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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
	2001                                              
|  
|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 No: 000-24931



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S1 Corporation

(Exact name of registrant as specified in its
charter)


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

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

As of March 21, 2002, the aggregate market
value of the shares of common stock of the registrant issued and
outstanding on such date, excluding 3,449,008 shares held by all
affiliates of the registrant, was approximately $929,066,984.
This figure is based on the closing sales price of $15.70 per
share of the registrants common stock on March 21,
2002, and excludes shares held by directors and executive
officers because such persons may be deemed to be affiliates.
This reference to affiliate status is not necessarily a
conclusive determination for other purposes. Shares of common
stock outstanding as of March 21, 2002: 62,625,249

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 23, 2002,
which the registrant intends to file no later than 120 days
after December 31, 2001, are incorporated by reference in
Part III.



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TABLE OF CONTENTS



|                                                                                             |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|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                                     
|PART IV                                                                                     
|Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                    
|SIGNATURES                                                                                  
|Employment Agreement                                                                        
|Separation Agreement                                                                        
|Subsidiaries of S1                                                                          
|Consent of PricewaterhouseCoopers LLP.                                                      
|Consent of Ernst & Young LLP                                                                
|Financial Statements of Yodlee, Inc.                                                        



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S1 CORPORATION AND SUBSIDIARIES

FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

|           |  |                                                                                        |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                        |    | Page
|           |  |                                                                                        |    |     
|PART I    
|Item 1.    |  | Business                                                                               |    |      | 1  | 
|Item 2.    |  | Properties                                                                             |    |      | 21 | 
|Item 3.    |  | Legal Proceedings                                                                      |    |      | 21 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
	Holders                                   |    |      | 21 | 
|PART II   
|Item 5.    |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |    |      | 21 | 
|Item 6.    |  | Selected Financial Data                                                                |    |      | 22 | 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 23 | 
|Item 7A.   |  | Qualitative and Quantitative Disclosures About
	Market Risk                            |    |      | 42 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |    |      | 43 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |    |      | 79 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |    |      | 79 | 
|Item 11.   |  | Executive Compensation                                                                 |    |      | 79 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |      | 79 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |    |      | 80 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |      | 80 | 
|Signatures |  |                                                                                        | 84 |     

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PART I

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.




Item 1.     Business

Business Overview

In 2001, we operated and managed S1 in two
business segments: one focused on selling our product offering
to financial institutions and one focused on selling a subset of
our products, the contact center automation products (from our
subsidiary, Edify Corporation), to a variety of industries such
as retail, telecommunications, travel and transportation and
financial services. You should also read our segment disclosures
which are included in Note 17 to our consolidated financial
statements contained elsewhere in this report.



| |                                
| | -------------------------------
| | Financial Institutions
	Segment

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
full-service channels that support a person-to-person
interaction such as talking to a teller in a bank branch or
working with an insurance agent or a customer support
representative over the phone. Our applications support
self-service channels, or person-to-machine interactions, such
as the Internet, interactive voice response units (IVR) or
automated teller machines (ATMs). They also support 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) and wealth management, for
global, national, regional and local financial organizations. We
also provide statutory financial reporting software solutions.
We offer aggregation services through our reseller relationship
with Yodlee, Inc.

Our products are designed to run on-premise at a
financial institution location or be hosted in a data center
(either an S1 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 an S1 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.

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| |                                   
| | ----------------------------------
| | Contact Center Automation
	Segment

Through our Edify Corporation subsidiary, which
comprises our contact center automation segment, we provide
voice self-service systems. Our contact center automation
segment offers customer interaction technology solutions that
allow organizations to automate, integrate and personalize
interactions with customers, primarily through the voice and
email channels, yielding stronger, more profitable
relationships. These technologies are designed to address a
customers question or need in an automated manner allowing
the interaction to be addressed without human intervention.
Calls that do require human assistance can automatically be
routed to the most appropriate person. The technologies also
provide much of the contact center infrastructure making the
management and routing of customer contacts more efficient and
effective. This segment sells these products horizontally to a
variety of industries.

General Background

To date, we have derived 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 have made numerous
strategic acquisitions that were undertaken to provide
additional technology, product and service offerings, industry
expertise, a broader client 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 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 and mid-market banks. In
November 2000, we acquired Level Next, Inc., a provider of
global trade finance systems. In November 1999, we acquired
Edify Corporation, a Santa Clara, California based global
provider of Internet and voice e-commerce portal solutions; FICS
Group, N.V., a Brussels, Belgium based vendor of financial
electronic commerce and regulatory reporting software; and
VerticalOne Corporation, then an Atlanta based consolidator,
organizer and presenter of personal account information via the
Internet. We sold VerticalOne to Yodlee, Inc. in January 2001.
As of December 31, 2001, we held an approximately 32%
interest in Yodlee.

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.
The use of these channels has evolved over the years. Initially
financial institutions offered only full-service
(person-to-person) interactions, where their customers would
need to come to them for any type of transaction or inquiry. The
customer might be able to call the financial institution instead
of going there, but they still had to talk to somebody. There
was no concept of self-service. The market then evolved with the
use of the phone as a mechanism to execute transactions:
customers could check balances, transfer funds, purchase stocks,
etc. In addition, the ATM was introduced as a way for customers
to receive and deposit funds at their convenience. In the
1990s, another channel was added, the Internet. As the
Internet became a viable channel for commerce, many thought it
would replace most of these other channels, but the financial
institutions found out that other channels didnt go away
but that their customers now had more options and wanted to use
them all.

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

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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. The increasing 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, increase their share-of-wallet while decreasing their
costs.


We started in this industry in 1995 as the
founder of Security First Network Bank. In 1998, we sold our
banking operations to focus on being a provider of Internet
banking software and changed our name to S1 Corporation.
Ultimately we evolved into a provider of integrated eFinance
software that delivered transactional support for banking,
brokerage and insurance over the Internet. Through acquisitions,
we broadened our product line to address not only the Internet
channel but also the branch, call center and voice channels as
well. We believe that with the next generation of applications,
the integration of all of these channels will become paramount
for the financial institution as competition for products and
services escalates. As more and more products become available
to financial services consumers, it will prove increasingly
difficult for financial institutions to differentiate their
products from other providers.

We believe that a key point of competitive
advantage will center on how well financial institutions provide
a unified experience for their customers across all 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, all using
different technologies, integrated with a variety of legacy
applications. Financial institutions are now driven by
technology and must attempt to keep up with the rapid pace of
change. They have to determine how to leverage what they have
today 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 taking action to deliver 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 over the course of 2001 laid the groundwork for
delivery of this type of enterprise application.

The same market factors driving financial
services towards automation and integration across channels are
evident in other industries served by our contact center
automation business. In tough economic times, highly competitive
markets such as retail, travel and telecom have to execute on
multiple objectives that include reducing costs and retaining
customers. Each of these industries, much like financial
institutions, deploy large contact centers and branches
employing many hundreds of customer service representatives. To
reduce costs, the volume of customer interactions handled by the
highest cost channel, the customer service representative, must
be migrated to self-service customer contact channels such as
voice response, email, wireless and Web and leverage
technologies such as speech recognition and natural language
processing. At the same time the workload of customer service
representatives is greatly reduced, and the value to the
customer is greatly enhanced by seamlessly integrating
self-service interactions with customer transactional and
preference data across the enterprise. We have developed a
platform, based on the experience gained from handling call
volumes in some of the worlds largest contact centers,
that spans all of the contact channels, be it phone, web, email
or wireless.

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The S1 Solution

In 2001, we evolved the focus of our solutions
from the Internet to a multi-channel approach across multiple
front-office applications. We spent the first half of 2001
building our new J2EE-based technology platform and beginning to
consolidate our various Internet-based offerings on this
platform. The S1 Enterprise Platform, S1 Personal Banking and S1
Business Banking were released for general availability in the
first quarter of 2002. The acquisition of SDI allowed us to
broaden our strategy and solution set moving our focus beyond
the Internet to all of the interaction channels. With the
addition of SDI, we renamed our entire product family
S1 Enterprise and began to integrate our product lines
together allowing us to fulfill our integrated, multi-channel,
front-office vision.

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 intend 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 ATM 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, wealth management 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.

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 clients can
	leverage customer information and marketing programs across all
	customer touchpoints, 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 all 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 and reduce customer churn. Such
	personalized service increases opportunities for cross sell and
	creates 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 already in place. While this not only reduces
	integration, maintenance and implementation costs, it can also
	leverage the cross-channel CRM capabilities for more effective                                                                                                                   

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| |  |                                                                                                                                                                 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | personalization and sales opportunities. All of
	this capability is delivered while still leveraging the 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 activities:



| |                                             
| | --------------------------------------------
| | Achieve Financial and Operational
	Stability

Our priority in 2001 was to ensure that S1 was in
the strongest possible operational and financial position to
capitalize on this vision. This initiative included the
rationalization of our operating cost structure and assets, a
necessary task after completing six acquisitions in 1999 and
2000. Combined with a concerted focus on cost control, this
rationalization was the impetus behind the improvement in our
gross margin from 41% in 2000 to 59% in 2001. These and other
operational accomplishments were a significant turning point in
our financial performance. Revenues increased 19% in 2001 to
$278.3 million. Similarly, we reduced our net loss per
share to $3.74 per share in 2001 from $21.77 per share in 2000.
Finally, we stabilized our cash flow during 2001, generating
$11.9 million in cash flow from operations and ending the
year with $148.5 million in cash. We expect to continue our
focus on cost control.

We added new senior executives in 2001, including
such key appointments as Matthew Hale as Chief Financial
Officer; Peter Dunning as Executive Vice President and General
Manager of the Americas; Steve Ely as Senior Vice President of
Worldwide Marketing; and Vic Syracuse as Senior Vice President
of Operations and Technical Support. We also named retired
Chairman and Chief Executive Officer of The Coca-Cola Company,
M. Douglas Ivester, to our Board of Directors.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Re-write 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. From that point, we plan to integrate products serving
other channels into the 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 them 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 also
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, ATMs and advisors.

The S1 Enterprise Platform 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
extended, upgraded, maintained and operated. By the end of 2002,
it will also allow all applications and channels to access
customer information through a single database. This approach
reduces a financial services providers operating costs and
total cost of ownership, thereby enhancing return on investment.

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In order to make the S1 Enterprise Platform
as customer-centric as possible, we enlisted 14 financial
institutions to take part in our innovative Market Leadership
Program (MLP). These 14 MLP partners worked directly with
our product management and development teams in 2001 to develop
and refine our Enterprise Platform offering, as well as the
first two products to be deployed on the platform,
S1 Personal Banking and S1 Business Banking. In doing
so, the MLP partners had the opportunity to incorporate their
business requirements into the product design, as well as to
acquire a hands-on knowledge of the products. For us, the MLP
has contributed customer insights into our product development
process and provided a base of customers to validate the
products functionality and technical architecture. MLP
partners also create a group of customers we use as references.
Early releases of the S1 Enterprise Platform, along with
S1 Personal Banking and S1 Business Banking were
delivered to our MLP partners in November 2001. In the
fourth quarter of 2001, we added over ten new Enterprise
customers, which we define as customers using products across
more than one channel such as the Internet and the branch. The
S1 Enterprise Platform, S1 Personal Banking and S1 Business
Banking were released for general availability in the first
quarter of 2002.



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

With the expansion of our product line and
customer base through acquisitions and with our integrated
application approach, we intend to increase revenues by selling
additional products and services to our existing customers. We
believe that opportunities for cross-selling our products and
services will increase as we continue to expand our Enterprise
Platform.



| |                                                
| | -----------------------------------------------
| | Increase Emphasis on Selling Packaged
	Products

We are increasing our emphasis on selling
packaged solutions instead of highly-customized,
tool-kit-oriented solutions. As the market moves from early
adopters to the mainstream majority, our customers are more
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 upgrades.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Grow Our Sales Channel Program through
	Strategic Alliances with Key Partners

In 2001, we focused on expanding our relationship
with International Business Machines Corporation. We ported some
of our existing Internet-based products to the IBM Z-series
platform (OS/ 390) and have been working jointly on implementing
this solution for one of our joint customers. We believe IBM
will be a key distribution partner for us and we expect they
will do a significant amount of implementation and integration
work associated with the S1 Enterprise family of products. We
have also initiated relationships with other large systems
integrators on which we expect to focus in 2002.

Our emphasis on delivery of packaged products
will result in the delivery of channel ready
products that can be more easily sold and implemented by other
organizations. We plan to add key partners to extend our sales
channel program.



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

In September 2001, we acquired SDI, a
provider of branch automation, teller, call center and CRM
solutions for financial institutions. SDIs branch and call
center capabilities addressed key channels not previously
offered by S1. The acquisition also expanded our customer base
significantly, adding over 1,000 additional financial
institutions, and created considerable synergies through the
inclusion of the branch application as part of our overall
S1 Enterprise solution.

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 several hundred 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 client base and (iii) expand our

6



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##### Table of Contents



geographic presence. As we have done in the past,
we may as opportunities arise divest non-core product lines in
order to more effectively focus on our business.


S1 Products

Our products are classified in eight major
groups: Banking Solutions, Insurance Solutions, CRM Solutions,
Investment Solutions, Wealth Management Solutions, Financial
Reporting, Account Aggregation and Customer Contact Solutions.



| |                     
| | --------------------
| | S1 Banking Solutions

The year 2001 has been a transition for our
Internet-based banking offerings. In November 2001, we delivered
the limited availability release of our S1 Personal Banking
and S1 Business Banking products running on the new S1
Enterprise Platform. Over time, we expect our existing
Internet-banking products will converge with these new products
and customers will be migrated to them.



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

Our current, Internet-based banking products that
will converge with the products above include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                            
|
| |  | S1 Consumer
	Banking is a comprehensive
	online retail banking solution, targeted towards larger
	financial institutions, with industry leading functionality that
	addresses customer life goals and enables them to maximize
	customer loyalty and revenue. Customers can view statements,
	account activity, and cleared and pending transactions online,
	transfer funds between accounts and pay bills electronically.

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.                                                                                                                     

With the acquisition of SDI, we formed the
S1 Full-Service Banking Group (S1 FSBG),which offers
S1 ZEUS. S1 ZEUS is a branch automation application
that includes products for sales and service, teller, call
center, and customer relationship management (CRM).



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | S1 ZEUS
	Teller provides a base set
	of transactions and core services necessary for fulfilling the
	rigorous requirements of todays teller environment,
	including host communications, sharing and

7



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | storing of information, cumulative totals,
	electronic journal, transaction security and approval, and
	balancing aids.                                                                                                                                                                                                                                                                  
|
| |  | S1 ZEUS Sales and
	Service includes a base
	set of transactions, sales tools, and core services that
	expedite selling new products, as well as servicing existing
	accounts.                                                                                                                                                                                                           
|
| |  | S1 ZEUS Call
	Center provides the
	customer information, sales and service capabilities, process
	flows, reporting, and fulfillment management that are exclusive
	to call center operations. The ZEUS 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 financial institutions 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 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 Relationship
	Management delivers both
	pre- and post-login portal capabilities, that can be
	personalized by the end-user, as well as targeted marketing
	features. This product is designed for the larger financial
	institution with a sophisticated customer segmentation strategy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | S1 vCSR
	the S1 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, know how satisfied they are with the service and
	how important they are as a customer, fulfill their request and
	speak the information they need, email it, fax it, or send it to
	their wireless device of choice, inform the human CSR about the
	reason for a customer call and suggest action and speak to the
	customer, help them 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 under the S1 brand; they are sold horizontally in other
	industries under the Edify brand.
|
| |  | S1 ZEUS
	CRM provides a complete
	customer centric, end-to-end CRM solution. The application
	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.                                                                                                                                                                                                                                                                                                                                                                                                                                 

S1 Investment
Solutions



| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | S1 Consumer
	Investments is an online
	brokerage program that allows a consumer to trade stocks, mutual
	funds, options and bonds as well as track and manage their
	portfolio. S1 Consumer Investments provides everything investors
	need to manage their investment accounts, make trades, obtain
	market research and track orders.

8



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| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | S1 Institutional
	Investments provides
	delivers products that support order-routing connectivity,
	middleware and network services to facilitate retail and
	professional trading.

S1 Wealth
Management Solutions

S1 Wealth Management provides the ability for a
financial institution advisor  private bankers,
brokers, insurance agents, or customer support
representatives  to collaborate online with their
clients allowing them to help build wealth for their customers,
while securing loyal, long-term relationships. Financial
institution clients also have online access to financial
planning tools, advice and market research.

Financial
Reporting

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
added value tools for building a financial data warehouse and
generating their financial reports.

Account
Aggregation

Through our reseller agreement with Yodlee, Inc.,
which is described more fully in Note 18 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.

Customer
Contact Solutions

Edify develops customer contact solutions for all
customer contact channels, including Web, voice, wireless and
email communications. In addition to the Virtual CSR (or vCSR),
as described above, we offer the following applications as part
of our Edify Enterprise, a full function, enterprise CRM system:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Edify
	Desktop The Edify Desktop
	is the primary computer-based resource utilized by the live
	Customer Service Representative (CSR) while interacting with a
	customer. Edify Desktop utilizes a web browser-based environment
	which presents all information necessary for the effective and
	efficient handling of a customer inquiry.                                                                                                                                                                                                                                                                                                                  
|
| |  | Universal Queue
	(Uqueue) In a
	multi-channel contact center, not all customer contacts are
	created equal in terms of importance, required response times,
	or the best resource to assign for servicing. Uqueue enables
	this process in an automated, high volume, and multi-channel
	environment. The Uqueue is capable of managing the
	prioritization and routing of customer contacts originating over
	any channel.                                                                                                                                                                                                                                 
|
| |  | Unified Reports
	Server Reporting and
	analysis empowers managers with the timely, enterprise-wide
	information they need to react efficiently. The Unified Reports
	Server provides a detailed, enterprise-level view of the contact
	center, allowing managers to measure the efficiency of
	operations and personalize customer interactions.                                                                                                                                                                                                                                                                                                            
|
| |  | Edify CTI
	Server provides an
	essential link between the enterprises telephone switching
	systems and other components of the Edify Enterprise suite of
	customer interaction solutions, by allowing Edify Enterprise
	vCSR Suites and Edify Contact Center Suite to both monitor and
	control events occurring on the telephony switch. Computer
	Telephony Integration (CTI) is an essential part of any total
	customer interaction solution. This is true whether the
	enterprise uses a traditional circuit-switched
	telephony infrastructure, an Internet Protocol (IP)
	telephony system, or, as in many cases today, a combination of
	the two.

9



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| |   |                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Edify Chat and
	Cobrowse quickly
	integrates your website into your call center, permitting
	customers to summon assistance from an agent at the click of a
	button. Edify Chat & Cobrowse enables organizations the
	immediate benefits of higher cross-sell and up-sell conversions,
	accelerated web-channel acceptance and increased customer
	satisfaction, activity, and loyalty.
|
| |  | The Edify Customer Feedback and Analysis
	application designed to
	help companies achieve success in their target financial metrics
	by utilizing an automated customer feedback and analysis process
	to obtain insights into drivers of purchasing decisions,
	customer satisfaction and customer preference.                                                                        

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 provide managed operations for financial
institutions through our data center facilities in Norcross,
Georgia, Singapore and the United Kingdom. With more than six
years of experience in building and operating data centers for
financial applications, our mature operating environment was
created to address mission-critical operational issues, 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;                                                                                                                                                         
|
| |  | 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; and                              
|
| |  | Client
	Advocate All customers are
	assigned an S1 Client Advocate, whose primary responsibility is
	to ensure seamless support between S1 and our customers, as well
	as identification of joint areas of improvement. This provides a
	much stronger support experience for our customers.



| |                         
| | ------------------------
| | 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 solution to meet the specific business
	requirements of our customers  from analysis and
	design to building and testing;                                                                                            
|
| |  | 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 institution employees use our
	solutions to better serve their customers; and                                                                                                                                        

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| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | Web Design
	Services S1 Web
	Technologies is available to assist with delivery of a complete
	web presence for financial institutions.

Clients and Markets

We provide solutions to global financial services
organizations as well as regional and local financial
institutions. Currently, we serve more than 3,700 banks, credit
unions, insurance providers and investment firms. In addition,
we provide our contact center automation technology to companies
in the consumer goods, manufacturing, healthcare, technology and
telecommunications industries.

In 1999, 2000 and 2001, we reported revenues of
$84.9 million, $187.8 million and $226.5 million
from our financial institutions segment and revenues of
$8.0 million, $43.8 million and $51.8 million
from our contact center automation segment, respectively.

During 2001, we provided implementation, hosting
and product enhancement services for State Farm Mutual
Automobile Insurance Company through our financial institutions
segment. We derived 40%, 31% and 28% of our total revenues from
State Farm in 1999, 2000 and 2001, respectively. Although we
expect continued concentrations of revenue from this customer,
we believe the percentage of our total revenues from this
customer will decrease in 2002.

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 Fiserv, Inc., IBM, KPMG LLP and NCR Corporation as well
as with numerous core processing vendors, bill payment
providers, credit card processing vendors and printed product
vendors.

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
$92.9 million, $233.9 million and $278.3 million
for the years ended December 31, 1999, 2000 and 2001,
respectively, of which 88%, 83% and 76%, respectively, were
attributed to sales in the United States.

Within each region, we divide our sales force
into two teams: named accounts and field sales. The named
accounts sales team manages our relationships with existing
customers and markets our products to the largest financial
organizations in the world. The named accounts sales force
focuses on developing long-term relationships with senior
management of large financial organizations, typically including
these organizations chief executive officers and the heads
of their retail banking and information technology divisions.
The sales cycle for these large financial organizations
generally lasts from 6 to 18 months. Contracts with these
large financial organizations typically have multi-year terms.
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.

