S1 Enterprise agreement. Revenues from non-S1 Enterprise single
channel financial solutions represent fees that we earn from customers who only
use our legacy channel solutions. Our strategy is to transition from a business
model of providing single channel applications to providing integrated
multi-channel Enterprise solutions. We intend to upgrade a significant number
of our customers to the S1 Enterprise platform and cross sell and/or up sell
additional channel applications to our installed base as they migrate to an S1
Enterprise solution. We believe customers will migrate to an S1 Enterprise
solution because it is an integrated suite of products that lowers the cost of
ownership versus separate point solutions and provides one view of the
customer, which leads to higher customer satisfaction. Customers who purchase
an S1 Enterprise solution provide us with the economic benefit of higher
average selling prices and it builds longer-term customer relationships.
During the year ended December 31, 2002, we recorded revenue of $30.0 million
from our S1 Enterprise solutions. In future periods, we expect revenues from
our S1 Enterprise solutions to increase as a percentage of our total revenues.

Our S1 Enterprise solutions target large and mid-market and regional
financial institutions. We earned a significant portion of our revenues in 2001
and 2002 from a few large financial institution customers. In connection with
our acquisitions of SDI, Regency and Point, we have significantly increased the
number of our financial institution customers to over 4,000. Most of these
financial institution customers are mid-sized and regional financial
institutions. As a result, we expect that a greater percentage of our future
revenues will be earned from mid-sized and regional financial institutions.
While we expect to generate a considerably higher number of contracts each year
from mid-sized and regional financial institutions, the average contract value
and, therefore, margin contribution from each contract is significantly lower
than the legacy contracts from large financial institution customers.

In 2002, we had two major customers (defined as those who individually
contribute more than 10% of total revenues). Revenues from State Farm Mutual
Automobile Insurance Company were 26%, 33% and 38% of our revenues from
continuing operations during the year ended December 31, 2002, 2001 and 2000,
respectively. The revenue from this customer for the year ended December 31,
2002 decreased $11.7 million from 2001 due to a decrease in professional
services projects performed for that customer in 2002. We expect that
professional services revenues from this major customer will continue to
decrease in 2003.

Our other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 17% of our revenues from continuing
operations during the year ended December 31, 2002. This customer contributed
less than 10% of our total revenues for the same period in 2001. Effective
April 1, 2002, we amended the terms of our arrangement with this customer.
Under the terms of the revised agreement, we agreed to provide a subscription
license until December 31, 2003 (previously the contract expired in 2005), data center
services through December 31, 2004 and professional services.

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In September 2002, this customer announced
its plan to discontinue operations running in our U.K. data center. In March
2003, we amended the terms of our arrangement (the 2003 amendment) such that
Zurich will pay $7.8 million in two installments through July 2003 to
accelerate the remaining services of the data center arrangement from December 31, 2004
to June 30, 2003. We will report those accelerated payments as data center
revenue during the six months ending June 30, 2003, after which time we will
have no further obligation to provide data center services to Zurich. The
license and professional services components of the arrangement were not
affected by the 2003 amendment. In 2003, we expect to record license and
professional services revenue of $34.2 million from Zurich.

In March 2003, we made the decision to consolidate our U.K. data center
operations into our global hosting center in Atlanta. We expect to
record restructuring charges during the six months ending June
30, 2003
for accelerated depreciation on the data center equipment, severance and
benefits for terminated employees and various payments to terminate
arrangements with vendors that provide services to support our U.K. data center
operations.

Our results of operations and cash flows for the year ended December 31,
2002 were affected by the results of operations from acquired businesses,
including Software Dynamics, Inc. (September 2001), Regency Systems, Inc.
(February 2002) and the assets and subsidiaries of Point Holdings, Ltd. (March
2002). Revenues and expenses from the operations of these acquired businesses
were included in our operations from their respective dates of acquisition.
During the year ended December 31, 2002, we recorded total revenues of $34.8
million in these acquired businesses. We believe that the results achieved in
the acquired businesses significantly exceeded those which they would have
achieved on a stand-alone basis. We made these acquisitions because the
acquired products and technologies are integral to our S1 Enterprise suite of
applications. We have been able to cross sell existing S1 offerings into the
acquired customer base and acquired product offerings into our existing
customer base. Furthermore, we believe that we have been able to leverage our
combined resources to increase the sales opportunities for these acquired
products, especially those of SDI, whose revenues increased approximately 68%
during the nine months ended September 30, 2002 over the same period in 2001,
respectively. You should also read our discussion of Acquisitions below and
in Note 3 to our consolidated financial statements.

In addition, our results of operations were positively affected by the
adoption of a new accounting principle, Statement of Financial Accounting
Standards No. 142 Goodwill and Other Intangible Assets. Effective January 1,
2002, we stopped amortizing goodwill and assembled workforce, which was
reclassified to goodwill. Retroactive application of this new accounting
treatment is prohibited by SFAS 142. Pro forma results for 2000 and 2001 are
presented in Note 16 to our consolidated financial statements giving effect to
the accounting change as if it were applicable to those prior periods.

Throughout 2002, we continued to invest in the development of our new
integrated S1 Enterprise Platform as the technology foundation for the S1
Enterprise family of products. The S1 Enterprise Platform:



| |  | provides financial institutions and their customers with a single integrated view of a customers relationships, which
increases customer satisfaction;                                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | enables financial services providers to leverage the interfaces built to their back-end systems, share customer data across
their enterprise and deliver comprehensive, integrated marketing programs;  
| 
| |  | provides an open, flexible, and scalable architecture that leverages existing legacy and third-party applications;                                                                                      
| 
| |  | allows financial services providers to move toward a standard platform to unify their channel strategy and provide
transactional and CRM capabilities to both their external and internal customers; and
| 
| |  | lowers the costs of ownership for financial institutions versus single channel applications.                                                                                                            

In the first quarter of 2002, we released for general availability the
first two applications to be deployed on the S1 Enterprise Platform: S1
Personal Banking and S1 Business Banking. During the third quarter of 2002, we
announced the successful implementation for our first S1 Enterprise customer
and their transition into live production. As of the date of this report,
twenty financial institutions are in production mode with a hosted or
on-premise S1 Enterprise solution.

During July 2002, we realigned our product development organization to be
more efficient. The realignment effort included creating eight centers of
development excellence throughout the world: six in the United States, one in
Europe and one in India. We will continue to consolidate domain expertise in
these locations taking into consideration the skills of the local development
organization and the local workforce.

Historically have not capitalized software development costs because of
the insignificant amount of costs incurred between technological feasibility
and general customer release. If technological feasibility is reached earlier
in the development cycle, we may be required to capitalize certain software
development costs in the future.

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We are continually reviewing our cost structure on a worldwide basis and
looking for additional ways to streamline our operations and reduce our
operating costs. In 2002, we realigned our resources domestically and
internationally to match costs with expected revenues. Before additional
personnel from acquisitions, we reduced our headcount by approximately 297
people in all areas of our continuing business operations during 2002. We will
continue to rationalize our operating cost structure and may execute similar
cost reductions in the future.

In July 2002, we announced our intent to pursue the sale of our contact
center automation assets, composed of our Edify Corporation subsidiary and the
non-financial assets of our acquired Point business. Beginning in the third
quarter of 2002, we accounted for these combined businesses as held for sale
and presented their combined results under discontinued operations. You
should read Note 2 and Note 5 to our consolidated financial
statements for a more complete description of the accounting treatment that has
been applied to the contact center automation business in 2002.

Acquisitions

In March 2002, we acquired the assets and subsidiaries of Point Holdings,
Ltd., a Dublin, Ireland based CRM application provider. In February 2002, we
acquired Regency Systems, Inc., a Dallas, Texas based provider of telephone and
Internet banking applications and web design services for community and
mid-market banks. Regency is part of our continuing operations. Point
operations related to financial institution customers are included in
continuing operations. The Point operations not associated with financial
institution customers are now included in discontinued operations.

In September 2001, we acquired Software Dynamics, Inc., a West Hills,
California based provider of branch automation, teller, call center and CRM
solutions for financial institutions. In April 2000, we acquired Davidge Data
Systems, Inc., a New York, New York based provider of order routing services to
brokerage firms and Q-Up Systems, Inc., an Austin, Texas based provider of
Internet financial services solutions to community banks. In November 2000, we
acquired Level Next, Inc., a provider of global trade banking systems. These
acquired businesses are all part of our continuing operations.

We accounted for these acquisitions using the purchase method of
accounting with the excess of the purchase price over the estimated fair value
of the net assets (liabilities) recorded as goodwill. Other intangible assets
include developed technology and customer base. Additionally, for certain of
these acquisitions, we allocated a portion of the purchase price to in-process
research and development, which was expensed immediately upon closing the
acquisition. The consolidated financial statements include the results of
operations for the acquired companies from the date of acquisition.

Restructuring Plans

In November 2000, we approved a restructuring plan to streamline our
operations and to discontinue development on the Edify retail-banking platform.
As a result of the restructuring plan, we reduced our workforce by
approximately 220 employees and closed several of our facilities worldwide.
During 2001, we determined that, as a result of a softening in the domestic
real estate markets, our original estimate of the costs to dispose of unused
real estate was below the currently anticipated costs and the restructuring
accrual was adjusted. During the second quarter of 2001, we approved a
restructuring plan to streamline our European operations. In connection with
this plan, we reduced our European workforce by 77 people and consolidated the
majority of our European operations into two locations. Further adjustments
to the restructuring accrual may be recorded in the future due to changes in
estimates of lease termination reserves arising from changing real estate
market conditions. We continue to review our cost structure on a worldwide basis and look for
additional ways to streamline our operations.

Merger Related Costs

During 2002, we incurred merger related costs in connection with the
acquisition of Point. These costs, incurred in connection with our plan to
reorganize certain of our European operations, included headcount reduction,
consolidation of S1 and acquired Point office facilities and disposal of redundant or obsolete
computer equipment.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States

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of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Generally, we base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ from these
estimates under other assumptions or conditions.

Critical accounting policies are those that we consider the most important
to the portrayal of our financial condition and results of operations because
they require our most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain. Our critical accounting policies include those related
to:



| |  | revenue recognition;                                                                          
|- |  | ----------------------------------------------------------------------------------------------
| 
| |  | estimation of our allowance for doubtful accounts and billing adjustments;                    
| 
| |  | valuation and recoverability of long-lived assets, including goodwill;                        
| 
| |  | discontinued operations;                                                                      
| 
| |  | determination of technological feasibility and capitalization of software development costs;  
| 
| |  | recognition of costs in connection with restructuring plans and merger-related activities; and
| 
| |  | accounting for our equity method investment in Yodlee.                                        

Revenue recognition.Revenue is a key component of our results of
operations and is a key metric used by management, securities analysts and
investors to evaluate our performance. Our revenue arrangements generally
include multiple elements such as license fees for software products,
installation services, customization services, training services, post-contract
customer support, data center services and, in some cases, hardware or other
third party products.

Software license revenue. We recognize software license sales in
accordance with Statement of Position No. 97-2, Software Revenue Recognition,
and SOP No. 98-9, Modification of SOP No. 97-2 With Respect to Certain
Transactions. For software license sales for which any services rendered are
not considered essential to the functionality of the software, we recognize
revenue upon delivery of the software provided (1) there is evidence of an
arrangement, (2) collection of our fee is considered probable and (3) the fee
is fixed or determinable. In certain of these arrangements, vendor specific
objective evidence of fair value exists to allocate the total fee to all
elements of the arrangement. If vendor specific objective evidence of fair
value does not exist for the delivered element and exists for all undelivered
elements, we use the residual method under SOP No. 98-9.

When the professional services are considered essential to the
functionality of the software, we record revenue for the license and
professional services over the implementation period using the percentage of
completion method, measured by the percentage of labor hours incurred to date
to estimated total labor hours for each contract. For software licenses where
the license term does not begin until installation is complete, we recognize
license and professional services revenue when we complete the installation of
the software.

For subscription license arrangements where we allow customers the rights
to unspecified products as well as unspecified upgrades and enhancements during
a specified term, the license revenue is recognized ratably over the term of
the arrangement. For license arrangements in which the fee is not considered
fixed or determinable, the license revenue is recognized as payments become
due.

Support and maintenance revenue. Revenues for post-contract customer
support and maintenance are recognized ratably over the contract period.

Professional services revenue. Revenues derived from arrangements to
provide professional services on a time and materials basis are recognized as
the related services are performed. Revenues from professional services
provided on a fixed fee basis are recognized using the percentage of completion
method, measured by the percentage of labor hours incurred to date to estimated
total labor hours for the contract.

Data center revenue. We recognize data center revenue in accordance with
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. We also consider the applicability of Emerging Issues Task Force
Issue No. 00-03, Application of AICPA Statement of Position 97-2 to
Arrangements That Include the Right to Use Software Stored on Another Entitys
Hardware, to our data center arrangements on a contract-by-contract basis. If
it is determined that a software element covered by SOP No. 97-2 is present in
a hosting arrangement, the license, professional services and data center
revenue is recognized pursuant to SOP No. 97-2. If it is determined that a
software element covered by SOP No. 97-2 is not present in a

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hosting arrangement, we recognize revenue for the arrangement pursuant to SAB No. 101.
See a full discussion of our revenue recognition policies in Note 2 to the
consolidated financial statements.

Revenue on certain of our data center arrangements is allocated
to the implementation and transaction processing elements using the residual
method. We have determined that our transaction processing services can be
separated from the installation services as they represent separate earnings
processes, evidence of fair value exists for the transaction processing
services, and the transaction processing services are not essential to the
functionality of any other element in the arrangement. If it was determined
that the implementation services cannot be separated from the transaction
processing services in an arrangement, we would recognize the professional
services revenue over the term of the data center arrangement or the expected
period of performance, whichever is longer.

Our contractual arrangements are evaluated on a contract-by-contract basis
and often require our judgment and estimates that affect the classification and
timing of revenue recognized in our statements of operations. Specifically, we
may be required to make judgments about:



| |  | whether the fees associated with our products and services are fixed or determinable;                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------------
| 
| |  | whether or not collection of our fees is reasonably assured;                                                                      
| 
| |  | whether professional services are essential to the functionality of the related software product;                                 
| 
| |  | whether we have the ability to make reasonably dependable estimates
in the application of the percentage of completion method; and
| 
| |  | whether we have verifiable objective evidence of fair value for our products and services.                                        

Additionally, we may be required to make the following estimates:



| |  | the period that we expect to provide post contract support when the agreement does not contain a specific term;
|- |  | ---------------------------------------------------------------------------------------------------------------
| 
| |  | percentage of labor hours incurred to date to the estimated total labor hours for each contract;               
| 
| |  | provisions for estimated losses on uncompleted contracts; and                                                  
| 
| |  | the need for an allowance for doubtful accounts or billing adjustments.                                        

If other judgments or assumptions were used in the evaluation of our
revenue arrangements, the timing and amounts of revenue recognized may have
been significantly different. For instance, many of our revenue arrangements
are accounted for using the percentage completion of method since the services
are considered essential to the functionality of the software. If it was
determined that those services were not essential to the functionality of the
software, we may have recognized the license revenue upon delivery of the
license, provided other required criteria were satisfied. Further, if we
determined that we cannot make reasonably dependable estimates in the
application of the percentage of completion method, we would defer all revenue
and recognize it upon completion of the contract.

Estimation of allowance for doubtful accounts and billing adjustments.We
are required to report accounts receivable at the amount we expect to collect
from our customers. As a result, we are required to use our judgment to
estimate the likelihood that certain receivables may not be collected or that
we might offer future discounts or concessions for previously billed amounts.
As a result, we have established a discount allowance for estimated billing
adjustments and a bad debt allowance for estimated amounts that we will not
collect. We report provisions for billing adjustments as a reduction of revenue
and provisions for bad debts as a component of selling expense. We review
specific accounts for collectibility based on circumstances known to us at the
date of our financial statements. In addition, we maintain general reserves
based on historical billing adjustments and write-offs. These estimates are
based on historical discounts, concessions and bad debts, customer
concentrations, customer credit-worthiness, current economic trends and changes
in our customer payment terms. Accordingly, our judgments and estimates about
the collectibility of our accounts receivable affect revenue, selling expense
and the carrying value of our accounts receivable.

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Valuation and recoverability of long-lived assets, including goodwill.We
evaluate the recoverability of long-lived assets, including goodwill, whenever
events or changes in circumstances indicate that the carrying amount should be
assessed by comparing their carrying value to the undiscounted estimated future
net operating cash flows expected to be derived from such assets. If such
evaluation indicates a potential impairment, we use discounted cash flows to
measure fair value in determining the amount of the long-lived assets that
should be written off. For long-term cost and equity investments, we
write-down their carrying values if it is determined that an impairment is
other than temporary. Factors we consider important which could trigger an
impairment review include, but are not limited to, the following:



| |  | significant under-performance relative to expected historical or projected future operating results;        
|- |  | ------------------------------------------------------------------------------------------------------------
| 
| |  | significant changes in the manner of our use of the acquired assets or the strategy of our overall business;
| 
| |  | significant negative industry or economic trends;                                                           
| 
| |  | significant decline in our stock price for a sustained period; and                                          
| 
| |  | our market capitalization relative to net book value.                                                       

During the fourth quarter of 2000, we recorded a $664.9 million impairment
charge on goodwill and other intangible assets that we deemed were impaired.
See further discussion of this charge in Note 9 to the consolidated financial
statements. During 2001, we recorded impairment charges in the aggregate
amount of $4 million for cost-basis investments that we deemed were impaired.
Additionally, we recorded a $8.4 million impairment charge during the fourth
quarter of 2001 on our investment in Yodlee. See further discussion of our
equity investment in Yodlee in Note 4 to the consolidated financial statements.
The aforementioned impairment charges required considerable analysis and
judgment in determining the timing and amount of the charges. If other
assumptions and estimates were used in our evaluations, the timing and amount
of the charges may have been significantly different.

On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets which required us to perform an initial impairment review of
our goodwill at that date and will require us to perform impairment reviews
thereafter, at least once annually. The transitional impairment test required
us to: (1) identify our reporting units, (2) determine the carrying value of
each reporting unit by assigning assets and liabilities, including existing
goodwill and intangible assets, to those reporting units, and (3) determine the
fair value of each reporting unit. Based on the results of our initial and
annual tests, the fair value of our reporting units exceeds their carrying
value. While we no longer record amortization expense for goodwill and other
indefinite lived intangible assets, future events and changes in circumstances
may require us to record a significant impairment charge in any given period.

Discontinued Operations.In July 2002, we announced our plan to sell our
contact center automation business, comprised of our Edify subsidiary and the
non-financial institution business of Point. We are accounting for the planned
divestiture as a business held for sale. As a result we have:



| |  | presented the total assets of the contact center automation business
on one line as assets held for sale in our consolidated balance sheet
as of December 31, 2002;                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | presented the total liabilities of the contact center automation
business on one line as liabilities of business held for sale in our
consolidated balance sheet as of December 31, 2002;      
| 
| |  | presented the results of operations for the contact center automation
business as discontinued operations on one line in our consolidated
statements of operations for all years presented; and
| 
| |  | ceased depreciation of fixed assets and amortization of intangible
assets associated with the contact center automation business from July
1, 2002 forward.                                      

The classification of the contact center automation business assets and
liabilities as held for sale will continue until such time that we sell the
business, which we anticipate will happen no later than June 30, 2003.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets establishes criteria for determining when a business to be sold can be
classified as held for sale. The criteria, all of which must be met, are:



| |  | authorized management has committed to a plan to sell the business;                                             
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | the business is available for immediate sale in its present condition;                                          
| 
| |  | an active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
| 
| |  | the sale of the business is probable and expected to be complete within one year;                               

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| |  | the business is being actively marketed for sale at a price that is
reasonable in relation to its current fair value; and                               
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that the plan will
be withdrawn.

Although there is no certainty that we will sell the customer contact
center business prior to July 1, 2003 or at a price which we believe represents
the business fair value, we believe we met these criteria as of December 31,
2002 and as of the filing date of this document. If subsequently, we determined
that we did not meet these criteria, we would be required to include the
revenues and expenses, assets and liabilities of this business together with
those that comprise our continuing operations.

In some cases, the separation of the assets and liabilities and results of
operations from our continuing operations requires us to make estimates and/or
assumptions about the classification of accounts and transactions between
continuing and discontinued operations. Accordingly, the results of operations
of the continuing and discontinued operations for the periods presented in this
report are not necessarily indicative of what they would have been if the
contact center automation business had been sold prior to those periods, nor
are the results of operations of the continuing and discontinued operations for
the periods presented in this report representative of what they will be in
future periods on a stand-alone basis.

We are also required to present the net assets held for sale at the lower
of their carrying value or fair value. Accordingly, if we believed that the net
proceeds from the sale of the business would be less than the net book value of
the business held for sale, we would be required to record a charge to reflect
the business at a carrying value equal to its estimated fair value. The
completion of this analysis required us, among other things, to classify
goodwill and other intangible assets recorded upon the acquisition of Point
between the financial institutions business of Point (which is in continuing
operations) and the non-financial institutions business of Point (which is in
discontinued operations). To support our analysis, we obtained an independent
appraisal of the goodwill and other intangible assets associated with the
financial institution and non-financial institutions businesses of Point.

Determination of technological feasibility and capitalization of software
development costs.We are required to assess when technological feasibility
occurs for products that we develop. Based on our judgment, we have determined
that technological feasibility for our products generally occurs when we
complete beta testing. Because of the insignificant amount of costs incurred
between completion of beta testing and general customer release, we have not
capitalized any software development costs in the accompanying consolidated
financial statements. If we determined that technological feasibility had
occurred at an earlier point in the development cycle and that subsequent
production costs incurred before general availability of the product were
significant, we would have capitalized those costs and recognized them over
future periods. We continue to monitor changes in the software development
cycle and may be required to capitalize certain software development costs in
the future.

Recognition of costs in connection with restructuring plans and
merger-related activities.During the fourth quarter of 2000 and the second
quarter of 2001, we recorded charges in connection with restructurings.
Additionally, we recorded merger related charges related to a reorganization of
our European operations in connection with the acquisition of Point in the
second quarter of 2002. See further discussion of the terms of these charges
in Note 10 to the consolidated financial statements. At the date we approve a
restructuring plan, we establish a liability for the estimated costs associated
with that restructuring plan. At that time, and thereafter until the plan
activities are complete, the actual costs associated with the plan may differ
from our estimates. We use our judgment and information available to us at the
date of the financial statements to reevaluate our initial estimates of the
plan costs. If we believe that our previous estimates are no longer accurate
in light of current conditions, we adjust the reserve with a corresponding
increase or decrease to current period earnings.

Accrued restructuring costs at December 31, 2002 reflect our estimate of
future rental obligations and other costs associated with office space that we
do not plan to use in our operations as a result of the restructuring plans,
offset by our estimate of sublease income for this space. While we know the
terms of our contractual lease obligations and related future commitments, we
must estimate when and under what terms we will be able to sublet the space, if
at all. Such estimates require a substantial amount of judgment, especially
given current real estate market conditions. Actual sublease terms may differ
substantially from our estimates. Any future changes in our estimates of lease
termination reserves could materially impact our financial condition, results
of operations and cash flows.

In connection with the acquisition of certain businesses, we established
reserves for certain contingencies that existed at the date of acquisition. At
that time, we believed that the resolution of the contingency would result in
future cash expenditures that we estimated based on the information available at the
date of acquisition. As those contingencies are resolved, we reduce

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the related liabilities for any related cash disbursements or if we determine that
the contingency is no longer likely to result in a loss. If the settlement
occurs beyond one year after the date of the acquisition, any difference in the
actual settlement amount is reflected as an adjustment to income or expense in
the period of resolution. These adjustments are included in the merger related
and restructuring costs line item in the consolidated statements of operations.
If the settlement occurs within one year of the date of acquisition, we record
the difference as an adjustment to goodwill.

Accounting for our equity method investment in Yodlee.On January 16,
2001, we sold our VerticalOne subsidiary to Yodlee, Inc. in a stock for stock
transaction in which we received an ownership interest of approximately 33% in
Yodlee. During 2002, as a result of the issuance of additional equity by
Yodlee, our ownership percentage decreased to 27%. The chairman of our board
of directors is also a director of Yodlee. Additionally, in connection with
the sale, we entered into the following agreements with Yodlee:



| |  | a sales representation agreement;
|- |  | ---------------------------------
| 
| |  | a data center agreement; and     
| 
| |  | a facilities sublease.           

We are a non-exclusive reseller of Yodlees aggregation services under the sales representation agreement.

We evaluated the terms of our investment in and relationships with Yodlee,
and concluded that we exert significant influence over Yodlee. Accordingly, we
are accounting for our investment in Yodlee under the equity method. The
equity method of accounting requires us to record our share of the net losses
of Yodlee in our consolidated statement of operations. Our equity in the net
loss of Yodlee for the year ended December 31, 2001 was $61.9 million,
including the amortization of our excess investment over our share of Yodlees
net assets and an impairment charge to write down our investment in Yodlee.
Since our share of Yodlees underlying net assets was $0 at December 31, 2001
and 2002 and we have not made any commitments to provide additional funding, we
did not record our share of Yodlees operating results in 2002, and we will not
record our share of any future operating results until our basis in Yodlee
increases above $0, if ever.

If we determined that we did not exercise significant influence over
Yodlee, we would have accounted for this investment under the cost method.
Under the cost method, we would have recorded the initial fair value of our
investment in Yodlee in our balance sheet. However, we would not have recorded
any share of Yodlees net losses during 2001. We would have evaluated the
carrying value of the cost investment for recoverability and would write down
the balance for any other than temporary impairments.

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Results of Operations

The following table sets forth our statement of operations data for the
three years ended December 31, 2000, 2001 and 2002 and the percentage of total
revenues of each line item for the periods presented.

|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |    |     |  
|------------------------------------------ | ------------------------------------------------------------ | ------------------------ | ---------- | ----------------------- | --------- | ---- | ---- | ---- | --- | - | -------- | ------- | ------- |  | --- | -- | --- | - | ------- | ------ | ------- |  | -- | -- | --- | -
|                                           |                                                              |                          |            | Year Ended December 31, |           |      |      |     
|                                           |                                                              |                          |            |                         |           |      |      |     
|                                           |                                                              |                          |            | 2000                    |           | 2001 |      | 2002 |     |   |          |        
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |        
|                                           |                                                              |                          |            | (dollars in thousands)  |           |      |      |     
|Revenues:                                  |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           | Software licenses                                            |                          | $          | 24,395                  |           |      |      | 13   | %   |   | $        | 42,243  |         |  |     | 18 | %   |   | $       | 66,895 |         |  |    | 27 | %  
|                                           | Support and maintenance                                      |                          |            | 18,810                  |           |      |      | 10   | %   |   |          | 29,216  |         |  |     | 13 | %   |   |         | 43,761 |         |  |    | 18 | %  
|                                           | Professional services                                        |                          |            | 119,120                 |           |      |      | 63   | %   |   |          | 106,341 |         |  |     | 46 | %   |   |         | 95,487 |         |  |    | 39 | %  
|                                           | Data center                                                  |                          |            | 22,811                  |           |      |      | 12   | %   |   |          | 52,915  |         |  |     | 23 | %   |   |         | 40,560 |         |  |    | 16 | %  
|                                           | Other                                                        |                          |            | 4,893                   |           |      |      | 3    | %   |   |          | 1,050   |         |  |     | 0  | %   |   |         | 1,274  |         |  |    | 1  | %  
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           |                                                              | Total revenues           |            |                         | 190,029   |      |      |      | 100 | % |          |         | 231,765 |  |     |    | 100 | % |         |        | 247,977 |  |    |    | 100 | %
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|Direct costs:                              |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           | Software licenses                                            |                          |            | 947                     |           |      |      | 0    | %   |   |          | 532     |         |  |     | 0  | %   |   |         | 437    |         |  |    | 0  | %  
|                                           | Professional services, support and
maintenance               |                          |            | 98,865                  |           |      |      | 52   | %   |   |          | 81,763  |         |  |     | 35 | %   |   |         | 74,785 |         |  |    | 30 | %  
|                                           | Data center                                                  |                          |            | 20,371                  |           |      |      | 11   | %   |   |          | 26,013  |         |  |     | 11 | %   |   |         | 22,100 |         |  |    | 9  | %  
|                                           | Other                                                        |                          |            | 4,305                   |           |      |      | 2    | %   |   |          | 751     |         |  |     | 0  | %   |   |         | 1,267  |         |  |    | 1  | %  
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           |                                                              | Total direct costs       |            |                         | 124,488   |      |      |      | 66  | % |          |         | 109,059 |  |     |    | 47  | % |         |        | 98,589  |  |    |    | 40  | %
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           |                                                              | Gross margin             |            |                         | 65,541    |      |      |      | 34  | % |          |         | 122,706 |  |     |    | 53  | % |         |        | 149,388 |  |    |    | 60  | %
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|Operating expenses:                        |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           | Selling and marketing                                        |                          |            | 38,304                  |           |      |      | 20   | %   |   |          | 27,838  |         |  |     | 12 | %   |   |         | 38,078 |         |  |    | 15 | %  
|                                           | Product development                                          |                          |            | 60,770                  |           |      |      | 32   | %   |   |          | 40,767  |         |  |     | 18 | %   |   |         | 39,377 |         |  |    | 16 | %  
|                                           | General and administrative                                   |                          |            | 40,397                  |           |      |      | 21   | %   |   |          | 44,007  |         |  |     | 19 | %   |   |         | 43,179 |         |  |    | 17 | %  
|                                           | Depreciation                                                 |                          |            | 23,598                  |           |      |      | 12   | %   |   |          | 26,880  |         |  |     | 12 | %   |   |         | 21,404 |         |  |    | 9  | %  
|                                           | Marketing cost from warrants issued                          |                          |            | 4,962                   |           |      |      | 3    | %   |   |          |        |         |  |     | 0  | %   |   |         |       |         |  |    | 0  | %  
|                                           | Merger related and restructuring costs                       |                          |            | 37,228                  |           |      |      | 20   | %   |   |          | 9,260   |         |  |     | 4  | %   |   |         | 1,683  |         |  |    | 1  | %  
|                                           | Acquired in-process research and
development                 |                          |            | 14,100                  |           |      |      | 7    | %   |   |          |        |         |  |     | 0  | %   |   |         | 350    |         |  |    | 0  | %  
|                                           | Amortization and impairment of
acquisition intangible assets |                          |            | 1,048,654               |           |      |      | 552  | %   |   |          | 60,587  |         |  |     | 26 | %   |   |         | 15,943 |         |  |    | 6  | %  
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|                                           |                                                              | Total operating expenses |            |                         | 1,268,013 |      |      |      | 667 | % |          |         | 209,339 |  |     |    | 90  | % |         |        | 160,014 |  |    |    | 65  | %
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|Operating loss                             |                                                              |                          | (1,202,472 | )                       |           |      | -633 | %    |     |   | (86,633  | )       |         |  | -37 | %  |     |   | (10,626 | )      |         |  | -4 | % 
|Interest, investment and other income, net |                                                              |                          | 59,699     |                         |           |      | 31   | %    |     |   | 3,146    |         |         |  | 1   | %  |     |   | 1,444   |        |         |  | 1  | % 
|Loss on sale of subsidiaries               |                                                              |                          |           |                         |           |      | 0    | %    |     |   | (53,186  | )       |         |  | -23 | %  |     |   |        |        |         |  | 0  | % 
|Equity in net loss of affiliate            |                                                              |                          |           |                         |           |      | 0    | %    |     |   | (61,900  | )       |         |  | -27 | %  |     |   |        |        |         |  | 0  | % 
|Income tax benefit                         |                                                              |                          | 4,576      |                         |           |      | 2    | %    |     |   | 3,387    |         |         |  | 1   | %  |     |   | 2,653   |        |         |  | 1  | % 
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|Loss from continuing operations            |                                                              |                          | (1,138,197 | )                       |           |      | -599 | %    |     |   | (195,186 | )       |         |  | -84 | %  |     |   | (6,529  | )      |         |  | -3 | % 
|Loss from discontinued operations          |                                                              |                          | (39,481    | )                       |           |      | -21  | %    |     |   | (26,357  | )       |         |  | -11 | %  |     |   | (9,868  | )      |         |  | -4 | % 
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   
|Net loss                                   |                                                              | $                        | (1,177,678 | )                       |           |      | -620 | %    |     | $ | (221,543 | )       |         |  | -96 | %  |     | $ | (16,397 | )      |         |  | -7 | % 
|                                           |                                                              |                          |            |                         |           |      |      |      |     |   |          |         |         |  |     |    |     |   |         |        |         |  |    |   

Comparison of the Year Ended December 31, 2002 to the Year Ended December 31,
2001

Our results of operations for the year ended December 31, 2002 include the
acquired operations of SDI, Regency and the financial institution business of
Point, hereafter collectively referred to as the acquired businesses, from
their respective dates of acquisition. Our results for the year ended December
31, 2001 include three months of operations for SDI.