Our field sales team focuses on building
successful relationships with smaller financial organizations.
In addition, the field sales team assumes responsibility for
relationships with distribution partners, thereby maximizing our
market penetration through the reseller channel. 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 which we perform over a shorter period of time than
those contracts with large financial organizations.

Our sales support team provides functional and
technical sales support to maximize the clients
understanding of S1s solutions.

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In addition to internal sales efforts and joint
efforts with distribution partners like IBM and NCR, 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.

Edify markets its products worldwide through a
direct sales force as well as through multiple value-added
resellers, OEMs, outsourcers, distributors and systems
integrators, including: Datamat Spa, Bell South Corporation,
Digital Datavoice Corporation, Digital Voice Systems Inc.,
Electronic Data Systems Corporation, Fujitsu Limited, Hitachi
Ltd., iSi-Dentsu of America, Inc., MCI group  an
operating unit of WorldCom, Inc., NCR Corporation, NEC
Corporation, Rockwell International Corporation, Unisys
Corporation, Vystys Inc., Verizon Communications Inc. and
Viecore Inc. Edify also partners with leading technology
providers to extend the capabilities of both its own and its
partners products. Edifys partners include Siebel
Systems, Inc., Cisco Systems, Inc., Compaq Computer Corporation,
Genesys Telecommunications Laboratories, Inc., Microsoft
Corporation, Nuance Communications, Inc. and Speechworks
International, Inc.

Product Development

Our product development efforts are focused on:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Developing the S1 Enterprise
	Platform.We developed and are
	continuing to enhance a new technological architecture for the
	S1 Enterprise family of products. 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.                                                                                                                                              
|
| |  | Collaborating with Customers to Develop and
	Refine our Product Offering.In order
	to make the S1 Personal Banking and Business Banking products as
	customer-centric as possible, we enlisted 14 financial
	institutions to take part in our innovative Market Leadership
	Program. These 14 MLP partners worked directly with product
	management and the software development team to develop and
	refine our offering. In doing so, the MLP partners had the
	opportunity to incorporate their business requirements into the
	product design, as well as to acquire a hands-on knowledge of
	the product. For us, the MLP has contributed invaluable customer
	insights into our product development process and provided a
	base of customers to validate the products functionality
	and technical architecture.
|
| |  | 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 $24.6 million,
$70.5 million and $55.6 million on product development
efforts in 1999, 2000 and 2001, respectively.

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. We expect to expand this relationship in 2002 to a
newly created development center in India.

Competition  Financial Institutions
Segment

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) point 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.

12



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| |                                    
| | -----------------------------------
| | In-house Development
	Organizations

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

 building, maintaining and upgrading
the in-house solution is very costly;



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | attracting and retaining the necessary technical
	personnel can be difficult; and                                                        
|
| |  | technological development may be too far outside
	the financial organizations core competencies for them to
	be effective or successful.



| |                         
| | ------------------------
| | Point 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) 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. We believe the disadvantages associated
with a point 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 single technology approach does not provide an
	integrated view of the customer.                                                   



| |                        
| | -----------------------
| | Core Processing Vendors

These vendors offer data processing services and
outsourcing for the financial institutions systems of
record. In this space we see companies such as Metavante, Fiserv
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 secondary to the vendor behind their
back-office products and services.

Competition  Contact Center
Automation Segment

The market for contact center automation products
is divided into several distinct categories, voice solutions,
eServices solutions and contact center solutions. Edify competes
with different vendors in each category, but few span more than
one category.



| |                
| | ---------------
| | Voice Solutions

Our primary competitors in the voice solution
category are InterVoice-Brite, Inc., IBM, Avaya Inc. and Nortel
Networks Corporation. We believe our solution is more attractive
to customers because:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | our software based platform does not require
	proprietary voice hardware;                             
|
| |  | we use a patented visual and integrated developed
	environment instead of proprietary scripting tools;
|
| |  | our solution provides industry leading
	scalability;                                                  
|
| |  | we have integrated customer analytics; and                                                            
|
| |  | we offer multiple speech recognition engines.                                                         

13



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| |          
| | ---------
| | eServices

We compete with Siebel Systems, Inc., Kana Inc.
and eGain Communications Corp. in the eServices market. Our
products have the following advantages:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one platform that supports and integrates all
	customer contact channels and is more cost efficient to
	integrate with other enterprise systems;        
|
| |  | natural language understanding technology for
	both voice and text based interactions; and                                                              
|
| |  | applications that automate the fulfillment of
	customer specific transactional and relationship information in
	addition to topic based search requests.



| |                         
| | ------------------------
| | Contact Center Solutions

In this category, we compete with companies such
as Avaya, Nortel Networks, Aspect Telecommunications Corporation
and Interactive Intelligence Inc. We believe our key advantages
include:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our single software based platform that supports
	and integrates all customer self-service channels;                                              
|
| |  | a CSR desktop that supports multiple media
	sessions and a unified view of every customer;                                                        
|
| |  | reporting and management tools that provide a
	unified view of every customer and interaction across any number
	of customer contact channels; and
|
| |  | integrated customer analytics.                                                                                                                    

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 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 clients 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. We are also subject to
encryption and security export laws which, depending on future
developments, could adversely affect our business.

Employees

As of March 15, 2002, we had approximately
1,640 employees, including 697 in customer support and
professional services, 234 in sales and marketing and 378 in
product development. In addition to full-time

14



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##### Table of Contents



employees, we have used the services of various
independent contractors for professional services projects and
product development.


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 expect that
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 clients are not within our control;
|
| |  | many of our clients orders tend to be
	relatively large, and in any given period a substantial portion
	of our revenues may be attributable to a few clients;                                                                 
|
| |  | 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;                                                                                                       
|
| |  | 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 if
	revenues decrease.                                                                                                  

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

We acquired three companies in 1999, three
companies in 2000, one company in 2001 and two companies in the
first quarter of 2002. We sold one of these acquired companies
in January 2001. The continued 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;

15



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

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

Our business success depends in part on our
relationships with a limited number of large clients. We had one
client that accounted for 40%, 31% and 28% of our total revenue
in 1999, 2000 and 2001, respectively. Although the percentage of
total revenue that this one client accounts for has declined, we
expect that we will continue to derive a significant portion of
our revenue from a limited number of clients in the future. A
substantial number of our client contracts do not allow our
clients to terminate their contracts prior to the termination
date without payment of liquidated damages. These damages are
usually insufficient to replace the ongoing revenue we would
have otherwise earned.

Market volatility may affect the price of our
common stock

The trading prices of Internet stocks in general,
and ours in particular, have experienced extreme price
fluctuations. Since reaching a high in 2000, our stock price has
declined significantly. Any further negative change in the
publics perception of the prospects of Internet or
e-commerce companies 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 Internet and online
	commerce industries;                                                               
|
| |  | changes in the market valuations of other
	Internet or online service 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.                                                                  

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

We incurred losses in 1999, 2000 and 2001. In
November 2000 and June 2001, 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

16



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savings that have improved our margins and our
cash flows from operating activities during 2001. 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
continue to experience losses, which could negatively impact the
value of our common stock.


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, 2002, we had
62.6 million shares of common stock outstanding, assuming
no exercise of outstanding options or warrants or conversion of
preferred stock. As of March 21, 2002, there were
outstanding employee stock options to purchase 17.4 million
shares of our common stock, options and warrants to acquire
300,000 shares of our common stock, and 1.6 million shares
of preferred stock convertible into an aggregate of
8.7 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. Our
series D convertible preferred shares must be converted by
April 30, 2002 which will result in the issuance of
7.0 million shares of our common stock. 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 clients 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 clients may be acquired by or merged into
other financial institutions which already have their own
financial Internet software solution or decide to terminate
their relationships with us for other reasons. As a result, our
sales could decline if an existing client 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
computer problems. Although we believe 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 clients or their end users.

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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 clients
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 client 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 software development
activities in countries other than the United States, 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 assist us with portions of our product
development. We expect to expand 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;
|
| |  | 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
	in India may 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 may become involved in litigation over
proprietary rights, which may be costly and time
consuming

Other parties may assert that our products,
trademarks or other proprietary rights require a license of
intellectual property rights or infringe, or may infringe, on
their intellectual property rights. Any 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;

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

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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 clients 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
client 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;                                                                                                                                                                                                   
|
| |  | 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 integrating
	software and bringing banks online, 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.                                                                                                            

20



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

Our executive offices are currently located in
Atlanta, Georgia. Our primary office for EMEA operations is in
the United Kingdom, and our primary office for APJ operations is
in Sydney, Australia. We have data centers in the Atlanta and
Dallas metropolitan areas for the Americas, in the U.K. for EMEA
and in Singapore for APJ. We maintain additional domestic
offices in Boston, Massachusetts; Charlotte, North Carolina;
Austin, Texas; Dallas, Texas; Santa Clara, California; New York,
New York and West Hills, California. We maintain additional
international offices in Brussels, Hong Kong, Lisbon, London,
Luxembourg, Madrid, Melbourne, Paris and Rotterdam.

Our financial institutions segment is based out
of our corporate offices in Atlanta and has operations in all of
our offices, except for our office in Santa Clara where our
contact center automation technology segment is based. We lease
all of our office space as well as our data center facilities.






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

There is no material pending legal proceeding to
which S1 or its subsidiaries are a party or of which any of our
property or the property of our subsidiaries is the subject. S1
is involved in immaterial litigation matters incidental to our
business.






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

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Not applicable.




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
|               |  |      |        |    
|2000           |  |      |        |     |  |   |       | 
|First Quarter  |  | $    | 142.25 |     |  | $ | 64.00 | 
|Second Quarter |  |      | 87.75  |     |  |   | 17.25 | 
|Third Quarter  |  |      | 34.31  |     |  |   | 10.63 | 
|Fourth Quarter |  |      | 13.19  |     |  |   | 4.63  | 
|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  | 

As of the close of business on March 15,
2002, there were 633 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.

21



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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,              
|                                                                        |  |                                      
|                                                                        |  | 1997                                  |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                                                        |  |                                       |         |      |  |      |         |      |  |     
|                                                                        |  |                                      
|                                                                        |  | (In thousands, except per share data)
|Statement of Operations Data:                                           |  |                                       |         |      |  |      |         |      |  |      |          |   |  |   |            |   |  |   |          |  
|Total revenues                                                          |  | $                                     | 10,830  |      |  | $    | 24,180  |      |  | $    | 92,890   |   |  | $ | 233,888    |   |  | $ | 278,310  |  
|Loss from continuing operations                                         |  |                                       | (27,302 | )    |  |      | (28,558 | )    |  |      | (125,087 | ) |  |   | (1,177,678 | ) |  |   | (221,543 | )
|Net loss                                                                |  |                                       | (27,991 | )    |  |      | (30,805 | )    |  |      | (125,087 | ) |  |   | (1,177,678 | ) |  |   | (221,543 | )
|Basic and diluted net loss per common share from
	continuing operations |  |                                       | (1.53   | )    |  |      | (1.30   | )    |  |      | (4.28    | ) |  |   | (21.77     | ) |  |   | (3.74    | )
|Basic and diluted net loss per common share                             |  |                                       | (1.57   | )    |  |      | (1.40   | )    |  |      | (4.28    | ) |  |   | (21.77     | ) |  |   | (3.74    | )

|                                                     |  |                    |        |      |  |      |        |      |  |      |           |  |  |   |         |  |  |   |         | 
|---------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | --------- |  |  | - | ------- |  |  | - | ------- | 
|                                                     |  |                   
|                                                     |  | As of December 31,
|                                                     |  |                   
|                                                     |  | 1997               |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                                                     |  |                    |        |      |  |      |        |      |  |     
|                                                     |  |                   
|                                                     |  | (In thousands)    
|Balance Sheet Data:                                  |  |                    |        |      |  |      |        |      |  |      |           |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                            |  | $                  | 3,137  |      |  | $    | 14,504 |      |  | $    | 67,850    |  |  | $ | 173,266 |  |  | $ | 148,450 | 
|Working capital                                      |  |                    | 16,420 |      |  |      | 19,074 |      |  |      | 96,226    |  |  |   | 165,704 |  |  |   | 129,827 | 
|Working capital, excluding deferred revenues         |  |                    | 23,079 |      |  |      | 29,452 |      |  |      | 116,695   |  |  |   | 193,175 |  |  |   | 157,326 | 
|Goodwill, net                                        |  |                    | 5      |      |  |      | 238    |      |  |      | 788,293   |  |  |   | 195,428 |  |  |   | 79,723  | 
|Total assets                                         |  |                    | 36,192 |      |  |      | 48,293 |      |  |      | 1,132,487 |  |  |   | 606,704 |  |  |   | 372,037 | 
|Notes payable                                        |  |                    |       |      |  |      |       |      |  |      | 6,351     |  |  |   | 3,822   |  |  |   |        | 
|Capital lease obligation, excluding current
	portion |  |                    |       |      |  |      | 159    |      |  |      | 1,086     |  |  |   | 6,226   |  |  |   | 1,450   | 
|Stockholders equity                                 |  |                    | 25,140 |      |  |      | 17,229 |      |  |      | 990,807   |  |  |   | 467,745 |  |  |   | 274,618 | 

|                                                              |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |           |   |  |   |        | 
|------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | --------- | - |  | - | ------ | 
|                                                              |  |                        
|                                                              |  | Year Ended December 31,
|                                                              |  |                        
|                                                              |  | 1997                    |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                                              |  |                         |         |      |  |      |         |      |  |     
|                                                              |  |                        
|                                                              |  | (In thousands)         
|Other Selected Data:                                          |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |           |   |  |   |        | 
|Cash (used in) provided by continuing operations              |  | $                       | (18,569 | )    |  | $    | (11,904 | )    |  | $    | (30,037 | ) |  | $ | (150,712  | ) |  | $ | 11,894 | 
|EBITDA(1)                                                     |  |                         | (21,861 | )    |  |      | (17,866 | )    |  |      | (10,317 | ) |  |   | (74,068   | ) |  |   | 6,851  | 
|Depreciation and amortization                                 |  |                         | 1,741   |      |  |      | 5,347   |      |  |      | 6,924   |   |  |   | 25,891    |   |  |   | 29,252 | 
|Amortization and impairment of acquisition
	intangible assets |  |                         | 4,525   |      |  |      | 4,384   |      |  |      | 40,206  |   |  |   | 1,080,321 |   |  |   | 79,787 | 
|Weighted average number of common shares
	outstanding         |  |                         | 17,846  |      |  |      | 22,037  |      |  |      | 29,228  |   |  |   | 54,096    |   |  |   | 59,242 | 

22



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|                                                                 |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |            |   |  |   |          |  
|---------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | ---------- | - |  | - | -------- | -
|                                                                 |  |                        
|                                                                 |  | Year Ended December 31,
|                                                                 |  |                        
|                                                                 |  | 1997                    |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                                                 |  |                         |         |      |  |      |         |      |  |     
|                                                                 |  |                        
|                                                                 |  | (In thousands)         
|Reconciliation of loss from continuing
	operations to EBITDA(1): |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |            |   |  |   |          |  
|Loss from continuing operations                                  |  | $                       | (27,302 | )    |  | $    | (28,558 | )    |  | $    | (125,087 | ) |  | $ | (1,177,678 | ) |  | $ | (221,543 | )
|Interest, investment and other income, net                       |  |                         | (1,481  | )    |  |      | (583    | )    |  |      | (2,237   | ) |  |   | (59,699    | ) |  |   | (3,066   | )
|Income tax benefit                                               |  |                         |        |      |  |      |        |      |  |      |         |   |  |   | (4,576     | ) |  |   | (3,255   | )
|Depreciation and amortization                                    |  |                         | 1,741   |      |  |      | 5,347   |      |  |      | 6,924    |   |  |   | 25,891     |   |  |   | 29,252   |  
|Amortization and impairment of acquisition
	intangible assets    |  |                         | 4,525   |      |  |      | 4,384   |      |  |      | 40,206   |   |  |   | 1,080,321  |   |  |   | 79,787   |  
|Stock option compensation expense(2)                             |  |                         | 656     |      |  |      | 1,544   |      |  |      | 1,118    |   |  |   | 5,383      |   |  |   | 1,330    |  
|Marketing cost from warrants issued                              |  |                         |        |      |  |      |        |      |  |      | 715      |   |  |   | 4,962      |   |  |   |         |  
|Merger related and restructuring costs                           |  |                         |        |      |  |      |        |      |  |      | 8,744    |   |  |   | 37,228     |   |  |   | 9,260    |  
|Acquired in-process research and development                     |  |                         |        |      |  |      |        |      |  |      | 59,300   |   |  |   | 14,100     |   |  |   |         |  
|Loss on sale of subsidiaries                                     |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |           |   |  |   | 53,186   |  
|Equity in net loss of affiliate                                  |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |           |   |  |   | 61,900   |  
|                                                                 |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |            |   |  |   |          |  
|EBITDA(1)                                                        |  | $                       | (21,861 | )    |  | $    | (17,866 | )    |  | $    | (10,317  | ) |  | $ | (74,068    | ) |  | $ | 6,851    |  
|                                                                 |  |                         |         |      |  |      |         |      |  |      |          |   |  |   |            |   |  |   |          |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earnings before interest, taxes, depreciation and
	amortization (EBITDA) is commonly used by investors to measure a
	companys ability to generate cash flow. EBITDA is not a
	measurement of financial performance under accounting principles
	generally accepted in the United States and should not be
	considered as an alternative to net income (loss) as a measure
	of performance or to cash flow as a measure of liquidity.
|   
|(2) | Stock compensation expense is included in direct
	costs of revenue, selling and marketing expense, product
	development expense and general and administrative expense as
	presented in our statements of operations.                                                                                                                                                                                                                






|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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

To date, we have derived 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.

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Our priorities in 2001 included the
rationalization of our operating cost structure and assets, a
necessary task after completing six acquisitions in 1999 and
2000. Combined with a focus on cost control, this
rationalization was the impetus behind the improvement in our
gross margin from 41% in 2000 to 59% in 2001. These and other
operational accomplishments propelled S1 to a significant
improvement in its financial performance. Revenues increased 19%
in 2001 to $278.3 million. Similarly, net loss per share
was significantly reduced to $3.74 per share in 2001 from $21.77
per share in 2000. Additionally, we stabilized our cash flow.
During 2001, we generated $11.9 million in cash flow from
operations and ended the year with $148.5 million in cash.

In 2001, while working to strengthen S1s
operational and financial performance, we also undertook the
most extensive retooling ever of our technology. Due to rapid
growth and numerous acquisitions, S1 products encompassed
several overlapping technologies and applications. In order to
realize the full potential of an enterprise eFinance solution,
it was imperative to re-write the technological architecture for
the S1 suite of products.

During 2001, we invested 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 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. The S1 Enterprise Platform
provides an open, flexible, and scalable architecture that
leverages existing legacy and third-party applications.
Additionally, the S1 Enterprise Platform 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.
Through our Market Leadership Program, certain customers have
provided us with valuable input on the architectural
requirements and business capabilities that financial services
providers need to deliver a consistent eFinance experience
across all customer interaction channels. Our Enterprise
Platform 1.0 was released for general availability during the
first quarter of 2002. While we historically have not
capitalized software development costs because of the
insignificant amount of costs incurred between technological
feasibility and general customer release, we may be required to
capitalize certain software development costs in the future.

In order to optimize available research and
development resources and meet development timeframes, we have
established a relationship with an Indian-based development
organization to assist us with portions of our product
development. We expect to expand this relationship in 2002 to a
newly created development center in India.

Acquisitions

We have made numerous strategic acquisitions that
were designed to provide additional technology, product and
service offerings, additional industry experience, a broader
client 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., 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 and mid-market banks. In
November 2000, we acquired Level Next, Inc., a provider of
global trade banking systems. In November 1999, we acquired
Edify Corporation, a Santa Clara, California based global
provider of Internet and voice e-Commerce portal solutions; FICS
Group, N.V., a Brussels, Belgium based vendor of financial
electronic commerce and regulatory reporting software; and
VerticalOne Corporation, then an Atlanta based consolidator,
organizer and presenter of personal account information via the
Internet. We sold VerticalOne to Yodlee, Inc. in January 2001.

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We accounted for all of our 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, customer lists and assembled work
force. The consolidated financial statements include the results
of operations for the acquired companies from the date of
acquisition, which for accounting purposes is generally the
month end date closest to the actual date of acquisition.

Operating Segment Information

During 2001, we conducted our operations in two
business segments: financial institutions and contact center
automation technology. In 1999 and 2000, we operated a third
segment, Internet aggregation services, through our VerticalOne
subsidiary. Through this segment, we provided technology that
enables consumers to aggregate personal account information from
multiple sources. We sold our VerticalOne subsidiary to Yodlee,
Inc. in January 2001. Accordingly, we eliminated the Internet
aggregation services segment in 2001.

Financial Institutions
Segment.Our financial
institutions segment builds, delivers and operates integrated,
transactional and brandable applications and channel solutions
for financial services providers worldwide. The financial
institutions segment provides customized solutions to large
global and national financial institutions, as well as solutions
that require little or no customization and are primarily sold
to community and regional banks. We maintain multiple offices
and a worldwide professional services team to assist with
customization and implementation of our applications. We also
provide hosting services.

In November 1999, we completed the acquisition of
FICS Group, N.V., which included our Financial Reporting Systems
business unit that we reported in our financial statements as
held for sale. As a result, we did not include the operating
results of FRS in our statements of operations for 1999 or 2000.
During the first quarter of 2001, we determined that there was
no reasonable market for the sale of FRS and that we would
continue to operate FRS 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 operations,
which we do not consider material, in our statement of
operations for 2001 as part of the financial institutions
segment.

Contact Center Automation
Segment.Our contact center
automation segment offers enterprise customer interaction
solutions, including: interactive voice response, voice
recognition, e-mail management, web chat navigation and
collaboration and computer telephony integration. These
solutions allow financial institutions and other organizations
to automate, integrate and personalize interactions with
customers through multiple channels. Using customer-determined
profiles and interests, our clients can notify their customers
about new products or services. Calls that do require human
assistance can automatically be routed to the most appropriate
person. All of these goals can be accomplished through a
combination of channels, including telephone, Internet, e-mail,
fax, and pager. In addition, we offer a natural language speech
recognition product and an optional marketing campaign
management component that enables businesses to deliver products
and services to targeted prospects consistently through multiple
channels. Currently, a large portion of our contact center
automation segment revenues comes from financial institutions.
Our strategy is to leverage this domain expertise and the
cross-sell opportunities to benefit our entire organization.

All of our acquired businesses, except Edify
Corporation, are part of our financial institutions segment. The
voice portal solution of Edify makes up our contact center
automation segment, and the remaining portion of Edify is
included in the financial institutions segment. VerticalOne made
up our Internet aggregation services segment in 1999 and 2000.

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. During 2001, we accounted for our equity interest in
Yodlee as an equity method investment and recorded our equity
interest in the net loss of Yodlee in our statement of
operations. We are a reseller of Yodlees account
aggregation services. See Note 18 to the consolidated financial
statements included elsewhere in this report for a description
of our reseller agreement with Yodlee.

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Restructuring Plans

In November 2000, we approved a restructuring
plan to streamline our operations, as well as 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.

We continue to review our cost structure on a
worldwide basis and look for additional ways to streamline our
operations. We believe that our efforts to streamline
operations, including headcount reductions and consolidation of
our operating facilities, have resulted in cost savings that
have improved our results of operations and our cash flows from
operating activities during the year ended December 31,
2001. 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.

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. The preparation of these financial statements
requires us to make estimates and judgements 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;                      
|
| |  | determination of technological feasibility and
	capitalization of software development costs;
|
| |  | recognition of costs in connection with
	restructuring plans and merger-related activities;  
|
| |  | valuation of stock options and warrants issued;
	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 Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements,
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

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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.


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 license arrangements in which the fee is not
considered fixed or determinable, the license revenue is
recognized as payments become due. In certain instances, we
recognize 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.

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 the multiple
element arrangement guidance in SAB No. 101. 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 data
center 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 is recognized
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. See a full discussion of our revenue
recognition policies in Note 2 to the consolidated financial
statements included elsewhere in this report.

Revenue on a substantial portion 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 judgement 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 and 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;                                         

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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 judgements 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 of completion 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 judgements and estimates about the collectibility of our
accounts receivable affect revenue, selling expense and the
carrying value of our accounts receivable.

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 8 to the consolidated
financial statements included elsewhere in this report. 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

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##### Table of Contents



financial statements included elsewhere in this
report. 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 Statement of
Financial Accounting Standards 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 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. At this time, we do not anticipate any
charge resulting from the transitional impairment test; however,
we have not completed our review. While we will no longer record
monthly 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.

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 judgement, 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. See further
discussion of the terms of these restructurings in Note 9
to the consolidated financial statements included elsewhere in
this report. 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,
2001 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 the related liabilities
for any related cash disbursements or if we determine that the
contingency is no longer likely to result in a loss. 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.

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Valuation of stock options and warrants
issued.Sometimes in the normal
course of business, we have granted stock options or warrants to
non-employees and other third parties as consideration for
services or in connection with other arrangements. Depending on
the nature of the transaction, we may be required to record the
issuance of such options or warrants as a reduction of revenue,
a component of operating expenses or not at all, in the case of
a like-kind exchange of property. Generally, when we are
required to reflect the issuance of such options or warrants in
our statement of operations, we are required to reflect the
transaction using the estimated fair value the options or
warrants. The valuation of financial instruments like these that
do not have a ready market requires judgment. We generally use
the Black-Scholes option-pricing model to determine the fair
value of options and warrants. This approach requires judgements
about:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | the volatility of our common stock;                                   
|
| |  | the risk-free interest rate;                                          
|
| |  | our plans to pay dividends on our common stock in
	future periods; and
|
| |  | the expected life of the options or warrants.                         

Although these variables can be measured or
quantified using information that is generally available to us,
the actual information that is used in the determination of
these variables requires judgement and estimates.

We do not record compensation expense in
connection with the issuance of stock options to employees
unless we grant such options at an exercise price below the fair
market value on the date of grant. However, we disclose the
pro-forma effect of these grants on our results of operations as
required by SFAS No. 123 in the notes to our consolidated
financial statements, included elsewhere in this report. The
calculation of pro-forma compensation expense under
SFAS 123 requires the same judgments and estimates
discussed above.

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. Under the terms of the sale
agreement, we have a 19% voting interest in Yodlee and we can
nominate one of the seven board of directors seats 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.

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 on 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 written down the balance for any impairments
that are other than temporary.

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Results of Operations

The following table sets forth our statement of
operations data for the three years ended December 31,
1999, 2000 and 2001 and the percentage of total revenues of each
line item for the periods presented.

|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |     |  
|------------------------------------------------------- | ------------------------ | ----------------------- | -------- | ------- |  | ---- | ---- | --- | - | - | ---------- | --------- |  |  | ---- | --- | - | - | -------- | ------- |  |  | --- | --- | -
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |          
|                                                        |                          |                        
|                                                        |                          | Year Ended December 31,
|                                                        |                          |                        
|                                                        |                          |                         |          |         |  |     
|                                                        |                          | 1999                    |          | 2000    |  | 2001
|                                                        |                          |                         |          |         |  |     
|                                                        |                          |                        
|                                                        |                          | (Dollars in thousands) 
|Software licenses                                       |                          | $                       | 19,050   |         |  |      | 21   | %   |   | $ | 51,737     |           |  |  | 22   | %   |   | $ | 71,385   |         |  |  | 26  | %  
|Support and maintenance                                 |                          |                         | 5,315    |         |  |      | 6    | %   |   |   | 28,930     |           |  |  | 12   | %   |   |   | 40,995   |         |  |  | 15  | %  
|Professional services                                   |                          |                         | 51,117   |         |  |      | 55   | %   |   |   | 125,517    |           |  |  | 54   | %   |   |   | 111,965  |         |  |  | 40  | %  
|Data center                                             |                          |                         | 8,858    |         |  |      | 9    | %   |   |   | 22,811     |           |  |  | 10   | %   |   |   | 52,915   |         |  |  | 19  | %  
|Other                                                   |                          |                         | 8,550    |         |  |      | 9    | %   |   |   | 4,893      |           |  |  | 2    | %   |   |   | 1,050    |         |  |  | 0   | %  
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    
|                                                        | Total revenues           |                         |          | 92,890  |  |      |      | 100 | % |   |            | 233,888   |  |  |      | 100 | % |   |          | 278,310 |  |  |     | 100 | %
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    
|Cost of software licenses                               |                          |                         | 642      |         |  |      | 1    | %   |   |   | 4,556      |           |  |  | 2    | %   |   |   | 4,017    |         |  |  | 1   | %  
|Cost of professional services, support and
	maintenance |                          |                         | 36,446   |         |  |      | 39   | %   |   |   | 109,379    |           |  |  | 47   | %   |   |   | 84,351   |         |  |  | 30  | %  
|Cost of data center                                     |                          |                         | 9,008    |         |  |      | 10   | %   |   |   | 20,371     |           |  |  | 9    | %   |   |   | 26,013   |         |  |  | 9   | %  
|Cost of other revenue                                   |                          |                         | 7,112    |         |  |      | 8    | %   |   |   | 4,305      |           |  |  | 2    | %   |   |   | 751      |         |  |  | 0   | %  
|Selling and marketing                                   |                          |                         | 12,294   |         |  |      | 13   | %   |   |   | 55,472     |           |  |  | 23   | %   |   |   | 52,268   |         |  |  | 19  | %  
|Product development                                     |                          |                         | 24,580   |         |  |      | 26   | %   |   |   | 70,490     |           |  |  | 30   | %   |   |   | 55,569   |         |  |  | 20  | %  
|General and administrative                              |                          |                         | 14,243   |         |  |      | 15   | %   |   |   | 48,766     |           |  |  | 21   | %   |   |   | 49,820   |         |  |  | 18  | %  
|Depreciation and amortization                           |                          |                         | 6,924    |         |  |      | 7    | %   |   |   | 25,891     |           |  |  | 11   | %   |   |   | 29,252   |         |  |  | 11  | %  
|Marketing cost from warrants issued                     |                          |                         | 715      |         |  |      | 1    | %   |   |   | 4,962      |           |  |  | 2    | %   |   |   |         |         |  |  | 0   | %  
|Merger related and restructuring costs                  |                          |                         | 8,744    |         |  |      | 9    | %   |   |   | 37,228     |           |  |  | 16   | %   |   |   | 9,260    |         |  |  | 3   | %  
|Acquired in-process research and development            |                          |                         | 59,300   |         |  |      | 64   | %   |   |   | 14,100     |           |  |  | 6    | %   |   |   |         |         |  |  | 0   | %  
|Amortization and impairment of acquisition
	intangibles |                          |                         | 40,206   |         |  |      | 43   | %   |   |   | 1,080,321  |           |  |  | 462  | %   |   |   | 79,787   |         |  |  | 29  | %  
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    
|                                                        | Total operating expenses |                         |          | 220,214 |  |      |      | 237 | % |   |            | 1,475,841 |  |  |      | 631 | % |   |          | 391,088 |  |  |     | 141 | %
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    
|Operating loss                                          |                          |                         | (127,324 | )       |  |      | -137 | %   |   |   | (1,241,953 | )         |  |  | -531 | %   |   |   | (112,778 | )       |  |  | -41 | %  
|Interest, investment and other income, net              |                          |                         | 2,237    |         |  |      | 2    | %   |   |   | 59,699     |           |  |  | 25   | %   |   |   | 3,066    |         |  |  | 1   | %  
|Loss on sale of subsidiaries                            |                          |                         |         |         |  |      | 0    | %   |   |   |           |           |  |  | 0    | %   |   |   | (53,186  | )       |  |  | -19 | %  
|Equity in net loss of affiliated company                |                          |                         |         |         |  |      | 0    | %   |   |   |           |           |  |  | 0    | %   |   |   | (61,900  | )       |  |  | -22 | %  
|Income tax benefit                                      |                          |                         |         |         |  |      | 0    | %   |   |   | 4,576      |           |  |  | 2    | %   |   |   | 3,255    |         |  |  | 1   | %  
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    
|Net loss                                                |                          | $                       | (125,087 | )       |  |      | -135 | %   |   | $ | (1,177,678 | )         |  |  | -504 | %   |   | $ | (221,543 | )       |  |  | -80 | %  
|                                                        |                          |                         |          |         |  |      |      |     |   |   |            |           |  |  |      |     |   |   |          |         |  |  |     |    

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

The following table presents selected financial
data for our operating segments for the years ended
December 31, 2000 and 2001. We evaluate the performance of
our operating segments based on revenues, direct costs, gross
margins and operating expenses, excluding depreciation and
amortization, marketing cost from warrants issued, merger
related costs and restructuring charges, acquired in-process
research and development and amortization and impairment of
acquisition intangibles. In addition, we provide general and

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administrative services to the operating segments
on a shared service basis. Accordingly, we do not include
general and administrative costs in the determination of our
segment operating income or loss.


Selected Financial Data

|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |         |         |  
|------------------------------- | ------------------------------------------------- | ---------------------------- | ------- | ---------------------------- | ------- | ----------- | ------ | ------ | ------ | --------- | ------- | ------------ | ------ | ---------- | ------- | ------ | ------ | ----- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                                |                                                   |                              |         |                             
|                                |                                                   | Year Ended December 31, 2000 |         | Year Ended December 31, 2001
|                                |                                                   |                              |         |                             
|                                |                                                   |                              |         | Contact                      |         |             |        |        |        | Contact   |         |             
|                                |                                                   | Financial                    |         | Center                       |         | Internet    |        |        |        | Financial |         | Center       |        |           
|                                |                                                   | Institutions                 |         | Automation                   |         | Aggregation |        | Other  |        | Total     |         | Institutions |        | Automation |         | Other  |        | Total
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |      
|                                |                                                   |                             
|                                |                                                   | (Dollars in thousands)      
|Revenues:                       |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              | $       | 24,393                       |         |             | $      | 27,344 |        |           | $       |             |        |            | $       |       |        |       | $       | 51,737  |         |   | $       | 42,243  |         |   | $      | 29,142 |        |   | $       |       |        |   | $       | 71,385  |        
|                                | Support and maintenance                           |                              |         | 18,810                       |         |             |        | 10,120 |        |           |         |             |        |            |         |       |        |       |         | 28,930  |         |   |         | 27,466  |         |   |        | 13,529 |        |   |         |       |        |   |         | 40,995  |        
|                                | Professional services                             |                              |         | 119,141                      |         |             |        | 6,376  |        |           |         |             |        |            |         |       |        |       |         | 125,517 |         |   |         | 102,824 |         |   |        | 9,141  |        |   |         |       |        |   |         | 111,965 |        
|                                | Data center                                       |                              |         | 20,578                       |         |             |        |       |        |           |         | 2,233        |        |            |         |       |        |       |         | 22,811  |         |   |         | 52,915  |         |   |        |       |        |   |         |       |        |   |         | 52,915  |        
|                                | Other                                             |                              |         | 4,893                        |         |             |        |       |        |           |         |             |        |            |         |       |        |       |         | 4,893   |         |   |         | 1,050   |         |   |        |       |        |   |         |       |        |   |         | 1,050   |        
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total revenues               |         |                              | 187,815 |             |        |        | 43,840 |           |         |              | 2,233  |            |         |        |       |       |         |         | 233,888 |   |         |         | 226,498 |   |        |        | 51,812 |   |         |        |       |   |         |         | 278,310 |  
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|Direct costs:                   |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              |         | 901                          |         |             |        | 3,655  |        |           |         |             |        |            |         |       |        |       |         | 4,556   |         |   |         | 233     |         |   |        | 3,784  |        |   |         |       |        |   |         | 4,017   |        
|                                | Support and maintenance and professional services |                              |         | 98,946                       |         |             |        | 10,433 |        |           |         |             |        |            |         |       |        |       |         | 109,379 |         |   |         | 73,898  |         |   |        | 10,453 |        |   |         |       |        |   |         | 84,351  |        
|                                | Data center                                       |                              |         | 18,501                       |         |             |        |       |        |           |         | 1,870        |        |            |         |       |        |       |         | 20,371  |         |   |         | 26,013  |         |   |        |       |        |   |         |       |        |   |         | 26,013  |        
|                                | Other                                             |                              |         | 4,305                        |         |             |        |       |        |           |         |             |        |            |         |       |        |       |         | 4,305   |         |   |         | 751     |         |   |        |       |        |   |         |       |        |   |         | 751     |        
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total direct costs           |         |                              | 122,653 |             |        |        | 14,088 |           |         |              | 1,870  |            |         |        |       |       |         |         | 138,611 |   |         |         | 100,895 |   |        |        | 14,237 |   |         |        |       |   |         |         | 115,132 |  
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|Gross margin:                   |                                                   |                              | 65,162  |                              |         |             | 29,752 |        |        |           | 363     |              |        |            |        |        |        |       | 95,277  |         |         |   | 125,603 |         |         |   | 37,575 |        |        |   |        |        |        |   | 163,178 |        
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|Operating expenses:             |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                | Selling and marketing                             |                              |         | 33,155                       |         |             |        | 16,403 |        |           |         | 5,914        |        |            |         |       |        |       |         | 55,472  |         |   |         | 29,350  |         |   |        | 22,918 |        |   |         |       |        |   |         | 52,268  |        
|                                | Product development                               |                              |         | 50,225                       |         |             |        | 9,184  |        |           |         | 11,081       |        |            |         |       |        |       |         | 70,490  |         |   |         | 44,566  |         |   |        | 11,003 |        |   |         |       |        |   |         | 55,569  |        
|                                | General and administrative                        |                              |         |                             |         |             |        |       |        |           |         |             |        |            |         | 48,766 |        |       |         | 48,766  |         |   |         |        |         |   |        |       |        |   |         | 49,820 |        |   |         | 49,820  |        
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total operating expenses     |         |                              | 83,380  |             |        |        | 25,587 |           |         |              | 16,995 |            |         |        | 48,766 |       |         |         | 174,728 |   |         |         | 73,916  |   |        |        | 33,921 |   |         |        | 49,820 |   |         |         | 157,657 |  
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|Segment operating (loss) income |                                                   | $                            | (18,218 | )                            |         | $           | 4,165  |        |        | $         | (16,632 | )            |        | $          | (48,766 | )      |        | $     | (79,451 | )       |         | $ | 51,687  |         |         | $ | 3,654  |        |        | $ | (49,820 | )      |        | $ | 5,521   |        
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|Gross margin percentages:       |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              |         | 96                           | %       |             |        | 87     | %      |           |         |             |        |            |         |       |        |       |         | 91      | %       |   |         | 99      | %       |   |        | 87     | %      |   |         |       |        |   |         | 94      | %      
|                                | Support and maintenance and professional services |                              |         | 28                           | %       |             |        | 37     | %      |           |         |             |        |            |         |       |        |       |         | 29      | %       |   |         | 43      | %       |   |        | 54     | %      |   |         |       |        |   |         | 45      | %      
|                                | Data center                                       |                              |         | 10                           | %       |             |        |       |        |           |         | 16           | %      |            |         |       |        |       |         | 11      | %       |   |         | 51      | %       |   |        |       |        |   |         |       |        |   |         | 51      | %      
|                                | Other                                             |                              |         | 12                           | %       |             |        |       |        |           |         |             |        |            |         |       |        |       |         | 12      | %       |   |         | 28      | %       |   |        |       |        |   |         |       |        |   |         | 28      | %      
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total gross margin           |         |                              | 35      | %           |        |        | 68     | %         |         |              | 16     | %          |         |        |       |       |         |         | 41      | % |         |         | 55      | % |        |        | 73     | % |         |        |       |   |         |         | 59      | %
|                                |                                                   |                              |         |                              |         |             |        |        |        |           |         |              |        |            |         |        |        |       |         |         |         |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        

Revenues.Total revenues increased by
$44.4 million to $278.3 million for the year ended
December 31, 2001 from $233.9 million for the year
ended December 31, 2000, an increase of 19%. 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 $19.6 million, or 38%; support and maintenance
revenue increased $12.1 million, or 42%; and data center
revenue increased $30.1 million, or 132%. Our strategy is
to focus on activities that will continue to increase these
strategic revenue streams while placing less emphasis on
professional services, which during the year ended
December 31, 2001 decreased $13.6 million, or 11%, to
$112.0 million. During 2001, we continued to provide a
substantial amount of implementation, hosting and product
enhancement services through our financial institutions segment
for one

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significant customer. We derived 31% and 28% of
our total revenues in 2000 and 2001, respectively, from this
customer.


The increase in our software license revenues is
substantially 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 software license
revenues 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 contacts 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 do not expect to earn any
data center revenues from this customer during 2002 or beyond.
However, we maintain an ongoing relationship with this customer
for both voice and Internet products. Also during 2001, we
amended our agreements with a large Canadian bank, which has 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. Although we expect many of our mid-sized financial
institution customers to choose our data center solution, we do
not expect future growth rates to match that which we produced
during 2001. We believe that many of our larger financial
institution customers may consider moving their Internet banking
platform to one of our in-house solutions. As those transitions
are made, we expect the related revenue stream will move from
data center to software license fees and support and maintenance
fees. The terms and conditions of the agreements with another
large European customer are currently being reevaluated by both
parties.

For the year ended December 31, 2001,
revenues from our financial institutions operating segment grew
$38.7 million, or 21%, to $226.5 million over the
comparable prior year period. This growth is primarily
attributable to the increase in data center revenue and other
strategic revenue as discussed above, offset by a decrease in
professional service revenues. A portion of this growth is
related to the inclusion of a full year of activity for Davidge
and Q-Up, both which were acquired in April 2000 and the
inclusion of SDI for the fourth quarter of 2001. Additionally,
our revenues in the financial institutions segment increased as
a result of the inclusion of the FRS business unit during 2001,
which was previously classified as available for sale during
2000. Revenues from the FRS business unit were not material to
our total revenues in 2001.

Revenues for our contact center automation
operating segment increased $8.0 million to
$51.8 million for the year ended December 31, 2001.
This increase is attributable to an increase in support and
maintenance fees charged to an increasing installed base of
customers. Also, there were increases in license fees and
professional service fees resulting primarily from our ability
to sell additional contact center products to our existing
customer base.

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 the year ended December 31, 2000, a
decrease of 79%. Other revenue generally fluctuates based on the
mix of products and services sold.

In future periods, we expect professional
services revenues to become a smaller percentage of total
revenues as we move towards a package solution which requires
less customization than our previous products. We expect to
generate revenues from our new Enterprise family of products
during 2002 and beyond.

Direct Costs and Gross Margins.Direct costs decreased by
$23.5 million to $115.1 million for the year ended
December 31, 2001 from $138.6 million for the year
ended December 31, 2000, a decrease of 17%. Overall gross
margins were 59% and 41% 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

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infrastructure against increased revenues and
reduced facilities charges from the consolidation of offices.
Cost of revenues excludes charges for depreciation and
amortization of property and equipment.


Direct software license costs 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. Direct software license costs for our contact center
automation products consist of third-party software used in the
products. Overall direct software license costs decreased
$600,000 to $4.0 million for the year ended
December 31, 2001 from $4.6 million for the year ended
December 31, 2000. Gross margins on software licenses were 94%
and 91% for 2001 and 2000, respectively. We anticipate that
direct costs associated with software licenses as a percentage
of revenue could increase in future periods as additional
products are sold that include third-party software.