Revenues.Total revenues from continuing operations increased by $16.2
million to $248.0 million for the year ended December 31, 2002 from $231.8
million for the year ended December 31, 2000, an increase of 7%. During 2002,
we continued

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to provide a substantial amount of implementation, hosting and
product enhancement services to State Farm. We derived 26% and 33% of our total
revenues in 2002 and 2001, respectively, from this customer. Additionally, in
2002, we provided a subscription license, hosting and professional services to
Zurich. We derived 17% of our total revenues from this customer in 2002.

Software license revenues were $66.9 million for the year ended December
31, 2002, an increase of $24.7 million from 2001. Although most of our license
revenue has to be replaced each period, license revenue earned from Zurich
comprised $32.1 million of our license revenue in 2002, an increase of $26.1
million over 2001. This revenue comes from a subscription license arrangement
that will terminate as of December 31, 2003. After that, we do not expect to
earn future license revenues from Zurich. We recorded $8.5 million of license
revenues from our S1 Enterprise products in 2002. Single channel solutions,
which comprise the remainder of our license revenues, decreased $10.0 from
2001. License revenues generated from products of the acquired businesses,
which are included in both S1 Enterprise and single channel solutions, totaled
$12.7 million. We expect S1 Enterprise license revenues to grow as a
percentage of our total revenues as we transition from a business model based
on single channel solutions to an integrated multi-channel enterprise solution.

Support and maintenance revenues were $43.8 million for 2002, an increase
of $14.5 million or 50% from 2001. This increase is primarily attributable to
support and maintenance fees of $13.6 million recorded in the acquired
businesses.

Professional services revenues were $95.5 million for the year ended
December 31, 2002, a decrease of $10.8 million from $106.3 million for 2001.
This decrease is principally attributable to the decrease in professional
services revenue from our major domestic customer and from other large
projects, partially offset by professional service fees from the acquired
businesses of approximately $7.8 million. In future periods, we expect
revenues from professional services to become a smaller percentage of total
revenues as large customization projects are completed and as we move towards a
more packaged S1 Enterprise solution and increased use of channel partners to
perform services associated with our products.

Data center revenues were $40.6 million for the year ended December 31,
2002, a decrease of $12.4 million from 2001. The decrease in data center
revenue was primarily due to the loss of several large data center customers,
offset by an increase in the number of community and mid-sized financial
institutions utilizing S1 solutions in our data centers. Several large
financial institution customers have moved their Internet banking solutions
in-house either on our S1 Enterprise platform or on a competitors platform.
In addition, one large European bank shutdown its Internet banking
application during 2001 and Zurich announced the shutdown of its
application in 2002. As some of our customers transferred their S1 applications in house, we were
able to replace a portion of these data center revenue streams with software
license fees and support and maintenance fees. We believe this transition will
continue in 2003 as we expect a number of existing legacy customers, including
Zurich, to leave the data center during 2003. We expect data center revenues
to increase to approximately $25 million for the first half of 2003 as we
recognize the accelerate payments from Zurich, then stabilize at approximately
$8 million per quarter for the third and fourth quarters. We believe the
larger financial institutions will continue to move to in-house solutions and
mid-sized and smaller financial institutions are moving towards our hosted environment. It is
unclear whether or not the revenues lost from large customers leaving the data
center will be replaced by smaller customers coming into the data center. None
of the acquired businesses have a data center solution; accordingly, there was
no incremental data center revenue from the acquired businesses during 2002.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. Other revenue
fluctuates based on the mix of products and services sold.

Direct Costs and Gross Margins.Direct costs decreased $10.5 million to
$98.6 million for the year ended December 31, 2002 from $109.1 million for
2001. Overall gross margins were 60% and 53% for the years ended December 31,
2002 and 2001, respectively. The overall decrease in direct costs and
corresponding increase in gross margins resulted from reductions in employee
headcount and higher cost outside contractors, and reduced facilities costs
resulting from the consolidation of offices, offset by the added costs of the
acquired businesses. Direct costs exclude charges for depreciation of property
and equipment and the amortization of purchased technology.

Costs of software licenses for our financial institution software products
are generally minimal because we internally develop most of the software
components, the cost of which is reflected in product development expense as it
is incurred. We anticipate that costs of software licenses will increase in
future periods as we license and install more of our new S1 Enterprise products because these products include some software
components that we license from third parties; however, the costs of software
licenses will continue to vary with the mix of products sold.

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Costs of professional services, support and maintenance consist primarily
of personnel and related infrastructure costs. Direct costs associated with
professional services, support and maintenance were $74.8 million for the year
ended December 31, 2002, a decrease of $7.0 million from 2001. This decrease
resulted from reductions in professional services headcount, outside
contractors and associated facilities costs to a level that is more closely
aligned with the projects and services under contract, offset by the added
costs of the acquired businesses. Gross margins for professional services and
customer support and maintenance increased due to the cost reductions and the
revenue mix between lower margin professional services and higher margin
support revenues.

Costs of data center consist of personnel costs, facility costs and
related infrastructure costs to support our data center business. Direct data
center costs decreased $3.9 million to $22.1 million for 2002 from $26.0
million for 2001. The decrease resulted from reductions in personnel, outside
contractors and purchases of non-capital equipment. For 2002, the gross margin
for data center was 46%, a decrease from 51% for 2001. This decrease is
attributable to declining revenues against the fixed costs of the data center.
Significant portions of the data center costs are fixed and are difficult to
reduce or eliminate proportionally with declining revenues. We will be
consolidating our U.K. data center operations into our global hosting center in
Atlanta in 2003. During the
third and fourth quarters of 2003, we expect data center costs to decrease as a result
of the consolidation.

Selling and Marketing.For the year ended December 31, 2002, selling and
marketing expenses were $38.1 million, an increase of $10.2 million or 37% over
2001. This increase is primarily attributable to the added costs of the
acquired businesses (approximately $7.6 million) plus costs associated with the
strengthening of our internal sales force. These additional costs were offset
by a $0.5 million reduction in spending on marketing programs and a $0.6
million reduction in bad debt expense. During 2002, we invested in sales and
marketing activities to increase our market share and promote our S1 Enterprise
products. Our marketing efforts include participating in and exhibiting at
industry conferences and trade shows, maintaining memberships in key industry
organizations and maintaining close relationships with industry analysts to
help guide product development and marketing efforts.

Product Development.Total product development expenses decreased by $1.4
million to $39.4 million for the year ended December 31, 2002 from $40.8
million for 2001. Added product development costs from the acquired businesses
were offset by cost savings achieved through reductions of product development
personnel, from replacing outside contractors in our domestic operations with
lower cost offshore contractors and from the consolidation of multiple
development organizations into eight centers of development excellence. In the
second half of 2002, we significantly reorganized our development organization.
We streamlined development activities to eliminate redundancies and we
established centers of development excellence that focus on development and
delivery of specific components of our product offerings. Overall, product
development head count (including employees and offshore contractors) remained
constant over the 2001 and 2002.

Our product development efforts are focused on enhancing the S1 Enterprise
suite of products. In spring of 2002, we delivered the initial release of the
S1 Enterprise applications. Throughout the rest of the year we have continued
with enhancements and subsequent releases. Additionally, we are enhancing
existing products and services by developing new functions and features across
our entire product line.

During 2001, we established a relationship with an Indian-based
development organization to outsource portions of our product development. In
2002, we expanded this relationship and established a development center in
India. We believe this has optimized available research and development
resources.

Historically we have not capitalized software development costs because of
the insignificant amount of costs incurred between technological feasibility
and general customer release. However, if we reach technological feasibility
earlier in the development cycle, we may be required to capitalize certain
software development costs in the future.

General and Administrative.General and administrative expenses were
$43.2 million for the year ended December 31, 2002 compared to $44.0 million
for 2001, a decrease of $0.8 million or 2%. As a percentage of revenues,
general and administrative expenses decreased to 17% for the year ended
December 31, 2002 from 19% for the same period in 2001. The decrease in general and administrative expenses resulted
principally from a decrease in compensation and benefits relative to lower
headcount, recruiting fees and professional fees, offset by the added costs of
the acquired businesses (approximately $3.1 million) and costs incurred to
improve our internal systems. During 2002, we reduced our general and
administrative headcount and our use of external resources.

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Depreciation.Depreciation decreased 20% to $21.4 million for the year
ended December 31, 2002 from $26.9 million in 2001. This decrease was due to
reductions in capital expenditures during 2001 and 2002 as compared with those
made in 1999 and 2000. A significant portion of those items that we bought in
1999 and 2000, especially those related to the build-out of our global data
centers, became fully depreciated by the end of 2001. This decrease was offset
partially by the added depreciation expense of the acquired businesses of
approximately $0.6 million.

Merger Related and Restructuring Costs.During 2002, we recorded merger
related costs of $1.7 million, a decrease of $7.6 million from $9.3 million for 2001.

During 2002, we incurred merger related costs of $3.7 million in
connection with the acquisition of Point. These costs, incurred in connection
with our plan to reorganize certain of our European operations, include
headcount reduction, consolidation of S1 and acquired Point office facilities
and disposal of redundant or obsolete computer equipment. This merger related
charge was partially offset by a $1.7 million decrease in a reserve for legal
claims, which was established in connection with our acquisition of FICS Group,
N.V. in November 1999. We were able to resolve this legal matter during the
first quarter of 2002 for less than previously estimated amounts. Our
restructuring and merger related reserves include provisions for obligations
for unused office space less estimates for sub-lease income. When we secure
sub-tenants, we adjust our reserves accordingly.

During the second quarter of 2001, we approved a restructuring plan to
streamline our European operations. In connection with this plan, we reduced
our European workforce by 77 people and consolidated most of our European
operations into two locations. As a result, we recorded a charge of $5.6
million for the estimated costs associated with the restructuring plan. Also in
2001, we recorded a charge of $4.5 million to increase our restructuring
reserves that initially were established during the fourth quarter of 2000. As
a result of a softening in the domestic real estate markets, we determined our
original estimate of costs to dispose of or sublet our unused real estate was
below the currently anticipated costs. Additionally, during 2001, in
connection with the closing of certain office facilities, we wrote-off
leasehold improvements of $1.2 million, which were not previously anticipated
in the initial restructuring accrual. During 2001, we released merger related
accruals of $2.0 million related to changes in estimates relative to pending or
threatened litigation.

We expect to record costs during 2003 related
to various restructuring activities including the closing of our U.K. data center as previously
discussed.

Acquired In-Process Research and Development.In connection with the
purchase price allocation for the Regency and Point acquisitions during the
year ended December 31, 2002, we allocated $0.4 million to acquired in-process
research and development, which we expensed immediately in accordance with the
applicable accounting rules.

Amortization of Acquisition Intangible Assets.Amortization of
acquisition intangible assets decreased $44.6 million to $15.9 million for the
year ended December 31, 2002 from $60.6 million for 2001. In connection with
the adoption of SFAS No. 142, Goodwill and Other Intangible Assets on January
1, 2002, we stopped recording amortization expense on goodwill and assembled
workforce. This reduced our amortization expense for the year ended December
31, 2002 by approximately $45.5 million. During the fourth quarter of 2002,
certain intangibles related to the acquisition of FICS in 1999 became fully
amortized. The additional amortization of other intangible assets from the
acquired businesses of $2.4 million more than offset the reduction in
amortization expense from the fully amortized intangibles. During the first
quarter of 2003, we will fully amortize the other intangible assets of Q-Up
Systems. The completion of the amortization periods of FICS and Q-Up Systems
will reduce our amortization expense for 2003 by approximately $12.3 million.

Interest, Investment and Other Income.Interest, investment and other
income, net was $1.4 million for the year ended December 31, 2002, a decrease
of $1.7 million from 2001. This decrease resulted from the following:

 a non-cash charge of $4.0 million we recorded during 2001 to
write down our basis in certain equity investments (accounted for on
a cost basis) as a result of impairment in the value of these assets
which we believe is other than temporary; offset by

 a gain of $0.9 million on the sale of investment securities
available for sale we recorded during 2001;

 a $4.1 million decrease in interest income during the year
ended December 31, 2002 due to a decrease in average cash to invest
and a decrease in interest rates from the prior year period; and

 a decrease in other items
totalling
approximately $0.7 million.

Loss on Sale of Subsidiaries and Equity in Net Loss of Affiliate.On
January 16, 2001, we sold our VerticalOne subsidiary to Yodlee in a
stock-for-stock transaction in which we received an ownership interest of
approximately 33% in Yodlee. In connection with this transaction, we recorded a
loss on sale of $52.3 million, which represented the difference between the

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carrying value of VerticalOne and the appraised value of our interest in
Yodlee. During the year ended December 31, 2001, we recorded non-cash charges
of $61.9 million based on our equity interest in the net loss of the affiliate,
amortization of the underlying goodwill and other intangible assets, and a
write-down in the basis of our investment in Yodlee. See further discussion of
our investment in Yodlee in Note 4 to the consolidated financial statements. Since our share of
Yodlees underlying net assets was $0 at December 31, 2001 and we have not made
any commitments to Yodlee to provide additional funding, we did not record our
share of Yodlees operating results in 2002, and we will not record our share
of any future operating results until our basis in Yodlee increases above $0,
if ever.

During the second quarter of 2001, we recorded a charge of approximately
$0.9 million in connection with the sale of a small European subsidiary.

Income Tax Benefit.We recorded an income tax benefit of $2.7 million
during the year ended December 31, 2002 compared to $3.4 million for 2001. The
income tax benefit resulted from a reduction in the deferred tax liability
related to the 1999 acquisition of FICS offset by foreign income tax expense
incurred in certain European countries. The decrease in the benefit is
principally attributable to the decrease in the amortization of the FICS
intangible assets as described above as well as increases in taxable income in
certain of our foreign subsidiaries. Because the FICS intangible assets are
fully amortized, we do not expect to record an income tax benefit in 2003.
Although we have substantial net operating loss carryforwards, we may be
required to record an income tax provision for certain foreign subsidiaries
which do not have net operating loss carryforwards to utilize.

Loss from Discontinued Operations.The loss from discontinued operations
for the year ended December 31, 2002 was $9.9 million, a decrease of 63% from a
loss of $26.4 million for 2001. This decrease was primarily attributable to a
$18.8 million decrease in depreciation and amortization expense recorded in the
year ended December 31, 2001. This decrease was a combination of ceasing
depreciation of fixed assets and amortization of other intangible assets on
June 30, 2002 as a result of the accounting treatment for assets held for sale,
and ceasing amortization of goodwill and assembled workforce under the
provisions of SFAS No. 142 which we adopted on January 1, 2002. Revenues were
$44.2 million for the year ended December 31, 2002 compared to $46.5 million
for 2001. Revenues decreased as a result of poor economic conditions in the
primary markets served by Edify  telecommunications, retail and travel. This
was partially offset by the revenue from non-financial customers of the
acquired Point business. Direct costs and operating expenses increased as a
result of the inclusion of the Point non-financial institution business and a
change in the mix of products sold, offset by decreases in selling and
marketing and product development expenses as a result of cost alignment
actions taken in the second and third quarters of 2002.

During the third and fourth quarters of 2002, we identified and corrected
two accounting matters from 2001 that occurred in our discontinued operations
which reduced net income for 2002 by approximately $1.5 million. One of the
matters resulted in the improper recognition of $1.1 million in
revenue during 2001. The other matter resulted in the understatement of
certain operating expenses totaling $0.4 million during 2001. These matters
were in our discontinued operations and had the effect of increasing our loss
per share from discontinued operations and our net loss per share by $0.02 per
share during the year ended December 31, 2002. These matters did not affect our
revenues, expenses or loss from continuing operations.

Comparison of the Year Ended December 31, 2001 to the Year Ended December 31,
2000

Revenues.Total revenues from continuing operations increased by $41.7
million to $231.8 million for the year ended December 31, 2001 from $190.0
million for 2000, an increase of 22%. The increase in revenues resulted
principally from increases in our software licenses, support and maintenance
and data center fees. During the year ended December 31, 2001, software
license revenue increased $17.9 million, or 73%; support and maintenance
revenue increased $10.4 million, or 55%; and data center revenue increased
$30.1 million, or 132%. A portion of this growth is related to the inclusion
of a full year of activity for Davidge and Q-Up, both of which were acquired in
April 2000 and the inclusion of SDI for the fourth quarter of 2001.
Additionally, our revenues increased as a result of the inclusion of the FRS
business unit during 2001, which was previously classified as available for sale during
2000. These increases were partially offset by a decrease in our professional
services revenues, which during the year ended December 31, 2001 decreased
$12.8 million, or 11%, to $106.3 million. Although professional services
revenue from our major domestic customer declined during 2001, we continued to
provide a substantial amount of implementation, hosting and product enhancement
services to this customer. We derived 33% and 38% of our revenues from
continuing operations in 2001 and 2000, respectively, from this customer.

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The increase in our software license revenues is primarily due to
significant license revenues recognized under contracts with three large
international customers.

The increase in support and maintenance revenues during 2001 is primarily
due to increased new software license sales as well as maintenance renewals
from the growth in our installed customer base.

The increase in our data center revenue was primarily due to revenues
recognized under contracts with two large European customers who were live in
our global data centers during 2001, as well as an increase in the overall
numbers of end-users. During 2001, one of our large European customers
informed us of their intention to exit our European data center. As a result,
we amended our agreement with this customer to enable their exit from our
European data center effective December 31, 2001. We did not earn any data
center revenues from this customer during 2002. Also during 2001, we amended
our agreements with a large Canadian bank with two subsidiaries that are
current data center customers. Under the terms of the contract amendments, the
large Canadian bank consolidated its data center agreements with us and
purchased additional product and service offerings from us. We also
experienced significant growth in our small to mid-market financial institution
data center customers in the United States.

Other revenues are primarily related to the sale of third party hardware
and software that is used in connection with our products. Other revenue
decreased $3.8 million to $1.1 million for the year ended December 31, 2001
from $4.9 million for 2000, a decrease of 79%. Other revenue generally
fluctuates based on the mix of products and services sold.

Direct Costs and Gross Margins.Direct costs decreased by $15.4 million to
$109.1 million for the year ended December 31, 2001 from $124.5 million for the
year ended December 31, 2000, a decrease of 12%. Overall gross margins were 53%
and 34% for 2001 and 2000, respectively. The decrease in direct costs and
corresponding increase in gross margins are primarily the result of reductions
in employee headcount, reduction in the use of higher cost outside contractors,
our ability to leverage existing data center infrastructure against increased
revenues and reduced facilities charges from the consolidation of offices.
Cost of revenues excludes charges for depreciation of property
and equipment and amortization of purchased technology.

Software license costs decreased $0.4 million to $0.5 million for the year
ended December 31, 2001 from $0.9 million for 2000. Gross margins on software
licenses were 99% and 96% for 2001 and 2000, respectively.

Direct costs associated with support and maintenance and professional
services decreased by $17.1 million, or 17%, to $81.8 million for the year
ended December 31, 2001. This decrease in direct costs is primarily the result
of reducing professional services headcount, a reduction in the use of outside
contractors and associated facilities costs to a level that is more closely
aligned with the projects and services under contract. Gross margins on
support and maintenance and professional services were 40% and 28% for 2001 and
2000, respectively. The increase in gross margins is attributable to a
reduction in costs, the increase in the ratio of employees to outside
contractors performing services and the completion of lower margin contracts
inherited as a part of the acquisitions made at the end of 1999.

Direct data center costs increased $5.6 million to $26.0 million for the
year ended December 31, 2001 from $20.4 million for 2000. The increase in
costs relates to additional personnel and infrastructure necessary to support
new customers and add new applications for our existing customers and the costs
of acquired entities. The gross margin for data center operations was 51% and
11% for 2001 and 2000, respectively. We increased the gross margin on our data
center operations through our ability to leverage increasing revenue against
the fixed data center costs.

Selling and Marketing. Total selling and marketing expenses decreased by
$10.5 million to $27.8 million for the year ended December 31, 2001 from $38.3
million for the year ended December 31, 2000. We eliminated $5.9 million of
selling and marketing expenses in connection with the sale of VerticalOne.
During 2001, we consolidated our sales efforts to focus on S1 Enterprise and
less on legacy singles channel solutions. As a result of this focus, selling
and marketing expenses decreased.

Product Development. Total product development expenses decreased by $20.0
million to $40.8 million for the year ended December 31, 2001 from $60.8
million for the year ended December 31, 2000. This decrease is primarily
attributable to the elimination of $11.1 million of product development
expenses in connection with the sale of VerticalOne. Additionally product
development expenses decreased as we discontinued development of certain legacy
products. During 2001, we reorganized our product development efforts to focus
on the development of S1 Enterprise applications. During 2000, we spent a
portion of our product development efforts on the completion of our acquired
in-process development projects.

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General and Administrative.General and administrative expenses increased
by $3.6 million to $44.0 million for the year ended December 31, 2001 from
$40.4 million for 2000. A portion of the increase reflects the addition of
Q-Up and Davidge, both of which were acquired in the second quarter of 2000.
In 2001, we strengthened our executive and management teams, resulting in an
increase in general and administrative salaries and related personnel charges
over the prior year period. As a percentage of revenues, general and
administrative expenses decreased to 19% of total revenues for 2001, from 21%
for 2000. This decrease is attributable to our ability to leverage our
existing infrastructure against increasing revenues.

Depreciation.Depreciation increased by $3.3 million to $26.9 million for
the year ended December 31, 2001 from $23.6 million for the year ended December
31, 2000, an increase of 14%. These increases were primarily the result of the
depreciation recorded on additional property and equipment from capital
expenditures and acquisitions.

Marketing Cost from Warrants Issued. We recorded $5.0 million of marketing
costs for the year ended December 31, 2000. The marketing cost was primarily
for warrants issued in connection with a pilot project and distribution
agreement between a third-party and one of our subsidiaries. The fair value of
the warrants was determined based on the Black-Scholes option-pricing model. We
recognized the entire cost of the warrants in 2000 and 1999.

Merger Related Costs and Restructuring Charges. During 2000, we incurred
merger related costs of $22.5 million in connection with three acquisitions
completed in the fourth quarter of 1999 and two acquisitions completed in the
second quarter of 2000. These costs were incurred to integrate the products and
platforms of the acquired companies, to train personnel on the new products
acquired and to build the infrastructure necessary to support a global
operation. Costs to integrate acquired business were minimal in 2001. During
2001, we released merger related accruals of $2.1 million primarily related to
changes in estimates relative to pending or threatened litigation.

During the second quarter of 2001, we approved a restructuring plan to
streamline our European operations. In connection with this plan, we reduced
our European workforce by 77 people and consolidated most of our European
operations into two locations. As a result, we recorded a charge of $5.6
million for the estimated costs associated with the restructuring plan. Also in
2001, as a result of a softening in the domestic real estate markets, we
determined our original estimate of costs to dispose of or sublet our unused
real estate was below the currently anticipated costs. Accordingly, we recorded
a charge of $4.5 million to increase restructuring reserves that initially were
established during the fourth quarter of 2000. Additionally, during 2001, in
connection with the closing of certain office facilities, we wrote-off
leasehold improvements of $1.2 million, which were not previously anticipated
in the initial restructuring accrual.

In November 2000, we approved a restructuring plan, including a plan to
discontinue development on the Edify retail banking platform. As a result of
the restructuring plan, we reduced our workforce by approximately 220 employees
and closed several of our facilities worldwide. During the fourth quarter of
2000, we recorded a charge of $14.7 million for the estimated costs associated
with the restructuring plan.

Acquired In-process Research and Development.In connection with the
acquisition of Q-Up in 2000, we allocated $14.1 million of purchase price to
acquired in-process research and development, which was expensed at the date of
acquisition.

Amortization and Impairment of Acquisition Intangibles.Amortization and
impairment of acquisition intangible assets decreased $961.6 million to $60.6
million for the year ended December 31, 2001 from $1.0 billion for 2000. In the
fourth quarter of 2000, we recorded an impairment charge of $656.8 million to
reduce the carrying value of goodwill and other intangible assets. As a result
of the reduced carrying value, amortization of these acquisition intangibles
decreased during the year ended December 31, 2001 as compared to 2000.

Interest, Investment and Other Income, Net.Interest, investment and other
income was $3.1 million for the year ended December 31, 2001, a decrease of
$56.6 million for 2000. During the year ended December 31, 2001, we recorded
non-cash charges of $4.0 million to write down our basis in certain cost basis
investments for other than temporary impairments and a gain of $0.9 million on
the sale of investment securities available for sale. During the year ended
December 31, 2000, we recorded a gain of $51.7 million on the sale of
investment securities available for sale.

Loss on Sale of Subsidiaries and Equity Interest in Net Loss of Affiliate.
In 2001, we recorded a loss on sale of VerticalOne of $52.3 million and
recorded non-cash charges of $61.9 million based on our equity interest in the
net loss of Yodlee, amortization of the underlying goodwill and other
intangible assets, and a write-down in the basis of our investment in Yodlee.
See further discussion of our investment in Yodlee in Note 4 to the
consolidated financial statements. Additionally, during 2001, we recorded a
charge of $0.9 million in connection with the sale of a small European
subsidiary.

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Income Tax Benefit.We recorded an income tax benefit of $3.4 million for
2001, compared to $4.6 million of 2000. The decrease of $1.2 million is
primarily attributable to the reduction in amortization expense recorded on the
FICS intangible assets.

Loss from Discontinued Operations.The loss from discontinued operations
for the year ended December 31, 2001 was $26.4 million, a decrease of 33% from
a loss of $39.5 million for the same period in 2000. Revenues were $46.5
million for the year ended December 31, 2001 compared to $43.9 million for
2000. Direct costs decreased 26% and general and administrative expenses
decreased 31%, these were offset by a 42% increase in selling and marketing
expenses. Amortization and impairment of acquisition intangibles decreased
$12.5 million as a result of the impairment charge recorded in 2000 and the
amortization expense recorded in 2001 on a reduced carrying value.

Acquired In-process Research and Development

In connection with the acquisitions of Q-Up, Regency and Point, we
allocated a portion of the respective purchase prices to acquired in-process
research and development based on appraisals prepared by independent valuation
consultants.

We determined the fair value of in-process research and development for
each of the above acquisitions using an income approach. This involved
estimating the present value of the after-tax cash flows expected to be
generated by the purchased in-process research and development, using
risk-adjusted discount rates and revenue forecasts as appropriate. Estimates of
future cash flows related to the in-process research and development were made
for each project based on our estimates of revenue, operating expenses and
income taxes from the project. These estimates were consistent with historical
pricing, margins and expense levels for similar products. Revenues were
estimated based on relevant market size and growth factors, expected industry
trends, individual product sales cycles and the estimated life of each
products underlying technology. Estimated operating expenses, income taxes and
charges for the use of contributory assets were deducted from estimated
revenues to determine estimated after-tax cash flows for each project.
Estimated operating expenses include cost of goods sold, selling, general and
administrative expenses and research and development expenses. The research and
development expenses include estimated costs to maintain the products once they
have been introduced into the market. The selection of the discount rate was
based on consideration of our weighted average cost of capital, as well as
factors including the useful life of each technology, profitability levels of
each technology, the uncertainty of technology advances that were known at the
time, and the stage of completion of each technology. We believe that the
estimated in-process research and development amounts represent fair value at
the date of acquisition and do not exceed the amount a third party would have
paid for the projects.

At the date of acquisition, the in-process research and development
projects had not yet reached technological feasibility and had no alternative
future uses. Accordingly, the values allocated to these projects were
immediately expensed upon acquisition. Where appropriate, we deducted an amount
reflecting the contribution of developed technology to the anticipated cash
flows of in-process research and development projects. The acquisitions and
related in-process research and development expenses are detailed in the table
below:

|                |  |                   |  |                |       |               |  |          |      |            |  |          |      |  |  | 
|--------------- |  | ----------------- |  | -------------- | ----- | ------------- |  | -------- | ---- | ---------- |  | -------- | ---- |  |  | 
|                |  |                   |  |                |       |               |  |          |      | In-process |  | Costs to
|Company         |  | Acquisition Date  |  | Purchase Price |       | R&D Expense   |  | Complete
|                |  |                   |  |                |       |               |  |         
|                |  |                   |  |                |       | (in millions)
|Q-Up            |  | April 7, 2000     |  | $              | 414.9 |               |  | $        | 14.1 |            |  | $        | 13.0 | 
|Regency Systems |  | February 14, 2002 |  |                | 12.6  |               |  |          | 0.2  |            |  |          | 0.8  | 
|Point           |  | March 27, 2002    |  |                | 17.9  |               |  |          | 0.2  |            |  |          | 1.1  | 

At the date of acquisition, Regency was working on an IVR system for the
NT platform, known as V3.1. Although this technology includes all of the
same features of the developed system, it is based on an entirely new
code, and includes additional features. We released this new product at the end of
2002 within the estimated costs and timeline used in the valuation.

As of the acquisition
date, Point had two projects under development:
e-point Version 6.5 for Windows NT and e-point Version 6.0 for Unix. E-point
Version 6.5 incorporates additional functionalities to the existing platform.
At the time of acquisition, conceptualization for Version 6.5 was complete,
however it had not progressed through the development cycle. e-point Unix has
the same features as existing Point technology, but for use an
interconnectivity with Unix operating systems. At the time of acquisition, the
coding, prototyping and stabilization of the e-point Unix project was not
complete. Both of these projects were completed during the first quarter of
2003 within the anticipated costs and timelines.

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Liquidity and Capital Resources

The following tables show information about our cash flows during the
years ended December 31, 2000, 2001 and 2002 and selected balance sheet data as
of December 31, 2001 and 2002:

|                                                                                                       |  |                         |          |      |  |      |         |   |  |   |        |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                       |  | Year Ended December 31,
|                                                                                                       |  |                        
|                                                                                                       |  | 2000                    |          | 2001 |  | 2002
|                                                                                                       |  |                         |          |      |  |     
|                                                                                                       |  | (in thousands)         
|Net cash (used in) provided by operating activities before changes in
operating assets and liabilities |  | $                       | (97,302  | )    |  | $    | 9,833   |   |  | $ | 31,238 |  
|Changes in operating assets and liabilities                                                            |  |                         | (53,410  | )    |  |      | 2,061   |   |  |   | (9,817 | )
|                                                                                                       |  |                         |          |      |  |      |         |   |  |   |        |  
|Net cash (used in) provided by operating activities                                                    |  |                         | (150,712 | )    |  |      | 11,894  |   |  |   | 21,421 |  
|Net cash used in investing activities                                                                  |  |                         | (6,824   | )    |  |      | (42,212 | ) |  |   | (3,805 | )
|Net cash provided by (used in) financing activities                                                    |  |                         | 243,168  |      |  |      | (3,310  | ) |  |   | (9,893 | )
|Effect of exchange rates on cash and cash equivalents                                                  |  |                         | 22       |      |  |      | (244    | ) |  |   | 487    |  
|                                                                                                       |  |                         |          |      |  |      |         |   |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                                   |  | $                       | 85,654   |      |  | $    | (33,872 | ) |  | $ | 8,210  |  
|                                                                                                       |  |                         |          |      |  |      |         |   |  |   |        |  

|                                             |  |                    |         |      |  |   |         | 
|-------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                             |  | As of December 31,
|                                             |  |                   
|                                             |  | 2001               |         | 2002
|                                             |  |                    |         |     
|                                             |  | (in thousands)    
|Cash and cash equivalents                    |  | $                  | 119,632 |      |  | $ | 127,842 | 
|Short-term investments                       |  |                    | 28,818  |      |  |   | 14,843  | 
|Working capital                              |  |                    | 129,827 |      |  |   | 141,652 | 
|Working capital, excluding deferred revenues |  |                    | 157,326 |      |  |   | 176,485 | 
|Total assets                                 |  |                    | 372,037 |      |  |   | 376,974 | 
|Total stockholders equity                   |  |                    | 274,618 |      |  |   | 279,761 | 

Operating Activities.During the year ended December 31, 2002, cash
provided by operations was $21.4 million compared to $11.9 million for the year
ended December 31, 2001. The improvement in net cash flows from operating
activities generally reflects the decrease in our net loss, partially offset by
the effects of changes in operating assets and liabilities. Changes in
operating assets and liabilities, especially trade accounts receivable, trade
accounts payable and accrued expenses, are generally the result of timing
differences between the collection of fees billed and payment of operating
expenses.

Our net loss of $16.4 million for the year ended December 31, 2002,
included non-cash items of $40.4 million in depreciation and amortization,
including acquisition intangibles and the write-off of acquired in-process
research and development and $7.8 million to provide for doubtful accounts and
billing adjustments.

The change in operating assets and liabilities of $9.8 million in 2002 was
primarily attributable to a decrease in accounts payable and other liabilities
of $6.9 million and an increase in prepaid expenses of $6.7 million and other
assets, partially offset by an increase in deferred revenues of $6.6 million.

Cash provided by operations for the year ended December 31, 2001 included
our net loss for the period of $221.5 million offset by the following non-cash
items of:



| |  |  | $109.0 million of depreciation and amortization;                                              
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | $61.9 million in the equity interest in net loss of an affiliate;                             
|
| |  |  | $53.2 million in losses recorded on the sale of subsidiaries;                                 
|
| |  |  | $5.2 million to provide for doubtful accounts receivable and billing adjustments; and         
|
| |  |  | $4.0 million write-down of cost-basis equity investments for other than temporary impairments.

The change in operating assets and liabilities of $2.1 million in 2001 was
primarily due to a $35.4 million decrease in accounts receivable resulting from
aggressive collection efforts and a significant improvement in days sales
outstanding, offset by a decrease in accounts payable and accrued expenses of
$32.4 million as a result of the timing of payments.

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Cash used in operations for the year ended December 31, 2000 included the
effects of:



| |  |  | our net loss for the period of $1.2 billion offset by non-cash charges of approximately $1.1 billion;
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | a gain on the sale of investment securities of $51.2 million;                                        
|
| |  |  | an increase in accounts receivable of $31.6 million; and                                             
|
| |  |  | the reduction of accounts payable and accrued expenses of $16. 0 million.                            

Investing Activities.Cash used in investing activities was $3.8 million
for the year ended December 31, 2002 compared to $42.2 million in the
comparable period of 2001.

We spent
$3.9 million and $4.4 million in cash in connection with
acquisitions in the years 2002 and 2001, respectively. In 2001, we sold our
VerticalOne subsidiary, including $15.1 million in cash.

Short term investments consist of investments in certificates of deposit,
commercial paper and other highly liquid securities with original maturities
exceeding 90 days but less than one year. All of these investments are held to
maturity and are reported at amortized cost. We have the ability and the intent
to hold these investments to maturity. During 2002, we converted a net $14.0
million of short-term investments to cash as compared to a net investment of
$9.1 million in short term investments in 2001. In 2002, we purchased a $2.5
million long-term certificate of deposit. This is included in other assets
on our consolidated balance sheet. During 2001, we received $1.0 million from
the sale of investment securities.

In 2002, we purchased
$11.3 million of property and equipment as compared
to $14.7 million in 2001. During 2002, our property and equipment purchases
were primarily related computer equipment. The purchases of property and
equipment made in 2001 were primarily related to leasehold
improvements for our new corporate headquarters and computer equipment.

Cash provided by investing activities in 2000 was comprised primarily of
$54.7 million of proceeds from the sale of investment securities and $5.3
million of net cash acquired in acquisitions, offset in part by $41.7 million
of purchases of property, equipment and purchased technology and $6.9 million
investments in unconsolidated companies.

Financing Activities.Cash used in financing activities was $9.9 million
for the year ended December 31, 2002 compared to $3.3 million in 2001.

In July 2002, our Board of Directors approved a $10.0 million stock
repurchase program. This program was funded from available cash and short term
investments. Through December 31, 2002, we repurchased 1,906,300 shares of our
common stock for $9.3 million under this program. We completed this repurchase
program in the first quarter of 2003.

In 2002 and 2001, we received $5.4 million and $7.7 million from the sale
of common stock under our employee stock plans, respectively.

We paid $6.0 million and $7.2 million for capital lease obligations in
2002 and 2001. In 2001, we repaid borrowings of $3.8 million.

In 2001, we entered into an arrangement for a $10.0 million secured line
of credit with a bank. During 2002, the secured line of credit expired. As of
December 31, 2002, we do not have any borrowing arrangements.

In 2000, we received net proceeds of $232.0 million from the sale of
preferred stock and $17.5 million from the sale of our common stock under
employee stock plans. This was partially offset by payments on capital lease
obligations of $5.0 million and $2.5 million payment on notes payable.

Commitments.In connection with the lease of certain offices, we issued
to our landlord a standby letter of credit in the amount of $10.4 million to
guarantee certain obligations under the lease agreement. The amount of the
letter of credit reduces as our rent obligation declines. At December 31,
2002, there were no drawings outstanding under the letter of credit.

We lease office space and computer equipment under non-cancelable
operating leases that expire at various dates through 2023. We also lease
certain computer equipment under capital lease arrangements. Future minimum
payments under

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operating and capital leases, net of operating sublease income,
are $12.5 million in 2003, $8.5 million in 2004, $7.2 million in 2005,
$6.5 million in 2006, $5.0 million in 2007 and $23.5 million thereafter.

We believe that our expected cash flows from operations together with our
existing cash and cash equivalents will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
12 months. If cash generated from operations and existing cash and cash
equivalents are insufficient to satisfy our liquidity requirements, we may seek
to sell additional equity or issue debt securities or establish an additional
credit facility. The sale of additional equity or convertible debt securities
could result in additional dilution to our stockholders. The addition of
indebtedness would result in increased fixed obligations and could result in
operating covenants that would restrict our operations. We cannot assure you
that financing will be available in amounts or on terms acceptable to us, if at
all.




Item 7A.     Qualitative and Quantitative Disclosures about Market Risk.

The foreign currency financial statements of our international operations
are translated into U.S. dollars at current exchange rates, except revenues and
expenses, which are translated at average exchange rates during each reporting
period. Net exchange gains or losses resulting from the translation of assets
and liabilities are accumulated in a separate section of stockholders equity
titled accumulated other comprehensive income (loss). Therefore, our exposure to
foreign currency exchange rate risk occurs when translating the financial
results of our international operations to U.S. dollars in consolidation. At
this time, we do not use financial instruments to hedge our foreign exchange
exposure because the effect of foreign exchange rate fluctuations would not be
material. The net assets of our foreign operations at December 31, 2002 were
approximately $35.2 million.

For our operations located in countries participating in the European
Union, we adopted the euro as our common legal currency effective January 1,
1999. On January 1, 2002, all countries participating in the European Union
began using the euro as their currency. We have not experienced any
significant problems related to the euro conversion and the euro conversion did
not have a material impact on our results of operations.

Our capital lease obligations include only fixed rates of interest.
Therefore, we do not believe there is any material exposure to market risk
changes in interest rates relating to our capital lease obligations.

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##### Table of Contents






Item 8.     Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                     |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                                     |  | Page
|                                                                                                                                     |  |     
|FINANCIAL STATEMENTS:                                                                                                                |  |      |    | 
|Report of Independent Accountants                                                                                                    |  |      | 39 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                                         |  |      | 40 | 
|Consolidated Statements of Operations for the Years Ended December 31, 2000, 2001 and 2002                                           |  |      | 41 | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 2001 and 2002                                           |  |      | 42 | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the Years Ended
December 31, 2000, 2001 and 2002 |  |      | 43 | 
|Notes to Consolidated Financial Statements                                                                                           |  |      | 44 | 
|FINANCIAL STATEMENT SCHEDULE:                                                                                                        |  |      |    | 
|For each of the three years ended December 31, 2002
IIValuation and Qualifying Accounts                                             |  |      | 70 | 

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of S1 Corporation:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of S1 Corporation and its subsidiaries (the Company) at December 31,
2001 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 9, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, as of January 1,
2002.

PricewaterhouseCoopers LLP

Atlanta, GA
March 14, 2003

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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |        |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------ | ---------- | --------------------------- | ------- | ---- | ---------- | ------ | ------- | 
|                                                                                                                                                                  |                                                                              |                                            |            | December 31,               
|                                                                                                                                                                  |                                                                              |                                            |            |                            
|                                                                                                                                                                  |                                                                              |                                            |            | 2001                        |         | 2002
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |     
|                                                                                                                                                                  |                                                                              |                                            |            | (in thousands, except share
|                                                                                                                                                                  |                                                                              |                                            |            | and per share data)        
|ASSETS                                                                                                                                                            |                                                                              |                                            |            |                             |         |      |            |       
|Current assets:                                                                                                                                                   |                                                                              |                                            |            |                             |         |      |            |       
|Cash and cash equivalents                                                                                                                                         |                                                                              | $                                          | 119,632    |                             |         | $    | 127,842    |       
|Short-term investments                                                                                                                                            |                                                                              |                                            | 28,818     |                             |         |      | 14,843     |       
|Accounts receivable, net of allowance for doubtful accounts and billing adjustments
of $8,083 and $2,833 at December 31, 2001 and 2002, respectively              |                                                                              |                                            | 56,502     |                             |         |      | 42,647     |       
|Prepaid expenses                                                                                                                                                  |                                                                              |                                            | 3,906      |                             |         |      | 7,018      |       
|Other current assets                                                                                                                                              |                                                                              |                                            | 3,996      |                             |         |      | 6,194      |       
|Assets held for sale, net                                                                                                                                         |                                                                              |                                            |           |                             |         |      | 34,577     |       
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total current assets                       |            |                             | 212,854 |      |            |        | 233,121 | 
|Property and equipment, net                                                                                                                                       |                                                                              |                                            | 41,253     |                             |         |      | 29,512     |       
|Intangible assets, net                                                                                                                                            |                                                                              |                                            | 31,500     |                             |         |      | 15,811     |       
|Goodwill, net                                                                                                                                                     |                                                                              |                                            | 79,723     |                             |         |      | 89,640     |       
|Other assets                                                                                                                                                      |                                                                              |                                            | 6,707      |                             |         |      | 8,890      |       
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total assets                               |            | $                           | 372,037 |      |            | $      | 376,974 | 
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                              |                                                                              |                                            |            |                             |         |      |            |       
|Current liabilities:                                                                                                                                              |                                                                              |                                            |            |                             |         |      |            |       
|Accounts payable                                                                                                                                                  |                                                                              | $                                          | 4,617      |                             |         | $    | 9,340      |       
|Accrued compensation and benefits                                                                                                                                 |                                                                              |                                            | 19,884     |                             |         |      | 10,339     |       
|Accrued restructuring                                                                                                                                             |                                                                              |                                            | 5,165      |                             |         |      | 2,665      |       
|Accrued other expenses                                                                                                                                            |                                                                              |                                            | 19,937     |                             |         |      | 20,091     |       
|Deferred revenues                                                                                                                                                 |                                                                              |                                            | 27,499     |                             |         |      | 34,833     |       
|Current portion of capital lease obligation                                                                                                                       |                                                                              |                                            | 5,925      |                             |         |      | 1,693      |       
|Liabilities of business held for sale                                                                                                                             |                                                                              |                                            |           |                             |         |      | 12,508     |       
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total current liabilities                  |            |                             | 83,027  |      |            |        | 91,469  | 
|Capital lease obligation, excluding current portion                                                                                                               |                                                                              |                                            | 1,450      |                             |         |      | 185        |       
|Deferred tax liability                                                                                                                                            |                                                                              |                                            | 5,615      |                             |         |      |           |       
|Accrued restructuring, excluding current portion                                                                                                                  |                                                                              |                                            | 6,189      |                             |         |      | 4,445      |       
|Other liabilities                                                                                                                                                 |                                                                              |                                            | 1,138      |                             |         |      | 1,114      |       
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total liabilities                          |            |                             | 97,419  |      |            |        | 97,213  | 
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|Commitments and contingencies (Note 12)                                                                                                                           |                                                                              |                                            |            |                             |         |      |            |       
|Stockholders equity:                                                                                                                                             |                                                                              |                                            |            |                             |         |      |            |       
|Preferred stock, $0.01 par value. Authorized 25,000,000 shares. Issued and
outstanding 1,635,714 and 1,398,214 shares at December 31, 2001 and 2002,
respectively |                                                                              |                                            | 241,975    |                             |         |      | 18,328     |       
|Common stock, $0.01 par value. Authorized 350,000,000 shares. Issued and
outstanding 61,444,554 and 71,259,901 shares at December 31, 2001 and 2002,
respectively |                                                                              |                                            | 614        |                             |         |      | 713        |       
|Additional paid-in capital                                                                                                                                        |                                                                              |                                            | 1,640,972  |                             |         |      | 1,896,111  |       
|Common stock held in treasury, at cost. 1,906,300 shares at December 31, 2002                                                                                     |                                                                              |                                            |           |                             |         |      | (9,250     | )     
|Accumulated deficit                                                                                                                                               |                                                                              |                                            | (1,607,148 | )                           |         |      | (1,623,545 | )     
|Accumulated other comprehensive income (loss):                                                                                                                    |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  | Net unrealized gains on investment securities available for sale, net of tax |                                            |            | 73                          |         |      |            | 62     |        
|                                                                                                                                                                  | Cumulative foreign currency translation adjustment, net of tax               |                                            |            | (1,868                      | )       |      |            | (2,658 | )      
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total stockholders equity                 |            |                             | 274,618 |      |            |        | 279,761 | 
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       
|                                                                                                                                                                  |                                                                              | Total liabilities and stockholders equity |            | $                           | 372,037 |      |            | $      | 376,974 | 
|                                                                                                                                                                  |                                                                              |                                            |            |                             |         |      |            |       

See accompanying notes to consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |        |         |  
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ---------- | ----------------------------------------------- | ---------- | ---- | ---------- | ------- | -------- | - | ---------- | ------ | ------- | -
|                                                               |                                                                                                                              |                          |            | Year Ended December 31,                        
|                                                               |                                                                                                                              |                          |            |                                                
|                                                               |                                                                                                                              |                          |            | 2000                                            |            | 2001 |            | 2002   
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |        
|                                                               |                                                                                                                              |                          |            | (in thousands, except share and per share data)
|Revenues:                                                      |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               | Software licenses                                                                                                            |                          | $          | 24,395                                          |            |      | $          | 42,243  |          |   | $          | 66,895 |        
|                                                               | Support and maintenance                                                                                                      |                          |            | 18,810                                          |            |      |            | 29,216  |          |   |            | 43,761 |        
|                                                               | Professional services                                                                                                        |                          |            | 119,120                                         |            |      |            | 106,341 |          |   |            | 95,487 |        
|                                                               | Data center                                                                                                                  |                          |            | 22,811                                          |            |      |            | 52,915  |          |   |            | 40,560 |        
|                                                               | Other                                                                                                                        |                          |            | 4,893                                           |            |      |            | 1,050   |          |   |            | 1,274  |        
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               |                                                                                                                              | Total revenues           |            |                                                 | 190,029    |      |            |         | 231,765  |   |            |        | 247,977 |  
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Operating expenses:                                            |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               | Cost of software licenses                                                                                                    |                          |            | 947                                             |            |      |            | 532     |          |   |            | 437    |        
|                                                               | Cost of professional services, support and maintenance, including
stock option compensation expense of $24 for 2000          |                          |            | 98,865                                          |            |      |            | 81,763  |          |   |            | 74,785 |        
|                                                               | Cost of data center                                                                                                          |                          |            | 20,371                                          |            |      |            | 26,013  |          |   |            | 22,100 |        
|                                                               | Cost of other revenue                                                                                                        |                          |            | 4,305                                           |            |      |            | 751     |          |   |            | 1,267  |        
|                                                               | Selling and marketing, including stock option compensation
expense of $753 for 2000                                          |                          |            | 38,304                                          |            |      |            | 27,838  |          |   |            | 38,078 |        
|                                                               | Product development, including stock option compensation
expense of $1,690 for 2000                                          |                          |            | 60,770                                          |            |      |            | 40,767  |          |   |            | 39,377 |        
|                                                               | General and administrative, including stock option compensation
expense of $2,916, $1,330 and $1,322 for 2000, 2001 and 2002 |                          |            | 40,397                                          |            |      |            | 44,007  |          |   |            | 43,179 |        
|                                                               | Depreciation                                                                                                                 |                          |            | 23,598                                          |            |      |            | 26,880  |          |   |            | 21,404 |        
|                                                               | Marketing cost from warrants issued                                                                                          |                          |            | 4,962                                           |            |      |            |        |          |   |            |       |        
|                                                               | Merger related and restructuring costs                                                                                       |                          |            | 37,228                                          |            |      |            | 9,260   |          |   |            | 1,683  |        
|                                                               | Acquired in-process research and development                                                                                 |                          |            | 14,100                                          |            |      |            |        |          |   |            | 350    |        
|                                                               | Amortization and impairment of acquisition intangible assets                                                                 |                          |            | 1,048,654                                       |            |      |            | 60,587  |          |   |            | 15,943 |        
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               |                                                                                                                              | Total operating expenses |            |                                                 | 1,392,501  |      |            |         | 318,398  |   |            |        | 258,603 |  
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               |                                                                                                                              | Operating loss           |            |                                                 | (1,202,472 | )    |            |         | (86,633  | ) |            |        | (10,626 | )
|Interest, investment and other income, net                     |                                                                                                                              |                          | 59,699     |                                                 |            |      | 3,146      |         |          |   | 1,444      |       
|Loss on sale of subsidiaries                                   |                                                                                                                              |                          |           |                                                 |            |      | (53,186    | )       |          |   |           |       
|Equity in net loss of affiliate                                |                                                                                                                              |                          |           |                                                 |            |      | (61,900    | )       |          |   |           |       
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Loss before income tax benefit                                 |                                                                                                                              |                          | (1,142,773 | )                                               |            |      | (198,573   | )       |          |   | (9,182     | )     
|Income tax benefit                                             |                                                                                                                              |                          | 4,576      |                                                 |            |      | 3,387      |         |          |   | 2,653      |       
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Loss from continuing operations                                |                                                                                                                              |                          | (1,138,197 | )                                               |            |      | (195,186   | )       |          |   | (6,529     | )     
|Loss from discontinued operations, net of tax                  |                                                                                                                              |                          | (39,481    | )                                               |            |      | (26,357    | )       |          |   | (9,868     | )     
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|                                                               |                                                                                                                              | Net loss                 |            | $                                               | (1,177,678 | )    |            | $       | (221,543 | ) |            | $      | (16,397 | )
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Loss per common share from continuing operations               |                                                                                                                              | $                        | (21.04     | )                                               |            | $    | (3.30      | )       |          | $ | (0.10      | )     
|Loss per common share from discontinued operations, net of tax |                                                                                                                              |                          | (0.73      | )                                               |            |      | (0.44      | )       |          |   | (0.14      | )     
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Basic and diluted net loss per common share                    |                                                                                                                              | $                        | (21.77     | )                                               |            | $    | (3.74      | )       |          | $ | (0.24      | )     
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       
|Weighted average common shares outstanding                     |                                                                                                                              |                          | 54,096,324 |                                                 |            |      | 59,242,105 |         |          |   | 67,724,593 |       
|                                                               |                                                                                                                              |                          |            |                                                 |            |      |            |         |          |   |            |       

See accompanying notes to consolidated financial statements.

41



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |         |         |        |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------- | --------- | ----------------------- | -------- | -------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | -
|                                                                                          |                                                                             |                                                          |                                                     |           | Year Ended December 31,
|                                                                                          |                                                                             |                                                          |                                                     |           |                        
|                                                                                          |                                                                             |                                                          |                                                     |           | 2000                    |          | 2001     |         | 2002   
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |        
|                                                                                          |                                                                             |                                                          |                                                     |           | (in thousands)         
|Cash flows from operating activities:                                                     |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Net loss                                                                                  |                                                                             | $                                                        | (1,177,678                                          | )         |                         | $        | (221,543 | )       |         | $       | (16,397 | )      
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|                                                                                          | Depreciation, amortization and intangible asset impairment charges          |                                                          |                                                     | 1,106,212 |                         |          |          | 109,028 |         |         |         | 40,095  |        
|                                                                                          | Acquired in-process research and development                                |                                                          |                                                     | 14,100    |                         |          |          |        |         |         |         | 350     |        
|                                                                                          | Provision for doubtful accounts receivable and billing adjustments          |                                                          |                                                     | 6,826     |                         |          |          | 5,220   |         |         |         | 7,756   |        
|                                                                                          | Compensation and marketing expense for options and warrants                 |                                                          |                                                     | 9,977     |                         |          |          | 1,330   |         |         |         | 1,322   |        
|                                                                                          | Loss on sale of subsidiaries                                                |                                                          |                                                     |          |                         |          |          | 53,186  |         |         |         |        |        
|                                                                                          | Equity in net loss of affiliate                                             |                                                          |                                                     |          |                         |          |          | 61,900  |         |         |         |        |        
|                                                                                          | Benefit for deferred income taxes                                           |                                                          |                                                     | (5,006    | )                       |          |          | (3,007  | )       |         |         | (2,930  | )      
|                                                                                          | Gain on the sale of investment securities available for sale                |                                                          |                                                     | (51,733   | )                       |          |          | (931    | )       |         |         |        |        
|                                                                                          | Loss on impaired cost-basis equity investments                              |                                                          |                                                     |          |                         |          |          | 3,997   |         |         |         |        |        
|                                                                                          | Loss on disposal of property and equipment                                  |                                                          |                                                     |          |                         |          |          | 1,822   |         |         |         | 610     |        
|                                                                                          | Other                                                                       |                                                          |                                                     |          |                         |          |          | (1,169  | )       |         |         | 432     |        
|                                                                                          | Changes in operating assets and liabilities:                                |                                                          |                                                     |           |                         |          |          |         |         |         |         |         |        
|                                                                                          |                                                                             | (Increase) decrease in accounts receivable               |                                                     |           | (31,567                 | )        |          |         | 35,415  |         |         |         | (2,698  | )     
|                                                                                          |                                                                             | (Increase) decrease in prepaid expenses and other assets |                                                     |           | (839                    | )        |          |         | 1,393   |         |         |         | (6,707  | )     
|                                                                                          |                                                                             | Increase (decrease) in accounts payable                  |                                                     |           | (13,924                 | )        |          |         | (10,971 | )       |         |         | 7,396   |       
|                                                                                          |                                                                             | Decrease in accrued expenses and other liabilities       |                                                     |           | (2,080                  | )        |          |         | (21,423 | )       |         |         | (14,363 | )     
|                                                                                          |                                                                             | (Decrease) increase in deferred revenues                 |                                                     |           | (5,000                  | )        |          |         | (2,353  | )       |         |         | 6,555   |       
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|                                                                                          |                                                                             |                                                          | Net cash (used in) provided by operating activities |           |                         | (150,712 | )        |         |         | 11,894  |         |         |         | 21,421 |  
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Cash flows from investing activities:                                                     |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Cash acquired through acquisition of businesses, net of cash paid                         |                                                                             |                                                          | 5,310                                               |           |                         |          | (4,424   | )       |         |         | (3,943  | )      
|Cash exchanged in sale of subsidiaries                                                    |                                                                             |                                                          |                                                    |           |                         |          | (15,073  | )       |         |         |        |        
|Maturities of short-term investment securities                                            |                                                                             |                                                          | 15,641                                              |           |                         |          | 62,662   |         |         |         | 74,789  |        
|Purchases of short-term investment securities                                             |                                                                             |                                                          | (35,403                                             | )         |                         |          | (71,718  | )       |         |         | (60,814 | )      
|Purchase of long-term certificate of deposit                                              |                                                                             |                                                          |                                                    |           |                         |          |         |         |         |         | (2,500  | )      
|Proceeds from sale of investment securities available for sale                            |                                                                             |                                                          | 54,671                                              |           |                         |          | 1,044    |         |         |         |        |        
|Investments in and advances to unconsolidated companies                                   |                                                                             |                                                          | (6,883                                              | )         |                         |          |         |         |         |         |        |        
|Proceeds from payment on notes receivable                                                 |                                                                             |                                                          | 1,500                                               |           |                         |          |         |         |         |         |        |        
|Purchases of property, equipment, and technology                                          |                                                                             |                                                          | (41,660                                             | )         |                         |          | (14,703  | )       |         |         | (11,337 | )      
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|                                                                                          |                                                                             |                                                          | Net cash used in investing activities               |           |                         | (6,824   | )        |         |         | (42,212 | )       |         |         | (3,805 | )
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Cash flows from financing activities:                                                     |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Sale of preferred stock, net of expenses                                                  |                                                                             |                                                          | 231,957                                             |           |                         |          |         |         |         |         |        |        
|Proceeds from employee stock option plans and stock purchase plan                         |                                                                             |                                                          | 17,450                                              |           |                         |          | 7,739    |         |         |         | 5,371   |        
|Repurchase of common stock held in treasury                                               |                                                                             |                                                          |                                                    |           |                         |          |         |         |         |         | (9,250  | )      
|Payments on notes payable                                                                 |                                                                             |                                                          | (2,538                                              | )         |                         |          | (3,822   | )       |         |         |        |        
|Proceeds from receivable from sale of stock                                               |                                                                             |                                                          | 1,325                                               |           |                         |          |         |         |         |         |        |        
|Payments on capital lease obligations                                                     |                                                                             |                                                          | (5,026                                              | )         |                         |          | (7,227   | )       |         |         | (6,014  | )      
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|                                                                                          |                                                                             |                                                          | Net cash provided by (used in) financing activities |           |                         | 243,168  |          |         |         | (3,310  | )       |         |         | (9,893 | )
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Effect of exchange rate changes on cash and cash equivalents                              |                                                                             |                                                          | 22                                                  |           |                         |          | (244     | )       |         |         | 487     |        
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Net increase (decrease) in cash and cash equivalents                                      |                                                                             |                                                          | 85,654                                              |           |                         |          | (33,872  | )       |         |         | 8,210   |        
|Cash and cash equivalents at beginning of year                                            |                                                                             |                                                          | 67,850                                              |           |                         |          | 153,504  |         |         |         | 119,632 |        
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Cash and cash equivalents at end of year                                                  |                                                                             | $                                                        | 153,504                                             |           |                         | $        | 119,632  |         |         | $       | 127,842 |        
|                                                                                          |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|Non-cash financing and investing activities:                                              |                                                                             |                                                          |                                                     |           |                         |          |          |         |         |         |         |        
|                                                                                          | Property and equipment acquired through leases                              |                                                          | $                                                   | 17,703    |                         |          | $        |        |         |         | $       | 479     |        
|                                                                                          | Equity interest in affiliate received in connection with sale of subsidiary |                                                          |                                                     |          |                         |          |          | 62,900  |         |         |         |        |        
|                                                                                          | Conversion of preferred stock to common stock                               |                                                          |                                                     | 2,265     |                         |          |          | 6,179   |         |         |         | 225,778 |        
|                                                                                          | Cancellation of series C preferred stock and subscription receivable        |                                                          |                                                     |          |                         |          |          | (10,824 | )       |         |         |        |        
|                                                                                          | Effect of acquisitions:                                                     |                                                          |                                                     |           |                         |          |          |         |         |         |         |         |        
|                                                                                          |                                                                             | Issuance of preferred stock and common stock             |                                                     |           | 452,845                 |          |          |         | 23,477  |         |         |         | 22,767  |       
|                                                                                          |                                                                             | Liabilities assumed                                      |                                                     |           | 7,085                   |          |          |         | 5,005   |         |         |         | 10,002  |       

See accompanying notes to consolidated financial statements.