Direct costs for support and maintenance and
professional services consist primarily of personnel and related
infrastructure costs. Direct costs associated with support and
maintenance and professional services decreased by
$25.0 million, or 23%, to $84.4 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 45% and 29% for 2001 and 2000, respectively. The increase
in gross margins is attributable to 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. We do not expect our gross
margins on our professional services and post contact support
services to increase significantly in the future.

Direct data center costs consist of personnel and
infrastructure to support the applications we host for our
customers. Direct data center costs increased $5.6 million
to $26.0 million for the year ended December 31, 2001
from $20.4 million for the year ended December 31,
2000. The increase in costs relates to additional personnel and
infrastructure necessary to support new customers and add new
applications for our existing customers. 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
Expenses.Total selling and
marketing expenses decreased by $3.2 million to
$52.3 million for the year ended December 31, 2001
from $55.5 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. This was
offset by an increase of $2.7 million to selling and
marketing expenses related to the strengthening of our sales
team and marketing programs and the addition of Davidge and
Q-Up. During 2001, we invested in sales and marketing activities
to increase our market share and promote our Enterprise
e-Finance products. 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
Expenses.Total product
development expenses decreased by $14.9 million to
$55.6 million for the year ended December 31, 2001
from $70.5 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, we
reduced the number of domestic outside contractors in 2001 and
replaced them with lower cost offshore contractors. During 2001,
our product development efforts were focused on the
S1 Enterprise Platform, a fully-integrated system that
leverages off our existing technology. We launched Enterprise
Platform 1.0 for general release in March 2002. During
2000, we spent a portion of our product development efforts on
the completion of our acquired in-process development projects.
While we historically have not capitalized product development
costs, we may be required to capitalize certain software
development costs in the future.

In order to optimize available research and
development resources and meet development timeframes, we have
established a relationship with an Indian-based development
organization to outsource portions of our product development.
We expect to expand this relationship in 2002 to a newly created
development center in India.

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General and Administrative
Expenses.General and
administrative expenses increased by $1.0 million to
$49.8 million for the year ended December 31, 2001
from $48.8 million for the year ended December 31,
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. As we continue to strengthen our executive and
management teams, our general and administrative salaries and
related personnel charges have increased from the prior year
period. As a percentage of revenues, general and administrative
expenses decreased to 18% of total revenues for 2001, from 21%
for 2000. This decrease is attributable our ability to leverage
our existing infrastructure against increasing revenues.

Depreciation and
Amortization.Depreciation
and amortization increased by $3.4 million to
$29.3 million for the year ended December 31, 2001
from $25.9 million for the year ended December 31,
2000, an increase of 13%. These increases were primarily the
result of the depreciation recorded on additional property and
equipment.

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 our
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
$1.0 billion to $80.0 million for the year ended
December 31, 2001 from $1.1 billion for the year ended
December 31, 2000. In the fourth quarter of 2000, we
recorded an impairment charge of $664.9 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. In connection with
the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets on January 1, 2002, we ceased
recording amortization expense on goodwill and assembled
workforce. This will reduce our amortization expense for 2002 by
approximately $55.5 million.

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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 from
the year ended December 31, 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.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 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 included elsewhere in this
report. The carrying value of our investment in Yodlee at
December 31, 2001 was $1.0 million and represents our
excess investment in Yodlee. Since our share of Yodlees
underlying net assets is $0 at December 31, 2001 and we
have not made any commitments to Yodlee to provide additional
funding, we will not record our share of Yodlees future
net operating results until our basis in Yodlee increases above
$0.

During the second quarter of 2001, we recorded a
charge of approximately $900,000 in connection with the sale of
a small European subsidiary.

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Comparison of the Year Ended December 31,
1999 to the Year Ended December 31, 2000

The following table presents selected financial
data for our operating segments for the year ended
December 31, 1999 and 2000. We evaluate the performance of
our operating segments based on revenues, direct costs, gross
margins and operating expenses, excluding depreciation and
amortization, marketing cost from warrants issued, merger
related costs and restructuring charges, acquired in-process
research and development and amortization of acquisition
intangibles. In addition, we provide general and administrative
services to the operating segments on a shared service basis.
Accordingly, we do not include general and administrative costs
in the determination of our segment operating income or loss.

Selected Financial Data

|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |         |         |  
|------------------------------- | ------------------------------------------------- | ---------------------------- | ------ | ---------------------------- | ------ | ----------- | ----- | ----- | ----- | --------- | ------ | ------------ | ----- | ---------- | ------- | ----------- | ------ | ----- | ------- | ------ | ------ | - | ------- | ------- | ------- | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                                |                                                   |                              |        |                             
|                                |                                                   | Year Ended December 31, 1999 |        | Year Ended December 31, 2000
|                                |                                                   |                              |        |                             
|                                |                                                   |                              |        | Contact                      |        |             |       |       |       | Contact   |        |             
|                                |                                                   | Financial                    |        | Center                       |        | Internet    |       |       |       | Financial |        | Center       |       | Internet   |         |            
|                                |                                                   | Institutions                 |        | Automation(1)                |        | Aggregation |       | Other |       | Total     |        | Institutions |       | Automation |         | Aggregation |        | Other |         | Total 
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |       
|                                |                                                   |                             
|                                |                                                   | (Dollars in thousands)      
|Revenues:                       |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              | $      | 13,422                       |        |             | $     | 5,628 |       |           | $      |             |       |            | $       |            |        |       | $       | 19,050 |        |   | $       | 24,393  |         |   | $      | 27,344 |        |   | $       |       |        |   | $       |       |        |   | $       | 51,737  |        
|                                | Support and maintenance                           |                              |        | 3,830                        |        |             |       | 1,485 |       |           |        |             |       |            |         |            |        |       |         | 5,315  |        |   |         | 18,810  |         |   |        | 10,120 |        |   |         |       |        |   |         |       |        |   |         | 28,930  |        
|                                | Professional services                             |                              |        | 50,280                       |        |             |       | 837   |       |           |        |             |       |            |         |            |        |       |         | 51,117 |        |   |         | 119,141 |         |   |        | 6,376  |        |   |         |       |        |   |         |       |        |   |         | 125,517 |        
|                                | Data center                                       |                              |        | 8,853                        |        |             |       |      |       |           |        | 5            |       |            |         |            |        |       |         | 8,858  |        |   |         | 20,578  |         |   |        |       |        |   |         | 2,233  |        |   |         |       |        |   |         | 22,811  |        
|                                | Other                                             |                              |        | 8,550                        |        |             |       |      |       |           |        |             |       |            |         |            |        |       |         | 8,550  |        |   |         | 4,893   |         |   |        |       |        |   |         |       |        |   |         |       |        |   |         | 4,893   |        
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total revenues               |        |                              | 84,935 |             |       |       | 7,950 |           |        |              | 5     |            |         |             |       |       |         |        | 92,890 |   |         |         | 187,815 |   |        |        | 43,840 |   |         |        | 2,233  |   |         |        |       |   |         |         | 233,888 |  
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|Direct costs:                   |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              |        | 356                          |        |             |       | 286   |       |           |        |             |       |            |         |            |        |       |         | 642    |        |   |         | 901     |         |   |        | 3,655  |        |   |         |       |        |   |         |       |        |   |         | 4,556   |        
|                                | Support and maintenance and professional services |                              |        | 34,913                       |        |             |       | 1,533 |       |           |        |             |       |            |         |            |        |       |         | 36,446 |        |   |         | 98,946  |         |   |        | 10,433 |        |   |         |       |        |   |         |       |        |   |         | 109,379 |        
|                                | Data center                                       |                              |        | 8,906                        |        |             |       |      |       |           |        | 102          |       |            |         |            |        |       |         | 9,008  |        |   |         | 18,501  |         |   |        |       |        |   |         | 1,870  |        |   |         |       |        |   |         | 20,371  |        
|                                | Other                                             |                              |        | 7,112                        |        |             |       |      |       |           |        |             |       |            |         |            |        |       |         | 7,112  |        |   |         | 4,305   |         |   |        |       |        |   |         |       |        |   |         |       |        |   |         | 4,305   |        
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total direct costs           |        |                              | 51,287 |             |       |       | 1,819 |           |        |              | 102   |            |         |             |       |       |         |        | 53,208 |   |         |         | 122,653 |   |        |        | 14,088 |   |         |        | 1,870  |   |         |        |       |   |         |         | 138,611 |  
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|Gross margin:                   |                                                   |                              | 33,648 |                              |        |             | 6,131 |       |       |           | (97    | )            |       |            |        |             |        |       | 39,682  |        |        |   | 65,162  |         |         |   | 29,752 |        |        |   | 363     |        |        |   |        |        |        |   | 95,277  |        
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|Operating expenses:             |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                | Selling and marketing                             |                              |        | 8,297                        |        |             |       | 3,108 |       |           |        | 889          |       |            |         |            |        |       |         | 12,294 |        |   |         | 33,155  |         |   |        | 16,403 |        |   |         | 5,914  |        |   |         |       |        |   |         | 55,472  |        
|                                | Product development                               |                              |        | 21,118                       |        |             |       | 1,889 |       |           |        | 1,573        |       |            |         |            |        |       |         | 24,580 |        |   |         | 50,225  |         |   |        | 9,184  |        |   |         | 11,081 |        |   |         |       |        |   |         | 70,490  |        
|                                | General and administrative                        |                              |        |                             |        |             |       |      |       |           |        |             |       |            |         | 14,243      |        |       |         | 14,243 |        |   |         |        |         |   |        |       |        |   |         |       |        |   |         | 48,766 |        |   |         | 48,766  |        
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total operating expenses     |        |                              | 29,415 |             |       |       | 4,997 |           |        |              | 2,462 |            |         |             | 14,243 |       |         |        | 51,117 |   |         |         | 83,380  |   |        |        | 25,587 |   |         |        | 16,995 |   |         |        | 48,766 |   |         |         | 174,728 |  
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|Segment operating income (loss) |                                                   | $                            | 4,233  |                              |        | $           | 1,134 |       |       | $         | (2,559 | )            |       | $          | (14,243 | )           |        | $     | (11,435 | )      |        | $ | (18,218 | )       |         | $ | 4,165  |        |        | $ | (16,632 | )      |        | $ | (48,766 | )      |        | $ | (79,451 | )      
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|Gross margin percentages:       |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                | Software licenses                                 |                              |        | 97                           | %      |             |       | 95    | %     |           |        |             |       |            |         |            |        |       |         | 97     | %      |   |         | 96      | %       |   |        | 87     | %      |   |         |       |        |   |         |       |        |   |         | 91      | %      
|                                | Support and maintenance and professional services |                              |        | 35                           | %      |             |       | 34    | %     |           |        |             |       |            |         |            |        |       |         | 35     | %      |   |         | 28      | %       |   |        | 37     | %      |   |         |       |        |   |         |       |        |   |         | 29      | %      
|                                | Data center                                       |                              |        | -1                           | %      |             |       |      |       |           |        | -1940        | %     |            |         |            |        |       |         | -2     | %      |   |         | 10      | %       |   |        |       |        |   |         | 16     | %      |   |         |       |        |   |         | 11      | %      
|                                | Other                                             |                              |        | 17                           | %      |             |       |      |       |           |        |             |       |            |         |            |        |       |         | 17     | %      |   |         | 12      | %       |   |        |       |        |   |         |       |        |   |         |       |        |   |         | 12      | %      
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        
|                                |                                                   | Total gross margin           |        |                              | 40     | %           |       |       | 77    | %         |        |              | -1940 | %          |         |             |       |       |         |        | 43     | % |         |         | 35      | % |        |        | 68     | % |         |        | 16     | % |         |        |       |   |         |         | 41      | %
|                                |                                                   |                              |        |                              |        |             |       |       |       |           |        |              |       |            |         |             |        |       |         |        |        |   |         |         |         |   |        |        |        |   |         |        |        |   |         |        |        |   |         |        



---



|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We acquired Edify, which comprises our contact
	center automation segment and VerticalOne, which comprised our
	Internet aggregation segment, in November 1999.
	Accordingly, our results of operations

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| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | for 1999 included only two months of activity in
	our contact center automation and Internet aggregation segments.

Revenues.Total revenues increased by
$141.0 million to $233.9 million for the year ended
December 31, 2000 from $92.9 million for the year
ended December 31, 1999, an increase of 152%. Approximately
$101.0 million of the increase in total revenues is
attributed to the three acquisitions completed in the fourth
quarter of 1999 and two acquisitions completed in the second
quarter of 2000. In our financial institutions operating
segment, several large implementation projects and a large
product enhancement project comprised most of the remaining
increase in 2000. Additionally, our data center revenues
increased as we opened our international data centers in
Singapore and the UK in the fourth quarter of 2000.

Direct Costs and Gross
Margins.Direct costs increased by
$85.4 million to $138.6 million for the year ended
December 31, 2000 from $53.2 million for the year
ended December 31, 1999, an increase of 161%. Approximately
$51.5 million of the increase in direct costs is attributed
to the three acquisitions completed in the fourth quarter of
1999 and two acquisitions completed in the second quarter of
2000. Gross margins were 41% and 43% of total revenues for 2000
and 1999, respectively.

In our financial institutions operating segment,
several large implementation projects and a large product
enhancement project accounted for most of the remaining increase
in 2000. Gross margins on support and maintenance and
professional services in our financial institution operating
segment for the years 2000 and 1999 were 28% and 35%,
respectively. This decrease is primarily due to lower margin
contracts inherited as part of the acquisitions made in 1999.

Direct costs associated with data center services
increased by $11.4 million to $20.4 million for the
year ended December 31, 2000 from $9.0 million for the
year ended December 31, 1999. The increase in cost is
primarily attributable to additional personnel necessary to
support new customers, the addition of new applications by our
existing customers and the operation of our new data centers in
the UK and Singapore, which opened in the fourth quarter of
2000. The gross margins for data center operations increased
from negative 2% for 1999 to 11% for 2000 as we leveraged
increasing revenues against the fixed data center costs.

Selling and Marketing Expenses.Total selling and marketing
expenses increased by $43.1 million to $55.5 million
for the year ended December 31, 2000 from
$12.3 million for the year ended December 31, 1999.
The increase in these expenses is primarily attributable to the
three acquisitions completed in the fourth quarter of 1999 and
two acquisitions completed in the second quarter of 2000.

Product Development Expenses.Total product development expenses
increased by $45.9 million to $70.5 million for the
year ended December 31, 2000 from $24.6 million for
the year ended December 31, 1999. The increase in these
expenses is primarily attributable to the three acquisitions
completed in the fourth quarter of 1999 and two acquisitions
completed in the second quarter of 2000.

General and Administrative Expenses.General and administrative
expenses increased by $34.6 million to $48.8 million
for the year ended December 31, 2000 from
$14.2 million for the year ended December 31, 1999.
General and administrative expenses represented 21% and 15% of
total revenues for 2000 and 1999, respectively. The increase in
general and administrative expenses resulted from the five
acquisitions completed between the fourth quarter of 1999 and
the second quarter of 2000. In addition, we increased our
expenditures on general and administrative expenses to increase
personnel required to manage the growth as well as to establish
a global infrastructure.

Depreciation and Amortization.Depreciation and amortization
expenses increased by $19.0 million to $25.9 million
for the year ended December 31, 2000 from $6.9 million
for the year ended December 31, 1999, an increase of 275%.
Depreciation and amortization expense was 11% and 7% of total
revenues for the years ended December 31, 2000 and 1999,
respectively. A substantial portion of the increase is the
result of the acquisition of five companies and their existing
infrastructures during the fourth quarter of 1999 and the second
quarter of 2000. The balance of the increase is primarily the
result of the acquisition of additional equipment for our data
centers and the construction of the new data center facilities
in Singapore and the UK.

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Marketing Cost for Warrants Issued.We recorded $5.0 million of
marketing costs for warrants issued for the year ended
December 31, 2000, which includes a charge of approximately
$400,000 related to the vesting of a warrant previously granted
to Accenture LLP and a charge of approximately
$4.6 million for a warrant issued in connection with a
pilot project and distribution agreement between a third-party
and one of our subsidiaries. The fair values of the warrants
were determined based on the Black-Scholes option-pricing model.
During 1999, we recorded a charge of approximately $700,000 for
the warrants issued in connection with the pilot project and
distribution agreement.

Merger Related and Restructuring Costs.During 2000 and 1999, we incurred
merger related costs of $22.5 million and
$8.7 million, respectively. The merger related costs were
related to the three acquisitions completed in the fourth
quarter of 1999, two acquisitions in the second quarter of 2000
and one acquisition in the fourth quarter of 2000. These costs
were incurred to integrate the products and platforms of the
acquired companies, training personnel on the new products
acquired, and the cost of building the infrastructure necessary
to support a global operation. Included in the merger related
costs are approximately $1.8 million of personnel costs
related to professional service employees who were being
cross-trained on the products and services of the acquired
companies. Approximately $5.9 million of merger related
costs consist of the cost of product development personnel
working on the integration of the products and platforms
acquired. Approximately $14.8 million of merger related
costs consist of the cost of upgrading worldwide systems and
infrastructure required to manage a global operation. In
addition, merger related costs include expenses incurred
pursuing transactions that did not result in a strategic
arrangement.

In November 2000, we approved a
restructuring plan to streamline 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 facilities
worldwide. During the fourth quarter of 2000, we recorded a
charge for the costs associated with the exit plan of
approximately $14.7 million.

Acquired In-process Research and
Development.During 2000, in
connection with the acquisition of Q-Up, we allocated
$14.1 million of purchase price to acquired in-process
research and development. During 1999, in connection with the
acquisitions of Edify, FICS and VerticalOne, we allocated
$59.3 million to acquired in-process research and
development. We expensed acquired in-process research and
development costs at the respective dates of acquisition.

Amortization and Impairment of Acquisition
Intangible Assets.Amortization
and impairment of acquisition intangible assets increased $1.0
billion to $1.1 billion for the year ended
December 31, 2000 from $40.2 million for the year
ended December 31, 1999. Of the increase, approximately
$415.0 million related to the amortization of goodwill and other
identifiable intangible assets resulting from the three
acquisitions in the fourth quarter of 1999 and the two
acquisitions in the second quarter of 2000 and $664.9 million
related to an impairment charge taken in the fourth quarter of
2000.

Acquired In-process Research and
Development

In connection with the acquisitions of Edify,
FICS, VerticalOne and Q-Up, 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

39



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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. Our product pricing and growth rates
may not be achieved and we may not realize the financial
benefits expected from the 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) |       |         
|Edify       |  |                  | November 10, 1999 |                |  | $             | 381.7 |          |  | $ | 20.0 |  |  | $ | 8.8  | 
|FICS        |  |                  | November 18, 1999 |                |  |               | 426.1 |          |  |   | 32.0 |  |  |   | 6.7  | 
|VerticalOne |  |                  | November 10, 1999 |                |  |               | 179.4 |          |  |   | 7.3  |  |  |   | 4.9  | 
|Q-Up        |  |                  | April 7, 2000     |                |  |               | 414.9 |          |  |   | 14.1 |  |  |   | 13.0 | 

Development of the in-process technology acquired
in these transactions reached technological feasibility within
the estimates used in valuing the technology.

Liquidity and Capital Resources

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

|                                                                                                        |  |                         |          |      |  |   |         |  
|------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | - | ------- | -
|                                                                                                        |  |                        
|                                                                                                        |  | Year Ended December 31,
|                                                                                                        |  |                        
|                                                                                                        |  | 2000                    |          | 2001
|                                                                                                        |  |                         |          |     
|                                                                                                        |  |                        
|                                                                                                        |  | (In thousands)         
|Net cash (used in) provided by operating
	activities before changes in operating assets and liabilities |  | $                       | (97,302  | )    |  | $ | 9,833   |  
|Change in operating assets and liabilities                                                              |  |                         | (53,410  | )    |  |   | 2,061   |  
|                                                                                                        |  |                         |          |      |  |   |         |  
|Net cash (used in) provided by operating
	activities                                                    |  |                         | (150,712 | )    |  |   | 11,894  |  
|Net cash provided by (used in) investing
	activities                                                    |  |                         | 12,938   |      |  |   | (33,156 | )
|Net cash provided by (used in) financing
	activities                                                    |  |                         | 243,168  |      |  |   | (3,310  | )
|Effect of exchange rates on cash and cash
	equivalents                                                  |  |                         | 22       |      |  |   | (244    | )
|                                                                                                        |  |                         |          |      |  |   |         |  
|Net increase (decrease) in cash and cash
	equivalents                                                   |  | $                       | 105,416  |      |  | $ | (24,816 | )
|                                                                                                        |  |                         |          |      |  |   |         |  

|                                             |  |                    |         |      |  |   |         | 
|-------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                             |  |                   
|                                             |  | As of December 31,
|                                             |  |                   
|                                             |  | 2000               |         | 2001
|                                             |  |                    |         |     
|                                             |  |                   
|                                             |  | (In thousands)    
|Cash and cash equivalents                    |  | $                  | 173,266 |      |  | $ | 148,450 | 
|Working capital                              |  |                    | 165,704 |      |  |   | 129,827 | 
|Working capital, excluding deferred revenues |  |                    | 193,175 |      |  |   | 157,326 | 
|Total assets                                 |  |                    | 606,704 |      |  |   | 372,037 | 
|Total stockholders equity                   |  |                    | 467,745 |      |  |   | 274,618 | 

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Operating
Activities.During the year ended
December 31, 2001, cash provided by operations was
$11.9 million compared to cash used in operations of
$150.7 million for the year ended December 31, 2000.
The improvement in net cash flows from operating activities
generally reflects the decrease in our net loss plus 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.