42



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data)

|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |   |  | 
|----------------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | -------- | --------- | --------- | ------ | -------- | ---------- | ------- | ------- | --------- | ---------- | ---------- | ------- | -- | -------- | --- | ------- | ------- | --------- | --------- | ------ | ---------- | ------- | ---------- | - | ------ | - | ------ | - | ------ | ------- | ------- | - | ---------- | -------- | ---------- | ----- | ------- | ------- | ------ | - | ---------- | ------- | ------- | - | ---------- | - |  | 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         | Accumu- |        |   |            |         |         |   |            |  
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         | lated   |        |   |            |         |         |   |            |  
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        | Receiv- |         |   |            |          |            | Other |         |         |        |   |            |         |         |  
|                                                                                    |                              |                              |          | Preferred |           | Common |          |            |         |         |           | Treasury   |            | able    |    |          |     |         |         | Compre-   |           | Total  |            | Compre-
|                                                                                    |                              |                              |          | Stock     |           | Stock  |          | Additional |         | Stock   |           | From the   |            | Accumu- |    | hensive  |     | Stock-  |         | hensive  
|                                                                                    |                              |                              |          |           |           |        |          | Paid-in    |         |         |           | Sale       |            | lated   |    | Income   |     | holders |         | (Loss)   
|                                                                                    |                              | Shares                       |          | Amount    |           | Shares |          | Amount     |         | Capital |           | Shares     |            | Amount  |    | of Stock |     | Deficit |         | (Loss)    |           | Equity |            | Income 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |        
|                                                                                    | Balance at December 31, 1999 |                              |          | 1,393,014 |           |        | $        | 23,089     |         |         |           | 48,831,243 |            |         | $  | 488      |     |         | $       | 1,126,607 |           |        |            |        |            |   | $      |  |        |   | $      | (11,735 | )       |   | $          | (207,927 | )          |       | $       | 60,285  |        |   | $          | 990,807 |         |   |            |   | 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Net loss                                                                            |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   | (1,177,678 | )        |            |       |        |         |        |   | (1,177,678 | )       |         | $ | (1,177,678 | )
|Change in net unrealized gains on investment
securities available for sale          |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (19,120 | )       |        |   | (19,120    | )       |         |   | (19,120    | )
|Change in cumulative foreign currency translation
adjustment                        |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | 364     |         |        |   | 364        |         |         |   | 364        |  
|Realized gains on sale of investment securities                                     |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (40,182 | )       |        |   | (40,182    | )       |         |   |           |  
|Conversion of preferred stock to common stock                                       |                              |                              | (450,450 | )         |           |        | (2,265   | )          |         |         | 900,900   |            |            |         | 9  |          |     |         | 2,256   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |           |         |         |   |           |  
|Issuance of preferred stock, net of expenses                                        |                              |                              | 244,000  |           |           |        | 231,957  |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |            |          |            |       |         |         |        |   | 231,957    |         |         |   |           |  
|Proceeds from receivable from the sale of stock                                     |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |        |   |        |   | 1,325  |         |         |   |           |          |            |       |        |         |        |   | 1,325      |         |         |   |           |  
|Interest earned on receivable from the sale of stock                                |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | 1,044   |           |           |        |           |         |            |   |       |   |        |   | (1,044 | )       |         |   |           |          |            |       |        |         |        |   |           |         |         |   |           |  
|Common stock issued upon the exercise of stock
options and employee stock purchases |                              |                              |         |           |           |        |         |            |         |         | 3,567,747 |            |            |         | 36 |          |     |         | 17,414  |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 17,450     |         |         |   |           |  
|Stock option compensation                                                           |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | 5,015   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 5,015      |         |         |   |           |  
|Warrant issued in connection with marketing
agreement                               |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | 4,962   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 4,962      |         |         |   |           |  
|Issuance of common stock in connection with
acquisitions                            |                              |                              |         |           |           |        |         |            |         |         | 4,665,880 |            |            |         | 47 |          |     |         | 452,798 |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 452,845    |         |         |   |           |  
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Comprehensive loss                                                                  |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |           |         |         | $ | (1,196,434 | )
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|                                                                                    |                              | Balance at December 31, 2000 |          |           | 1,186,564 |        |          | $          | 252,781 |         |           |            | 57,965,770 |         |    | $        | 580 |         |         | $         | 1,610,096 |        |            |         |           |   |        | $ |       |   |        | $       | (11,454 | ) |            | $        | (1,385,605 | )     |         | $       | 1,347  |   |            | $       | 467,745 |   |            |   |  | 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Net loss                                                                            |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   | (221,543   | )        |            |       |        |         |        |   | (221,543   | )       |         |   | (221,543   | )
|Change in net unrealized gains on investment
securities available for sale          |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (199    | )       |        |   | (199       | )       |         |   | (199       | )
|Change in cumulative foreign currency translation
adjustment                        |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (2,375  | )       |        |   | (2,375     | )       |         |   | (2,375     | )
|Realized gains on sale of investment securities                                     |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (568    | )       |        |   | (568       | )       |         |   |           |  
|Conversion of preferred stock to common stock                                       |                              |                              | (6,500   | )         |           |        | (6,179   | )          |         |         | 190,339   |            |            |         | 2  |          |     |         | 6,177   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |            |         |         |   |            |  
|Cancellation of preferred stock                                                     |                              |                              | (193,500 | )         |           |        | (10,824  | )          |         |         |          |            |            |         |   |          |     |         | (1,714  | )         |           |        |           |         |            |   |       |   |        |   | 11,454 |         |         |   |           |          |            |       |        |         |        |   | (1,084     | )       |         |   |           |  
|Common stock issued upon the exercise of stock
options and employee stock purchases |                              |                              |         |           |           |        |         |            |         |         | 2,031,336 |            |            |         | 20 |          |     |         | 7,899   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 7,919      |         |         |   |           |  
|Stock option compensation                                                           |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | 1,330   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 1,330      |         |         |   |           |  
|Cancellation of warrant issued in connection with
marketing agreement               |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | (85     | )         |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | (85        | )       |         |   |           |  
|Issuance of capital stock in connection with
acquisition                            |                              |                              | 649,150  |           |           |        | 6,197    |            |         |         | 1,257,109 |            |            |         | 12 |          |     |         | 17,269  |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 23,478     |         |         |   |           |  
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Comprehensive loss                                                                  |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |           |         |         | $ | (224,117   | )
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|                                                                                    |                              | Balance at December 31, 2001 |          |           | 1,635,714 |        |          | $          | 241,975 |         |           |            | 61,444,554 |         |    | $        | 614 |         |         | $         | 1,640,972 |        |            |         |           |   |        | $ |       |   |        | $       |        |   |            | $        | (1,607,148 | )     |         | $       | (1,795 | ) |            | $       | 274,618 |   |            |   |  | 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Net loss                                                                            |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |        |   |        |   |        |         |         |   | (16,397    | )        |            |       |        |         |        |   | (16,397    | )       |         |   | (16,397    | )
|Change in net unrealized gains on investment
securities available for sale          |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (11     | )       |        |   | (11        | )       |         |   | (11        | )
|Change in cumulative foreign currency translation
adjustment                        |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       | (790    | )       |        |   | (790       | )       |         |   | (790       | )
|Conversion of preferred stock to common stock                                       |                              |                              | (237,500 | )         |           |        | (225,778 | )          |         |         | 6,954,712 |            |            |         | 70 |          |     |         | 225,708 |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |           |         |         |   |           |  
|Common stock issued upon the exercise of stock
options and employee stock purchases |                              |                              |         |           |           |        |         |            |         |         | 1,386,088 |            |            |         | 14 |          |     |         | 5,357   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 5,371      |         |         |   |           |  
|Stock option compensation                                                           |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         | 1,322   |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 1,322      |         |         |   |           |  
|Issuance of capital stock in connection with
acquisitions                           |                              |                              |         |           |           |        | 2,131    |            |         |         | 1,474,547 |            |            |         | 15 |          |     |         | 22,752  |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   | 24,898     |         |         |   |           |  
|Repurchase of common stock, held in treasury                                        |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        | (1,906,300 | )       |            |   | (9,250 | ) |        |   |       |         |         |   |           |          |            |       |        |         |        |   | (9,250     | )       |         |   |           |  
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|Comprehensive loss                                                                  |                              |                              |         |           |           |        |         |            |         |         |          |            |            |         |   |          |     |         |        |           |           |        |           |         |            |   |       |   |        |   |       |         |         |   |           |          |            |       |        |         |        |   |           |         |         | $ | (17,198    | )
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  
|                                                                                    |                              | Balance at December 31, 2002 |          |           | 1,398,214 |        |          | $          | 18,328  |         |           |            | 71,259,901 |         |    | $        | 713 |         |         | $         | 1,896,111 |        |            |         | (1,906,300 | ) |        | $ | (9,250 | ) |        | $       |        |   |            | $        | (1,623,545 | )     |         | $       | (2,596 | ) |            | $       | 279,761 |   |            |   |  | 
|                                                                                    |                              |                              |          |           |           |        |          |            |         |         |           |            |            |         |    |          |     |         |         |           |           |        |            |         |            |   |        |   |        |   |        |         |         |   |            |          |            |       |         |         |        |   |            |         |         |   |            |  

See accompanying notes to consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 2001 and 2002

1. Business

S1 Corporation is a provider of global enterprise software solutions for
more than 4,000 financial organizations including banks, credit unions,
investment firms and insurance companies. Our solutions automate the channels
by which financial institutions interact with their customers. Our objective is
to be the leading global provider of integrated enterprise solutions that
enable financial institutions to improve the way they service their customers
by integrating all delivery channels expanding the total financial relationship
and increasing profits. We sell our solutions to small, mid-sized and large
financial organizations in three geographic regions: (i) the Americas region,
(ii) the Europe, Middle East and Africa region (EMEA) and (iii) the
Asia-Pacific and Japan (APJ) region.

S1 is headquartered in Atlanta, Georgia, USA, with additional domestic
offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas;
Dallas, Texas; New York, New York and West Hills, California; and additional
international offices in Brussels, Dublin, Hong Kong, Lisbon, London,
Luxembourg, Madrid, Melbourne, Munich, Paris, Rotterdam and Sydney. S1 is
incorporated in Delaware.

2. Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements include the accounts of S1
Corporation and its wholly owned subsidiaries. During 2000, 2001 and 2002, we
completed a total of six business acquisitions, which we discuss more fully in
Note 3. The results of operations and cash flows of these acquired businesses
are included in our consolidated statements of operations and cash flows from
their respective dates of acquisition. We manage our business as one
reporting segment.

In January 2001, we sold our Internet aggregation business to Yodlee,
Inc., which we discuss more fully in Note 4. In connection with this sale, we
received an ownership interest of approximately 33% in the equity of Yodlee. We
account for our investment in Yodlee using the equity method of accounting,
which requires us to include our percentage share of Yodlees results in our
statement of operations. During 2002, as a result of additional
equity issuances
by Yodlee, our ownership percentage decreased to 27%.

Through our Edify Corporation subsidiary, we provide a variety of CRM
applications that allow organizations in various industries to automate,
integrate, personalize and analyze interactions with customers across touch
points such as phone, web, wireless, email, fax and kiosk. In July 2002, we
announced our plan to sell this business together with the non-financial
institutions business of Point Information Systems, a European CRM
application provider that we acquired in March 2002, collectively referred to
as the contact center automation business. Following the planned divestiture
of these combined businesses, all of our remaining business will be focused on
the financial services market.

We are accounting for our planned divestiture of our contact center
automation business as held for sale. As a result, we have:



| |  |  | presented the total assets as of December 31, 2002 of the
contact center automation business on one line as assets held for
sale in our consolidated balance sheet;                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | presented the total liabilities as of December 31, 2002 of the
contact center automation business on one line as liabilities of
business held for sale in our consolidated balance sheet;                                                                                                                      
|
| |  |  | presented the results of operations for the contact center
automation business as discontinued operations on one line in our
consolidated statements of operations for all periods presented,
which required a retroactive reclassification of revenues and
expenses for prior periods previously reported; and

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| |  |  | discontinued depreciation of fixed assets and amortization of
other intangible assets associated with the contact center automation
business effective July 1, 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

The classification of the contact center automation business assets and
liabilities as held for sale will continue until such time that we sell the
business, which we anticipate will happen no later than June 30, 2003.

In November 1999, we completed the acquisition of FICS Group, N.V., which
included our Financial Reporting Systems business that we reported in our
financial statements as held for sale in 2000. As a result, we did not include
the operating results of the FRS business unit in our statements of operations
for 2000. During the first quarter of 2001, we determined that there was no
reasonable market for the sale of the FRS business and that we would continue
to operate the FRS business until we (1) identified a suitable market for sale
of the FRS business or (2) determined that continued operation of the FRS
business was no longer viable. Accordingly, we have included the results of the
FRS business, which we do not consider to be material, in our statements of
operations for 2001 and 2002 as part of our continuing operations.

Use of estimates

We have made estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results could differ
from our estimates. Areas involving the use of significant estimates include:



| |  |  | revenue recognition;                                                                          
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | estimation of our allowance for doubtful accounts and billing adjustments;                    
|
| |  |  | valuation and recoverability of long-lived assets, including goodwill;                        
|
| |  |  | discontinued operations;                                                                      
|
| |  |  | determination of technological feasibility and capitalization of software development costs;  
|
| |  |  | recognition of costs in connection with restructuring plans and merger-related activities; and
|
| |  |  | accounting for our equity method investment in Yodlee.                                        

Financial instruments

We use financial instruments in the normal course of business, including
cash and cash equivalents, investment securities, accounts receivable, accounts
payable, accrued compensation and benefits, other accrued expenses, deferred
revenues and capital lease obligations.

Cash and cash equivalents include deposits with commercial banks with
original maturities of 90 days or less. Short term investments consist of
investments in certificates of deposit, commercial paper and other highly
liquid securities with original maturities exceeding 90 days but less than one
year. All of these short-term investments are held to maturity and are
reported at amortized cost. We have the ability and the intent to hold these
investments to maturity. Investments with an original maturity that exceeds
one year are reported in other assets. These investments are held to maturity
and are reported at amortized cost.

Investment securities available for sale, included in current assets,
consist entirely of marketable equity securities. We have classified our
investment securities as available for sale and report them at their fair
value, with net unrealized gains or losses included as a component of
accumulated other comprehensive income (loss) in stockholders equity.
Unrealized losses on all securities that are other than temporary are reported
in the statement of operations upon determination that the loss is other than
temporary. We use the specific identification method to determine gains and
losses on the sale of securities.

Certain of our investments are made with financial institutions who are
also our customers. These investments are made at market rates in arms-length
transactions.

The carrying values of accounts receivable, accounts payable, accrued
compensation and benefits, other accrued expenses and deferred revenues
approximate fair value due to the short-term nature of these assets and
liabilities. The
carrying value of our capital lease obligations approximates their fair value
given their market rates of interest and maturity schedules.

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Property and equipment

We report property and equipment at cost, less accumulated depreciation.
We calculate depreciation using the straight-line method over the estimated
useful lives of the related assets ranging from 1.5 to 10 years. We amortize
leasehold improvements using the straight-line method over the estimated useful
life of the improvement or the lease term, whichever is shorter. Gains or
losses recognized on disposal or retirement of property and equipment are
recognized in the consolidated statement of operations.

Goodwill and other long-lived assets

We have recorded goodwill and other intangible assets in connection with
the acquisition of businesses accounted for using the purchase method. We
amortize identifiable intangible assets over their estimated useful lives
(ranging from three to ten years) using the straight-line method. On January
1, 2002, in connection with the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets we reclassified the unamortized balance of the assembled
workforce intangible asset to goodwill and discontinued amortization of
goodwill, as adjusted.

Under the provisions of SFAS No. 142, we are required to perform an
impairment test at least once annually or upon the occurrence of a
triggering event. We have elected to test our intangible
assets for impairment as of October 1 each year. The impairment test requires
us to: (1) identify our reporting units, (2) determine the carrying value of
each reporting unit by assigning assets and liabilities, including existing
goodwill and intangible assets, to those reporting units, and (3) determine the
fair value of each reporting unit. If the carrying value of any reporting unit
exceeds its fair value in future periods, we will determine the amount of any
goodwill impairment, if any, through a detailed fair value analysis of each of
the assigned assets (excluding goodwill). If any impairment were indicated as a
result of the annual test, we would record an impairment charge as part of
income (loss) from operations.

Purchased technology represents technology acquired from third parties,
which we have incorporated in our products. We amortize purchased technology
over its estimated useful life (ranging from two to three years).

We evaluate the
recoverability of long-lived assets
whenever events or changes in circumstances indicate that
the carrying amount should be assessed by comparing their carrying value to the
undiscounted estimated future net operating cash flows expected to be derived
from such assets. If such evaluation indicated a potential impairment, we used
discounted cash flows to measure fair value in determining the amount of these
intangible assets that should be written off. During 2000, we
recorded a $656.8
million impairment charge on goodwill and other intangible assets that we
deemed impaired. This charge, which we discuss more fully in Note 9, is
included in amortization and impairment of acquisition intangible assets in our
consolidated statements of operations.

Cost-basis and equity method investments

Other assets include equity investments in entities that we account for on
the cost basis as well as our investment in Yodlee, Inc., which we account for
using the equity method. We account for investments in affiliated entities,
which we do not manage and over which we exert significant influence, under the
equity method. The equity method of accounting requires us to record our share
of the net operating results of the investee in our consolidated statements of
operations. We adjust the carrying value of our equity method investments for
our share of their net operating results, unless our investment in the entity has been reduced to $0. At the end of each period, we
assess the recoverability of these cost basis and equity method investments by
comparing their carrying value to the undiscounted estimated future net
operating cash flows expected to be derived from such assets. If we determine
that the carrying value is not recoverable and that the impairment is other
than temporary, we reduce the asset to its estimated fair value. During 2001,
we recorded impairment charges in the aggregate amount of $4.0 million for
cost-basis equity investments that we deemed impaired. In addition, we recorded
a $8.4 million impairment charge during the fourth quarter of 2001 for our
investment in Yodlee. See Note 4 for a discussion of our investment in Yodlee.

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Concentration of credit risk

We derive a significant portion of our revenue from products and services
we provide to the banking industry and other financial services firms such as
insurance and securities brokerage companies. Changes in economic conditions
and unforeseen events, like recession or inflation, could occur and reduce
consumers use of banking services.

Our business success depends in part on our relationships with a limited
number of large customers. For the years ended December 31, 2000 and 2001, one
customer represented 38% and 33% of total revenues from continuing operations.
For the year ended December 31, 2002, two customers represented 26% and 17% of
total revenues, respectively. One customer represented 20% and 17% of total
receivables at December 31, 2001 and 2002, respectively.

We are subject to concentrations of credit risk from our cash and cash
equivalents and accounts receivable. We limit our exposure to credit risk
associated with cash and cash equivalents by placing our cash and cash
equivalents with a number of major domestic and foreign financial institutions
and by investing in investment grade securities.

Revenue recognition, deferred revenues and cost of revenues

Software license revenue.We recognize software license sales in
accordance with Statement of Position No. 97-2, Software Revenue Recognition,
and SOP No. 98-9, Modification of SOP No. 97-2, Software Revenue Recognition
With Respect to Certain Transactions. For software license sales for which
any services rendered are not considered essential to the functionality of the
software, we recognize revenue upon delivery of the software, provided (1)
there is evidence of an arrangement, (2) collection of our fee is considered
probable and (3) the fee is fixed or determinable. In certain of these
arrangements, vendor specific objective evidence of fair value exists to
allocate the total fee to all elements of the arrangement. If vendor specific
objective evidence of fair value does not exist for the license element, we use
the residual method under SOP No. 98-9 to determine the amount of revenue to be
allocated to the license element. Under SOP No. 98-9, the fair value of all
undelivered elements such as post contract customer support or other services
is deferred and subsequently recognized as the services are performed, with the
difference between the total arrangement fee and the amount allocated for the
undelivered elements being allocated to the delivered element. For
arrangements that include a separate discount element, the discount is
recognized as revenue when the discount is used by the customer or expires.

When the professional services are considered essential to the
functionality of the software, we record revenue for the license and
professional services over the implementation period using the percentage of
completion method, measured by the percentage of labor hours incurred to date
to estimated total labor hours for each contract. For software license sales
where the license term does not begin until installation is complete, we
recognize license and professional services revenue when we complete the
installation of the software.

For subscription license arrangements where we allow customers the rights
to unspecified products as well as unspecified upgrades and enhancements during
a specified term, the license revenue is recognized ratably over the term of
the arrangement. License revenue recognized under subscription arrangements
during the year ended December 31, 2002 was $24.5 million. There were no such
license revenues recognized during the years ended December 31, 2000 and 2001.

For license arrangements in which the fee is not considered fixed or
determinable, the license revenue is recognized as payments become due. We
recognize a portion of our software license revenue on a straight-line basis
over either the term of the agreement, or for contracts without a term, the
estimated period during which post-contract support is expected to be provided.
Under these arrangements, post-contract support and maintenance were bundled
as part of the license agreement and sufficient vendor specific evidence of
fair value did not exist to allocate the total fee to all elements of the
arrangement.

Support and maintenance revenue.Revenues for post-contract customer
support and maintenance are recognized ratably over the contract period.
Services provided to customers under customer support and maintenance
agreements generally include technical support and unspecified product
upgrades.

Professional services revenue.Revenues derived from arrangements to
provide professional services on a time
and materials basis are recognized as the related services are performed.
Revenues from professional services provided on a fixed fee basis are
recognized using the percentage of completion method, measured by the
percentage of labor hours incurred to date to

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estimated total labor hours for
each contract. Provisions for estimated losses on incomplete contracts are made
in the period in which such losses are determined.

Data center revenue.We recognize data center revenue in accordance with
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. We also consider the applicability of Emerging Issues Task Force
No. 00-03, Application of AICPA Statement of Position 97-2 to Arrangements
That Include the Right to Use Software Stored On Another Entitys Hardware, to
our hosting arrangements on a contract-by-contract basis. If we determine that
a software element covered by SOP No. 97-2 is present in a hosting arrangement,
we recognize the license, professional services and data center revenue
pursuant to SOP No. 97-2. If we determine that a software element covered by
SOP No. 97-2 is not present in a hosting arrangement, we recognize revenue for
the arrangement pursuant to SAB No. 101 as follows:

Revenue on data center arrangements involving multiple elements, which
generally include implementation and transaction processing services, is
allocated to the elements using the residual method. For the majority of our
hosting arrangements, we have determined that our transaction processing
services can be separated from the installation services as they represent
separate earnings processes, evidence of fair value exists for the transaction
processing services, and the transaction processing services are not essential
to the functionality of any other element in the arrangement. We provide
similar implementation services to direct licensees and third-party data
processors in arrangements that do not include transaction processing services.
We have also provided transaction processing services in arrangements that did
not include implementation services as the customer contracted with another
vendor to provide such services. We have established verifiable, objective
evidence of fair value of our transaction processing services using a
consistent pricing structure in all of our arrangements, including the price
the customer is required to pay when the services are sold separately. Under
the data center arrangements, the customer is obligated to pay for each element
of the arrangement as the services are performed. Professional services
revenues are recognized on a time and materials basis as the services are
performed or using the percentage of completion method, if the services are
provided on a fixed fee basis. Data center processing revenues are recognized
as the services are performed, and are determined based on the number of
end-users of the customer institutions during the period, subject to a minimum
charge or based upon certain agreed upon contractual fixed fees.

We defer professional services revenue for those data center arrangements
for which we have determined that our transaction processing services cannot be
separated from the installation services, including certain arrangements with
Market Leadership Program customers. The professional services revenue earned
under these arrangements is recognized over the term of the data center
arrangement or the expected period of performance, whichever is longer.

Other revenue.Other revenue is primarily related to the sale of third
party hardware and software that is used in connection with our products. Other
revenue is recognized upon delivery of the third party hardware or software,
provided (1) there is evidence of an arrangement, (2) collection of our fee is
considered probable and (3) the fee is fixed or determinable.

Deferred revenues. Deferred revenues represent (1) payments received
from customers for software licenses, services and maintenance in advance of
performing services and (2) amounts deferred in accordance with SOP No. 97-2
and SAB No. 101. Maintenance is normally billed quarterly or annually in
advance.

Cost of revenues.Direct software license costs consist primarily of the
cost of third-party software used in our products. Support and maintenance and
professional services direct costs are primarily personnel and related
infrastructure costs. Direct data center costs consist of personnel and
infrastructure to support customer installations that we host in one of our
data centers. Costs of revenues exclude charges for depreciation of property
and equipment and amortization of purchased technology.

Advertising

We expense advertising costs as incurred. Advertising expense for 2000,
2001 and 2002 was $3.4 million, $0.6 million and $0.6 million, respectively.

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Product development

Product development includes all research and development expenses and
software development costs. We expense all research and development expenses as
incurred. We expense all software development costs associated with
establishing technological feasibility, which we define as completion of beta
testing. Because of the insignificant amount of costs incurred between
completion of beta testing and general customer release, we have not
capitalized any software development costs in the accompanying consolidated
financial statements.

Merger related and restructuring costs

Merger related costs include expenses related to integrating the products
and platforms of acquired companies, training personnel on new products
acquired, establishing the infrastructure and consolidating the operations of
acquired companies and expenses incurred pursuing transactions that did not
result in a strategic arrangement. In addition, we established accruals for
pre-acquisition contingencies that existed at the date of acquisition in
connection with the acquisition of certain businesses. As those contingencies
are resolved, we reduce the related liabilities for any related cash
disbursements or changes in estimate. Any difference in the actual settlement
amount or any change in estimate is reflected as an adjustment to income or
expense within this line item in the period of resolution or
adjustment.

In 2000 and 2001, we
approved restructuring plans related to the reorganization of
our business operations. We accrued the estimated costs of exiting certain
activities under these restructuring plans and recorded a corresponding charge in
the period the exit plan was approved. In subsequent periods, we re-assessed
the initial assumptions and estimates made in connection with these restructuring
plans based on current information and, as a result, recorded additional charges
for the estimated incremental costs of exiting certain activities under this
restructuring plan. See Note 10 for further discussion of these
restructuring activities.

Income taxes

We use the asset and liability method of accounting for income taxes,
under which deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and net operating loss and tax credit carry forwards. We
measure deferred income tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which we expect those
temporary differences to be recovered or settled. The effect on deferred income
tax assets and liabilities of a change in tax rates is recognized in the
statement of operations in the period that includes the enactment date. We
establish a valuation allowance to reduce the deferred income tax assets to the
level at which we believe it is more likely than not that the tax benefits
will be realized.

Stock-based compensation

We account for our stock option plans in accordance with the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and comply with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. As such, we record compensation expense on the
date of grant only if the current market price of the underlying stock exceeds
the exercise price. Additionally, if a modification is made to an existing
grant, any related compensation expense is calculated on the date both parties
accept the modification and recorded on the date the modification becomes
effective. Otherwise, we do not record stock compensation expense when we grant stock options
to S1 employees.

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In 2000, 2001 and 2002, we recognized compensation cost of approximately
$5.0 million, $1.3 million and $1.3 million, respectively, relating to stock
options granted with exercise prices less than the market price on the date of
grant. Had we determined compensation cost based on the fair value at the grant
date for our stock options and stock purchase rights under SFAS No. 123, our
net loss would have increased to the unaudited pro forma amounts indicated
below:

|                                             |                       |  |      |            |      |  |      |          |   |  |   |          |  
|-------------------------------------------- | --------------------- |  | ---- | ---------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                             |                       |  | 2000 |            | 2001 |  | 2002
|                                             |                       |  |      |            |      |  |     
|Net loss:                                    |                       |  |      |            |      |  |      |          |   |  |   |         
|                                             | As reported           |  | $    | (1,177,678 | )    |  | $    | (221,543 | ) |  | $ | (16,397  | )
|                                             | Pro forma (unaudited) |  |      | (1,273,021 | )    |  |      | (332,037 | ) |  |   | (143,903 | )
|Basic and diluted net loss per common share: |                       |  |      |            |      |  |      |          |   |  |   |         
|                                             | As reported           |  | $    | (21.77     | )    |  | $    | (3.74    | ) |  | $ | (0.24    | )
|                                             | Pro forma (unaudited) |  |      | (23.53     | )    |  |      | (5.60    | ) |  |   | (2.12    | )

The effect of applying SFAS No. 123 for providing these pro forma
disclosures is not necessarily representative of the effects on reported net
income (loss) in future periods.

Net loss per common share

We calculate basic net loss per common share as the net loss available to
common stockholders divided by the weighted average number of common shares
outstanding during the period reported. Diluted net loss per common share is
calculated to reflect the potential dilution that would occur if stock options
or other contracts to issue common stock were exercised and resulted in
additional common stock that would share in the earnings of S1. Because of our
net losses, the issuance of additional shares of common stock through the
exercise of stock options or stock warrants or upon the conversion of preferred
stock would have an anti-dilutive effect on our net loss per common share.

Foreign currency translation

We translate the financial statements of our international subsidiaries
into U.S. dollars at current exchange rates, except for revenues and expenses,
which are translated at average exchange rates during each reporting period.
Currency transaction gains or losses, which we include in our results of
operations, are immaterial for all periods presented. We include net exchange
gains or losses resulting from the translation of assets and liabilities as a
component of accumulated other comprehensive income (loss) in stockholders
equity.

Comprehensive income (loss)

We report total changes in equity resulting from revenues, expenses, and
gains and losses, including those that do not affect the accumulated deficit.
Accordingly, we include in other comprehensive income (loss) those amounts
relating to foreign currency translation adjustments and unrealized gains and
losses on available for sale investment securities classified as available for
sale in the consolidated statement of stockholders equity and comprehensive
income (loss).

Reclassifications

We reclassified certain amounts in the prior years consolidated financial
statements to conform to the current year presentation.

Recent accounting pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations. The statement provides
accounting and reporting standards for recognizing obligations related to asset
retirement costs associated with the retirement of tangible long-lived assets.
We adopted this statement effective January 1, 2003 with no material impact on
our consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the

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liability is incurred. It nullifies the guidance of EITF
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). Under EITF Issue No. 94-3, an entity recognized a
liability for an exit cost on the date that the entity committed itself to an
exit plan. In this statement, the Board acknowledges that an entitys
commitment to a plan does not, by itself, create a present obligation to other
parties that meets the definition of a liability. This statement also
establishes that fair value is the objective for the initial measurement of the
liability. The provisions of this statement will be effective for exit or
disposal activities that are initiated after December 31, 2002.

During December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosurean amendment of SFAS No.
123. SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. This statement also amends the disclosure requirements of SFAS
No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. We will implement SFAS No. 148 effective
January 1, 2003 regarding disclosure requirements for condensed financial
statements for interim periods. At this time, we do not anticipate making a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. See Note 16 for a complete discussion of our
stock-based employee compensation.

In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. We are currently
evaluating the effect that the adoption of EITF Issue No. 00-21 will have on
our results of operations and financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which clarifies disclosure, recognition
and measurement requirements related to certain guarantees. The disclosure
requirements are effective for financial statements issued after December 15,
2002 and the recognition and measurement requirements are effective on a
prospective basis for guarantees issued or modified after December 31, 2002.
We typically grant our customers a warranty that guarantees that our product
will substantially conform to our current specifications for 90 days from the
delivery date. We also indemnify our customers from third party claims of
intellectual property infringement relating to the use of our products.
Historically, costs related to these guarantees have not been significant and
we are unable to estimate the potential impact of these guarantees on our
future results of operations.

3. Business Acquisitions

During 2000, we acquired three companies. The companies acquired, purchase
price and summary information about the purchase price allocation are as
follows (in thousands):

|                           |  |                     |            |           |  |                      |         |          |  |                 |       |                 |  |                     |       |            |  |   |        |  |  |   |        |  |  |   |         | 
|-------------------------- |  | ------------------- | ---------- | --------- |  | -------------------- | ------- | -------- |  | --------------- | ----- | --------------- |  | ------------------- | ----- | ---------- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                           |  |                     |            |           |  |                      |         |          |  |                 |       |                 |  | Fair Value of Net   |       |            |  |   |        |  |  |  
|                           |  |                     |            |           |  | Total Purchase       |         |          |  |                 |       | Tangible Assets |  | In-Process Research |       | Intangible
|Business Acquired          |  | Date of Acquisition |            | Price (1) |  | Common Shares Issued |         | Acquired |  | and Development |       | Assets (2)      |  | Goodwill (2)       
|                           |  |                     |            |           |  |                      |         |          |  |                 |       |                 |  |                    
|Q-Up Systems, Inc.         |  |                     | 04/07/2000 |           |  | $                    | 414,900 |          |  |                 | 2,453 |                 |  | $                   | 3,400 |            |  | $ | 14,100 |  |  | $ | 12,600 |  |  | $ | 384,800 | 
|Davidge Data
Systems, Inc. |  |                     | 04/13/2000 |           |  |                      | 27,000  |          |  |                 | 250   |                 |  |                     | 500   |            |  |   |       |  |  |   |       |  |  |   | 26,500  | 
|Level Next, Inc.           |  |                     | 11/13/2000 |           |  |                      | 2,900   |          |  |                 | 162   |                 |  |                     | 150   |            |  |   |       |  |  |   |       |  |  |   | 2,750   | 



---

|(1) |  | The total purchase price includes the fair value of the common shares
issued on the date of acquisition. In connection with the acquisition of
Level Next, we also gave cash consideration of $0.7 million.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During the fourth quarter of 2000, as more fully discussed in Note 9, we
recorded an impairment charge of $276.8
million to adjust the intangible assets acquired in connection with Q-Up and
Davidge.     

In April 2000, we acquired Davidge Data Systems, Inc., a New York, New
York based provider of order routing services to brokerage firms and Q-Up
Systems, Inc., an Austin, Texas based provider of Internet financial services
solutions to

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community banks. In November 2000, we acquired Level Next, a
provider of global trade banking systems. These acquired businesses are a part
of our continuing operations.

On September 20, 2001, we acquired all of the fully diluted shares of
Software Dynamics Inc., a privately held provider of branch automation, call
center and customer relationship management, or CRM, solutions for financial
institutions. In addition to gaining SDIs extensive domain knowledge in
branch, teller, call center and CRM solutions, we increased our customer base
worldwide with this acquisition. For accounting purposes, we treated the
acquisition as if it had occurred on October 1, 2001. Accordingly, our
consolidated results of operations for the year ended December 31, 2001 include
three months of operating results for SDI.

On February 14, 2002, we completed the acquisition of Regency Systems,
Inc., a Dallas, Texas based provider of telephone and Internet banking
applications and web design services for community and mid-market banks. The
Regency acquisition enhanced our product offerings with a telephone banking
solution for community and mid-market banks and added over 1,000 customers.
For accounting purposes, we treated the acquisition as if it had occurred on
February 1, 2002. Accordingly, our consolidated results of operations for the
year ended December 31, 2002 include eleven months of operating results for
Regency.

On March 27, 2002, we acquired the assets and subsidiaries of Point
Holdings, Ltd., a Dublin, Ireland based CRM provider. The acquisition of Point
strengthened our product offering, extended our insurance customer base and
expanded our presence in Europe. For accounting purposes, we treated the
acquisition as if it had occurred on March 31, 2002. Accordingly, our
consolidated results of operations for the year ended December 31, 2002 include
nine months of operating results for Point.

Under the terms of the acquisition agreements, we issued common stock and
paid cash to the sellers and paid direct acquisition costs, including
principally advisory, legal and accounting fees. The values of the common
shares issued were determined based on the average market price of our common
shares over the two-day trading period before and the two-day trading period
after the respective acquisition agreements were signed, less the costs to
register the securities. We calculated the purchase price for SDI, Regency and
Point as follows (in thousands, except share data):

|                                     |  |     |           |         |  |       |           |  |  |   |           | 
|------------------------------------ |  | --- | --------- | ------- |  | ----- | --------- |  |  | - | --------- | 
|                                     |  | SDI |           | Regency |  | Point
|                                     |  |     |           |         |  |      
|Acquisition Date                     |  |     | 9/20/2001 |         |  |       | 2/14/2002 |  |  |   | 3/27/2002 | 
|Common shares issued                 |  |     | 1,257,109 |         |  |       | 400,561   |  |  |   | 1,073,986 | 
|Value of common shares issued        |  | $   | 16,054    |         |  | $     | 6,051     |  |  | $ | 16,716    | 
|Value of preferred shares issued (1) |  |     | 8,328     |         |  |       |          |  |  |   |          | 
|Cash consideration                   |  |     | 4,450     |         |  |       | 6,478     |  |  |   | 500       | 
|Value of converted stock options (2) |  |     | 1,227     |         |  |       |          |  |  |   |          | 
|Direct acquisition costs             |  |     | 855       |         |  |       | 70        |  |  |   | 634       | 
|                                     |  |     |           |         |  |       |           |  |  |   |           | 
|Total purchase price                 |  | $   | 30,914    |         |  | $     | 12,599    |  |  | $ | 17,850    | 
|                                     |  |     |           |         |  |       |           |  |  |   |           | 



---

|(1) |  | We issued 649,150 shares of series E preferred stock in
acquisition of SDI. The value of the preferred shares of $6.2 million
was determined based on the value of the as-converted common stock,
less the estimated amount of contingent consideration of $2.1 million
at the date of purchase. In May 2002, we amended the purchase
agreement for SDI to eliminate the contingency associated with the
total consideration paid for SDI. As a result of the amendment, the
condition was removed and we reflected the full value of the series E
preferred stock issued to the sellers by increasing the reported
value of the series E preferred stock. The additional purchase price
was assigned to goodwill at the date of the amendment.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We converted all outstanding options to purchase SDI stock to
101,784 options to purchase S1 common stock with an estimated fair
value of $1.2 million. We estimated the fair value of the S1 stock
options using the Black Scholes option-pricing model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The entire SDI and Regency businesses and the operations of the Point
business that are focused on financial institutions are included in continuing
operations. The remaining Point operations (those that are not focused on
financial institutions) are included in the contact center automation business.
We allocated the goodwill and customer relationship assets associated with the
Point acquisition between continuing and discontinued operations based on the
completion of an independent appraisal. The amounts of the Regency and Point
purchase prices allocated to in-process research and development were

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expensed
upon acquisition because technological feasibility had not been established and
no future alternative uses existed. We expect the projects under development
at the time of the acquisitions to be completed within 12 months of the
acquisition dates. Costs incurred to complete these projects are expected to be
less than $1.9 million in the aggregate.

We accounted for the acquisitions of SDI, Regency and Point using the
purchase method of accounting prescribed by SFAS No. 141. We assigned the total
purchase price to the net assets and identifiable intangible assets of the
acquired entities with the remaining amount assigned to goodwill. The value
assigned to the identifiable intangible assets was based on an analysis
performed by an independent third party as of the date of the acquisitions. The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the acquisition date (in thousands):

|                                        |                      |   |        |        |         |   |        |        |  |   |        |        | 
|--------------------------------------- | -------------------- | - | ------ | ------ | ------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                        |                      |   | SDI    |        | Regency |   | Point 
|                                        |                      |   |        |        |         |   |       
|Current assets                          |                      | $ | 2,876  |        |         | $ | 1,027  |        |  | $ | 6,664  |       
|Property and equipment                  |                      |   | 496    |        |         |   | 250    |        |  |   | 552    |       
|Other non-current assets                |                      |   | 80     |        |         |   | 31     |        |  |   |       |       
|Developed technology (1)                |                      |   | 5,700  |        |         |   | 2,600  |        |  |   | 2,200  |       
|In-process research and development (2) |                      |   |       |        |         |   | 200    |        |  |   | 150    |       
|Customer relationship
assets (3)(4)     |                      |   | 2,100  |        |         |   | 3,900  |        |  |   | 1,500  |       
|Goodwill(4)                             |                      |   | 24,667 |        |         |   | 8,623  |        |  |   | 12,754 |       
|Current liabilities                     |                      |   | (4,891 | )      |         |   | (3,989 | )      |  |   | (5,970 | )     
|Non-current liabilities                 |                      |   | (114   | )      |         |   | (43    | )      |  |   |       |       
|                                        |                      |   |        |        |         |   |        |        |  |   |        |       
|                                        | Total purchase price |   | $      | 30,914 |         |   | $      | 12,599 |  |   | $      | 17,850 | 
|                                        |                      |   |        |        |         |   |        |        |  |   |        |       



---

|(1) |  | Developed technology has an estimated useful life of seven years for
SDIs technology and five years for Regency and Points technology.                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We expensed in-process research and development immediately upon closing
the acquisitions.                                                                                       
|   
|(3) |  | SDIs and Regencys customer relationship assets have an estimated useful
life of ten years and Points customer relationship assets have an
estimated useful life of five years.
|   
|(4) |  | We allocated $1.9 million
of Points goodwill and $0.6 million of Points customer relationship assets to discontinued operations based on an independent appraisal.             

We did not present pro forma results of operations for the acquisitions of
Q-Up, Davidge, Level Next, SDI, Regency and Point because the effect of these
acquisitions was not significant in any year, individually or in the aggregate.

4. Loss on Sale of Subsidiaries and Equity Interest in Net Loss of Affiliate

On January 16, 2001, we sold our VerticalOne subsidiary to Yodlee, Inc.,
then known as Yodlee.com, Inc., in a stock-for-stock transaction under which we
received an ownership interest of approximately 33% of Yodlee. In connection
with this transaction, we recorded a loss on sale of $52.3 million, which
represented the difference between the carrying value of VerticalOne and the
appraised value of our interest in Yodlee. We account for our investment in
Yodlee using the equity method. At the transaction date, the carrying value of
our investment in Yodlee exceeded its share of the underlying net assets of
Yodlee by $26.2 million. We allocated substantially all of this excess to
goodwill, which we were amortizing over a period of five years. Since our
initial investment in Yodlee in January 2001, Yodlee has continued to incur
substantial losses and the outlook for future revenue and cash flows is
substantially less than previously anticipated. In the fourth quarter of 2001,
Yodlee recorded an impairment charge to write off almost all of the goodwill
and other intangible assets it recorded in connection with the acquisition of
VerticalOne from us in January 2001. Our share of that charge, which we
recorded through application of the equity method of accounting, was $21.8
million. In addition, at that same time we recorded a charge of $8.4 million
to write down our investment in Yodlee. At December 31, 2001, we owned
approximately 32% of Yodlee. At December 31, 2002, as a result of additional
equity issuances by Yodlee, our ownership percentage decreased to 27%. We are
a reseller of Yodlees account
aggregation services. See Note 19 for a description of
our sales representation agreement with Yodlee.

During the second quarter of 2001, we recorded a charge of approximately
$0.9 million in connection with the sale of a small European subsidiary.

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5. Discontinued Operations

On July 30, 2002, we announced our intent to pursue the sale of our
contact center automation business, composed of our Edify Corporation
subsidiary and the non-financial institution assets of the acquired Point
business. These businesses are not focused specifically on the financial
institution market, which is our primary strategic market. Following the
planned divestiture of these combined businesses, all of our remaining
businesses will be focused on our strategic financial services market.

Beginning in the third quarter of 2002, we accounted for this business as
held for sale and presented its results for the current and prior year
periods as discontinued operations according to the provisions of SFAS No.
144. We anticipate the sale of these assets to be completed by June 30, 2003.

Revenues and pretax loss
from discontinued operations are as follows
(in thousands):

|                                         |  |      |         |      |  |      |         |   |  |   |        |  
|---------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                         |  | 2000 |         | 2001 |  | 2002
|                                         |  |      |         |      |  |     
|Revenues                                 |  | $    | 43,859  |      |  | $    | 46,545  |   |  | $ | 44,192 |  
|                                         |  |      |         |      |  |      |         |   |  |   |        |  
|Pretax loss from discontinued operations |  | $    | (39,481 | )    |  | $    | (26,225 | ) |  | $ | (9,985 | )
|Income tax (expense) benefit             |  |      |        |      |  |      | (132    | ) |  |   | 117    |  
|                                         |  |      |         |      |  |      |         |   |  |   |        |  
|Net loss from discontinued operations    |  | $    | (39,481 | )    |  | $    | (26,357 | ) |  | $ | (9,868 | )
|                                         |  |      |         |      |  |      |         |   |  |   |        |  

Assets and liabilities of the discontinued operations as of December 31, 2002 were as follows (in thousands):

|                            |                                       |   |         |        | 
|--------------------------- | ------------------------------------- | - | ------- | ------ | 
|Current assets              |                                       | $ | 13,789  |       
|Property and equipment, net |                                       |   | 1,114   |       
|Other non-current assets    |                                       |   | 569     |       
|Intangible assets           |                                       |   | 1,774   |       
|Goodwill                    |                                       |   | 17,331  |       
|Current liabilities         |                                       |   | (12,508 | )     
|                            |                                       |   |         |       
|                            | Net assets of discontinued operations |   | $       | 22,069 | 
|                            |                                       |   |         |       

6.  Investments

At December 31, 2001 and 2002, investment securities available for sale,
which are included in other current assets, consisted entirely of marketable
equity securities.

|                      |  |                |     |      |  |   |     | 
|--------------------- |  | -------------- | --- | ---- |  | - | --- | 
|                      |  | December 31,  
|                      |  |               
|                      |  | 2001           |     | 2002
|                      |  |                |     |     
|                      |  | (in thousands)
|Cost                  |  | $              | 31  |      |  | $ | 31  | 
|Fair value            |  |                | 151 |      |  |   | 108 | 
|Gross unrealized gain |  |                | 120 |      |  |   | 77  | 

Proceeds from the sales of investment securities available for sale were
$1.0 million and realized gross gains on these sales of investment securities
of $0.9 million in 2001.

We had short-term investments at December 31, 2001 and 2002 of $28.8
million and $14.8 million, respectively. The fair value of our short-term
investments was not significantly different from their carrying values at
December 31, 2002. At December 31, 2001 and 2002, we had investments with an
original maturity that exceeds one year (included in other assets) of $1.3
million and $3.7 million, respectively. Certain of our investments are made
with financial institutions that are also our customers. These investments,
consisting of $5.0 million in certificates of deposits, are made at market
rates in arms-length transactions.

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7. Accounts Receivable

Accounts receivable include unbilled receivables of approximately $6.4
million at December 31, 2001 and $9.2 million at December 31, 2002. Unbilled
receivables generally represent revenue recognized on contracts for which
billings have not been presented to the customers under the terms of the
contracts at the balance sheet dates. As of the date of this filing, we have
billed substantially all amounts that were unbilled as of December 31, 2002.

8. Property and Equipment

Property and equipment consist of the following:

|                         |  |                |         |      |  |   |         |  
|------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                         |  | December 31,  
|                         |  |               
|                         |  | 2001           |         | 2002
|                         |  |                |         |     
|                         |  | (in thousands)
|Leasehold improvements   |  | $              | 14,420  |      |  | $ | 15,316  |  
|Furniture and fixtures   |  |                | 9,240   |      |  |   | 8,175   |  
|Computer equipment       |  |                | 55,362  |      |  |   | 52,194  |  
|Software                 |  |                | 15,602  |      |  |   | 16,101  |  
|                         |  |                |         |      |  |   |         |  
|                         |  |                | 94,624  |      |  |   | 91,786  |  
|Accumulated depreciation |  |                | (53,371 | )    |  |   | (62,274 | )
|                         |  |                |         |      |  |   |         |  
|                         |  | $              | 41,253  |      |  | $ | 29,512  |  
|                         |  |                |         |      |  |   |         |  

9. Goodwill and Other Intangible Assets

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. Under these new
standards, the FASB eliminated accounting for certain mergers and acquisitions
as poolings of interests, eliminated amortization of goodwill and indefinite
life intangible assets and established new impairment measurement procedures
for goodwill. For S1, the standards became effective for all acquisitions
completed on or after June 30, 2001. Changes in financial statement treatment
for goodwill and intangible assets arising from mergers and acquisitions
completed prior to June 30, 2001 became effective January 1, 2002. We
implemented SFAS 142 on January 1, 2002 with the following effects:



| |  |  | We reclassified $7.0 million of unamortized assembled workforce
intangible assets into goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We discontinued amortization on goodwill and assembled workforce of
$64.5 million, excluding goodwill recorded for the SDI transaction that
was never subject to amortization. We estimate that the resulting
reduction of amortization expense was approximately $55.5 million for
2002 and will be approximately $6.8 million for 2003 and $2.2 million
for 2004.                                                                                                                                                                                                                                                                                                                      
|
| |  |  | We performed a transitional goodwill impairment test as of January 1,
2002 and an annual impairment test as of October 1, 2002. The impairment
test required us to: (1) identify our reporting units, (2) determine the
carrying value of each reporting unit by assigning assets and
liabilities, including existing goodwill and intangible assets, to those
reporting units, and (3) determine the fair value of each reporting
unit. Based on the results of the transitional impairment test, we
believe that the fair value of our reporting units exceed their carrying
value. Accordingly, we concluded that our goodwill was not impaired at
January 1, 2002 or October 1, 2002.

At December 31, 2002, our other intangible assets consisted of the
following:

|                                  |  |                |        |              |  |   |         |  
|--------------------------------- |  | -------------- | ------ | ------------ |  | - | ------- | -
|                                  |  | Gross          |        | Accumulated 
|                                  |  | Carrying Value |        | Amortization
|                                  |  |                |        |             
|                                  |  | (In thousands)
|Purchased and acquired technology |  | $              | 21,848 |              |  | $ | (12,424 | )
|Customer relationships            |  |                | 9,800  |              |  |   | (3,413  | )
|Other                             |  |                | 48     |              |  |   | (48     | )
|                                  |  |                |        |              |  |   |         |  
|Total                             |  | $              | 31,696 |              |  | $ | (15,885 | )
|                                  |  |                |        |              |  |   |         |  

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We recorded amortization expense in our continuing operations of $15.9
million during the year ended December 31, 2002. We estimate aggregate
amortization expense for the next five calendar years to be as follows (in
thousands):

|                                         |  |      |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                         |  | 2003 |       | 2004 |  | 2005 |       | 2006 |  | 2007
|                                         |  |      |       |      |  |      |       |      |  |     
|Estimated aggregate amortization expense |  | $    | 3,548 |      |  | $    | 2,554 |      |  | $    | 2,554 |  |  | $ | 2,554 |  |  | $ | 1,477 | 

The changes in the carrying value of our goodwill for the year ended
December 31, 2002 are as follows:

|                                                            |  |                |        |                     |  |       |         |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------ | ------------------- |  | ----- | ------- | - |  | - | ------- | -
|                                                            |  | Continuing     |        | Contact Center      |  |       |         |  
|                                                            |  | Operations     |        | Automation Business |  | Total
|                                                            |  |                |        |                     |  |      
|                                                            |  | (In thousands)
|Balance, January 1, 2002                                    |  | $              | 70,909 |                     |  | $     | 15,861  |   |  | $ | 86,770  |  
|Goodwill acquired (1)                                       |  |                | 19,445 |                     |  |       | 1,932   |   |  |   | 21,377  |  
|Purchase price adjustment for SDI                           |  |                | 2,351  |                     |  |       |        |   |  |   | 2,351   |  
|Utilization of acquisition related
income tax benefits      |  |                | (2,034 | )                   |  |       |        |   |  |   | (2,034  | )
|Adjustments to goodwill for pre-acquisition tax liabilities |  |                | (1,031 | )                   |  |       | (462    | ) |  |   | (1,493  | )
|Transferred to assets held for sale (2)                     |  |                |       |                     |  |       | (17,331 | ) |  |   | (17,331 | )
|                                                            |  |                |        |                     |  |       |         |   |  |   |         |  
|Balance, December 31, 2002                                  |  | $              | 89,640 |                     |  | $     |        |   |  | $ | 89,640  |  
|                                                            |  |                |        |                     |  |       |         |   |  |   |         |  



---

|(1) |  | The goodwill allocated to the contact center automation business
reflects the estimated amount of goodwill associated with the operations
of Point that are not focused on financial institutions and was based on
an independent appraisal.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The goodwill transferred to the assets held for sale reflects the
goodwill associated with Edify and the operations of Point that are not
focused on financial institutions.                                                                

The following table shows our net loss from continuing operations and net
loss per share from continuing operations as adjusted for amortization of
goodwill and assembled workforce for all periods reported in our statements of
operations.

|                                                             |                                                        |   |                                          |          |      |   |              |        |   |   |        |       |  
|------------------------------------------------------------ | ------------------------------------------------------ | - | ---------------------------------------- | -------- | ---- | - | ------------ | ------ | - | - | ------ | ----- | -
|                                                             |                                                        |   |                                          |          |      |   | December 31, |        |   |   |       
|                                                             |                                                        |   | 2000                                     |          | 2001 |   | 2002        
|                                                             |                                                        |   |                                          |          |      |   |             
|                                                             |                                                        |   | (in thousands, except per share amounts)
|Reported loss from continuing operations                     |                                                        | $ | (1,138,197                               | )        |      | $ | (195,186     | )      |   | $ | (6,529 | )    
|                                                             | Add back: Goodwill amortization                        |   |                                          | 358,278  |      |   |              | 44,200 |   |   |        |      |  
|                                                             | Add back: Assembled workforce amortization             |   |                                          | 3,150    |      |   |              | 1,335  |   |   |        |      |  
|                                                             | Less: Adjustment to impairment charge (1)              |   |                                          | (361,428 | )    |   |              |       |   |   |        |      |  
|                                                             |                                                        |   |                                          |          |      |   |              |        |   |   |        |      
|Adjusted loss from continuing operations                     |                                                        | $ | (1,138,197                               | )        |      | $ | (149,651     | )      |   | $ | (6,529 | )    
|                                                             |                                                        |   |                                          |          |      |   |              |        |   |   |        |      
|Basic and diluted loss per share from continuing operations: |                                                        |   |                                          |          |      |   |              |        |   |   |        |      
|                                                             | Reported net loss per share from continuing operations |   | $                                        | (21.04   | )    |   | $            | (3.30  | ) |   | $      | (0.10 | )
|                                                             | Add back: Goodwill amortization                        |   |                                          | 6.62     |      |   |              | 0.75   |   |   |        |      |  
|                                                             | Add back: Assembled workforce amortization             |   |                                          | 0.06     |      |   |              | 0.02   |   |   |        |      |  
|                                                             | Less: Adjustment to impairment charge (1)              |   |                                          | (6.68    | )    |   |              |       |   |   |        |      |  
|                                                             |                                                        |   |                                          |          |      |   |              |        |   |   |        |      
|Adjusted loss per share from continuing operations           |                                                        | $ | (21.04                                   | )        |      | $ | (2.53        | )      |   | $ | (0.10  | )    
|                                                             |                                                        |   |                                          |          |      |   |              |        |   |   |        |      



---

|(1) |  | In 2000, if we had not recorded amortization expense on the goodwill and
assembled workforce intangible assets, we would have recorded an
additional impairment charge equal to the amortization expense
recorded, for the reasons discussed below.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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As a result of the following conditions that existed in the fourth quarter
of 2000, we prepared an undiscounted, net operating cash flow analysis to
determine if our intangible assets were recoverable:



| |  |  | significant declines in projected revenues;                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | a significant and sustained decline in the S1 stock price since the dates of acquisition;                            
|
| |  |  | the abandonment of certain technology, which is reflected in the
restructuring charge that we discuss in Note 10; and
|
| |  |  | a reduction in workforce at FICS and Edify.                                                                          

Since the undiscounted cash flow model indicated an impairment of our
intangible assets, we used a discounted cash flow model to measure the fair
value of these intangible assets. Based on the discounted cash flow analysis,
we determined that the fair value of the goodwill and other intangible assets
was approximately $155.0 million at December 31, 2000. Accordingly, we wrote
off $644.0 million of goodwill, $10.0 million of purchased technology, $6.9
million of assembled workforce and $4.0 million of customer lists related to
the FICS, Edify, Q-Up and Davidge acquisitions. Of the $664.9 million
impairment charge, $656.8 million related to our continuing operations and $8.1
million related to the contact center automation business.