Although we recorded a net loss of
$221.5 million for the year ended December 31, 2001, a
significant portion of our loss was comprised of non-cash items
including:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | $109.0 million of depreciation and
	amortization, including acquisition intangibles;           
|
| |  | $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 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.

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 $33.2 million for the year ended
December 31, 2001 compared to net cash provided by
investing activities of $12.9 million in the comparable
period of 2000.

In 2001, we sold our VerticalOne subsidiary,
including $15.1 million in cash, and we spent
$4.4 million in connection with the acquisition of SDI, net
of cash received. During 2000, we received $5.3 million in
connection with businesses that we acquired and invested
$6.9 million in companies that are considered to have
technology or products that complement our product and services
offerings.

During 2001 and 2000, we received
$1.0 million and $54.7 million, respectively from the
sale of investment securities. In 2001, we purchased
$14.7 million of property and equipment as compared to
$41.7 million in 2000. During 2001, our property and
equipment purchases were primarily related to leasehold
improvements for our new corporate headquarters and computer
equipment. The purchases of property and equipment made in 2000
were primarily related to the purchase of equipment required for
our global data center facilities.

Financing
Activities.Cash used in financing
activities was $3.3 million for the year ended
December 31, 2001 compared to cash provided by financing
activities of $243.2 million in 2000. In 2001, we received
$7.7 million from the sale of common stock under our
employee stock plans. In 2000, we received net proceeds of
$232.0 million from the sale of preferred stock and
$17.5 million from the sale of common stock under our stock
plans.

We paid $7.2 million and $5.0 million
for capital lease obligations in 2001 and 2000. In 2001 and
2000, we repaid borrowings of $3.8 million and
$2.5 million, respectively. In 2001, we entered into an
arrangement for a $10.0 million secured line of credit with
a bank. At December 31, 2001, we had no outstanding
borrowings and the full $10.0 million was available for
borrowing under the secured line of credit.

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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 of the letter of credit
reduces as our rent obligation declines. At December 31,
2001, 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 2013. We also lease certain computer equipment
under capital lease arrangements. Future minimum payments under
operating and capital leases, net of operating sublease income,
are $22.4 million in 2002, $14.7 million in 2003,
$11.7 million in 2004, $9.9 million in 2005,
$6.9 million in 2006 and $23.6 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 is
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. 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, 2001 were approximately
$46.4 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 do not expect the euro conversion to 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                                                                                                      |                                        |      | 44 |   
|Consolidated Balance Sheets as of
	December 31, 2000 and 2001                                                                          |                                        |      | 45 |   
|Consolidated Statements of Operations for the
	Years Ended December 31, 1999, 2000 and 2001                                            |                                        |      | 46 |   
|Consolidated Statements of Cash Flows for the
	Years Ended December 31, 1999, 2000 and 2001                                            |                                        |      | 47 |   
|Consolidated Statements of Stockholders
	Equity and Comprehensive Income (Loss) for the Years Ended
	December 31, 1999, 2000 and 2001 |                                        |      | 48 |   
|Notes to Consolidated Financial Statements                                                                                             |                                        |      | 49 |   
|Financial Statement Schedule:                                                                                                          |                                        |      |    |   
|For each of the three years ended
	December 31, 2001                                                                                   |                                        |      |    |   
|                                                                                                                                       | II  Valuation and Qualifying Accounts |      |    | 79 | 

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

43



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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, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001 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.

PricewaterhouseCoopers LLP

Atlanta, GA

March 21, 2002


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S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |            |        |         | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | --- | ------- | ------ | ---------- | ------ | ------- | 
|                                                     |                                                                                                                                                                      |                                                                                
|                                                     |                                                                                                                                                                      | December 31,                                                                   
|                                                     |                                                                                                                                                                      |                                                                                
|                                                     |                                                                                                                                                                      | 2000                                                                            |                                            | 2001      
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |           
|                                                     |                                                                                                                                                                      |                                                                                
|                                                     |                                                                                                                                                                      | (In thousands, except share                                                    
|                                                     |                                                                                                                                                                      | and per share data)                                                            
|ASSETS                                              
|Current assets:                                      |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     | Cash and cash equivalents                                                                                                                                            |                                                                                 | $                                          | 173,266    |     |         | $      | 148,450    |       
|                                                     | Investment securities available for sale (cost of
	$143 at December 31, 2000 and $31 at December 31, 2001)                                                           |                                                                                 |                                            | 1,521      |     |         |        | 151        |       
|                                                     | Accounts receivable, net of allowance for
	doubtful accounts and billing adjustments of $10,009 at
	December 31, 2000 and $8,083 at December 31, 2001                |                                                                                 |                                            | 97,134     |     |         |        | 56,502     |       
|                                                     | Prepaid expenses                                                                                                                                                     |                                                                                 |                                            | 5,905      |     |         |        | 3,906      |       
|                                                     | Other current assets                                                                                                                                                 |                                                                                 |                                            | 5,139      |     |         |        | 3,845      |       
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total current assets                       |            |     | 282,965 |        |            |        | 212,854 | 
|Property and equipment, net                          |                                                                                                                                                                      |                                                                                 | 62,667                                     |            |     |         | 41,253 |           
|Intangible assets, net                               |                                                                                                                                                                      |                                                                                 | 57,798                                     |            |     |         | 31,500 |           
|Goodwill, net                                        |                                                                                                                                                                      |                                                                                 | 195,428                                    |            |     |         | 79,723 |           
|Other assets                                         |                                                                                                                                                                      |                                                                                 | 7,846                                      |            |     |         | 6,707  |           
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total assets                               |            | $   | 606,704 |        |            | $      | 372,037 | 
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|LIABILITIES AND STOCKHOLDERS
	EQUITY               
|Current liabilities:                                 |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     | Accounts payable                                                                                                                                                     |                                                                                 | $                                          | 15,869     |     |         | $      | 4,617      |       
|                                                     | Accrued compensation and benefits                                                                                                                                    |                                                                                 |                                            | 13,261     |     |         |        | 19,884     |       
|                                                     | Accrued restructuring                                                                                                                                                |                                                                                 |                                            | 7,180      |     |         |        | 5,165      |       
|                                                     | Accrued other expenses                                                                                                                                               |                                                                                 |                                            | 41,375     |     |         |        | 19,937     |       
|                                                     | Deferred revenues                                                                                                                                                    |                                                                                 |                                            | 27,471     |     |         |        | 27,499     |       
|                                                     | Notes payable                                                                                                                                                        |                                                                                 |                                            | 3,822      |     |         |        |           |       
|                                                     | Current portion of capital lease obligation                                                                                                                          |                                                                                 |                                            | 8,283      |     |         |        | 5,925      |       
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total current liabilities                  |            |     | 117,261 |        |            |        | 83,027  | 
|Capital lease obligation, excluding current
	portion |                                                                                                                                                                      |                                                                                 | 6,226                                      |            |     |         | 1,450  |           
|Deferred tax liability                               |                                                                                                                                                                      |                                                                                 | 10,380                                     |            |     |         | 5,615  |           
|Accrued restructuring, excluding current portion     |                                                                                                                                                                      |                                                                                 | 3,381                                      |            |     |         | 6,189  |           
|Other liabilities                                    |                                                                                                                                                                      |                                                                                 | 1,711                                      |            |     |         | 1,138  |           
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total liabilities                          |            |     | 138,959 |        |            |        | 97,419  | 
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|Stockholders equity:                                |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     | Preferred stock, $0.01 par value. Authorized
	25,000,000 shares. Issued and outstanding 1,186,564 and
	1,635,744 shares at December 31, 2000 and 2001, respectively  |                                                                                 |                                            | 252,781    |     |         |        | 241,975    |       
|                                                     | Common stock, $0.01 par value. Authorized
	350,000,000 shares. Issued and outstanding 57,965,770 and
	61,444,554 shares at December 31, 2000 and 2001,
	respectively |                                                                                 |                                            | 580        |     |         |        | 614        |       
|                                                     | Additional paid-in capital                                                                                                                                           |                                                                                 |                                            | 1,610,096  |     |         |        | 1,640,972  |       
|                                                     | Receivable from the sale of stock                                                                                                                                    |                                                                                 |                                            | (11,454    | )   |         |        |           |       
|                                                     | Accumulated deficit                                                                                                                                                  |                                                                                 |                                            | (1,385,605 | )   |         |        | (1,607,148 | )     
|                                                     | Accumulated other comprehensive income:                                                                                                                              |                                                                                 |                                            |            |     |         |        |            |       
|                                                     |                                                                                                                                                                      | Net unrealized gains on investment securities
	available for sale, net of taxes |                                            |            | 840 |         |        |            | 73     |        
|                                                     |                                                                                                                                                                      | Cumulative foreign currency translation
	adjustment, net of taxes               |                                            |            | 507 |         |        |            | (1,868 | )      
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total stockholders equity                 |            |     | 467,745 |        |            |        | 274,618 | 
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           
|                                                     |                                                                                                                                                                      |                                                                                 | Total liabilities and stockholders equity |            | $   | 606,704 |        |            | $      | 372,037 | 
|                                                     |                                                                                                                                                                      |                                                                                 |                                            |            |     |         |        |           

See accompanying notes to consolidated financial
statements.

45



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |         |          |  
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---------- | ------ | -------- | ---- | ---------- | --------- | ---------- | - | ---------- | ------- | -------- | -
|                                            |                                                                                                                                  |                                                
|                                            |                                                                                                                                  | Year Ended December 31,                        
|                                            |                                                                                                                                  |                                                
|                                            |                                                                                                                                  | 1999                                            |            | 2000   |          | 2001
|                                            |                                                                                                                                  |                                                 |            |        |          |     
|                                            |                                                                                                                                  |                                                
|                                            |                                                                                                                                  | (In thousands, except share and per share data)
|Revenues:                                   |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            | Software licenses                                                                                                                |                                                 | $          | 19,050 |          |      | $          | 51,737    |            |   | $          | 71,385  |         
|                                            | Support and maintenance                                                                                                          |                                                 |            | 5,315  |          |      |            | 28,930    |            |   |            | 40,995  |         
|                                            | Professional services                                                                                                            |                                                 |            | 51,117 |          |      |            | 125,517   |            |   |            | 111,965 |         
|                                            | Data center                                                                                                                      |                                                 |            | 8,858  |          |      |            | 22,811    |            |   |            | 52,915  |         
|                                            | Other                                                                                                                            |                                                 |            | 8,550  |          |      |            | 4,893     |            |   |            | 1,050   |         
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            |                                                                                                                                  | Total revenues                                  |            |        | 92,890   |      |            |           | 233,888    |   |            |         | 278,310  |  
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|Operating expenses:                         |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            | Cost of software licenses                                                                                                        |                                                 |            | 642    |          |      |            | 4,556     |            |   |            | 4,017   |         
|                                            | Cost of professional services, support and
	maintenance, including stock compensation expense of $119 and
	$24 for 1999 and 2000 |                                                 |            | 36,446 |          |      |            | 109,379   |            |   |            | 84,351  |         
|                                            | Cost of data center                                                                                                              |                                                 |            | 9,008  |          |      |            | 20,371    |            |   |            | 26,013  |         
|                                            | Cost of other revenue                                                                                                            |                                                 |            | 7,112  |          |      |            | 4,305     |            |   |            | 751     |         
|                                            | Selling and marketing, including stock option
	compensation expense of $125 and $753 for 1999 and 2000                           |                                                 |            | 12,294 |          |      |            | 55,472    |            |   |            | 52,268  |         
|                                            | Product development, including stock option
	compensation expense of $544 and $1,690 for 1999 and 2000                           |                                                 |            | 24,580 |          |      |            | 70,490    |            |   |            | 55,569  |         
|                                            | General and administrative, including stock
	option compensation expense of $330, $2,916 and $1,330 for 1999,
	2000 and 2001     |                                                 |            | 14,243 |          |      |            | 48,766    |            |   |            | 49,820  |         
|                                            | Depreciation and amortization                                                                                                    |                                                 |            | 6,924  |          |      |            | 25,891    |            |   |            | 29,252  |         
|                                            | Marketing cost from warrants issued                                                                                              |                                                 |            | 715    |          |      |            | 4,962     |            |   |            |        |         
|                                            | Merger related and restructuring costs                                                                                           |                                                 |            | 8,744  |          |      |            | 37,228    |            |   |            | 9,260   |         
|                                            | Acquired in-process research and development                                                                                     |                                                 |            | 59,300 |          |      |            | 14,100    |            |   |            |        |         
|                                            | Amortization and impairment of acquisition
	intangible assets                                                                    |                                                 |            | 40,206 |          |      |            | 1,080,321 |            |   |            | 79,787  |         
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            |                                                                                                                                  | Total operating expenses                        |            |        | 220,214  |      |            |           | 1,475,841  |   |            |         | 391,088  |  
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            |                                                                                                                                  | Operating loss                                  |            |        | (127,324 | )    |            |           | (1,241,953 | ) |            |         | (112,778 | )
|Interest, investment and other income, net  |                                                                                                                                  |                                                 | 2,237      |        |          |      | 59,699     |           |            |   | 3,066      |        
|Loss on sale of subsidiaries                |                                                                                                                                  |                                                 |           |        |          |      |           |           |            |   | (53,186    | )      
|Equity in net loss of affiliate             |                                                                                                                                  |                                                 |           |        |          |      |           |           |            |   | (61,900    | )      
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|Loss before income tax benefit              |                                                                                                                                  |                                                 | (125,087   | )      |          |      | (1,182,254 | )         |            |   | (224,798   | )      
|Income tax benefit                          |                                                                                                                                  |                                                 |           |        |          |      | 4,576      |           |            |   | 3,255      |        
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|                                            |                                                                                                                                  | Net loss                                        |            | $      | (125,087 | )    |            | $         | (1,177,678 | ) |            | $       | (221,543 | )
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|Basic and diluted net loss per common share |                                                                                                                                  | $                                               | (4.28      | )      |          | $    | (21.77     | )         |            | $ | (3.74      | )      
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        
|Weighted average common shares outstanding  |                                                                                                                                  |                                                 | 29,227,732 |        |          |      | 54,096,324 |           |            |   | 59,242,105 |        
|                                            |                                                                                                                                  |                                                 |            |        |          |      |            |           |            |   |            |        

See accompanying notes to consolidated financial
statements.

46



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |          |         |         |         |  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | ------- | ---------- | --------- | ------- | -------- | -------- | ------- | ------- | ------- | -
|                                                              |                                                                                            |                                                                    
|                                                              |                                                                                            | Year Ended December 31,                                            
|                                                              |                                                                                            |                                                                    
|                                                              |                                                                                            | 1999                                                                |                                                                | 2000                                                 |         | 2001   
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |        
|                                                              |                                                                                            |                                                                    
|                                                              |                                                                                            | (In thousands)                                                     
|Cash flows from operating
	activities:                        |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              | Net loss                                                                                   |                                                                     | $                                                              | (125,087                                             | )       |         | $       | (1,177,678 | )         |         | $        | (221,543 | )      
|                                                              | Adjustments to reconcile net loss to net cash
	(used in) provided by operating activities: |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |          |        
|                                                              |                                                                                            | Depreciation and amortization and impairment
	charges               |                                                                |                                                      | 47,130  |         |         |            | 1,106,212 |         |          |          | 109,028 |        
|                                                              |                                                                                            | Acquired in-process research and development                        |                                                                |                                                      | 59,300  |         |         |            | 14,100    |         |          |          |        |        
|                                                              |                                                                                            | Provision for doubtful accounts receivable and
	billing adjustments |                                                                |                                                      | 785     |         |         |            | 6,826     |         |          |          | 5,220   |        
|                                                              |                                                                                            | Compensation and marketing expense for options
	and warrants        |                                                                |                                                      | 1,833   |         |         |            | 9,977     |         |          |          | 1,330   |        
|                                                              |                                                                                            | Loss on sale of subsidiaries                                        |                                                                |                                                      |        |         |         |            |          |         |          |          | 53,186  |        
|                                                              |                                                                                            | Equity in net loss of affiliate                                     |                                                                |                                                      |        |         |         |            |          |         |          |          | 61,900  |        
|                                                              |                                                                                            | Benefit for deferred income taxes                                   |                                                                |                                                      |        |         |         |            | (5,006    | )       |          |          | (3,007  | )      
|                                                              |                                                                                            | 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                                        |                                                                |                                                      |        |         |         |            |          |         |          |          | 1,822   |        
|                                                              |                                                                                            | Other                                                               |                                                                |                                                      |        |         |         |            |          |         |          |          | (1,169  | )      
|                                                              |                                                                                            | Changes in operating assets and liabilities:                        |                                                                |                                                      |         |         |         |            |           |         |          |          |         |        
|                                                              |                                                                                            |                                                                     | (Increase) decrease in accounts receivable                     |                                                      |         | (27,950 | )       |            |           | (31,567 | )        |          |         | 35,415  |        
|                                                              |                                                                                            |                                                                     | (Increase) decrease in prepaid expenses and other
	assets      |                                                      |         | (3,575  | )       |            |           | (839    | )        |          |         | 1,393   |        
|                                                              |                                                                                            |                                                                     | Increase (decrease) in accounts payable                        |                                                      |         | 8,782   |         |            |           | (13,924 | )        |          |         | (10,971 | )      
|                                                              |                                                                                            |                                                                     | Increase (decrease) in accrued expenses and
	other liabilities |                                                      |         | 8,883   |         |            |           | (2,080  | )        |          |         | (21,423 | )      
|                                                              |                                                                                            |                                                                     | Decrease in deferred revenues                                  |                                                      |         | (138    | )       |            |           | (5,000  | )        |          |         | (2,353  | )      
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              |                                                                                            |                                                                     |                                                                | Net cash (used in) provided by operating
	activities |         |         | (30,037 | )          |           |         | (150,712 | )        |         |         | 11,894  |  
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Cash flows from investing
	activities:                        |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              | Cash acquired through acquisition of businesses,
	net of cash paid                         |                                                                     |                                                                | 31,440                                               |         |         |         | 5,310      |           |         |          | (4,424   | )      
|                                                              | Cash exchanged in sale of subsidiaries                                                     |                                                                     |                                                                |                                                     |         |         |         |           |           |         |          | (15,073  | )      
|                                                              | 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 purchased
	technology                                |                                                                     |                                                                | (17,140                                              | )       |         |         | (41,660    | )         |         |          | (14,703  | )      
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              |                                                                                            |                                                                     |                                                                | Net cash provided by (used in) investing
	activities |         |         | 14,300  |            |           |         | 12,938   |          |         |         | (33,156 | )
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Cash flows from financing
	activities:                        |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              | Sale of preferred stock, net of expenses                                                   |                                                                     |                                                                |                                                     |         |         |         | 231,957    |           |         |          |         |        
|                                                              | Sale of common stock, net of expenses                                                      |                                                                     |                                                                | 63,957                                               |         |         |         |           |           |         |          |         |        
|                                                              | Proceeds from employee stock option plans and
	stock purchase plan                         |                                                                     |                                                                | 11,902                                               |         |         |         | 17,450     |           |         |          | 7,739    |        
|                                                              | Payments on notes payable                                                                  |                                                                     |                                                                | (6,760                                               | )       |         |         | (2,538     | )         |         |          | (3,822   | )      
|                                                              | Proceeds from receivable from sale of stock                                                |                                                                     |                                                                | 962                                                  |         |         |         | 1,325      |           |         |          |         |        
|                                                              | Payments on capital lease obligations                                                      |                                                                     |                                                                | (955                                                 | )       |         |         | (5,026     | )         |         |          | (7,227   | )      
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              |                                                                                            |                                                                     |                                                                | Net cash provided by (used in) financing
	activities |         |         | 69,106  |            |           |         | 243,168  |          |         |         | (3,310  | )
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Effect of exchange rate changes on cash and cash
	equivalents |                                                                                            |                                                                     | (23                                                            | )                                                    |         |         | 22      |            |           |         | (244     | )       
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Net increase (decrease) in cash and cash
	equivalents         |                                                                                            |                                                                     | 53,346                                                         |                                                      |         |         | 105,416 |            |           |         | (24,816  | )       
|Cash and cash equivalents at beginning of year                |                                                                                            |                                                                     | 14,504                                                         |                                                      |         |         | 67,850  |            |           |         | 173,266  |         
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Cash and cash equivalents at end of year                      |                                                                                            | $                                                                   | 67,850                                                         |                                                      |         | $       | 173,266 |            |           | $       | 148,450  |         
|                                                              |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|Noncash financing and investing
	activities:                  |                                                                                            |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |         
|                                                              | Property and equipment acquired through leases                                             |                                                                     | $                                                              |                                                     |         |         | $       | 17,703     |           |         | $        |         |        
|                                                              | Equity interest in affiliate received in
	connection with sale of subsidiary               |                                                                     |                                                                |                                                     |         |         |         |           |           |         |          | 62,900   |        
|                                                              | Conversion of preferred stock to common stock                                              |                                                                     |                                                                | 849                                                  |         |         |         | 2,265      |           |         |          | 6,179    |        
|                                                              | Issuance of series C preferred stock in exchange
	for subscription receivable              |                                                                     |                                                                | 12,027                                               |         |         |         |           |           |         |          |         |        
|                                                              | Cancellation of series C preferred stock and
	subscription receivable                      |                                                                     |                                                                |                                                     |         |         |         |           |           |         |          | (10,824  | )      
|                                                              | Effect of acquisitions:                                                                    |                                                                     |                                                                |                                                      |         |         |         |            |           |         |          |          |        
|                                                              |                                                                                            | Issuance of preferred stock and common stock                        |                                                                |                                                      | 960,748 |         |         |            | 452,845   |         |          |          | 23,478  |        
|                                                              |                                                                                            | Liabilities assumed                                                 |                                                                |                                                      | 109,850 |         |         |            | 7,085     |         |          |          | 5,639   |        

See accompanying notes to consolidated financial
statements.

47



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME (LOSS)

|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------ |  | --------------------------------- | --------- | ------------ |  | ---------- | ------- | ------------- |  | ----------- | ---------- | ------------- |  | ------------- | --- | ------------- |  | ------ | --------- | ------------- |  | - | ------- | - |  | - | ---------- | - |  | - | ------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |       
|                                                                                     |  | Convertible                       |           |              |  |            |         |               |  |             |            | Accumulated   |  |               |     |              
|                                                                                     |  | Preferred Stock                   |           | Common Stock |  | Additional |         | Receivable    |  |             |            | Other         |  | Total         |     |              
|                                                                                     |  |                                   |           |              |  | Paid-in    |         | From the Sale |  | Accumulated |            | Comprehensive |  | Stockholders |     | Comprehensive
|                                                                                     |  | Shares                            |           | Amount       |  | Shares     |         | Amount        |  | Capital     |            | of Stock      |  | Deficit       |     | Income (Loss) |  | Equity |           | (Loss) Income
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |              
|                                                                                     |  |                                  
|                                                                                     |  | (In thousands, except share data)
|Balance at December 31, 1998                                                         |  |                                   | 1,385,528 |              |  | $          | 11,911  |               |  |             | 24,527,004 |               |  | $             | 245 |               |  | $      | 86,811    |               |  | $ |        |   |  | $ | (82,840    | ) |  | $ | 1,102   |   |  | $ | 17,229     |   |  |   |            |  
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|Net loss                                                                             |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   |        |   |  |   | (125,087   | ) |  |   |        |   |  |   | (125,087   | ) |  | $ | (125,087   | )
|Change in net unrealized gains on investment
	securities available for sale          |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   |        |   |  |   |           |   |  |   | 58,818  |   |  |   | 58,818     |   |  |   | 58,818     |  
|Change in cumulative foreign currency translation
	adjustment                        |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   |        |   |  |   |           |   |  |   | 365     |   |  |   | 365        |   |  |   | 365        |  
|Conversion of preferred stock to common stock                                        |  |                                   | (207,514  | )            |  |            | (849    | )             |  |             | 415,028    |               |  |               | 4   |               |  |        | 845       |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   |           |   |  |   |           |  
|Issuance of preferred stock, net of expenses                                         |  |                                   | 215,000   |              |  |            | 12,027  |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   | (12,027 | ) |  |   |           |   |  |   |        |   |  |   |           |   |  |   |           |  
|Sale of common stock, net of expenses                                                |  |                                   |          |              |  |            |        |               |  |             | 1,225,617  |               |  |               | 12  |               |  |        | 63,945    |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 63,957     |   |  |   |           |  
|Proceeds from receivable from the sale of stock                                      |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   | 962     |   |  |   |           |   |  |   |        |   |  |   | 962        |   |  |   |           |  
|Interest earned on receivable from the sale of
	stock                                |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        | 750       |               |  |   | (670    | ) |  |   |           |   |  |   |        |   |  |   | 80         |   |  |   |           |  
|Common stock issued upon the exercise of stock
	options                              |  |                                   |          |              |  |            |        |               |  |             | 2,854,774  |               |  |               | 29  |               |  |        | 11,873    |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 11,902     |   |  |   |           |  
|Stock option compensation                                                            |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        | 1,118     |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 1,118      |   |  |   |           |  
|Warrant issued in connection with marketing
	agreement                               |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        | 715       |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 715        |   |  |   |           |  
|Issuance of common stock in connection with
	acquisitions                            |  |                                   |          |              |  |            |        |               |  |             | 19,808,820 |               |  |               | 198 |               |  |        | 960,550   |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 960,748    |   |  |   |           |  
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|Comprehensive loss                                                                   |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   |           |   |  | $ | (65,904    | )
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|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                            |  |                                   | 649,180   |              |  |            | 6,197   |               |  |             | 1,257,109  |               |  |               | 12  |               |  |        | 17,269    |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   | 23,478     |   |  |   |           |  
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|Comprehensive loss                                                                   |  |                                   |          |              |  |            |        |               |  |             |           |               |  |               |    |               |  |        |          |               |  |   |        |   |  |   |           |   |  |   |        |   |  |   |           |   |  | $ | (224,117   | )
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  
|Balance at December 31, 2001                                                         |  |                                   | 1,635,744 |              |  | $          | 241,975 |               |  |             | 61,444,554 |               |  | $             | 614 |               |  | $      | 1,640,972 |               |  | $ |        |   |  | $ | (1,607,148 | ) |  | $ | (1,795  | ) |  | $ | 274,618    |   |  |   |            |  
|                                                                                     |  |                                   |           |              |  |            |         |               |  |             |            |               |  |               |     |               |  |        |           |               |  |   |         |   |  |   |            |   |  |   |         |   |  |   |            |   |  |   |            |  

See accompanying notes to consolidated financial
statements.

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S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 1999, 2000 and
2001


1.     Business

We are a global provider of enterprise software
solutions for financial organizations including banks, credit
unions, investment firms and insurance companies. S1 Enterprise
solutions support financial services providers retail,
corporate or investment applications over multiple delivery
channels, enabling them to provide the same, consistent
information in a compelling manner, regardless of how their
customers want to interact with them. The financial organization
gains an integrated view of the customer  across all
accounts, across all lines of business, and across all channels.
As a result, the financial services providers can identify the
best or most profitable channel to interact with their customers.

We provide a comprehensive set of enterprise
software solutions that touch every significant facet of the
financial services industry. From banking, brokerage and
insurance to personal financial management and tax preparation
capabilities, our retail, small business and corporate
applications provide a comprehensive set of solutions for
global, national, regional and local financial organizations. We
also provide statutory financial reporting software solutions
for several countries and provide aggregation services through
our reseller relationship with Yodlee, Inc.

We support our applications with flexible
implementation, maintenance and service options. We provide
professional services for the installation and integration of
our products, including installation at third-party data
processing centers and direct licensee sites or integration of
the financial organizations data processing systems within
our data centers. In addition, we provide training, consulting
and product enhancement services, enabling financial
organizations to leverage their complete enterprise to maximize
the profit potential of every customer interaction.

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 1999, 2000 and 2001, we completed a total of seven
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. Also, 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. We have eliminated all significant intercompany
balances and transactions in the preparation of the consolidated
financial statements.

In November 1999, we completed the acquisition of
FICS Group, N.V., which included our Financial Reporting Systems
business unit that we reported in our financial statements as
held for sale in 1999 and 2000. As a result, we did not include
the operating results of the FRS business unit in our statements
of operations for 1999 or 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 unit 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
unit operations, which we do not consider material, in our
statement of operations for 2001 as part of the financial
institutions segment.

We have adjusted stockholders equity, share
and per share amounts for all periods presented to reflect a
two-for-one stock split effected in the form of a stock dividend
paid on May 7, 1999 to holders of record on April 26,
1999.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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. 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;                      
|
| |  | determination of technological feasibility and
	capitalization of software development costs;
|
| |  | recognition of costs in connection with
	restructuring plans and merger-related activities;  
|
| |  | valuation of stock options and warrants issued;
	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, notes payable and capital lease obligations.

Cash and cash equivalents include deposits with
commercial banks with original maturities of 90 days or
less. Deposits with original maturities of over 90 days,
and less than one year to maturity, are included in other
current assets. Investment securities 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.

The carrying values of accounts receivable,
accounts payable, accrued compensation and benefits, other
accrued expenses, deferred revenues and notes payable
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.

Property and
equipment

We report property and equipment at cost, less
accumulated depreciation and amortization. We calculate
depreciation and amortization 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.
Amortization of assets held under capital lease arrangements is
included in depreciation and amortization in the consolidated
statements of operations. Gains or losses recognized on disposal
or retirement of property and equipment are recognized in the
consolidated statement of operations.

Goodwill and
other intangible assets

We have recorded goodwill and other intangible
assets in connection with the acquisition of businesses
accounted for using the purchase method. We amortize goodwill
and other intangible assets over their estimated useful lives
(ranging from three to seven years) using the straight-line
method. Purchased

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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, 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 these intangible assets that should
be written off. During 2000, we recorded a $664.9 million
impairment charge on goodwill and other intangible assets that
we deemed impaired. This charge, which we discuss more fully in
Note 8, 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. 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.

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
year ended December 31, 1999, two customers represented 40%
and 12% of total revenues, respectively. For the years ended
December 31, 2000 and 2001, one customer represented 31%
and 28% of total revenues. One customer represented 43% and 20%
of total receivables at December 31, 2000 and 2001,
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 Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements,
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,

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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.

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

Data center revenue.We recognize data center revenue in accordance with the multiple
element arrangement guidance in SAB No. 101. 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

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 client 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.

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 and
amortization of property and equipment.

Advertising

We expense advertising costs as incurred.
Advertising expense for 1999, 2000 and 2001 was $400,000,
$3.5 million and $1.3 million, respectively.

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 the acquired
companies, training personnel on the 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. Any difference in the actual
settlement amount is reflected as an adjustment to income or
expense within this line item in the period of resolution, which
in 2001 was a $2.1 million reduction to expense.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


In 2000, we approved a restructuring plan related
to the reorganization of our worldwide operations. We accrued
the estimated costs of exiting certain activities under this
restructuring plan 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 the restructuring plan based on current
information and, as a result, recorded additional charges for
the estimated incremental costs of exiting certain activities
under this restructuring plan. In 2001, we approved a
restructuring plan to streamline our European operations. See
Note 9 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 carryforwards. 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.



| |                          
| | -------------------------
| | Net loss per common share

We calculate basic loss per share as the net loss
available to common stockholders divided by the weighted average
number of common shares outstanding during the period reported.
Diluted loss per 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 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.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | 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 in the
consolidated statement of changes in stockholders equity.



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

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



| |                                  
| | ---------------------------------
| | Recent accounting
	pronouncements

In July 2001, the Financial Accounting Standards
Board 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 and other
companies with calendar year ends, the standards became
effective for all acquisitions completed on or after
June 30, 2001, except with regard to business combinations
initiated prior to July 1, 2001. As a result, we applied
these new standards in connection with our acquisition of
Software Dynamics, Incorporated, as further discussed in
Note 3. Accordingly, as prescribed by the new standards, we
have not amortized the goodwill recorded in connection with the
acquisition of SDI.

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 not subject to
	amortization. We estimate that the resulting reduction of
	amortization expense will be approximately $55.5 million
	for 2002, $6.8 million for 2003 and $2.2 million for
	2004.                                                                                                                                                                                                                     
|
| |  | We are currently performing a transitional
	goodwill impairment test as of January 1, 2002. 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. At
	this time, we do not anticipate any charge resulting from the
	transitional impairment test; however, we have not completed our
	review.                 
|
| |  | Following the transitional impairment test, our
	goodwill balances will be subject to impairment tests using the
	same process described above, at least once annually. If the
	carrying value of any reporting unit exceeds its fair value in
	future periods, we will determine the amount of any goodwill
	impairment 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.

In June 2001, the FASB 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
are required to adopt this statement no later than
January 1, 2003 and do not expect it to have a material
impact on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. This statement
supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. However, it retains the fundamental
provisions of SFAS No. 121 for the recognition and
measurement of the impairment of long-lived assets to be held
and used and the measurement of long-lived assets to be disposed
of by sale. Impairment of goodwill is not included in the scope
of SFAS No. 144 and will be treated in accordance with SFAS
No. 142. According to SFAS No. 144, long-lived assets
are measured at the lower of carrying amount or fair value less
cost to sell, whether reporting in continuing or discontinued
operations. We adopted this statement on January 1, 2002
with no material impact on our consolidated financial statements.

In November 2001, the FASBs Emerging Issues
Task Force reached a consensus on EITF Issue 01-09,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which is a codification of EITF 00-14, 00-22 and 00-25.
This issue presumes that consideration from a vendor to a
customer or reseller of the vendors products to be a
reduction in the selling prices of the vendors product
and, therefore, should be characterized as a reduction of
revenue when recognized in the vendors income statement
and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration related to a
separate identifiable benefit and the benefits fair value
can established. This issue is to be applied retroactively in
the first fiscal quarter beginning after December 15, 2001.
We have not yet finalized our evaluation of the effects of this
consensus on our consolidated financial statements; however, we
do not expect this consensus to have a material impact on our
financial statements.

3.     Business
Acquisitions

During 1999, 2000 and 2001, we acquired
7 companies. The companies acquired, purchase price and
summary information about the purchase price allocation are as
follows (in thousands):

|                        |  |             |            |          |  |        |         |               |  |              |        |            |  |             |         |   |  |   |        |  |  |   |        |  |  |   |         | 
|----------------------- |  | ----------- | ---------- | -------- |  | ------ | ------- | ------------- |  | ------------ | ------ | ---------- |  | ----------- | ------- | - |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                        |  |             |            |          |  |        |         | Fair Value of |  |              |        |            |  |            
|                        |  |             |            |          |  |        |         | Net Tangible  |  |              |        |            |  |            
|                        |  |             |            | Total    |  | Common |         | Assets        |  | In-Process   |        |            |  |            
|                        |  | Date of     |            | Purchase |  | Shares |         | (Liabilities) |  | Research and |        | Intangible |  |            
|Business Acquired       |  | Acquisition |            | Price(1) |  | Issued |         | Acquired      |  | Development  |        | Assets(2)  |  | Goodwill(2)
|                        |  |             |            |          |  |        |         |               |  |              |        |            |  |            
|Edify Corporation       |  |             | 11/10/1999 |          |  | $      | 381,700 |               |  |              | 5,966  |            |  | $           | 31,000  |   |  | $ | 20,000 |  |  | $ | 34,000 |  |  | $ | 296,700 | 
|VerticalOne Corporation |  |             | 11/10/1999 |          |  |        | 179,400 |               |  |              | 3,842  |            |  |             | 23,400  |   |  |   | 7,300  |  |  |   | 22,500 |  |  |   | 126,200 | 
|FICS Group, N.V         |  |             | 11/18/1999 |          |  |        | 426,100 |               |  |              | 10,000 |            |  |             | (55,200 | ) |  |   | 32,000 |  |  |   | 48,000 |  |  |   | 401,300 | 
|Q-Up Systems, Inc.      |  |             | 04/07/2000 |          |  |        | 414,900 |               |  |              | 2,453  |            |  |             | 3,400   |   |  |   | 14,100 |  |  |   | 12,600 |  |  |   | 384,800 | 
|Davidge Data Systems    |  |             | 04/13/2000 |          |  |        | 27,000  |               |  |              | 250    |            |  |             | 500     |   |  |   |       |  |  |   |       |  |  |   | 26,500  | 
|Level Next, Inc.        |  |             | 11/13/2000 |          |  |        | 2,900   |               |  |              | 162    |            |  |             | 150     |   |  |   |       |  |  |   |       |  |  |   | 2,750   | 
|Software Dynamics, Inc. |  |             | 09/20/2001 |          |  |        | 28,800  |               |  |              | 1,257  |            |  |             | (1,300  | ) |  |   |       |  |  |   | 7,800  |  |  |   | 22,300  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, Inc. and SDI we
	also gave cash consideration of $676,000 and $4.5 million,
	respectively. In connection with the acquisition of SDI, we
	issued 649,180 series 
	 E preferred shares, which we discuss further below.
|   
|(2) | During the fourth quarter of 2000, as more fully
	discussed in Note 8, we recorded an impairment charge of
	$664.9 million to adjust the intangible assets acquired in
	connection with FICS, Edify, Q-Up and Davidge.                                                                                                                                                             

In November 1999, we acquired Edify Corporation,
a Santa Clara, California based provider of Internet and voice
e-Commerce portal solutions; FICS Group, N.V., a Brussels,
Belgium based vendor of financial electronic commerce and
regulatory reporting software; and VerticalOne Corporation, then
an Atlanta based consolidator, organizer and presenter of
personal account information via the Internet. In April 2000, we

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 and
mid-market banks. In November 2000, we acquired Level Next, a
provider of global trade banking systems. All of our acquired
businesses, except Edify Corporation, are part of our financial
institutions segment. A portion of Edify makes up our contact
center automation segment, the remaining is included in our
financial institutions segment. VerticalOne made up our Internet
aggregation services segment. We sold VerticalOne to Yodlee,
Inc. in January 2001 as discussed in Note 4.

On September 20, 2001, we acquired all of
the fully diluted shares of SDI, a privately held provider of
branch automation, call center and customer relationship
management, or CRM, solutions for financial institutions. As a
result of this acquisition, we now deliver software solutions to
financial institutions for four major customer interaction
channels  branch, call center, phone and
Internet  and all core lines of business. 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. SDIs product line
gave us a presence in bank branch networks, creating a link of
account information at the branch level in real time with the
other platforms. SDIs PLUS and ZEUS product lines provided
us with proven branch automation technology. We believe this
unique fit will allow our customers to quickly begin realizing
the benefits and costs savings generated by the acquisition.
SDIs assets will enable us to more rapidly execute on our
enterprise strategy of delivering all products and all services
across all channels. In addition to SDIs technology, we
believe SDIs existing customer base will provide us with
reliable economic benefits, stemming mainly from maintenance and
relicensing activity. In addition, SDIs customers present
us with a ready market to sell other S1 systems and services.

Under the terms of the SDI acquisition agreement:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We issued 1,257,109 shares of common stock
	with a value recorded of $16.1 million. The value of the
	common shares issued was determined based on the average market
	price of our common shares over the 2 trading day period
	before and the 2 trading day period after the terms of the
	acquisition were agreed to and announced, less the estimated
	costs to register the securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | We issued 649,180 shares of series E preferred
	stock. 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 in connection with a general indemnity
	provision and the collection of specific funds under a pending
	sale of software licenses. This escrow period expires in March
	2003. The shares related to the general indemnity provision were
	included in the determination of the purchase price as they did
	not relate to specific contingencies and we do not expect that
	any claims will arise. The value of the contingent consideration
	that we deducted from the value assigned to the preferred shares
	is equal to the value of the specified funds receivable. If the
	funds are collected, we will record the value of the contingent
	consideration at that time, which will increase the amount of
	goodwill that we recorded in connection with this acquisition.
|
| |  | We converted all outstanding options to purchase
	SDI stock for 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | We paid $4.5 million from available cash to
	SDI shareholders and approximately $800,000 for direct
	acquisition costs, including principally advisory, legal and
	accounting fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Of the total purchase price of
$28.8 million, we allocated $5.7 million to existing
SDI technology (estimated useful life of 7 years),
$2.1 million to the installed customer asset (estimated
useful life of 10 years) and net liabilities of
$1.3 million, based on their estimated fair values at the
date of acquisition. We assigned the remaining
$22.3 million to goodwill. The goodwill is not tax
deductible. The value assigned to the

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


identifiable intangible assets was based on
analysis performed by an independent third party as of the date
of acquisition.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at
September 30, 2001 (in thousands):

|                             |  |   |        |  
|---------------------------- |  | - | ------ | -
|Current assets               |  | $ | 2,876  |  
|Property and equipment       |  |   | 496    |  
|Other non-current assets     |  |   | 80     |  
|Identified intangible assets |  |   | 7,800  |  
|Goodwill                     |  |   | 22,316 |  
|Current liabilities          |  |   | (4,671 | )
|Non-current liabilities      |  |   | (114   | )
|                             |  |   |        |  
|                             |  | $ | 28,783 |  
|                             |  |   |        |  

We accounted for all of our 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, customer lists and assembled work
force. The consolidated financial statements include the results
of operations for the acquired companies from the date of
acquisition, which for accounting purposes is generally the
month end date closest to the actual date of acquisition. The
amounts allocated to in-process research and development were
based on the results of independent appraisals and were expensed
upon acquisition because technological feasibility had not been
established and no future alternative uses existed. Certain
related core technology was valued as existing technology and
was not included in the value of the acquired in-process
research and development. The value of the purchased in-process
research and development was determined using an income
approach. This approach 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. Finally, a stage of completion factor was applied
to the sum of the present values of the cash flows in the
projection period. The stage of completion factor was calculated
giving consideration to the costs incurred to date on the
in-process research and development relative to the total
anticipated costs for each project.

In connection with the acquisition of FICS, we
recorded a deferred tax liability of $15.2 million for the
difference between the assigned values for book purposes and the
tax bases of assets in accordance with SFAS 109. We reduced
this amount by $5.0 million as a result of the decrease in
identifiable intangible assets resulting from the impairment
charge that we recorded in 2000 as more fully discussed in Note
8.

We expensed in-process research and development
immediately upon closing acquisitions. Amounts allocated to
goodwill and other intangible assets are being amortized over
their estimated useful lives on a straight-line basis over three
to ten years. The value assigned to the identifiable intangible
assets was based on analysis performed by an independent third
party as of the date of acquisition.

We did not present pro forma results of
operations for the acquisitions of Q-Up, Davidge, Level Next and
SDI because the effect of these acquisitions was not significant.

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

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 a $67.4 million
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 $21.4 million. In addition, at the
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. The carrying value of our
investment in Yodlee after these charges was $1.0 million
at December 31, 2001. We are a reseller of Yodlees
account aggregation services. See Note 18 for a description of
our sales representation agreement with Yodlee.