In connection with the sale of VerticalOne to Yodlee, as described in Note
4, we disposed of $77.1 million of goodwill and $13.8 million of other
intangible assets.

10. Merger Related and Restructuring Costs

Components of merger related and restructuring costs are as follows:

|                     |  |                |        |      |  |      |        |   |  |   |       | 
|-------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | 
|                     |  | 2000           |        | 2001 |  | 2002
|                     |  |                |        |      |  |     
|                     |  | (in thousands)
|Merger related costs |  | $              | 22,482 |      |  | $    | (1,999 | ) |  | $ | 1,683 | 
|Restructuring costs  |  |                | 14,746 |      |  |      | 11,259 |   |  |   |      | 
|                     |  |                |        |      |  |      |        |   |  |   |       | 
|                     |  | $              | 37,228 |      |  | $    | 9,260  |   |  | $ | 1,683 | 
|                     |  |                |        |      |  |      |        |   |  |   |       | 

During 2000, we
incurred merger related costs of $22.5 million in connection
with three acquisitions completed in the fourth quarter of 1999 and
two acquisitions completed in the second quarter of 2000. These costs
were incurred to integrate the products and platforms of the acquired
companies, to train personnel on the new products acquired and to
build the infrastructure necessary to support a global operation.

In November 2000, we approved a restructuring plan to streamline our
operations and to discontinue development on the Edify retail-banking platform.
As a result of the restructuring plan, we reduced our workforce by
approximately 220 employees and closed several of our facilities worldwide.
During the fourth quarter of 2000, we recorded a charge of $14.7 million for
the estimated costs associated with the restructuring plan. At various times
during 2001, we determined that, as a result of weakening conditions in the
domestic real estate markets, our original estimate of the costs to dispose of
unused real estate was below the currently anticipated costs. Accordingly, we
increased our reserves for lease termination costs and recorded an additional
restructuring charge of $4.5 million. Finally, during the third quarter of
2001, in connection with the closing of certain office facilities, we wrote-off
leasehold improvements of $1.2 million, which were not previously anticipated
in the restructuring accrual.

During the second quarter of 2001, we approved a restructuring plan to
streamline our European operations. In connection with this plan, we reduced
our European workforce by 77 people and consolidated the majority of our
European operations into two locations. As a result of these activities, we
recorded a charge of $5.6 million for the estimated costs associated with the
restructuring plan. During 2001, we released merger related accruals of
approximately $2.0 million related to changes in estimates relative to pending
or threatened litigation.

During 2002, we incurred merger related costs of $3.7 million in
connection with the acquisition of Point. These costs, incurred in connection
with our plan to reorganize certain of our European operations, include
headcount reduction, consolidation of S1 and acquired Point office facilities
and disposal of redundant or obsolete computer equipment. This merger related
charge was partially offset by a $1.7 million decrease in reserves for legal
claims, which was established in connection with our acquisition of FICS Group,
N.V. in November 1999. We were able to resolve this legal matter during the
first quarter of 2002 for less than previously estimated amounts. Our
restructuring and merger related reserves include provisions for obligations
for unused real estate less estimates for sub-lease income. In 2002, we were
able to secure a
sublease for one of our foreign properties at terms that were $0.3 million
more favorable than previously anticipated.

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The restructuring charges and their utilization as of December 31, 2000,
2001 and 2002 and for the years then ended are summarized as follows (in
thousands):

|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|------------------------------------------ |  | --------------- | ------ | ----------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                           |  | Personnel Costs |        | Lease Costs |  | Other |        | Total
|                                           |  |                 |        |             |  |       |        |      
|2000 restructuring charge                  |  | $               | 6,215  |             |  | $     | 7,177  |       |  | $ | 1,354  |   |  | $ | 14,746  |  
|Amounts utilized through December 31, 2000 |  |                 | (3,045 | )           |  |       | (415   | )     |  |   | (725   | ) |  |   | (4,185  | )
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Balance, December 31, 2000                 |  |                 | 3,170  |             |  |       | 6,762  |       |  |   | 629    |   |  |   | 10,561  |  
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|2001 restructuring charge                  |  |                 | 1,692  |             |  |       | 2,897  |       |  |   | 976    |   |  |   | 5,565   |  
|Amounts utilized through December 31, 2001 |  |                 | (5,134 | )           |  |       | (2,897 | )     |  |   | (2,435 | ) |  |   | (10,466 | )
|Change in estimate                         |  |                 | 350    |             |  |       | 3,954  |       |  |   | 1,390  |   |  |   | 5,694   |  
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Balance, December 31, 2001                 |  |                 | 78     |             |  |       | 10,716 |       |  |   | 560    |   |  |   | 11,354  |  
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Amounts utilized through December 31, 2002 |  |                 |       |             |  |       | (3,992 | )     |  |   | (252   | ) |  |   | (4,244  | )
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|Balance, December 31, 2002                 |  | $               | 78     |             |  | $     | 6,724  |       |  | $ | 308    |   |  | $ | 7,110   |  
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  

We expect to make future cash expenditures, net of anticipated sublease
income, related to these restructuring activities of approximately $7.1
million, of which we anticipate to pay approximately $2.7 million within the
next twelve months.

11. Borrowings and Line of Credit

On September 4, 2001, we entered into an arrangement with a bank for a
$10.0 million secured line of credit, which expired on September 3, 2002. We
paid an annual commitment fee of 0.20% on the un-drawn portion of the
commitment. At December 31, 2002, we did not have any borrowing arrangements.

12. Commitments and Contingencies

Lease commitments

We lease office facilities and computer equipment under non-cancelable
operating lease agreements, which expire at various dates through 2023. Total
rental expense under these leases was $15.9 million,
$14.6 million and $13.7 million in 2000, 2001 and 2002, respectively.

Future minimum annual payments under non-cancelable operating lease
agreements and expected sublease income from non-cancelable sublease agreements
are as follows (in thousands):

|           |  |                 |        |          |  |             |         |   |  |   |        | 
|---------- |  | --------------- | ------ | -------- |  | ----------- | ------- | - |  | - | ------ | 
|           |  | Operating Lease |        | Sublease |  | Net Lease  
|           |  | Commitments     |        | Income   |  | Commitments
|           |  |                 |        |          |  |            
|2003       |  | $               | 11,938 |          |  | $           | (1,190  | ) |  | $ | 10,748 | 
|2004       |  |                 | 9,738  |          |  |             | (1,396  | ) |  |   | 8,342  | 
|2005       |  |                 | 8,500  |          |  |             | (1,301  | ) |  |   | 7,199  | 
|2006       |  |                 | 7,703  |          |  |             | (1,244  | ) |  |   | 6,459  | 
|2007       |  |                 | 6,117  |          |  |             | (1,076  | ) |  |   | 5,041  | 
|Thereafter |  |                 | 27,779 |          |  |             | (4,310  | ) |  |   | 23,469 | 
|           |  |                 |        |          |  |             |         |   |  |   |        | 
|           |  | $               | 71,775 |          |  | $           | (10,517 | ) |  | $ | 61,258 | 
|           |  |                 |        |          |  |             |         |   |  |   |        | 

At December 31,
2002, we had $1.1 million cash in a one-year certificate of
deposit to guarantee certain rent payments. This amount is included in other
current assets.

In connection with the lease on our corporate offices, we issued to our
landlord a standby letter of credit in the amount of $8.0 million to guarantee
certain obligations under the lease agreement. The amount that we are required
to

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maintain under the standby letter of credit decreases as our future
obligations under the lease agreement decline. At December 31, 2002, there
were no drawings outstanding under the letter of credit. Additionally, we have
issued letters of credit in the aggregate amount of $2.4 million to guarantee
certain obligations for other leased facilities.

Property and equipment as of December 31, 2001 includes computer equipment
under a capital lease with original cost and accumulated depreciation of
approximately $22.6 million and $15.5 million, respectively. Property and
equipment as of December 31, 2002 includes computer equipment under capital
lease with original cost and accumulated depreciation of approximately $16.9
million and $15.0 million, respectively. Future minimum annual lease payments
for the capital lease as of December 31, 2001 are as follows (in thousands):

|                                    |                      |   |       |       | 
|----------------------------------- | -------------------- | - | ----- | ----- | 
|2003                                |                      | $ | 1,762 |      
|2004                                |                      |   | 183   |      
|2005                                |                      |   | 11    |      
|                                    |                      |   |       |      
|                                    |                      | $ | 1,956 |      
|Less amount representing interest   |                      |   | 78    |      
|                                    |                      |   |       |      
|                                    |                      |   | 1,878 |      
|                                    | Less current portion |   |       | 1,693 | 
|                                    |                      |   |       |      
|Long-term capital lease obligations |                      | $ | 185   |      
|                                    |                      |   |       |      

Contractual commitments

In the normal course of business, we enter into contracts with customers.
These contracts contain commitments including, but not limited to, minimum
standards and time frames against which our performance is measured. In the
event we do not meet our contractual commitments with our customers, we may
incur penalties and/or certain customers may have the right to terminate their
contracts with us. We do not believe that we will fail to meet our contractual
commitments to an extent that will result in a material adverse effect on our
financial position or results of operations.

Litigation

S1 and its subsidiaries are subject to legal proceedings that arise from
time to time in the normal course of business. Included among these are the
following:



| |  |  | S1 Corporation and its subsidiary Davidge Data Systems are
involved in litigation with Scottrade, Inc. and an affiliate company,
Computer Research, Inc., relating to a software development project.
The action was initially filed in March 2002 in the U.S. District
Court for the Eastern District of Missouri. Amended complaints were
filed by the plaintiffs in November of 2002 and January of 2003. The
plaintiffs have made a claim for a refund of all amounts paid to S1
and Davidge as well as all damages flowing from the dispute,
including service bureau expenses incurred because of the allege
failure to perform, the sum of which could exceed a million dollars.
S1 and Davidge have filed a counterclaim for unpaid amounts under the
contract. We believe the plaintiffs claims are not meritorious and
intend to vigorously defend the suit.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 Corporation is involved in litigation with Tradecard, Inc.
relating to a claim of infringement of U.S. Patent 6,151,588 filed in
the U.S. District Court for the Southern District of New York. The
action was filed in March 2003 against S1 Corporation, Bank of
America Corporation and Bank of America National Association. We
believe that the plaintiffs claims are not meritorious and intend
to vigorously defend the suit.                                                                                                                                                                                                                                                                                                                                                                                                                               

While we do not believe that any
of the above matters or any other pending
litigation will be material to our financial position or results of operations,
there can be no assurance on the ultimate outcome of these matters.

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13. Income Taxes

Loss from continuing operations before income tax benefit consists of the
following:

|                   |  |                |            |      |  |      |          |   |  |   |         |  
|------------------ |  | -------------- | ---------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                   |  | 2000           |            | 2001 |  | 2002
|                   |  |                |            |      |  |     
|                   |  | (in thousands)
|U.S. operations    |  | $              | (756,580   | )    |  | $    | (160,394 | ) |  | $ | 2,601   |  
|Foreign operations |  |                | (386,193   | )    |  |      | (38,179  | ) |  |   | (11,783 | )
|                   |  |                |            |      |  |      |          |   |  |   |         |  
|                   |  | $              | (1,142,773 | )    |  | $    | (198,573 | ) |  | $ | (9,182  | )
|                   |  |                |            |      |  |      |          |   |  |   |         |  

Income tax benefit
from continuing operations before income tax benefit is summarized as follows:

|               |                          |   |                |        |      |   |        |        |   |   |        |        |  
|-------------- | ------------------------ | - | -------------- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|               |                          |   | 2000           |        | 2001 |   | 2002  
|               |                          |   |                |        |      |   |       
|               |                          |   | (in thousands)
|Current:       |                          |   |                |        |      |   |        |        |   |   |        |       
|               | Federal                  |   | $              |       |      |   | $      | (189   | ) |   | $      |       |  
|               | Foreign                  |   |                | 353    |      |   |        | (114   | ) |   |        | 252    |  
|               | State                    |   |                | 77     |      |   |        | (77    | ) |   |        | 25     |  
|               |                          |   |                |        |      |   |        |        |   |   |        |       
|Total current  |                          | $ | 430            |        |      | $ | (380   | )      |   | $ | 277    |       
|               |                          |   |                |        |      |   |        |        |   |   |        |       
|Deferred:      |                          |   |                |        |      |   |        |        |   |   |        |       
|               | Federal                  |   | $              |       |      |   | $      |       |   |   | $      |       |  
|               | Foreign                  |   |                | (5,006 | )    |   |        | (3,007 | ) |   |        | (2,930 | )
|               | State                    |   |                |       |      |   |        |       |   |   |        |       |  
|               |                          |   |                |        |      |   |        |        |   |   |        |       
|Total deferred |                          | $ | (5,006         | )      |      | $ | (3,007 | )      |   | $ | (2,930 | )     
|               |                          |   |                |        |      |   |        |        |   |   |        |       
|               | Total income tax benefit |   | $              | (4,576 | )    |   | $      | (3,387 | ) |   | $      | (2,653 | )
|               |                          |   |                |        |      |   |        |        |   |   |        |       

A reconciliation of the income tax benefit to the amount computed by
applying the statutory federal income tax rate to the loss from continuing
operations before income tax benefit is as follows:

|                                                                              |  |                |          |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                              |  | 2000           |          | 2001 |  | 2002
|                                                                              |  |                |          |      |  |     
|                                                                              |  | (in thousands)
|Expected income tax benefit at 35%                                            |  | $              | (399,971 | )    |  | $    | (69,501 | ) |  | $ | (3,213 | )
|State income tax benefit, net of federal benefit                              |  |                | (57,139  | )    |  |      | (7,943  | ) |  |   | (367   | )
|Increase (decrease) in valuation allowance related to
current year operations |  |                | 60,641   |      |  |      | 18,894  |   |  |   | (5,390 | )
|Loss on sale of subsidiary                                                    |  |                |         |      |  |      | 20,395  |   |  |   |       |  
|Equity loss                                                                   |  |                |         |      |  |      | 8,688   |   |  |   |       |  
|In-process R&D, goodwill amortization and other
permanent items               |  |                | 391,893  |      |  |      | 26,080  |   |  |   | 6,317  |  
|                                                                              |  |                |          |      |  |      |         |   |  |   |        |  
|Income tax benefit                                                            |  | $              | (4,576   | )    |  | $    | (3,387  | ) |  | $ | (2,653 | )
|                                                                              |  |                |          |      |  |      |         |   |  |   |        |  

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The income tax effects of the temporary differences that give rise to our
deferred income tax assets and liabilities as of December 31, 2001 and 2002 are
as follows:

|                                 |                                                    |                                             |   |                |         |      |   |          |         | 
|-------------------------------- | -------------------------------------------------- | ------------------------------------------- | - | -------------- | ------- | ---- | - | -------- | ------- | 
|                                 |                                                    |                                             |   | 2001           |         | 2002
|                                 |                                                    |                                             |   |                |         |     
|                                 |                                                    |                                             |   | (in thousands)
|Deferred income tax assets:      |                                                    |                                             |   |                |         |      |   |         
|                                 | Net operating loss carryforwards                   |                                             | $ | 157,906        |         |      | $ | 138,661  |        
|                                 | Equity loss                                        |                                             |   | 20,076         |         |      |   | 20,076   |        
|                                 | Accrued expenses                                   |                                             |   | 7,387          |         |      |   | 4,511    |        
|                                 | Deferred revenue                                   |                                             |   | 8,573          |         |      |   | 11,164   |        
|                                 | Tax credit carryforwards                           |                                             |   | 7,455          |         |      |   | 4,691    |        
|                                 | Property and equipment depreciation                |                                             |   | 6,034          |         |      |   | 3,321    |        
|                                 |                                                    |                                             |   |                |         |      |   |         
|                                 |                                                    | Total gross deferred income tax assets      |   |                | 207,431 |      |   |          | 182,424 | 
|                                 | Valuation allowance for deferred income tax assets |                                             |   | (200,618       | )       |      |   | (176,967 | )      
|                                 |                                                    |                                             |   |                |         |      |   |         
|                                 |                                                    | Total deferred income tax assets            |   |                | 6,813   |      |   |          | 5,457   | 
|                                 |                                                    |                                             |   |                |         |      |   |         
|Deferred income tax liabilities: |                                                    |                                             |   |                |         |      |   |         
|                                 | Identifiable intangibles                           |                                             |   | 12,169         |         |      |   | 5,382    |        
|                                 | Other                                              |                                             |   | 259            |         |      |   | 75       |        
|                                 |                                                    |                                             |   |                |         |      |   |         
|                                 |                                                    | Total gross deferred income tax liabilities |   |                | 12,428  |      |   |          | 5,457   | 
|                                 |                                                    |                                             |   |                |         |      |   |         
|                                 | Net deferred income tax liability                  |                                             | $ | 5,615          |         |      | $ |         |        
|                                 |                                                    |                                             |   |                |         |      |   |         

We recognize deferred income tax assets and liabilities for differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities which will result in future deductible or taxable amounts and
for net operating loss and tax credit carryforwards. We then establish a
valuation allowance to reduce the deferred income tax assets to the level at
which we believe it is more likely than not that the tax benefits will be
realized. Realization of the tax benefits associated with deductible temporary
differences and operating loss and tax credit carryforwards depends on having
sufficient taxable income within the carryback and carryforward periods.
Sources of taxable income that may allow for the realization of tax benefits
include (1) future taxable income that will result from the reversal of
existing taxable temporary differences and (2) future taxable income generated
by future operations. Because of the uncertainties with respect to our ability
to achieve and sustain profitable operations in the future, we have recorded a
valuation allowance to offset substantially all of our net deferred income tax
assets.

At December 31, 2002, we had domestic and foreign net operating loss
carryforwards and tax credit carryforwards of approximately $305.8 million,
$57.5 million and $4.7 million, respectively. The domestic net operating loss
carryforwards expire at various dates through 2022 unless utilized, the foreign
net operating loss carryforwards generally do not expire and the tax credit
carryforwards expire at various dates through 2022. Our domestic net operating
loss carryforwards at December 31, 2002 include $217.6 million in income tax
deductions related to stock options which will be tax effected and the benefit
will be reflected as a credit to additional paid-in capital when realized.
The acquisitions described in Note 3 created ownership changes for federal
income tax purposes. The result of an ownership change is to limit a companys
ability to utilize its net operating loss and credit carryforwards based on the
valuation of the company. Due to the value of the companies at the time of
their respective ownership changes, the limitation of net operating loss and
credit carryforwards is not expected to be meaningful.

During 1999, we acquired FICS, which resulted in establishing non-goodwill
intangible assets of $48.0 million. These identifiable intangibles created a
$19.2 million deferred tax liability. We acquired net operating loss
carryforwards in the FICS transaction of approximately $45.3 million. We
established a valuation allowance relating to the FICS carryforwards that
resulted in the recording of a net deferred tax liability of $15.3 million as a
result of the acquisition. The amortization and impairment of the FICS
non-goodwill intangible assets resulted in a deferred tax benefit of $5.0
million in 2000. Additional amortization of the FICS non-goodwill intangible
assets resulted in a deferred tax benefit of $4.5 million and $3.7 million in
2001 and 2002, respectively. As the benefit from the FICS net operating loss
carryforwards was realized, we reduced goodwill recorded in connection with the
FICS transaction and increased deferred tax expense. During 2001 and 2002, we
reduced goodwill $1.3 million and $0.5 million, respectively, in connection
with the realization of these tax benefits.

As indicated in Note 4, the sale of VerticalOne to Yodlee in January 2001
was a stock-for-stock transaction that was treated as a tax-free
reorganization. The difference between the tax basis in S1s investment in
Yodlee and the net book value in

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S1s share of Yodlees assets is treated as a
temporary difference and is reported as a deferred tax asset in the table above
offset by a full valuation allowance.

14. Convertible Preferred Stock

S1 has authorized 25,000,000 shares of $0.01 par value preferred stock, of
which 1,637,832 shares have been designated as series A convertible preferred
stock, 749,064 shares have been designated as series B convertible preferred
stock, 215,000 shares have been designated as series C convertible preferred
stock, 244,000 have been designated as series D convertible preferred stock and
649,150 have been designated as series E convertible preferred stock. At
December 31, 2002, there were 749,064 shares of series B convertible preferred
stock and 649,180 shares of series E convertible preferred stock outstanding.
As of December 31, 2002, series A, series C and series D shares have been
converted to common stock or cancelled, as discussed in Note 15.

The terms of all series of preferred stock provide the holders with
identical rights to common stockholders with respect to dividends and
distributions in the event of liquidation, dissolution, or winding up of S1.
Except as described below, series B are nonvoting shares. The holders of the
series E preferred stock are entitled to voting rights equal to those of the
common stockholders on an as-converted basis. Each series is entitled to vote
as a single class on the following matters:



| |  |  | any amendment to any charter provision that would change the specific
terms of that series which would adversely affect the rights of the
holders of that series, and                                                                                                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the merger or consolidation of S1 with another corporation or the
sale, lease, or conveyance (other than by mortgage or pledge) of the
properties or business of S1 in exchange for securities of another
corporation if series B is to be exchanged for securities of such other
corporation and if the terms of such securities are less favorable in
any respect.

Action requiring the separate approval of the series B stockholders
requires the approval of two-thirds of the shares of series B then outstanding
voting as a separate class. In addition, holders of the series B are entitled
to vote with the holders of common stock as if a single class, on any voluntary
dissolution or liquidation of S1. Holders of series B also are entitled to vote
with the holders of the common stock on any merger, acquisition, consolidation
or other business combination involving S1 and the sale, lease or conveyance
other than by mortgage or pledge of all or substantially all of our assets or
properties. When the series B is entitled to vote with the common stock, the
holders of series B are entitled to the number of votes equal to the number of
shares of common stock into which the series B could be converted. The 749,064
shares of series B preferred are convertible at the option of the holder after
October 1, 2000 into 1,070,090 shares of common stock based on a conversion
price of $9.345. The number of shares of common stock into which the series B
are convertible is subject to adjustment. The series E preferred stock
automatically converts into common stock at a rate of one common share for each
series E preferred share on September 20, 2003.

15. Equity Transactions

Stock and warrants issued to Royal Bank of Canada

On February 25, 1999, we entered into an agreement with Royal Bank of
Canada under which:



| |  |  | Royal Bank purchased and agreed to implement certain S1 applications.
Royal Bank agreed to pay us $50.0 million over a five-year period as
they implemented our software;                                                                                                                                                                                                                                                                                                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we issued 215,000 shares of newly designated series C redeemable
convertible preferred stock to Royal Bank. We recorded a subscription
receivable of $12.0 million, the estimated fair value of the preferred
stock at issuance, and reduced such subscription receivable, including
imputed interest, as the related revenue was recognized. On February 25,
2000, the first installment of 21,500 shares vested and became
convertible. These shares were converted to 43,000 shares of S1 common
stock in July 2000; and
|
| |  |  | we granted Royal Bank a warrant to purchase 800,000 shares of common
stock at a price of $30.00 per share.                                                                                                                                                                                                                                                                                                                                                                                                                 

We terminated the agreements with Royal Bank described above during the
fourth quarter of 2001. As a result, we cancelled 193,500 unvested series C
preferred shares and the related receivable from the sale of stock in the
amount of $11.5

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million. In addition, we cancelled the warrant to purchase
800,000 shares of S1 common stock. Royal Bank continues to be a data center
customer under a separate agreement.

Stock and options issued to Intuit, Inc.

On May 16, 1999, S1 and Intuit entered into a Stock Purchase and Option
Agreement pursuant to which:



| |  |  | Intuit purchased 970,813 shares of S1 common stock for $50.0
million;                                                                                                                                                                                                                                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | S1 granted Intuit options to purchase 3,629,187 and 950,000 shares
of S1 common stock that vested upon the closing of the Edify and FICS
acquisitions, respectively; and                                                                                                                                                                                                                                              
|
| |  |  | S1 granted Intuit 445,000 additional options to purchase S1 common
stock that would become exercisable based on the achievement of certain
earn-out targets for FICS. In the fourth quarter of 2000, we issued 1.8
million shares to the former stockholders of FICS and terminated the
remainder of the earn-out. Accordingly, 178,200 shares of the Intuit
options became exercisable in the fourth quarter of 2000.

All of the Intuit options were granted with an exercise price of $51.50 per
share and an expiration date of November 10, 2004.

Concurrent with the Stock Purchase and Option Agreement, S1 and Intuit
entered into a five-year cross-license and distribution agreement. Under the
terms of the cross-license agreement, Intuit and S1 agreed to exchange
technologies to enable delivery of interactive financial management software
and Internet based financial tools. This agreement was considered a
non-monetary exchange and accordingly, was not recorded in the consolidated
financial statements. Under the distribution agreement, we received a license
to distribute Intuit products and services and in return receive a royalty fee
on such sales. There was no significant activity under the distribution
agreement since its inception.

On October 31, 2001, we terminated the cross-license and distribution with
Intuit, as well as Intuits right to purchase shares of our common stock
pursuant to the option agreement. In connection with the termination of these
arrangements, we paid Intuit $85,000 which we recorded as a reduction of
additional paid-in capital. Following the settlement of these arrangements,
Intuit has no outstanding options to purchase S1 common stock.

Other equity transactions

On February 19, 1999, we issued to Accenture, LLP warrants to purchase up
to 200,000 shares of S1 common stock at $54.94 per share, subject to defined
vesting requirements. During 2000, 40,000 shares vested and we recorded a
charge of $362,000 for the fair value of the warrants based on the
Black-Scholes option-pricing model. As of December 31, 2002, these warrants
had expired unexercised.

On December 23, 1999, we granted a fully-vested, immediately exercisable
warrant to purchase 84,994 shares of S1 common stock at $80.00 per share in
connection with a pilot project and distribution agreement between a third
party and a subsidiary of S1. The fair value of the warrant was expensed over
the term of the agreement that was approximately 60 days. We recorded expense
of $715,000 in 1999 and $4.6 million 2000. At December 31, 2002, the warrant
was outstanding and exercisable. The warrant expires on December 23, 2004.

During 2000, the holders of the remaining series A preferred stock
exercised their right to exchange their shares for S1 common stock at a rate of
two common shares for each preferred share. Accordingly, we issued 857,900
common shares. Additionally, certain holders of series C preferred stock
exercised their right to exchange their shares for S1 common stock at a rate of
two common shares for each preferred share. Accordingly, we issued 43,000
common shares.

On May 26, 2000, we issued 244,000 shares of series D convertible
preferred stock to five investors for a total of $232.0 million, net of
expenses.

In July 2001, one holder of series D convertible preferred stock exercised
its right to exchange its preferred shares for S1 common stock at a rate of
29.283 common shares for each preferred share. Accordingly, we issued 190,339
shares of S1 common stock in exchange for 6,500 shares of series D convertible
preferred stock.

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On April 30, 2002, our series D convertible preferred stock automatically
converted into S1 common stock at a rate of 29.283 common shares for each
preferred share. Accordingly, we issued 6,954,712 shares of S1 common stock in
exchange for 237,500 shares of series D convertible preferred stock.

On September 20, 2001, we issued 649,150 shares of newly authorized Series
E convertible preferred stock in connection with the acquisition of SDI as
described in Note 3. The value of the preferred shares of $6.2 million was
determined based on the value of the as-converted common stock, less the
estimated amount of contingent consideration of $2.1 million. Of the total
series E preferred shares issued, we placed in escrow for the selling
shareholders 318,098 shares of series E preferred stock in connection with a
general indemnity provision and the collection of specific funds under a
pending sale of software licenses. In May 2002, we amended the purchase
agreement with SDI to eliminate the contingent consideration. We assigned an
additional $2.1 million of value to the series E preferred shares. As of
December 31, 2002, 318,098 series E preferred shares remained in escrow. The
escrow period expired on March 20, 2003.

In July 2002, our board of directors approved a $10.0 million stock
repurchase program to enhance long-term shareholder value. This program was
funded from available cash and short-term investments. As of December 31,
2002, we had repurchased 1,906,300 shares of our common stock at a cost of $9.3
million under this program. The stock repurchase program was completed in
January 2003. We repurchased a total of 2,051,862 shares of our
common stock at an average price of $4.87 per share.

16. Stock Option and Purchase Plans

We maintain certain stock option plans providing for the grant of stock
options to officers, directors and employees. The plans provide for
25,811,732 shares of S1 common stock to be reserved for issuance under the plans.
Substantially all stock options granted under the plans have ten-year terms and
generally vest and become exercisable ratably over four years from the date of
grant. At December 31, 2002, 7,421,266 shares were available for future grants
under the plans.

During 1999, we granted approximately 1,450,000 stock options that will
fully vest at the end of five years with accelerated vesting based on the
achievement of certain performance targets during fiscal years 1999 through
2002. Two performance goals are in place for each of these years. For each
performance target achieved, 12.5% of the options will vest in the year
following the achievement of the target. Vesting related to performance targets
not met may be earned in subsequent years. As of December 31, 2002, three
performance goals had been met resulting in the vesting of 37.5% of the shares.

A summary of our stock options as of December 31, 2000, 2001 and 2002, and
changes during the years ended on those dates is presented below:

|                                  |  |        |        |          |  |           |       |          |  |        |        |           |  |   |       |  |  |           |        |   |  |   |       | 
|--------------------------------- |  | ------ | ------ | -------- |  | --------- | ----- | -------- |  | ------ | ------ | --------- |  | - | ----- |  |  | --------- | ------ | - |  | - | ----- | 
|                                  |  | 2000   |        | 2001     |  | 2002     
|                                  |  |        |        |          |  |          
|                                  |  |        |        |          |  | Weighted- |       |          |  |        |        | Weighted- |  |   |       |  |  | Weighted-
|                                  |  |        |        |          |  | average   |       |          |  |        |        | average   |  |   |       |  |  | average  
|                                  |  | Shares |        | Exercise |  | Shares    |       | Exercise |  | Shares |        | Exercise 
|                                  |  | (000)  |        | Price    |  | (000)     |       | Price    |  | (000)  |        | Price    
|                                  |  |        |        |          |  |           |       |          |  |        |        |          
|Outstanding at beginning of year  |  |        | 16,457 |          |  | $         | 20.27 |          |  |        | 20,870 |           |  | $ | 25.52 |  |  |           | 16,864 |   |  | $ | 14.74 | 
|Granted                           |  |        | 7,999  |          |  |           | 24.14 |          |  |        | 4,837  |           |  |   | 8.87  |  |  |           | 6,707  |   |  |   | 13.99 | 
|Options exchanged in acquisitions |  |        | 1,399  |          |  |           | 60.02 |          |  |        | 102    |           |  |   | 6.10  |  |  |           |       |   |  |   |      | 
|Exercised                         |  |        | (3,030 | )        |  |           | 3.65  |          |  |        | (1,761 | )         |  |   | 3.09  |  |  |           | (1,095 | ) |  |   | 3.40  | 
|Forfeited/canceled                |  |        | (1,955 | )        |  |           | 34.23 |          |  |        | (7,184 | )         |  |   | 44.86 |  |  |           | (4,086 | ) |  |   | 19.99 | 
|                                  |  |        |        |          |  |           |       |          |  |        |        |           |  |   |       |  |  |           |        |   |  |   |       | 
|Outstanding at end of year        |  |        | 20,870 |          |  | $         | 25.52 |          |  |        | 16,864 |           |  | $ | 14.74 |  |  |           | 18,390 |   |  | $ | 13.97 | 
|                                  |  |        |        |          |  |           |       |          |  |        |        |           |  |   |       |  |  |           |        |   |  |   |       | 
|Exercisable at end of year        |  |        | 5,280  |          |  | $         | 14.54 |          |  |        | 6,190  |           |  | $ | 16.44 |  |  |           | 7,138  |   |  | $ | 15.06 | 
|                                  |  |        |        |          |  |           |       |          |  |        |        |           |  |   |       |  |  |           |        |   |  |   |       | 

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The following table summarizes information about stock options outstanding at December 31, 2002:

|                        |  |       |        |             |  |             |     |                     |  |             |       |          |                     |  |       |           |  |   |       |  |  | 
|----------------------- |  | ----- | ------ | ----------- |  | ----------- | --- | ------------------- |  | ----------- | ----- | -------- | ------------------- |  | ----- | --------- |  | - | ----- |  |  | 
|                        |  |       |        |             |  |             |     | Options Outstanding |  |             |       |          |                     |  |       |           |  |   |       | 
|                        |  |       |        |             |  |             |     |                     |  |             |       |          | Options Exercisable
|                        |  |       |        |             |  |             |     | Weighted-           |  |             |       |          |                     | 
|                        |  |       |        |             |  |             |     | average             |  | Weighted-   |       |          |                     |  |       | Weighted-
|                        |  |       |        | Number      |  | Remaining   |     | average             |  | Number      |       | average 
|                        |  |       |        | Outstanding |  | Contractual |     | Exercise            |  | Exercisable |       | Exercise
|Range of Exercise Price |  | (000) |        | Life        |  | Price       |     | (000)               |  | Price      
|                        |  |       |        |             |  |             |     |                     |  |            
|$0.32    3.00          |  |       | 955    |             |  |             | 3.0 |                     |  | $           | 0.79  |          |                     |  | 934   |           |  | $ | 0.74  | 
|3.01    6.00           |  |       | 1,885  |             |  |             | 5.8 |                     |  |             | 4.82  |          |                     |  | 987   |           |  |   | 4.78  | 
|6.01    8.00           |  |       | 2,915  |             |  |             | 8.3 |                     |  |             | 6.65  |          |                     |  | 954   |           |  |   | 6.65  | 
|8.01  10.00            |  |       | 3,471  |             |  |             | 7.1 |                     |  |             | 8.42  |          |                     |  | 1,363 |           |  |   | 8.37  | 
|10.01  12.00           |  |       | 1,139  |             |  |             | 8.2 |                     |  |             | 11.17 |          |                     |  | 371   |           |  |   | 11.37 | 
|12.01  16.00           |  |       | 3,715  |             |  |             | 7.7 |                     |  |             | 14.82 |          |                     |  | 792   |           |  |   | 14.94 | 
|16.01  20.00           |  |       | 2,132  |             |  |             | 8.6 |                     |  |             | 18.16 |          |                     |  | 160   |           |  |   | 18.15 | 
|20.01  98.75           |  |       | 2,178  |             |  |             | 5.7 |                     |  |             | 42.26 |          |                     |  | 1,577 |           |  |   | 41.49 | 
|                        |  |       |        |             |  |             |     |                     |  |             |       |          |                     |  |       |           |  |   |       | 
|0.32  98.75            |  |       | 18,390 |             |  |             | 7.1 |                     |  | $           | 13.97 |          |                     |  | 7,138 |           |  | $ | 15.06 | 
|                        |  |       |        |             |  |             |     |                     |  |             |       |          |                     |  |       |           |  |   |       | 

For stock options granted where the exercise price was less than the
market price of the stock on the date of grant, the per share weighted-average
exercise price was $7.82 and the per share weighted average fair value was
$9.35 for stock options granted during 2000. For stock options granted where
the exercise price equaled the market price of the stock on the date of grant,
the per share weighted-average exercise price was $30.64, $8.87 and $13.99 and
the per share weighed-average fair value was $24.54, $7.78 and $11.59 for stock
options granted during 2000, 2001 and 2002, respectively.

Under our employee stock purchase plan, each employee of S1 or a
participating subsidiary that is employed at least twenty hours per week over a
five-month period, is eligible to purchase S1 common stock at a discounted
price. The purchase price is equal to 85% of the fair market value of the
common stock on either the first or last day of the subscription period,
whichever is lower. Purchases under this plan are limited to 10% of an
employees compensation. We adopted the ESPP during 1999, but issued no shares
under the plan during that fiscal year. Under this plan, we issued 161,826,
259,323 and 270,334 shares at an average price of $22.32, $8.81 and $6.09 per
share during 2000, 2001 and 2002, respectively. At December 31, 2002,
2,121,349 common shares were reserved for future issuance under this plan.
Effective January 1, 2003, we suspended the ESPP.

The fair values were determined using the Black-Scholes option-pricing
model with the following weighted-average assumptions:

|                                             |  |           |       |           |  |           |       |   |  |  |       |  
|-------------------------------------------- |  | --------- | ----- | --------- |  | --------- | ----- | - |  |  | ----- | -
|                                             |  | 2000      |       | 2001      |  | 2002     
|                                             |  |           |       |           |  |          
|Expected dividend yield                      |  |           | 0     | %         |  |           | 0     | % |  |  | 0     | %
|Expected volatility                          |  |           | 109.0 | %         |  |           | 114.5 | % |  |  | 115.7 | %
|Risk-free interest rate, stock option plans  |  |           | 6.0   | %         |  |           | 4.6   | % |  |  | 3.8   | %
|Expected life, stock option plans            |  | 4.5 years |       | 4.9 years |  | 4.5 years
|Risk-free interest rate, stock purchase plan |  |           | 6.2   | %         |  |           | 4.4   | % |  |  | 2.0   | %
|Expected life, stock purchase plan           |  | 0.5 years |       | 0.5 years |  | 0.5 years

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Options exchanged and granted in connection with acquisitions

In connection with certain of our acquisitions, we exchanged options to
purchase shares of S1 common stock, respectively, for all the outstanding
options of the acquired companies, as presented in the following table. To the
extent the exchanged stock options were vested at the date of acquisition, we
included their fair value in the purchase price of the acquired companies.

|                        |  |                     |            |                   |  |  |           | 
|----------------------- |  | ------------------- | ---------- | ----------------- |  |  | --------- | 
|Business Acquired       |  | Date of Acquisition |            | Options Exchanged
|                        |  |                     |            |                  
|Q-Up Systems, Inc.      |  |                     | 04/07/2000 |                   |  |  | 1,381,824 | 
|Davidge Data Systems    |  |                     | 04/13/2000 |                   |  |  | 17,615    | 
|Software Dynamics, Inc. |  |                     | 09/20/2001 |                   |  |  | 101,784   | 

In connection with our acquisitions during 2000, 2001 and 2002, we issued
approximately:



| |  |  | 908,000 new options to employees of Davidge and Level Next;
| | - |  | -----------------------------------------------------------
|
| |  |  | 325,000 new options to employees of SDI;                   
|
| |  |  | 100,000 new options to employees of Regency, and           
|
| |  |  | 300,000 new options to employees of Point.                 

Stock option exchange program

On June 8, 2001, we offered eligible employees the opportunity to exchange
outstanding stock options to purchase shares of our common stock that have an
exercise price of $18.00 per share or more for new options under the S1
Corporation 1997 Employee Stock Option Plan. Through July 6, 2001, the
expiration date of the exchange offer, we accepted for exchange and canceled
2,937,162 stock options from eligible employees. Eligible employees who were
not senior managers received new options equal to the number of options
exchanged. Senior managers received new options equal to the number of options
exchanged multiplied by 0.75. To receive the new options, eligible employees
who participated in this voluntary exchange program had to remain continuously
employed by S1 or one of our consolidated subsidiaries from the date the
options were tendered for exchange through the date we granted the new options.
On January 8, 2002, which was the first business day that was at least six
months and one day following the date we canceled the options accepted for
exchange, we granted 2,410,613 new options to eligible employees at the fair
market value at the date of grant. We did not record a charge for stock
compensation expense as a result of this stock option exchange program.

17. Retirement Savings Plan

We provide a 401(k) retirement savings plan for substantially all of our
full-time employees in the United States. Each participant in the 401(k) plan
may elect to contribute from 1% to 15% of his or her annual compensation to the
plan. S1, at managements discretion, may make matching contributions to the
plan. From January 1, 2000 through March 31, 2002, our discretionary match had
been made entirely to the S1 stock fund, up to 4% of the employees
compensation. Effective April 1, 2002, employees have a choice regarding the
form of the discretionary match. We will match up to 4% of the employees
compensation to the S1 stock fund or up to 3% of the employees compensation in
cash to be distributed according to the employees election. Effective January
1, 2003, the discretionary match percentages were reduced to 3% of the
employees compensation to the S1 stock fund or up to 2% of the employees
compensation in cash to be distributed according to the employees election.

Our matching contributions to the plan charged to expense for 2000, 2001
and 2002 were approximately $2.0 million, $2.1 million and $2.1 million,
respectively.

18. Geographic Disclosures and Major Customers

Revenues from
international customers represented approximately 21%, 29%
and 29% of revenues from continuing operations for the years ended December 31,
2000, 2001 and 2002, respectively.

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At December 31, 2001 and 2002,
approximately $12.1 million and $8.9 million, respectively, of total property and equipment is located outside of
the United States.

Currently, we have two major customers (defined as those who individually
contribute more than 10% of total revenues). Revenues from State Farm Mutual
Automobile Insurance Company were 38%, 33% and 26% of our revenues from
continuing operations during the years ended December 31, 2000, 2001 and 2002.

The other major customer, Zurich Insurance Company and certain of its
affiliates or subsidiaries, accounted for 17% of our revenues from continuing
operations during the year ended December 31, 2002. This customer contributed
less than 10% of our total revenues for the same period in 2001. Effective
April 1, 2002, we amended the terms of our arrangement with this customer.
Under the terms of the revised agreement, we agreed to provide a subscription
license until December 31, 2003 (previously the contract expired in 2005), data
center services in our U.K. data center through December 31, 2004 and professional services, for which
we expected to receive total fees of $73.3 million. Of this total amount, we
expect to record license revenue of approximately $57.2 million over the term
of the subscription license. In September 2002, this customer announced its
plan to discontinue operations running in our U.K. data center. In March 2003, we
amended the terms of our arrangement (the 2003 amendment) such that Zurich
will pay us $7.8 million in two installments through July 2003 to accelerate
the termination of the data center arrangement from December 31,
2004 to June 30, 2003. We will report those accelerated payments as data center revenue
ratably over the six months ending June 30, 2003, after which time we will not
have any obligation to provide data center services to Zurich. The license and
professional services components of the arrangement were not affected by the
2003 amendment.

19. Related Party Transactions

Yodlee, Inc.

As a result of our sale of VerticalOne to Yodlee in January 2001, as
discussed in Note 4, we own approximately 27% of Yodlee at December 31, 2002.
The chairman of our board of directors is also a director of Yodlee. In
connection with the sale, we entered into the following agreements with Yodlee:



| |  |  | a sales representation agreement;
| | - |  | ---------------------------------
|
| |  |  | a data center agreement; and     
|
| |  |  | a facilities sublease.           

Under the terms of the sales representation agreement, we are a
non-exclusive reseller of Yodlees aggregation service. In connection with this
arrangement, we made a nonrefundable prepayment of $10.0 million to Yodlee,
which we included as part of our loss on the sale of VerticalOne. Subject to
certain conditions, (i) we may sell Yodlees aggregation service directly to
certain of our customers and retain 100% of the fees or (ii) we may assist
Yodlee with the sale of its aggregation service to one of its customers in
return for 50% of their fees. The agreement expires in January 2004, or at
such earlier time that we recoup a total of $10.0 million from our customers
and Yodlee for aggregation services, if at all. During 2001 and 2002, we
received $0.4 million and $0.1 million from Yodlee under this agreement.

Under the data center agreement, we agreed to provide Yodlee with certain
data center services for a fee. During 2001 and 2002, we provided data center
services in the amount of $0.2 million and $0.3 million, respectively. The data
center agreement expired in January 2003. At December 31, 2002, we had a
receivable from Yodlee of approximately $0.2 million for services performed
under this agreement.

Under the facilities sublease, we agreed to reimburse Yodlee approximately
$0.1 million for certain office space rentals and utilities
through December 31, 2001.

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IT Apps LTD

ITApps, based in Hong Kong, is the primary reseller of our Edify products
in the APJ region. In 2001, we formed a joint venture with ITApps, Edify Asia
Ltd., of which we own 65%. The operations reported for this joint venture are
included in our discontinued operations because the historical business we have
conducted through this joint venture relates to our discontinued operations;
however, we expect to continue our relationship with IT Apps as a distributor
of S1 products and services in the APJ region.

Certain of our Edify product
sales in the APJ region were conducted
through this joint venture to our ultimate customers. The revenues
and expenses for the joint venture are included in discontinued operations.
Minority interest in the joint venture and intercompany
transactions are eliminated in consolidation.

At December 31, 2002,
IT Apps owed us $1.4 million, of
which $1.1 million was in the form of a note
receivable. The note is included in accounts receivable at December 31, 2002.

20. Net Loss Per Share

Because of our net losses, the issuance of additional shares of common
stock through the exercise of stock options or stock warrants or upon the
conversion of preferred stock would have an anti-dilutive effect on our net
loss per share. The total number of common shares that would have been included
in our computation of diluted loss per share if they had been dilutive is as
follows (in thousands):

|                                                     |                             |                                             |        |       |        |      |        |       |        |  |        |       |        | 
|---------------------------------------------------- | --------------------------- | ------------------------------------------- | ------ | ----- | ------ | ---- | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                     |                             |                                             |        | 2000  |        | 2001 |        | 2002 
|                                                     |                             |                                             |        |       |        |      |        |      
|Weighted average common shares outstanding           |                             |                                             | 54,096 |       |        |      | 59,242 |       |        |  | 67,725 |      
|Weighted average affect of common stock equivalents: |                             |                                             |        |       |        |      |        |       |        |  |        |      
|                                                     | Convertible preferred stock |                                             |        | 5,357 |        |      |        | 8,258 |        |  |        | 3,956 |       
|                                                     | Stock options               |                                             |        | 7,055 |        |      |        | 5,216 |        |  |        | 2,636 |       
|                                                     | Stock warrants              |                                             |        | 226   |        |      |        |      |        |  |        |      |       
|                                                     |                             |                                             |        |       |        |      |        |       |        |  |        |      
|                                                     |                             | Weighted average diluted shares outstanding |        |       | 66,734 |      |        |       | 72,716 |  |        |       | 74,317 | 
|                                                     |                             |                                             |        |       |        |      |        |       |        |  |        |      

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21. Quarterly Financial Information (Unaudited)

The following table shows selected unaudited consolidated quarterly
statement of operations data for the years ended December 31, 2001 and 2002. In
our opinion, this unaudited information has been prepared on substantially the
same basis as the consolidated financial statements appearing elsewhere in this
Annual Report on Form 10-K and includes all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the unaudited consolidated
quarterly data. The unaudited consolidated quarterly data should be read
together with the audited consolidated financial statements and notes thereto
appearing elsewhere in this Annual Report on Form 10-K. The results for any
quarter are not necessarily indicative of results for any future period.

|                                           |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |   |       |  
|------------------------------------------ | -------- | ----------------------- | ------- | ------------------------------------- | ----- | -------- | ------- | --------- | ----- | -------- | ------- | -------- | ----- | -------- | ------- | --------- | ----- | -------- | ------ | - | ----- | - | ------ | - | ----- | - | ------ | - | ----- | - | ------ | - | ----- | -
|                                           |          |                         |         | Three Months Ended                   
|                                           |          |                         |         |                                      
|                                           |          |                         |         | Mar. 31,                              |       | June 30, |         | Sept. 30, |       | Dec. 31, |         | Mar. 31, |       | June 30, |         | Sept. 30, |       | Dec. 31,
|                                           |          |                         |         | 2001 (2)                              |       | 2001 (3) |         | 2001      |       | 2001 (4) |         | 2002     |       | 2002     |         | 2002      |       | 2002    
|                                           |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |         
|                                           |          |                         |         | (in thousands, except per share data)
|Revenues                                   |          | $                       | 52,957  |                                       |       | $        | 54,049  |           |       | $        | 57,140  |          |       | $        | 67,619  |           |       | $        | 61,764 |   |       | $ | 63,807 |   |       | $ | 58,517 |   |       | $ | 63,889 |  
|Gross margin (1)                           |          |                         | 19,978  |                                       |       |          | 27,645  |           |       |          | 32,697  |          |       |          | 42,386  |           |       |          | 37,689 |   |       |   | 38,205 |   |       |   | 34,305 |   |       |   | 39,189 |  
|Operating (loss) income                    |          |                         | (30,404 | )                                     |       |          | (30,161 | )         |       |          | (17,452 | )        |       |          | (8,616  | )         |       |          | (5,411 | ) |       |   | (4,014 | ) |       |   | (4,327 | ) |       |   | 3,126  |  
|(Loss) income from continuing operations   |          |                         | (84,749 | )                                     |       |          | (36,683 | )         |       |          | (24,910 | )        |       |          | (48,844 | )         |       |          | (4,364 | ) |       |   | (2,839 | ) |       |   | (3,539 | ) |       |   | 4,213  |  
|Loss from discontinued operations          |          |                         | (7,313  | )                                     |       |          | (6,905  | )         |       |          | (4,706  | )        |       |          | (7,433  | )         |       |          | (2,342 | ) |       |   | (2,808 | ) |       |   | (1,661 | ) |       |   | (3,057 | )
|Net (loss) income                          |          |                         | (92,062 | )                                     |       |          | (43,588 | )         |       |          | (29,616 | )        |       |          | (56,277 | )         |       |          | (6,706 | ) |       |   | (5,647 | ) |       |   | (5,200 | ) |       |   | 1,156  |  
|(Loss) earnings per share:                 |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |  
|                                           | Basic:   |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |   |      
|                                           |          | Continuing operations   |         | $                                     | (1.46 | )        |         | $         | (0.62 | )        |         | $        | (0.42 | )        |         | $         | (0.80 | )        |        | $ | (0.07 | ) |        | $ | (0.04 | ) |        | $ | (0.05 | ) |        | $ | 0.06  |  
|                                           |          | Discontinued operations |         |                                       | (0.12 | )        |         |           | (0.12 | )        |         |          | (0.08 | )        |         |           | (0.12 | )        |        |   | (0.04 | ) |        |   | (0.04 | ) |        |   | (0.02 | ) |        |   | (0.04 | )
|                                           |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |  
|Net (loss) income per common share  basic |          | $                       | (1.58   | )                                     |       | $        | (0.74   | )         |       | $        | (0.50   | )        |       | $        | (0.92   | )         |       | $        | (0.11  | ) |       | $ | (0.08  | ) |       | $ | (0.07  | ) |       | $ | 0.02   |  
|                                           | Diluted: |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |   |      
|                                           |          | Continuing operations   |         | $                                     |      |          |         | $         |      |          |         | $        |      |          |         | $         |      |          |        | $ |      |   |        | $ |      |   |        | $ |      |   |        | $ | 0.06  |  
|                                           |          | Discontinued operations |         |                                       |      |          |         |           |      |          |         |          |      |          |         |           |      |          |        |   |      |   |        |   |      |   |        |   |      |   |        |   | (0.04 | )
|                                           |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |  
|Net income per common share  diluted      |          | $                       |        |                                       |       | $        |        |           |       | $        |        |          |       | $        |        |           |       | $        |       |   |       | $ |       |   |       | $ |       |   |       | $ | 0.02   |  
|                                           |          |                         |         |                                       |       |          |         |           |       |          |         |          |       |          |         |           |       |          |        |   |       |   |        |   |       |   |        |   |       |   |        |  



---

|(1) |  | Gross margin is derived from our statements of operations as total
revenues less cost of software licenses, cost of professional services,
support and maintenance, cost of data center and cost of other revenue.
Cost of revenues exclude charges for depreciation of property and
equipment and amortization of purchased technology.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our net loss and net loss per common share for the three months ended
March 31, 2001, reflect a $52.3 million loss on the sale of a subsidiary.                                                                                                                                                                                         
|   
|(3) |  | Our operating loss, net loss and net loss per common share for the three
months ended June 30, 2001, reflect a restructuring charge of $5.6
million.                                                                                                                                                                                    
|   
|(4) |  | Our net loss and net loss per common share for the three months ended
December 31, 2001, reflect a charge of $41.3 million from
our equity investment in Yodlee.                                                                                                                                                                        

22. Subsequent Event

In March 2003, we amended the terms of our data center arrangement with
Zurich such that Zurich will pay us $7.8 million in two installments through
July 2003 to accelerate the remaining services under the data center arrangement from
December 31, 2004 to June 30, 2003. We will report those accelerated payments
as data center fees and any costs
associated with accelerating the arrangement during the period
ending June 30, 2003. Our subscription license and professional services components
of our arrangement with Zurich were not
affected by the 2003 amendment.

In March 2003, we made the decision to consolidate the operations of our U.K.
data center into our global hosting center in Atlanta.

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Schedule II

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                              |                                        |           |                |          |            |           |            |            |   |        |  |        |            |  |  |        |        |  |   |         | 
|----------------------------- | -------------------------------------- | --------- | -------------- | -------- | ---------- | --------- | ---------- | ---------- | - | ------ |  | ------ | ---------- |  |  | ------ | ------ |  | - | ------- | 
|                              |                                        |           |                |          |            | Additions |            |            |   |        |  |        |            | 
|                              |                                        |           |                | Balance  |            |           |            |            |   |        |  |        |            | 
|                              |                                        |           | at             |          | Charged to |           | Charged to |            |   |        |  |        | Balance at
|                              |                                        |           | beginning      |          | costs and  |           | other      |            |   |        |  |        | end of    
|Description                   |                                        | of period |                | expenses |            | accounts  |            | Deductions |   | period
|                              |                                        |           |                |          |            |           |            |            |   |       
|                              |                                        |           | (In thousands)
|Year ended December 31, 2000: |                                        |           |                |          |            |           |            |            |   |        |  |        |            |  |  |        |        |  |   |        
|                              | Allowance for doubtful accounts        |           | $              | 8,584    |            |           |            | 6,826      |   |        |  | 674    | (2)        |  |  | 6,075  | (1)    |  | $ | 10,009  | 
|                              | Valuation allowance for deferred taxes |           | $              | 55,497   |            |           |            | 52,255     |   |        |  | 32,377 | (3)        |  |  | 537    | (4)    |  | $ | 139,592 | 
|Year ended December 31, 2001: |                                        |           |                |          |            |           |            |            |   |        |  |        |            |  |  |        |        |  |   |        
|                              | Allowance for doubtful accounts        |           | $              | 10,009   |            |           |            | 5,220      |   |        |  | 100    | (2)        |  |  | 7,246  | (1)    |  | $ | 8,083   | 
|                              | Valuation allowance for deferred taxes |           | $              | 139,592  |            |           |            | 20,522     |   |        |  | 40,994 | (3)        |  |  | 490    | (4)    |  | $ | 200,618 | 
|Year ended December 31, 2002: |                                        |           |                |          |            |           |            |            |   |        |  |        |            |  |  |        |        |  |   |        
|                              | Allowance for doubtful accounts        |           | $              | 8,083    |            |           |            | 7,756      |   |        |  | 505    | (2)        |  |  | 13,511 | (1)(5) |  | $ | 2,833   | 
|                              | Valuation allowance for deferred taxes |           | $              | 200,618  |            |           |            | (5,390     | ) |        |  | 5,762  | (3)        |  |  | 24,023 | (5)    |  | $ | 176,967 | 



---

|(1) |  | Accounts deemed to be uncollectible and written off during the year.
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | Allowances related to companies acquired.                           
|   
|(3) |  | Allowances related to companies acquired and stock option expense.  
|   
|(4) |  | Allowance related to investment securities available for sale.      
|   
|(5) |  | Amounts transferred to discontinued operations.                     

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

Not Applicable.




PART III




Item 10.Directors and Executive Officers of the Registrant.

Information regarding the directors and executive officers of S1 is
omitted from this report because we will file our definitive proxy statement
within 120 days after the end of the fiscal year covered by this report, and
the information included in our definitive proxy statement is incorporated in
this report by reference.




Item 11.Executive Compensation.

Information regarding compensation of executive officers and directors is
omitted from this report because we will file our definitive proxy statement
within 120 days after the end of the fiscal year covered by this report, and
the information included in our definitive proxy statement (excluding the
Compensation Committee Report on Executive Compensation and the Performance of
our Common Stock information) is incorporated in this report by reference.




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

Information required by this Item is omitted from this report because we
will file our definitive proxy statement within 120 days after the end of the
fiscal year covered by this report, and the information included in our
definitive proxy statement is incorporated in this report by reference.

The following table
provides information with respect to compensation plans under which
equity securities of S1 Corporation are authorized for issuance to
employees, non-employee directors and other as of December 31,
2002:

|                                                               |                        |                      |            |                      |  |                      |       |       |  |  |           |           | 
|-------------------------------------------------------------- | ---------------------- | -------------------- | ---------- | -------------------- |  | -------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                               |                        |                      |            |                      |  | Number of           
|                                                               |                        |                      |            |                      |  | securities remaining
|                                                               |                        |                      |            |                      |  | available for future
|                                                               |                        |                      |            |                      |  | issuance for future 
|                                                               |                        | Number of securities |            |                      |  | issuance under      
|                                                               |                        | to be issued upon    |            | Weighted-average     |  | equity compensation 
|                                                               |                        | exercise of          |            | exercise price of    |  | plans (excluding    
|                                                               |                        | outstanding options, |            | outstanding options, |  | securities reflected
|                                                               |                        | warrants and rights  |            | warrants and rights  |  | in column(s))       
|Plan category                                                  |                        | (a)                  |            | (b)                  |  | (c)                 
|                                                               |                        |                      |            |                      |  |                     
|Equity compensation plans approved by security
    holders     |                        |                      |           |                      |  | $                    |      |       |  |  |          |          
|Equity compensation plans not approved by
    security holders |                        |                      |            |                      |  |                      |       |       |  |  |           |          
|                                                               | Employee stock options |                      |            | 18,390,469           |  |                      |       | 13.97 |  |  |           | 7,421,266 | 
|                                                               | Warrants               |                      |            | 84,994               |  |                      |       | 80.00 |  |  |           |          | 
|                                                               |                        |                      |            |                      |  |                      |       |       |  |  |           |          
|Total                                                          |                        |                      | 18,475,463 |                      |  | $                    | 14.27 |       |  |  | 7,421,266 |          
|                                                               |                        |                      |            |                      |  |                      |       |       |  |  |           |          




Item 13.Certain Relationships and Related Transactions.

Information regarding certain relationships and related transactions is
omitted from this report because we will file our definitive proxy statement
within 120 days after the end of the fiscal year covered by this report, and
the information included in our definitive proxy statement is incorporated in
this report by reference.