The following unaudited summarized financial
information for Yodlee was derived from Yodlees audited
financial statements as of December 31, 2001 and for the
year then ended (in thousands):

|                                                                                     |  |    |          |  
|------------------------------------------------------------------------------------ |  | -- | -------- | -
|Current assets                                                                       |  | $  | 21,485   |  
|Non-current assets                                                                   |  |    | 13,420   |  
|                                                                                     |  |    |          |  
|Total assets                                                                         |  | $  | 34,905   |  
|                                                                                     |  |    |          |  
|Current liabilities                                                                  |  | $  | 13,101   |  
|Long-term liabilities                                                                |  |    | 17,364   |  
|Redeemable convertible preferred stock                                               |  |    | 212,075  |  
|Total stockholders deficit                                                          |  |    | (207,635 | )
|                                                                                     |  |    |          |  
|Total liabilities, redeemable convertible
	preferred stock and stockholders deficit |  | $  | 34,905   |  
|                                                                                     |  |    |          |  
|Total revenues                                                                       |  | $  | 7,019    |  
|Cost of revenues                                                                     |  |    | 14,317   |  
|Net loss available to common stockholders                                            |  | ($ | 156,803  | )

During the second quarter of 2001, we recorded a
charge of approximately $900,000 in connection with the sale of
a small European subsidiary.



|   |                                          
|-- | -----------------------------------------
|5. | Investment Securities Available for
	Sale

At December 31, 2000 and 2001, investment
securities available for sale consisted entirely of marketable
equity securities.

|                      |  |                |       |      |  |   |     | 
|--------------------- |  | -------------- | ----- | ---- |  | - | --- | 
|                      |  |               
|                      |  | December 31,  
|                      |  |               
|                      |  | 2000           |       | 2001
|                      |  |                |       |     
|                      |  |               
|                      |  | (In thousands)
|Cost                  |  | $              | 143   |      |  | $ | 31  | 
|Fair value            |  |                | 1,521 |      |  |   | 151 | 
|Gross unrealized gain |  |                | 1,378 |      |  |   | 120 | 

Proceeds from the sales of investment securities
were $41.9 million and $1.0 million in 2000 and 2001,
respectively. We realized gross gains on sales of investment
securities of $40.2 million and $931,000 in 2000 and 2001,
respectively. Additionally, during 2000, we sold other
securities with net proceeds of $12.8 million and a gain of
$11.5 million.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                    
|-- | -------------------
|6. | Accounts Receivable

Accounts receivable include unbilled receivables
of approximately $9.3 million at December 31, 2000 and
$6.4 million at December 31, 2001. 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. We
anticipate that such unbilled amounts at December 31, 2001
will be collected upon presentment of billings. We expect to
bill substantially all unbilled amounts within three months.

7.     Property and
Equipment

Property and equipment consist of the following:

|                                          |  |                |         |      |  |   |         |  
|----------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                          |  |               
|                                          |  | December 31,  
|                                          |  |               
|                                          |  | 2000           |         | 2001
|                                          |  |                |         |     
|                                          |  |               
|                                          |  | (In thousands)
|Leasehold improvements                    |  | $              | 14,124  |      |  | $ | 14,420  |  
|Furniture and fixtures                    |  |                | 6,924   |      |  |   | 9,240   |  
|Computer equipment                        |  |                | 60,145  |      |  |   | 55,362  |  
|Software                                  |  |                | 15,492  |      |  |   | 15,602  |  
|                                          |  |                |         |      |  |   |         |  
|                                          |  |                | 96,685  |      |  |   | 94,624  |  
|Accumulated depreciation and amortization |  |                | (34,018 | )    |  |   | (53,370 | )
|                                          |  |                |         |      |  |   |         |  
|                                          |  | $              | 62,667  |      |  | $ | 41,254  |  
|                                          |  |                |         |      |  |   |         |  

8.     Goodwill and
Other Intangible Assets

Goodwill and other intangible assets consist of
the following:

|                                  |                              |                |          |         |  |   |          |        | 
|--------------------------------- | ---------------------------- | -------------- | -------- | ------- |  | - | -------- | ------ | 
|                                  |                              |               
|                                  |                              | December 31,  
|                                  |                              |               
|                                  |                              | 2000           |          | 2001   
|                                  |                              |                |          |        
|                                  |                              |               
|                                  |                              | (In thousands)
|Goodwill                          |                              | $              | 304,632  |         |  | $ | 199,363  |       
|Accumulated amortization          |                              |                | (109,204 | )       |  |   | (119,640 | )     
|                                  |                              |                |          |         |  |   |          |       
|                                  | Goodwill, net                |                | $        | 195,428 |  |   | $        | 79,723 | 
|                                  |                              |                |          |         |  |   |          |       
|Purchased and acquired technology |                              | $              | 52,251   |         |  | $ | 35,952   |       
|Assembled work force              |                              |                | 12,625   |         |  |   | 12,126   |       
|Customer lists                    |                              |                | 23,303   |         |  |   | 25,396   |       
|Other                             |                              |                | 44       |         |  |   | 48       |       
|                                  |                              |                |          |         |  |   |          |       
|                                  |                              |                | 88,223   |         |  |   | 73,522   |       
|Accumulated amortization          |                              |                | (30,425  | )       |  |   | (42,022  | )     
|                                  |                              |                |          |         |  |   |          |       
|                                  | Other intangible assets, net |                | $        | 57,798  |  |   | $        | 31,500 | 
|                                  |                              |                |          |         |  |   |          |       

We continually monitor our results of operations
and other developments within the industry to adjust our cash
flow forecast, as necessary, to determine if any adjustment is
necessary to the carrying value of our intangible assets.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 9;
	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.
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 the financial institutions segment and
$8.1 million related to the contact center automation
segment.

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.



|   |                    
|-- | -------------------
|9. | Restructuring Costs

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
$4.0 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.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  
|------------------------------------------ |  | --------------- | ------ | ----------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                           |  | Personnel Costs |        | Lease Costs |  | Other |        | Total
|                                           |  |                 |        |             |  |       |        |      
|                                           |  |                
|                                           |  | (In thousands) 
|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  |  
|                                           |  |                 |        |             |  |       |        |       |  |   |        |   |  |   |         |  

We expect to make future cash expenditures, net
of anticipated sublease income, related to these restructuring
activities of approximately $11.4 million, of which we
anticipate to pay approximately $5.2 million within the
next twelve months.



|    |           
|--- | ----------
|10. | Borrowings

At December 31, 2000, we had notes payable
of approximately $3.8 million outstanding under lines of
credit with various banks with interest rates ranging from 3.65%
to 6.16%. For 2000 and 2001, the weighted average interest rate
for our borrowings was 4.97% and 5.78%, respectively. We repaid
these notes during 2001.

On September 4, 2001, we entered into an
arrangement with a bank for a $10.0 million secured line of
credit, which expires on September 3, 2002. As of
December 31, 2001, the full $10.0 million was
available for borrowing under the secured line of credit. We are
required to pay an annual commitment fee of 0.20% on the
un-drawn portion of the commitment. For any borrowings under the
secured line of credit, we may choose to pay interest based on
the lenders prime rate, LIBOR plus 0.50% or a rate quoted
by the lender. Certain of our assets with a value of
$10.0 million secure the line of credit.

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
maintain under the standby letter of credit decreases as our
future obligations under the lease agreement declines. At
December 31, 2001, there were no drawings outstanding under
the letter of credit.



|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies

Lease
commitments

We lease office facilities and computer equipment
under non-cancelable operating lease agreements, which expire at
various dates through 2013. Total rental expense under these
leases was $5.8 million, $18.5 million and
$16.8 million in 1999, 2000 and 2001, respectively.

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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

|           |  |                 |        |           |  |             |         |   |  |   |        | 
|---------- |  | --------------- | ------ | --------- |  | ----------- | ------- | - |  | - | ------ | 
|           |  | Operating Lease |        | Sublease  |  | Net Lease  
|           |  | Commitments     |        | Income(1) |  | Commitments
|           |  |                 |        |           |  |            
|           |  |                
|           |  | (In thousands) 
|2002       |  | $               | 16,779 |           |  | $           | (903    | ) |  | $ | 15,876 | 
|2003       |  |                 | 15,170 |           |  |             | (1,881  | ) |  |   | 13,289 | 
|2004       |  |                 | 13,069 |           |  |             | (1,515  | ) |  |   | 11,554 | 
|2005       |  |                 | 11,163 |           |  |             | (1,301  | ) |  |   | 9,862  | 
|2006       |  |                 | 8,192  |           |  |             | (1,244  | ) |  |   | 6,948  | 
|Thereafter |  |                 | 28,938 |           |  |             | (5,387  | ) |  |   | 23,551 | 
|           |  |                 |        |           |  |             |         |   |  |   |        | 
|           |  | $               | 93,311 |           |  | $           | (12,231 | ) |  | $ | 81,080 | 
|           |  |                 |        |           |  |             |         |   |  |   |        | 



---



| | 
| | 
| | 



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the first quarter of 2002, we entered into
	agreements with third parties to sublease certain office space
	that significantly reduced our total operating lease commitments.

At December 31, 2001, we had
$1.3 million cash in a one-year certificate of deposit to
guarantee certain rent payments. This amount is included in
other current assets. At December 31, 2001, we had
approximately $400,000 cash on deposit with a bank to guarantee
certain rent payments.

Property and equipment as of December 31,
2000 includes computer equipment under capital lease with
original cost and accumulated depreciation of approximately
$24.1 million and $10.5 million, respectively.
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. Future minimum annual lease
payments for the capital lease as of December 31, 2001 are
as follows (in thousands):

|                                    |  |   |       | 
|----------------------------------- |  | - | ----- | 
|2002                                |  | $ | 6,543 | 
|2003                                |  |   | 1,426 | 
|2004                                |  |   | 98    | 
|2005                                |  |   | 9     | 
|                                    |  |   |       | 
|                                    |  | $ | 8,076 | 
|Less amount representing interest   |  |   | 701   | 
|                                    |  |   |       | 
|                                    |  |   | 7,375 | 
|Less current portion                |  |   | 5,925 | 
|                                    |  |   |       | 
|Long-term capital lease obligations |  | $ | 1,450 | 
|                                    |  |   |       | 



| |                                  
| | ---------------------------------
| | Intellectual property
	settlement

In November 1998, we entered into an agreement
with Lucent Technologies Inc. under which each company released
the other from claims of past infringement and settled patent
disputes that had been ongoing since 1996. Under the agreement,
we agreed to pay Lucent a minimum annual royalty fee of
approximately $500,000 up to a maximum of approximately $700,000
in each of the fiscal years from 1999 to 2004. In addition, in
fiscal years 2005 and 2006, if we exceed certain targets that
are specified in the Lucent agreement, we will be required to
pay additional amounts. In 2000, we paid Lucent $570,000 under
this agreement. At December 31, 2001, we owed Lucent
$605,000 for royalty fees incurred under this agreement in 2001.

63



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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                        
| | -----------------------
| | 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

There is no material pending legal proceeding to
which S1 or its subsidiaries are a party or of which any of our
property or the property of our subsidiaries is the subject. S1
is involved in immaterial litigation matters incidental to our
business.

Commencing May 8, 2000, several
substantially similar complaints were filed in the United States
District Court in Atlanta, Georgia against S1, and certain of
our executives, alleging violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10(b)(5),
promulgated thereunder and Section 20 of the Securities
Exchange Act of 1934. In December 2001, a final judgement was
entered in our favor.



|    |             
|--- | ------------
|12. | Income Taxes

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

|                   |  |                |          |      |  |      |            |   |  |   |          |  
|------------------ |  | -------------- | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                   |  | 1999           |          | 2000 |  | 2001
|                   |  |                |          |      |  |     
|                   |  |               
|                   |  | (In thousands)
|U.S. operations    |  | $              | (92,440  | )    |  | $    | (794,618   | ) |  | $ | (186,446 | )
|Foreign operations |  |                | (32,647  | )    |  |      | (387,636   | ) |  |   | (38,352  | )
|                   |  |                |          |      |  |      |            |   |  |   |          |  
|                   |  | $              | (125,087 | )    |  | $    | (1,182,254 | ) |  | $ | (224,798 | )
|                   |  |                |          |      |  |      |            |   |  |   |          |  

Income tax benefit from continuing operations is
summarized as follows:

|               |         |                          |   |      |   |      |        |        |        |   |        |        |        |  
|-------------- | ------- | ------------------------ | - | ---- | - | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|               |         | 1999                     |   | 2000 |   | 2001
|               |         |                          |   |      |   |     
|               |         |                         
|               |         | (In thousands)          
|Current:       |         |                          |   |      |   |      |        |        |        |   |        |       
|               | Federal |                          | $ |     |   |      | $      |       |        |   | $      | (189   | )     
|               | Foreign |                          |   |     |   |      |        | 353    |        |   |        | 18     |       
|               | State   |                          |   |     |   |      |        | 77     |        |   |        | (77    | )     
|               |         |                          |   |      |   |      |        |        |        |   |        |       
|Total current  |         | $                        |  |      |   | $    | 430    |        |        | $ | (248   | )     
|               |         |                          |   |      |   |      |        |        |        |   |        |       
|Deferred:      |         |                          |   |      |   |      |        |        |        |   |        |       
|               | Federal |                          | $ |     |   |      | $      |       |        |   | $      |       |       
|               | Foreign |                          |   |     |   |      |        | (5,006 | )      |   |        | (3,007 | )     
|               | State   |                          |   |     |   |      |        |       |        |   |        |       |       
|               |         |                          |   |      |   |      |        |        |        |   |        |       
|Total deferred |         | $                        |  |      |   | $    | (5,006 | )      |        | $ | (3,007 | )     
|               |         |                          |   |      |   |      |        |        |        |   |        |       
|               |         | Total income tax benefit |   | $    |  |      |        | $      | (4,576 | ) |        | $      | (3,255 | )
|               |         |                          |   |      |   |      |        |        |        |   |        |       

64



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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 is as follows:

|                                                                 |  |                |         |      |  |      |          |   |  |   |         |  
|---------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                 |  | 1999           |         | 2000 |  | 2001
|                                                                 |  |                |         |      |  |     
|                                                                 |  |               
|                                                                 |  | (In thousands)
|Expected income tax benefit at 35%                               |  | $              | (43,780 | )    |  | $    | (413,789 | ) |  | $ | (77,540 | )
|State income tax benefit, net of federal benefit                 |  |                | (5,003  | )    |  |      | (47,286  | ) |  |   | (8,862  | )
|Increase in valuation allowance related to
	current year loss    |  |                | 7,015   |      |  |      | 52,255   |   |  |   | 20,422  |  
|Loss on sale of subsidiary                                       |  |                |        |      |  |      |         |   |  |   | 20,398  |  
|Equity loss                                                      |  |                |        |      |  |      |         |   |  |   | 8,688   |  
|In-process R&D, goodwill amortization and
	other permanent items |  |                | 41,768  |      |  |      | 404,244  |   |  |   | 33,639  |  
|                                                                 |  |                |         |      |  |      |          |   |  |   |         |  
|Income tax benefit                                               |  | $              |        |      |  | $    | (4,576   | ) |  | $ | (3,255  | )
|                                                                 |  |                |         |      |  |      |          |   |  |   |         |  

The income tax effects of the temporary
differences that give rise to our deferred income tax assets and
liabilities as of December 31, 2000 and 2001 are as follows:

|                                 |                                                    |                                             |   |          |         |  |   |          |         | 
|-------------------------------- | -------------------------------------------------- | ------------------------------------------- | - | -------- | ------- |  | - | -------- | ------- | 
|                                 |                                                    | 2000                                        |   | 2001    
|                                 |                                                    |                                             |   |         
|                                 |                                                    |                                            
|                                 |                                                    | (In thousands)                             
|Deferred income tax assets:      |                                                    |                                             |   |          |         |  |   |         
|                                 | Net operating loss carryforwards                   |                                             | $ | 121,157  |         |  | $ | 157,906  |        
|                                 | Equity loss                                        |                                             |   |         |         |  |   | 20,076   |        
|                                 | Accrued expenses                                   |                                             |   | 12,012   |         |  |   | 7,387    |        
|                                 | Deferred revenue                                   |                                             |   | 8,465    |         |  |   | 8,573    |        
|                                 | Tax credit carryforwards                           |                                             |   | 5,017    |         |  |   | 7,455    |        
|                                 | Property and equipment depreciation                |                                             |   | 5,747    |         |  |   | 6,034    |        
|                                 |                                                    |                                             |   |          |         |  |   |         
|                                 |                                                    | Total gross deferred income tax assets      |   |          | 152,398 |  |   |          | 207,431 | 
|                                 | Valuation allowance for deferred income tax assets |                                             |   | (139,592 | )       |  |   | (200,618 | )      
|                                 |                                                    |                                             |   |          |         |  |   |         
|                                 |                                                    | Total deferred income tax assets            |   |          | 12,806  |  |   |          | 6,813   | 
|                                 |                                                    |                                             |   |          |         |  |   |         
|Deferred income tax liabilities: |                                                    |                                             |   |          |         |  |   |         
|                                 | Identifiable intangibles                           |                                             |   | 22,185   |         |  |   | 12,169   |        
|                                 | Other                                              |                                             |   | 1,001    |         |  |   | 259      |        
|                                 |                                                    |                                             |   |          |         |  |   |         
|                                 |                                                    | Total gross deferred income tax liabilities |   |          | 23,186  |  |   |          | 12,428  | 
|                                 |                                                    |                                             |   |          |         |  |   |         
|                                 | Net deferred income tax liability                  |                                             | $ | 10,380   |         |  | $ | 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.

65



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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


During 1999, we acquired VerticalOne, Edify and
FICS, which resulted in establishing identifiable intangibles of
$22.5 million, $34.0 million and $48.0 million,
respectively. These identifiable intangibles created a
$39.1 million deferred tax liability. We acquired net
operating loss carryforwards in the Edify and FICS transactions
of approximately $18.3 million and $45.3 million,
respectively. 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
intangible assets resulted in a deferred tax benefit of
$5.0 million in 2000. Additional amortization of the FICS
identifiable assets resulted in a deferred tax benefit of
$4.5 million in 2001. As the benefit from the FICS net
operating loss carryforwards is realized, we reduce goodwill
recorded in connection with the FICS transaction and increase
deferred tax expense. During 2001, we reduced goodwill
$1.3 million 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 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.

At December 31, 2001, we have domestic and
foreign net operating loss carryforwards and tax credit
carryforwards of approximately $357.8 million,
$53.5 million and $7.5 million, respectively. The
domestic net operating loss carryforwards expire at various
dates through 2021 unless utilized, the foreign net operating
loss carryforwards generally do not expire and the tax credit
carryforwards expire at various dates through 2021. Our domestic
net operating loss carryforwards at December 31, 2001
include $211.8 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 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.

13.     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 649,180 have been
designated as series E convertible preferred stock. At
December 31, 2001, there were 749,064 shares of series B
convertible preferred stock, 237,500 shares of series D
convertible preferred stock and 649,180 shares of series E
convertible preferred stock outstanding.

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. Series C is
non-voting and except as described below, series A and series B
are nonvoting. Series D has voting rights equal to those of
the common stockholders. 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

66



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |  |                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | corporation if series A or 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 A and series B stockholders requires the approval of
two-thirds of the shares of series A and series B then
outstanding voting as a separate class. In addition, holders of
the series A and 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 A votes with the common stock on a
dissolution or liquidation, each share of series A is entitled
to one vote. 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. Subject to certain
limitations related to ownership, each share of series A is
convertible into two shares of common stock at the option of the
holder. 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 A preferred, series B preferred and series D preferred
are convertible is subject to adjustment. Until April 30, 2002,
the series D preferred stock is convertible, at the
holders option, into common stock at the rate of 29.283
per share. There are certain provisions that trigger mandatory
conversion of series D preferred stock and all series D
preferred stock must be converted by April 30, 2002. The
series E preferred stock automatically converts into common
stock at a rate of one common share for each series E preferred
share on August 6, 2003.

14.     Equity
Transactions



| |                                                                        
| | -----------------------------------------------------------------------
| | Stock and warrants issued to
	Hewlett-Packard Company and Accenture LLP

On February 19, 1999, S1 entered into
strategic alliances with Hewlett-Packard Company and Accenture
LLP, formerly Andersen Consulting. As part of these alliances,
we issued 254,804 shares of common stock to Hewlett-Packard and
Accenture for $14.0 million on April 30, 1999. In
addition, on February 19, 1999, we issued to Accenture
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. The vested warrants are
exercisable through June 30, 2002. The remaining 160,000
warrants expired in February 2001.



| |                                                   
| | --------------------------------------------------
| | 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 preferred shares and the related
receivable from the sale of stock in the

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


amount of $11.5 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 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, 2001, 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 purchasers 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.

68



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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accordingly, we issued 190,339 shares of S1
common stock in exchange for 6,500 shares of series D
convertible preferred stock.

On September 20, 2001, we issued 649,180
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. As of
December 31, 2001, 318,098 series E preferred shares
remained in escrow.

15.     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 19,845,032 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, 2001, there
were 2,981,282 shares 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, 2001, two performance
goals had been met resulting in the vesting of 25% of the shares.