Item 14.Controls and Procedures

Within the 90 days prior to the date of filing this Form 10-K, we carried
out an evaluation, under the supervision and with the participation of
management, including the chief executive officer and the chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the chief executive officer and the chief financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
SEC filings. There have been no significant changes in our internal controls or
in other factors which could significantly affect internal controls subsequent
to the date we carried out our evaluation.




PART IV




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

(a)(1) The consolidated financial statements filed as a part of this
report and incorporated in this report by reference are listed and indexed
under Item 8 Financial Statements and Supplementary Data.

(2) The financial statement schedules filed as part of this report and
incorporated in this report by reference are listed and indexed under Item 8
Financial Statements and Supplementary Data.

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(3)  The exhibits listed are filed as part of this report and incorporated
in this report by reference:

|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1        |  | Amended and Restated Certificate of Incorporation of S1 Corporation
(S1) (filed as Exhibit 1 to S1s Registration Statement on Form 8-A
filed with the Securities and Exchange Commission (the SEC) on
September 30, 1998 and incorporated herein by reference).                                                                                                                                                
|3.2        |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated June 3, 1999 (filed as Exhibit 4.2 to S1s Registration
Statement on Form S-8 (File No. 333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).                                                                                                                                              
|3.3        |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated November 10, 1999 (filed as Exhibit 3.3 to S1s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).                                                                                                                                                             
|3.4        |  | Certificate of Designation for S1s Series B Redeemable Convertible Preferred Stock (filed as Exhibit 2 to S1s Registration Statement on Form 8-A
filed with the SEC on September 30, 1998 and incorporated herein by reference).                                                                                                                                                                                  
|3.5        |  | Certificate of Designation for S1s Series C Redeemable Convertible Preferred Stock (filed as Exhibit 3 to S1s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                  
|3.6        |  | Certificate of Designations for S1s Series D Convertible Preferred Stock (filed as Exhibit 3 to S1s Current Report on Form 8-K filed with the
SEC on June 7, 2000 and incorporated herein by reference).                                                                                                                                                                                                          
|3.7        |  | Amended and Restated Bylaws of S1, as amended (filed as Exhibit 4.7 to S1s Post-Effective Amendment No. 1 to Form S-8 Registration Statement
(File No. 333-82383) filed with the SEC on August 9, 2000 and incorporated herein by reference).                                                                                                                                                                      
|3.8        |  | Certificate of Designations for S1s Series E Convertible Preferred Stock (filed as Exhibit 3 to S1s Registration Statement on Form S-8 (File No.
333-72250) filed with the SEC on October 26, 2001 and incorporated herein by reference).                                                                                                                                                                         
|4.1        |  | Specimen certificate for S1s common stock (filed as Exhibit 4 to S1s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000
and incorporated herein by reference).                                                                                                                                                                                                                           
|4.2        |  | Specimen certificate for S1s Series B Redeemable Convertible Preferred Stock (filed as Exhibit 4.3 to S1s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein by reference).                                                                                                                                                                                           
|4.3        |  | Specimen certificate for S1s Series C Redeemable Convertible Preferred Stock (filed as Exhibit 4.10 to S1s Post-Effective Amendment No. 1 to
Form S-8 Registration Statement (File No. 333-82383) filed with the SEC on August 9, 2000 and incorporated herein by reference).                                                                                                                                     
|4.4        |  | Specimen certificate for S1s Series D Convertible Preferred Stock (filed as Exhibit 4 to S1s Current Report on Form 8-K filed with the SEC on
June 7, 2000 and incorporated herein by reference).                                                                                                                                                                                                                 
|4.5        |  | Specimen certificate for S1s Series E Convertible Preferred Stock (filed as Exhibit 4.2 to S1s Registration Statement on Form 
S-3 (File No.
333-75178) filed with the SEC on December 14, 2001 and incorporated herein by reference).                                                                                                                                                                            
|10.1       |  | Stock Purchase Agreement, dated as of March 9, 1998, by and among Royal
Bank of Canada, RBC Holdings (Delaware) Inc., Security First Network
Bank (SFNB) and S1, as amended on June 5, 1998 (attached as Appendix
C to the Proxy Statement/Prospectus that formed a part of S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the
SEC on June 5, 1998 and incorporated herein by reference).

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.2       |  | Registration Rights Agreement, dated as of February 25, 1999, by and
among S1, Royal Bank of Canada and RBC Holdings (Delaware) Inc. (filed
as Exhibit 10.1 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                          
|10.3       |  | Stock Purchase Agreement, dated as of June 29, 1998, by and among SFNB,
S1 and State Farm Mutual Automobile Insurance Company (filed as Exhibit
10.4 to Pre-Effective Amendment No. 2 to the S1s Registration
Statement on Form S-4 (File No. 333-56181) filed with the SEC on August
21, 1998 and incorporated herein by reference).                                                                                                                                                                                                                          
|10.4       |  | Stock Purchase Agreement, dated as of February 19, 1999, by and between
S1 and Hewlett-Packard Company, as amended on April 30, 1999 (filed as
Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                          
|10.5       |  | Stock Purchase Agreement, dated as of February 19, 1999, by and between
S1 and AC II Technology (ACT II) B.V., as amended on April 30, 1999
(filed as Exhibit 10.3 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by
reference).                                                                                                                                                                                                                                                                   
|10.6       |  | Warrant, dated February 19, 1999, issued by S1 to Andersen Consulting LLP (filed as Exhibit 10.4 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                     
|10.7       |  | Warrant, dated February 25, 1999, issued by S1 to Royal Bank of Canada (filed as Exhibit 10.5 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                        
|10.8       |  | Stock Purchase and Option Agreement, dated as of May 16, 1999, by and between S1 and Intuit Inc. (filed as Exhibit 10.1 to S1s Current Report on
Form 8-K filed with the SEC on May 21, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                            
|10.9       |  | Amendment No. 1 to Stock Purchase and Option Agreement, dated as of November 2, 1999, by and between S1 and Intuit Inc. (filed as Exhibit 10.1 to
S1s Current Report on Form 8-K filed with the SEC on November 9, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                 
|10.10      |  | Agreement and Plan of Merger, dated as of May 16, 1999, by and among S1, Sahara Strategy Corporation and Edify Corporation (filed as Exhibit 2.2
to S1s Current Report on Form 8-K filed with the SEC on May 21, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                   
|10.11      |  | Stock Purchase Agreement II, dated as of September 21, 1999, by and
among S1 and the individuals and entities who are signatories thereto
and for the limited purposes set forth therein FICS Group N.V., as
amended by Amendment to Stock Purchase Agreement II, dated as of
October 7, 1999 (filed as Annex B to Prospectus/Proxy Statement that
formed a part of Amendment No. 1 to S1s Form S-4 Registration
Statement (File No. 333-82711) filed with the SEC on October 12, 1999
and incorporated herein by reference).                                  
|10.12      |  | Amendment No. 2 to Stock Purchase Agreement II, made as of November 27,
2000, by and among S1, the individuals and entities that are
signatories thereto and FICS Group N.V. (filed as Exhibit 10.12 to S1s
Annual Report on Form 10-K for the fiscal year ended December 31, 2000
and incorporated herein by reference).                                                                                                                                                                                                                                      
|10.13      |  | Share Purchase Agreement II, dated as of September 21, 1999, by and
among S1 Europe Holdings N.V. and the stockholders of FICS Group N.V.
who are signatories thereto, and for the limited purposes stated
therein, S1 and FICS Group N.V., as amended by Amendment to Share
Purchase Agreement II, dated as of October 7, 1999 (filed as Annex A to
Prospectus/Proxy Statement that formed a part of Amendment No. 1 to
S1s Form S-4 Registration Statement (File No. 333-82711) filed with
the SEC on October 12, 1999 and incorporated herein by reference).

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                                                                                                             
|10.14      |  | Amendment No. 2 to Share Purchase Agreement II, made as of November 27,
2000, by and among S1 Europe Holdings, N.V., each of the former
stockholders of FICS Group N.V. who were signatories to the original
agreement, S1 and FICS Group N.V. (filed as Exhibit 10.14 to S1s
Annual Report on Form 10-K for the fiscal year ended December 31, 2000
and incorporated herein by reference).
|10.15      |  | Agreement and Plan of Merger, dated as of September 23, 1999, by and
among S1, VerticalOne Acquisition Corporation and VerticalOne
Corporation (filed as Exhibit 2.1 to S1s Current Report on Form 8-K
filed with the SEC on October 1, 1999 and incorporated herein by
reference).                                                                                                        
|10.16      |  | Stock Subscription Warrant, dated December 23, 1999, issued by S1 to America Online, Inc. (filed as Exhibit 10.16 to S1s Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).                                                                                                                                                     
|10.17      |  | Agreement and Plan of Merger, dated as of March 6, 2000, by and among
S1, Austin Acquisition Corporation, Q-Up Systems, Inc., and for the
limited purposes set forth therein certain of the Q-Up shareholders who
are signatories thereto (filed as Exhibit 10.1 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 and
incorporated herein by reference). 
|10.18      |  | Amendment No. 1 to Agreement and Plan of Merger, dated as of March 15,
2000, by and among S1, Austin Acquisition Corporation, Q-Up Systems,
Inc., and the shareholders of Q-Up who are signatories thereto (filed
as Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000 and incorporated herein by reference).                                
|10.19      |  | Stock Purchase Agreement, dated as of May 25, 2000, by and among S1 and the purchasers identified on Exhibit A thereto (filed as Exhibit 10.1 to
S1s Current Report on Form 8-K filed with the SEC on June 7, 2000 and incorporated herein by reference).                                                                                                                                  
|10.20      |  | Registration Rights Agreement, dated as of May 25, 2000, by and among
S1 and each holder of Series D Preferred Stock listed on Schedule 1
attached thereto (filed as Exhibit 10.2 to S1s Current Report on Form
8-K filed with the SEC on June 7, 2000 and incorporated herein by
reference).                                                                                              
|10.21      |  | Alliance Center Office Lease Agreement, entered into as of February 25,
2000, by and between Solano Associates, as Landlord, and Security First
Technologies, Inc., as Tenant (filed as Exhibit 10.3 to S1s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2000
and incorporated herein by reference).                                                         
|10.22      |  | Security First Technologies Corporation Amended and Restated 1995 Stock
Option Plan (filed as Appendix B to S1s definitive proxy statement for
S1s 1999 annual meeting of shareholders and incorporated herein by
reference).*                                                                                                                                                            
|10.23      |  | Amendment to Security First Technologies Corporation Amended and Restated 1995 Stock Option Plan (filed as Exhibit 10.3 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference).*                                                                                                                                         
|10.24      |  | Security First Network Bank Amended and Restated Directors Stock Option Plan (filed as Exhibit 10.2 to Pre-Effective Amendment No. 2 to S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the SEC on August 21, 1998 and incorporated herein by reference).*                                                                                                         
|10.25      |  | Amendment to Security First Network Bank Amended and Restated Directors Stock Option Plan (filed as Exhibit 10.1 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                                                                                                                                           
|10.26      |  | Security First Technologies Corporation 1998 Directors Stock Option
Plan (filed as Exhibit 10.3 to Pre-Effective Amendment No. 1 to S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the
SEC on July 30, 1998 and incorporated herein by reference).*                                                                                                               

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|           |  |                                                                                                                                                                                                                                                                               
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                               
|10.27      |  | Amendment to Security First Technologies Corporation 1998 Directors Stock Option Plan (filed as Exhibit 10.2 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                                 
|10.28      |  | Letter Agreement, dated as of September 23, 1999, by and between S1 and Gregg Freishtat (filed as Exhibit 10.20 to S1s Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 and incorporated herein by reference).*                                        
|10.29      |  | Letter Agreement, dated May 12, 2000, between S1 and Gregg S. Freishtat (filed as Exhibit 10 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by reference).*                                                       
|10.30      |  | Management Agreement, dated as of December 4, 1998, by and among FICS, Michael Akkermans and Pamica N.V. (filed as Exhibit 10.21 to S1s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).*                       
|10.31      |  | Employment Agreement, entered into as of November 24, 2000, by and between S1 and Jaime Ellertson (filed as Exhibit 10.31 to S1s Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference).*                              
|10.32      |  | Confidentiality, Non-Disclosure and Non-Competition Agreement, executed
as of November 24, 2000, between Jaime Ellertson and S1 (filed as
Exhibit 10.32 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and incorporated herein by reference).*
|10.33      |  | Employment Agreement, entered into as of August 14, 2000, by and between S1 and Daniel H. Drechsel (filed as Exhibit 10.4 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                     
|10.34      |  | Confidentiality, Non-Disclosure and Non-Competition Agreement, executed
as of August 14, 2000, between Daniel H. Drechsel and S1(filed as
Exhibit 10.34 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and incorporated herein by reference).*
|10.35      |  | Separation Agreement dated as of May 15, 2001, by and between S1 and Robert F. Stockwell (filed as Exhibit 10.1 to S1s Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference).*                                    
|10.36      |  | Employment Agreement, entered into as of October 5, 2001, by and between S1 and Matthew Hale (filed as Exhibit 10.36 to S1s Annual Report on Form
10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference).*                                   
|10.37      |  | Separation Agreement dated as of October 26, 2001, by and between S1 and Daniel H. Drechsel (filed as Exhibit 10.37 to S1s Annual Report on Form
10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference).*                                    
|10.38      |  | Employment Agreement, entered into as of April 27, 2001, by and between S1 and Jaime Ellertson (filed as Exhibit 10.1 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*                             
|10.39      |  | Employment Agreement, entered into as of April 30, 2001, by and between S1 and James Mahan (filed as Exhibit 10.2 to S1s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*                                 

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|           |  |                                                                                                                                                                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                  
|10.40      |  | Employment Agreement, entered into as of January 14, 2002, by and between S1 and Peter Dunning (filed as Exhibit 10.3 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*
|21         |  | Subsidiaries of S1.                                                                                                                                                                                                                              
|23.1       |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                           
|99.1       |  | Certificate of Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                              



---

|* |  | Management contract or compensatory plan.
|- |  | -----------------------------------------

(b)  Reports on Form 8-K

S1 filed the following Current Report on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 2002:

Current Report on Form 8-K filed with the SEC on October 30, 2002 (date of
report: October 29, 2002) (regarding a press release and analyst conference
call related to third quarter 2002 results and S1 and its operations).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, as of March 28,
2003.

| |  |     |  |                                                                 
| |  | --- |  | ----------------------------------------------------------------
| |  |     |  | S1 CORPORATION                                                  
|
| |  |     |  |                                                                 
|
| |  | By: |  | /s/ Jaime W. EllertsonJaime W. Ellertson
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 28, 2003.

|                                                 |  |                                                                                       
|------------------------------------------------ |  | --------------------------------------------------------------------------------------
|Name                                             |  | Title                                                                                 
|                                                 |  |                                                                                       
|/s/      Jaime W. EllertsonJaime W. Ellertson    |  | Chief Executive Officer and Director
(Principal Executive Officer)                    
|                                                
|/s/      Matthew HaleMatthew Hale                |  | Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|                                                
|/s/      James S. Mahan, IIIJames S. Mahan, III  |  | Chairman of the Board                                                                 
|                                                
|/s/      David C. HodgsonDavid C. Hodgson        |  | Director                                                                              
|                                                
|/s/      M. Douglas IvesterM. Douglas Ivester    |  | Director                                                                              
|                                                
|/s/      Gregory J. OwensGregory J. Owens        |  | Director                                                                              
|                                                
|/s/ Howard J. Runnion, Jr.Howard J. Runnion, Jr. |  | Director                                                                              

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10-K Certifications

I, Jaime W. Ellertson, certify that:

1.     I have reviewed this annual report on Form 10-K of S1 Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

|                                             
|---------------------------------------------
|/s/ Jaime W. EllertsonChief Executive Officer

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10-K Certification

I, Matthew Hale, certify that:

1.     I have reviewed this annual report on Form 10-K of S1 Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

|                                       
|---------------------------------------
|/s/ Matthew HaleChief Financial Officer

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EXHIBIT INDEX

|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1        |  | Amended and Restated Certificate of Incorporation of S1 Corporation
(S1) (filed as Exhibit 1 to S1s Registration Statement on Form 8-A
filed with the Securities and Exchange Commission (the SEC) on
September 30, 1998 and incorporated herein by reference).                                                                                                                                                
|3.2        |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated June 3, 1999 (filed as Exhibit 4.2 to S1s Registration
Statement on Form S-8 (File No. 333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).                                                                                                                                              
|3.3        |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated November 10, 1999 (filed as Exhibit 3.3 to S1s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).                                                                                                                                                             
|3.4        |  | Certificate of Designation for S1s Series B Redeemable Convertible Preferred Stock (filed as Exhibit 2 to S1s Registration Statement on Form 8-A
filed with the SEC on September 30, 1998 and incorporated herein by reference).                                                                                                                                                                                  
|3.5        |  | Certificate of Designation for S1s Series C Redeemable Convertible Preferred Stock (filed as Exhibit 3 to S1s Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                  
|3.6        |  | Certificate of Designations for S1s Series D Convertible Preferred Stock (filed as Exhibit 3 to S1s Current Report on Form 8-K filed with the
SEC on June 7, 2000 and incorporated herein by reference).                                                                                                                                                                                                          
|3.7        |  | Amended and Restated Bylaws of S1, as amended (filed as Exhibit 4.7 to S1s Post-Effective Amendment No. 1 to Form S-8 Registration Statement
(File No. 333-82383) filed with the SEC on August 9, 2000 and incorporated herein by reference).                                                                                                                                                                      
|3.8        |  | Certificate of Designations for S1s Series E Convertible Preferred Stock (filed as Exhibit 3 to S1s Registration Statement on Form S-8 (File No.
333-72250) filed with the SEC on October 26, 2001 and incorporated herein by reference).                                                                                                                                                                         
|4.1        |  | Specimen certificate for S1s common stock (filed as Exhibit 4 to S1s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000
and incorporated herein by reference).                                                                                                                                                                                                                           
|4.2        |  | Specimen certificate for S1s Series B Redeemable Convertible Preferred Stock (filed as Exhibit 4.3 to S1s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated herein by reference).                                                                                                                                                                                           
|4.3        |  | Specimen certificate for S1s Series C Redeemable Convertible Preferred Stock (filed as Exhibit 4.10 to S1s Post-Effective Amendment No. 1 to
Form S-8 Registration Statement (File No. 333-82383) filed with the SEC on August 9, 2000 and incorporated herein by reference).                                                                                                                                     
|4.4        |  | Specimen certificate for S1s Series D Convertible Preferred Stock (filed as Exhibit 4 to S1s Current Report on Form 8-K filed with the SEC on
June 7, 2000 and incorporated herein by reference).                                                                                                                                                                                                                 
|4.5        |  | Specimen certificate for S1s Series E Convertible
Preferred Stock (filed as Exhibit 4.2 to S1s Registration
Statement on
Form S-3 (File No.
333-75178) filed with the SEC on December 14, 2001 and incorporated herein by reference).                                                                                                                                                                             
|10.1       |  | Stock Purchase Agreement, dated as of March 9, 1998, by and among Royal
Bank of Canada, RBC Holdings (Delaware) Inc., Security First Network
Bank (SFNB) and S1, as amended on June 5, 1998 (attached as Appendix
C to the Proxy Statement/Prospectus that formed a part of S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the
SEC on June 5, 1998 and incorporated herein by reference).

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.2       |  | Registration Rights Agreement, dated as of February 25, 1999, by and
among S1, Royal Bank of Canada and RBC Holdings (Delaware) Inc. (filed
as Exhibit 10.1 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                          
|10.3       |  | Stock Purchase Agreement, dated as of June 29, 1998, by and among SFNB,
S1 and State Farm Mutual Automobile Insurance Company (filed as Exhibit
10.4 to Pre-Effective Amendment No. 2 to the S1s Registration
Statement on Form S-4 (File No. 333-56181) filed with the SEC on August
21, 1998 and incorporated herein by reference).                                                                                                                                                                                                                          
|10.4       |  | Stock Purchase Agreement, dated as of February 19, 1999, by and between
S1 and Hewlett-Packard Company, as amended on April 30, 1999 (filed as
Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                          
|10.5       |  | Stock Purchase Agreement, dated as of February 19, 1999, by and between
S1 and AC II Technology (ACT II) B.V., as amended on April 30, 1999
(filed as Exhibit 10.3 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by
reference).                                                                                                                                                                                                                                                                   
|10.6       |  | Warrant, dated February 19, 1999, issued by S1 to Andersen Consulting LLP (filed as Exhibit 10.4 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                     
|10.7       |  | Warrant, dated February 25, 1999, issued by S1 to Royal Bank of Canada (filed as Exhibit 10.5 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                        
|10.8       |  | Stock Purchase and Option Agreement, dated as of May 16, 1999, by and between S1 and Intuit Inc. (filed as Exhibit 10.1 to S1s Current Report on
Form 8-K filed with the SEC on May 21, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                            
|10.9       |  | Amendment No. 1 to Stock Purchase and Option Agreement, dated as of November 2, 1999, by and between S1 and Intuit Inc. (filed as Exhibit 10.1 to
S1s Current Report on Form 8-K filed with the SEC on November 9, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                 
|10.10      |  | Agreement and Plan of Merger, dated as of May 16, 1999, by and among S1, Sahara Strategy Corporation and Edify Corporation (filed as Exhibit 2.2
to S1s Current Report on Form 8-K filed with the SEC on May 21, 1999 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                   
|10.11      |  | Stock Purchase Agreement II, dated as of September 21, 1999, by and
among S1 and the individuals and entities who are signatories thereto
and for the limited purposes set forth therein FICS Group N.V., as
amended by Amendment to Stock Purchase Agreement II, dated as of
October 7, 1999 (filed as Annex B to Prospectus/Proxy Statement that
formed a part of Amendment No. 1 to S1s Form S-4 Registration
Statement (File No. 333-82711) filed with the SEC on October 12, 1999
and incorporated herein by reference).                                  
|10.12      |  | Amendment No. 2 to Stock Purchase Agreement II, made as of November 27,
2000, by and among S1, the individuals and entities that are
signatories thereto and FICS Group N.V. (filed as Exhibit 10.12 to S1s
Annual Report on Form 10-K for the fiscal year ended December 31, 2000
and incorporated herein by reference).                                                                                                                                                                                                                                      
|10.13      |  | Share Purchase Agreement II, dated as of September 21, 1999, by and
among S1 Europe Holdings N.V. and the stockholders of FICS Group N.V.
who are signatories thereto, and for the limited purposes stated
therein, S1 and FICS Group N.V., as amended by Amendment to Share
Purchase Agreement II, dated as of October 7, 1999 (filed as Annex A to
Prospectus/Proxy Statement that formed a part of Amendment No. 1 to
S1s Form S-4 Registration Statement (File No. 333-82711) filed with
the SEC on October 12, 1999 and incorporated herein by reference).

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|           |  |                                                                                                                                                                                                                                                                                                                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                                                                                                             
|10.14      |  | Amendment No. 2 to Share Purchase Agreement II, made as of November 27,
2000, by and among S1 Europe Holdings, N.V., each of the former
stockholders of FICS Group N.V. who were signatories to the original
agreement, S1 and FICS Group N.V. (filed as Exhibit 10.14 to S1s
Annual Report on Form 10-K for the fiscal year ended December 31, 2000
and incorporated herein by reference).
|10.15      |  | Agreement and Plan of Merger, dated as of September 23, 1999, by and
among S1, VerticalOne Acquisition Corporation and VerticalOne
Corporation (filed as Exhibit 2.1 to S1s Current Report on Form 8-K
filed with the SEC on October 1, 1999 and incorporated herein by
reference).                                                                                                        
|10.16      |  | Stock Subscription Warrant, dated December 23, 1999, issued by S1 to America Online, Inc. (filed as Exhibit 10.16 to S1s Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).                                                                                                                                                     
|10.17      |  | Agreement and Plan of Merger, dated as of March 6, 2000, by and among
S1, Austin Acquisition Corporation, Q-Up Systems, Inc., and for the
limited purposes set forth therein certain of the Q-Up shareholders who
are signatories thereto (filed as Exhibit 10.1 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 and
incorporated herein by reference). 
|10.18      |  | Amendment No. 1 to Agreement and Plan of Merger, dated as of March 15,
2000, by and among S1, Austin Acquisition Corporation, Q-Up Systems,
Inc., and the shareholders of Q-Up who are signatories thereto (filed
as Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000 and incorporated herein by reference).                                
|10.19      |  | Stock Purchase Agreement, dated as of May 25, 2000, by and among S1 and the purchasers identified on Exhibit A thereto (filed as Exhibit 10.1 to
S1s Current Report on Form 8-K filed with the SEC on June 7, 2000 and incorporated herein by reference).                                                                                                                                  
|10.20      |  | Registration Rights Agreement, dated as of May 25, 2000, by and among
S1 and each holder of Series D Preferred Stock listed on Schedule 1
attached thereto (filed as Exhibit 10.2 to S1s Current Report on Form
8-K filed with the SEC on June 7, 2000 and incorporated herein by
reference).                                                                                              
|10.21      |  | Alliance Center Office Lease Agreement, entered into as of February 25,
2000, by and between Solano Associates, as Landlord, and Security First
Technologies, Inc., as Tenant (filed as Exhibit 10.3 to S1s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2000
and incorporated herein by reference).                                                         
|10.22      |  | Security First Technologies Corporation Amended and Restated 1995 Stock
Option Plan (filed as Appendix B to S1s definitive proxy statement for
S1s 1999 annual meeting of shareholders and incorporated herein by
reference).*                                                                                                                                                            
|10.23      |  | Amendment to Security First Technologies Corporation Amended and Restated 1995 Stock Option Plan (filed as Exhibit 10.3 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference).*                                                                                                                                         
|10.24      |  | Security First Network Bank Amended and Restated Directors Stock Option Plan (filed as Exhibit 10.2 to Pre-Effective Amendment No. 2 to S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the SEC on August 21, 1998 and incorporated herein by reference).*                                                                                                         
|10.25      |  | Amendment to Security First Network Bank Amended and Restated Directors Stock Option Plan (filed as Exhibit 10.1 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                                                                                                                                           
|10.26      |  | Security First Technologies Corporation 1998 Directors Stock Option
Plan (filed as Exhibit 10.3 to Pre-Effective Amendment No. 1 to S1s
Registration Statement on Form S-4 (File No. 333-56181) filed with the
SEC on July 30, 1998 and incorporated herein by reference).*                                                                                                               

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|           |  |                                                                                                                                                                                                                                                                                
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                                                            
|           |  |                                                                                                                                                                                                                                                                                
|10.27      |  | Amendment to Security First Technologies Corporation 1998 Directors Stock Option Plan (filed as Exhibit 10.2 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                                  
|10.28      |  | Letter Agreement, dated as of September 23, 1999, by and between S1 and Gregg Freishtat (filed as Exhibit 10.20 to S1s Annual Report on Form 10-K
for the fiscal year ended December 31, 1999 and incorporated herein by reference).*                                         
|10.29      |  | Letter Agreement, dated May 12, 2000, between S1 and Gregg S. Freishtat (filed as Exhibit 10 to S1s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000 and incorporated herein by reference).*                                                        
|10.30      |  | Management Agreement, dated as of December 4, 1998, by and among FICS, Michael Akkermans and Pamica N.V. (filed as Exhibit 10.21 to S1s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference).*                        
|10.31      |  | Employment Agreement, entered into as of November 24, 2000, by and between S1 and Jaime Ellertson (filed as Exhibit 10.31 to S1s Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference).*                               
|10.32      |  | Confidentiality, Non-Disclosure and Non-Competition Agreement, executed
as of November 24, 2000, between Jaime Ellertson and S1 (filed as
Exhibit 10.32 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and incorporated herein by reference).* 
|10.33      |  | Employment Agreement, entered into as of August 14, 2000, by and between S1 and Daniel H. Drechsel (filed as Exhibit 10.4 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).*                      
|10.34      |  | Confidentiality, Non-Disclosure and Non-Competition Agreement, executed
as of August 14, 2000, between Daniel H. Drechsel and S1 (filed as
Exhibit 10.34 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 and incorporated herein by reference).*
|10.35      |  | Separation Agreement dated as of May 15, 2001, by and between S1 and Robert F. Stockwell (filed as Exhibit 10.1 to S1s Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference).*                                     
|10.36      |  | Employment Agreement, entered into as of October 5, 2001, by and between S1 and Matthew Hale (filed as Exhibit 10.36 to S1s Annual Report on Form
10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference).*                                    
|10.37      |  | Separation Agreement dated as of October 26, 2001, by and between S1 and Daniel H. Drechsel (filed as Exhibit 10.37 to S1s Annual Report on Form
10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference).*                                     
|10.38      |  | Employment Agreement, entered into as of April 27, 2001, by and between S1 and Jaime Ellertson (filed as Exhibit 10.1 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*                              
|10.39      |  | Employment Agreement, entered into as of April 30, 2001, by and between S1 and James Mahan (filed as Exhibit 10.2 to S1s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*                                  

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|           |  |                                                                                                                                                                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Exhibit Description                                                                                                                                                                                                                              
|           |  |                                                                                                                                                                                                                                                  
|10.40      |  | Employment Agreement, entered into as of January 14, 2002, by and between S1 and Peter Dunning (filed as Exhibit 10.3 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002 and incorporated herein by reference).*
|21         |  | Subsidiaries of S1.                                                                                                                                                                                                                              
|23.1       |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                           
|99.1       |  | Certificate of Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                              



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|* |  | Management contract or compensatory plan.
|- |  | -----------------------------------------

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