A summary of our stock options as of
December 31, 1999, 2000 and 2001, and changes during the
years ended on those dates is presented below:

|                                  |  |        |        |           |  |        |       |           |  |        |        |           |  |   |       |  |  |  |        |   |  |   |       | 
|--------------------------------- |  | ------ | ------ | --------- |  | ------ | ----- | --------- |  | ------ | ------ | --------- |  | - | ----- |  |  |  | ------ | - |  | - | ----- | 
|                                  |  |        |        |           |  |       
|                                  |  | 1999   |        | 2000      |  | 2001  
|                                  |  |        |        |           |  |       
|                                  |  |        |        | Weighted- |  |        |       | Weighted- |  |        |        | Weighted-
|                                  |  |        |        | average   |  |        |       | average   |  |        |        | average  
|                                  |  | Shares |        | Exercise  |  | Shares |       | Exercise  |  | Shares |        | Exercise 
|                                  |  | (000)  |        | Price     |  | (000)  |       | Price     |  | (000)  |        | Price    
|                                  |  |        |        |           |  |        |       |           |  |        |        |          
|Outstanding at beginning of year  |  |        | 7,752  |           |  | $      | 2.08  |           |  |        | 16,457 |           |  | $ | 20.27 |  |  |  | 20,870 |   |  | $ | 25.52 | 
|Granted                           |  |        | 8,108  |           |  |        | 35.80 |           |  |        | 7,999  |           |  |   | 24.14 |  |  |  | 4,837  |   |  |   | 8.87  | 
|Options exchanged in acquisitions |  |        | 2,940  |           |  |        | 12.20 |           |  |        | 1,399  |           |  |   | 60.02 |  |  |  | 102    |   |  |   | 6.10  | 
|Exercised                         |  |        | (2,121 | )         |  |        | 3.02  |           |  |        | (3,030 | )         |  |   | 3.65  |  |  |  | (1,761 | ) |  |   | 3.09  | 
|Forfeited/canceled                |  |        | (222   | )         |  |        | 10.21 |           |  |        | (1,955 | )         |  |   | 34.23 |  |  |  | (7,184 | ) |  |   | 44.86 | 
|                                  |  |        |        |           |  |        |       |           |  |        |        |           |  |   |       |  |  |  |        |   |  |   |       | 
|Outstanding at end of year        |  |        | 16,457 |           |  | $      | 20.27 |           |  |        | 20,870 |           |  | $ | 25.52 |  |  |  | 16,864 |   |  | $ | 14.74 | 
|                                  |  |        |        |           |  |        |       |           |  |        |        |           |  |   |       |  |  |  |        |   |  |   |       | 
|Exercisable at end of year        |  |        | 5,309  |           |  | $      | 3.20  |           |  |        | 5,280  |           |  | $ | 14.54 |  |  |  | 6,190  |   |  | $ | 16.44 | 
|                                  |  |        |        |           |  |        |       |           |  |        |        |           |  |   |       |  |  |  |        |   |  |   |       | 

69



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The following table summarizes information about
stock options outstanding at December 31, 2001:

|                        |               |                     |  |                     |        |           |  |             |      |           |  |   |       |  |  |  |       |  |  |   |       | 
|----------------------- | ------------- | ------------------- |  | ------------------- | ------ | --------- |  | ----------- | ---- | --------- |  | - | ----- |  |  |  | ----- |  |  | - | ----- | 
|                        |               |                     |  |                     |        |          
|                        |               | 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   2.00  |                     |  |                     | 1,457  |           |  |             | 3.99 |           |  | $ | 0.55  |  |  |  | 1,425 |  |  | $ | 0.52  | 
|                        | 2.01   6.00  |                     |  |                     | 1,920  |           |  |             | 6.60 |           |  |   | 4.54  |  |  |  | 1,006 |  |  |   | 4.22  | 
|                        | 6.01   8.00  |                     |  |                     | 2,425  |           |  |             | 8.90 |           |  |   | 6.70  |  |  |  | 471   |  |  |   | 6.65  | 
|                        | 8.01  10.00  |                     |  |                     | 4,074  |           |  |             | 8.80 |           |  |   | 8.39  |  |  |  | 629   |  |  |   | 8.30  | 
|                        | 10.01  12.00 |                     |  |                     | 1,454  |           |  |             | 9.10 |           |  |   | 11.12 |  |  |  | 82    |  |  |   | 11.52 | 
|                        | 12.01  20.00 |                     |  |                     | 2,236  |           |  |             | 7.09 |           |  |   | 15.43 |  |  |  | 672   |  |  |   | 15.69 | 
|                        | 20.01  40.00 |                     |  |                     | 1,752  |           |  |             | 4.48 |           |  |   | 30.28 |  |  |  | 1,161 |  |  |   | 32.28 | 
|                        | 40.01  98.75 |                     |  |                     | 1,546  |           |  |             | 7.18 |           |  |   | 54.89 |  |  |  | 744   |  |  |   | 53.08 | 
|                        |               |                     |  |                     |        |           |  |             |      |           |  |   |       |  |  |  |       |  |  |   |       | 
|                        | 0.32  98.75  |                     |  |                     | 16,864 |           |  |             | 7.35 |           |  | $ | 14.74 |  |  |  | 6,190 |  |  | $ | 16.44 | 
|                        |               |                     |  |                     |        |           |  |             |      |           |  |   |       |  |  |  |       |  |  |   |       | 

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 $38.38
and $7.82 and the per share weighted average fair value was
$43.76 and $9.35 for stock options granted during 1999 and 2000,
respectively. 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 $35.05, $30.64,
and $8.87 and the per share weighed-average fair value was
$32.73, $24.54 and $7.28 for stock options granted during 1999,
2000, and 2001, respectively.

Under our employee stock purchase plan, each
employee of a participating S1 subsidiary who 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. At December 31, 2001, 2,121,349 common
shares are reserved for future issuance under this plan. Under
this plan, we issued 161,826 and 259,323 shares at an average
price of $22.32 and $8.81 per share during 2000 and 2001,
respectively.

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

|                                             |  |      |          |      |  |      |           |  |  |  |           | 
|-------------------------------------------- |  | ---- | -------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                             |  | 1999 |          | 2000 |  | 2001
|                                             |  |      |          |      |  |     
|Expected dividend yield                      |  |      | 0%       |      |  |      | 0%        |  |  |  | 0%        | 
|Expected volatility                          |  |      | 102.0%   |      |  |      | 109.0%    |  |  |  | 114.5%    | 
|Risk-free interest rate, stock option plans  |  |      | 5.8%     |      |  |      | 6.0%      |  |  |  | 4.6%      | 
|Expected life, stock option plans            |  |      | 10 years |      |  |      | 4.5 years |  |  |  | 4.9 years | 
|Risk-free interest rate, stock purchase plan |  |      |         |      |  |      | 6.2%      |  |  |  | 4.4%      | 
|Expected life, stock purchase plan           |  |      |         |      |  |      | 0.5 years |  |  |  | 0.5 years | 

We apply APB Opinion No. 25 in accounting
for our stock option plans and, accordingly, we recognized
compensation cost of approximately $1.1 million,
$5.0 million and $1.3 million 1999, 2000 and 2001,
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

70



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##### Table of Contents



S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


and stock purchase rights under SFAS No. 123, our
net loss would have been increased to the unaudited pro forma
amounts indicated below:

|                                             |                       |                                       |   |          |   |      |   |            |   |  |   |          |  
|-------------------------------------------- | --------------------- | ------------------------------------- | - | -------- | - | ---- | - | ---------- | - |  | - | -------- | -
|                                             |                       | 1999                                  |   | 2000     |   | 2001
|                                             |                       |                                       |   |          |   |     
|                                             |                       |                                      
|                                             |                       | (In thousands, except per share data)
|Net loss:                                    |                       |                                       |   |          |   |      |   |            |   |  |   |         
|                                             | As reported           |                                       | $ | (125,087 | ) |      | $ | (1,177,678 | ) |  | $ | (221,543 | )
|                                             | Pro forma (unaudited) |                                       |   | (141,199 | ) |      |   | (1,273,021 | ) |  |   | (332,037 | )
|Basic and diluted net loss per common share: |                       |                                       |   |          |   |      |   |            |   |  |   |         
|                                             | As reported           |                                       | $ | (4.28    | ) |      | $ | (21.77     | ) |  | $ | (3.74    | )
|                                             | Pro forma (unaudited) |                                       |   | (4.83    | ) |      |   | (23.53     | ) |  |   | (5.60    | )



| |                                                               
| | --------------------------------------------------------------
| | 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
|                        |  |                     |            |                  
|Edify Corporation       |  |                     | 11/10/1999 |                   |  |  | 1,319,044 | 
|VerticalOne Corporation |  |                     | 11/10/1999 |                   |  |  | 471,440   | 
|FICS Group, N.V         |  |                     | 11/18/1999 |                   |  |  | 1,149,638 | 
|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 1999,
2000 and 2001, we issued approximately:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | 3,160,000 new options to employees of Edify, FICS
	and VerticalOne;
|
| |  | 908,000 new options to employees of Davidge and
	Level Next, and   
|
| |  | 325,000 new options to employees of SDI.                           



| |                              
| | -----------------------------
| | 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 are 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. We did not
record a charge for stock compensation expense as a result of
this stock option exchange program.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


16.     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. Since January 1, 2000, our
discretionary match has been made entirely to the S1 stock fund,
up to 4% of the employees compensation. Our matching
contributions to the plan charged to expense for 1999, 2000 and
2001 were approximately $526,000, $3.0 million and
$2.8 million, respectively.

Effective April 1, 2002, employees will have
a choice regarding 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.

17.     Segment and
Geographic Disclosures

During 2001, we operated and managed our
operations in two business segments: financial institutions and
contact center automation. Through our financial institutions
segment, 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. Through our Edify Corporation subsidiary,
which comprises our contact center automation segment, we
provide voice self-service systems. Our contact center
automation segment offers customer interaction technology
solutions that allow organizations to automate, integrate and
personalize interactions with customers, primarily through the
voice and email channels, yielding stronger, more profitable
relationships. In 1999 and 2000, we operated a third segment,
Internet aggregation services, through our VerticalOne
subsidiary. Through this segment, we provided technology that
enables consumers to aggregate personal account information from
multiple sources. We sold our VerticalOne subsidiary to Yodlee
in January 2001, as described in Note 4. Accordingly, we
eliminated the Internet aggregation services segment in 2001.

We evaluate the performance of our operating
segments based on revenues, direct costs and operating income
(loss), excluding depreciation and amortization, marketing cost
from warrants issued, merger related costs and restructuring
charges, acquired in-process research and development and
amortization of acquisition intangibles. In addition, we provide
general and administrative services to the operating segments on
a shared service basis. Accordingly, we include the general and
administrative costs in the Other category. We do
not use any asset-based metrics to measure the operating
performance of our operating segments.

Currently, a large portion of our contact center
automation segment revenues comes from financial institutions.
Our strategy is to leverage this domain expertise and the
cross-sell opportunities to benefit our entire organization.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


The following tables present our segment
operating results for 1999, 2000 and 2001.

|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |        |        | 
|------------------------------------------------- | ------------------------------------------------------- | ------------------------------------ | ------ | ----------- | ------ | -------------- | ------ | ----- | - | ----- | ----- | ----- | ----- | - | ------- | ------ | - | - | ------- | ------ | ------ | 
|                                                  |                                                         |                                     
|                                                  |                                                         | For the Year Ended December 31, 1999
|                                                  |                                                         |                                     
|                                                  |                                                         | Financial                            |        | Internet    |        | Contact Center |        |      
|                                                  |                                                         | Institutions                         |        | Aggregation |        | Automation     |        | Other |   | Total
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |      
|                                                  |                                                         |                                     
|                                                  |                                                         | (In thousands)                      
|Revenues:                                         |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|                                                  | Software licenses                                       |                                      | $      | 13,422      |        |                | $      |      |   |       | $     | 5,628 |       |   | $       |       |   |   | $       | 19,050 |       
|                                                  | Support and maintenance                                 |                                      |        | 3,830       |        |                |        |      |   |       |       | 1,485 |       |   |         |       |   |   |         | 5,315  |       
|                                                  | Professional services                                   |                                      |        | 50,280      |        |                |        |      |   |       |       | 837   |       |   |         |       |   |   |         | 51,117 |       
|                                                  | Data center                                             |                                      |        | 8,853       |        |                |        | 5     |   |       |       |      |       |   |         |       |   |   |         | 8,858  |       
|                                                  | Other                                                   |                                      |        | 8,550       |        |                |        |      |   |       |       |      |       |   |         |       |   |   |         | 8,550  |       
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|                                                  |                                                         | Total revenues                       |        |             | 84,935 |                |        |       | 5 |       |       |       | 7,950 |   |         |        |  |   |         |        | 92,890 | 
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|Operating expenses:                               |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|                                                  | Cost of software licenses                               |                                      |        | 356         |        |                |        |      |   |       |       | 286   |       |   |         |       |   |   |         | 642    |       
|                                                  | Cost of professional services, support and
	maintenance |                                      |        | 34,913      |        |                |        |      |   |       |       | 1,533 |       |   |         |       |   |   |         | 36,446 |       
|                                                  | Cost of data center                                     |                                      |        | 8,906       |        |                |        | 102   |   |       |       |      |       |   |         |       |   |   |         | 9,008  |       
|                                                  | Cost of other revenue                                   |                                      |        | 7,112       |        |                |        |      |   |       |       |      |       |   |         |       |   |   |         | 7,112  |       
|                                                  | Selling and marketing                                   |                                      |        | 8,297       |        |                |        | 889   |   |       |       | 3,108 |       |   |         |       |   |   |         | 12,294 |       
|                                                  | Product development                                     |                                      |        | 21,118      |        |                |        | 1,573 |   |       |       | 1,889 |       |   |         |       |   |   |         | 24,580 |       
|                                                  | General and administrative                              |                                      |        |            |        |                |        |      |   |       |       |      |       |   |         | 14,243 |   |   |         | 14,243 |       
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|Total operating expenses(1)                       |                                                         |                                      | 80,702 |             |        |                | 2,564  |       |   |       | 6,816 |       |       |   | 14,243  |        |   |   | 104,325 |       
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|Segment operating income (loss)                   |                                                         | $                                    | 4,233  |             |        | $              | (2,559 | )     |   | $     | 1,134 |       |       | $ | (14,243 | )      |   | $ | (11,435 | )     
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|                                                  |                                                         |                                      |        |             |        |                |        |       |   |       |       |       |       |   |         |        |   |   |         |       
|(1) Includes non-cash stock compensation
	expense |                                                         | $                                    | 98     |             |        | $              | 690    |       |   | $     |      |       |       | $ | 330     |        |   | $ | 1,118   |       

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |         |         | 
|------------------------------------------------- | ------------------------------------------------------- | ------------------------------------ | ------- | ----------- | ------- | -------------- | ------- | ------ | ----- | ----- | ------ | ------ | ------ | - | ------- | ------ | - | - | ------- | ------- | ------- | 
|                                                  |                                                         |                                     
|                                                  |                                                         | For the Year Ended December 31, 2000
|                                                  |                                                         |                                     
|                                                  |                                                         | Financial                            |         | Internet    |         | Contact Center |         |       
|                                                  |                                                         | Institutions                         |         | Aggregation |         | Automation     |         | Other  |       | Total
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |      
|                                                  |                                                         |                                     
|                                                  |                                                         | (In thousands)                      
|Revenues:                                         |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|                                                  | Software licenses                                       |                                      | $       | 24,393      |         |                | $       |       |       |       | $      | 27,344 |        |   | $       |       |   |   | $       | 51,737  |        
|                                                  | Support and maintenance                                 |                                      |         | 18,810      |         |                |         |       |       |       |        | 10,120 |        |   |         |       |   |   |         | 28,930  |        
|                                                  | Professional services                                   |                                      |         | 119,141     |         |                |         |       |       |       |        | 6,376  |        |   |         |       |   |   |         | 125,517 |        
|                                                  | Data center                                             |                                      |         | 20,578      |         |                |         | 2,233  |       |       |        |       |        |   |         |       |   |   |         | 22,811  |        
|                                                  | Other                                                   |                                      |         | 4,893       |         |                |         |       |       |       |        |       |        |   |         |       |   |   |         | 4,893   |        
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|                                                  |                                                         | Total revenues                       |         |             | 187,815 |                |         |        | 2,233 |       |        |        | 43,840 |   |         |        |  |   |         |         | 233,888 | 
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|Operating expenses:                               |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|                                                  | Cost of software licenses                               |                                      |         | 901         |         |                |         |       |       |       |        | 3,655  |        |   |         |       |   |   |         | 4,556   |        
|                                                  | Cost of professional services, support and
	maintenance |                                      |         | 98,946      |         |                |         |       |       |       |        | 10,433 |        |   |         |       |   |   |         | 109,379 |        
|                                                  | Cost of data center                                     |                                      |         | 18,501      |         |                |         | 1,870  |       |       |        |       |        |   |         |       |   |   |         | 20,371  |        
|                                                  | Cost of other revenue                                   |                                      |         | 4,305       |         |                |         |       |       |       |        |       |        |   |         |       |   |   |         | 4,305   |        
|                                                  | Selling and marketing                                   |                                      |         | 33,155      |         |                |         | 5,914  |       |       |        | 16,403 |        |   |         |       |   |   |         | 55,472  |        
|                                                  | Product development                                     |                                      |         | 50,225      |         |                |         | 11,081 |       |       |        | 9,184  |        |   |         |       |   |   |         | 70,490  |        
|                                                  | General and administrative                              |                                      |         |            |         |                |         |       |       |       |        |       |        |   |         | 48,766 |   |   |         | 48,766  |        
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|Total operating expenses(1)                       |                                                         |                                      | 206,033 |             |         |                | 18,865  |        |       |       | 39,675 |        |        |   | 48,766  |        |   |   | 313,339 |        
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|Segment operating (loss) income                   |                                                         | $                                    | (18,218 | )           |         |                | (16,632 | )      |       | $     | 4,165  |        |        | $ | (48,766 | )      |   | $ | (79,451 | )      
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|                                                  |                                                         |                                      |         |             |         |                |         |        |       |       |        |        |        |   |         |        |   |   |         |        
|(1) Includes non-cash stock compensation
	expense |                                                         | $                                    |        |             |         | $              | 2,467   |        |       | $     |       |        |        | $ | 2,916   |        |   | $ | 5,383   |        

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |         |         | 
|------------------------------------------------- | ------------------------------------------------------- | ------------------------------------ | ------- | -------------- | ------- | ----- | ------ | ------ | ------ | - | ------- | ------ | - | - | ------- | ------- | ------- | 
|                                                  |                                                         |                                     
|                                                  |                                                         | For the Year Ended December 31, 2001
|                                                  |                                                         |                                     
|                                                  |                                                         | Financial                            |         | Contact Center |         |      
|                                                  |                                                         | Institutions                         |         | Automation     |         | Other |        | Total 
|                                                  |                                                         |                                      |         |                |         |       |        |       
|                                                  |                                                         |                                     
|                                                  |                                                         | (In thousands)                      
|Revenues:                                         |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|                                                  | Software licenses                                       |                                      | $       | 42,243         |         |       | $      | 29,142 |        |   | $       |       |   |   | $       | 71,385  |        
|                                                  | Support and maintenance                                 |                                      |         | 27,466         |         |       |        | 13,529 |        |   |         |       |   |   |         | 40,995  |        
|                                                  | Professional services                                   |                                      |         | 102,824        |         |       |        | 9,141  |        |   |         |       |   |   |         | 111,965 |        
|                                                  | Data center                                             |                                      |         | 52,915         |         |       |        |       |        |   |         |       |   |   |         | 52,915  |        
|                                                  | Other                                                   |                                      |         | 1,050          |         |       |        |       |        |   |         |       |   |   |         | 1,050   |        
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|                                                  |                                                         | Total revenues                       |         |                | 226,498 |       |        |        | 51,812 |   |         |        |  |   |         |         | 278,310 | 
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|Operating expenses:                               |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|                                                  | Cost of software licenses                               |                                      |         | 233            |         |       |        | 3,784  |        |   |         |       |   |   |         | 4,017   |        
|                                                  | Cost of professional services, support and
	maintenance |                                      |         | 73,898         |         |       |        | 10,453 |        |   |         |       |   |   |         | 84,351  |        
|                                                  | Cost of data center                                     |                                      |         | 26,013         |         |       |        |       |        |   |         |       |   |   |         | 26,013  |        
|                                                  | Cost of other revenue                                   |                                      |         | 751            |         |       |        |       |        |   |         |       |   |   |         | 751     |        
|                                                  | Selling and marketing                                   |                                      |         | 29,350         |         |       |        | 22,918 |        |   |         |       |   |   |         | 52,268  |        
|                                                  | Product development                                     |                                      |         | 44,566         |         |       |        | 11,003 |        |   |         |       |   |   |         | 55,569  |        
|                                                  | General and administrative                              |                                      |         |               |         |       |        |       |        |   |         | 49,820 |   |   |         | 49,820  |        
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|Total operating expenses(1)                       |                                                         |                                      | 174,811 |                |         |       | 48,158 |        |        |   | 49,820  |        |   |   | 272,789 |        
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|Segment operating income (loss)                   |                                                         | $                                    | 51,687  |                |         | $     | 3,654  |        |        | $ | (49,820 | )      |   | $ | 5,521   |        
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|                                                  |                                                         |                                      |         |                |         |       |        |        |        |   |         |        |   |   |         |        
|(1) Includes non-cash stock compensation
	expense |                                                         | $                                    |        |                |         | $     |       |        |        | $ | 1,330   |        |   | $ | 1,330   |        

Revenues from international customers represented
approximately 12%, 17% and 24% of total revenues for the years
ended December 31, 1999, 2000 and 2001, respectively. At
December 31, 2000 and 2001, approximately
$15.0 million and $12.1 million, respectively, of
total property and equipment is located outside of the United
States.

18.     Related Party
Transactions



| |                           
| | --------------------------
| | WebTone Technologies, Inc.

During 1996, in the ordinary course of research
and development activities, we started a project known as
WebTone. After the assessment phase of the WebTone
project was completed, the board of directors determined not to
proceed with the WebTone project. With the boards full
knowledge and agreement, the former chairman of the board of
Security First Network Bank, our predecessor company, Michael C.
McChesney, created and funded his own company to develop
WebTone. In undertaking these activities, Mr. McChesney and
the board agreed to enter into a business arrangement.

In June 1999, S1 and WebTone reached an agreement
whereby WebTone issued common stock to us in return for the
cancellation of an outstanding receivable for expenses incurred
by S1 during the period that we sponsored the project, resulting
in our 3% equity investment in WebTone. The agreement allows for
settlement of future receivables in cash or WebTone stock based
on fair market value as determined by WebTones board of
directors, at our discretion.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


In November 1999, we entered into a three-year
license and reseller agreement with WebTone whereby we received
a license to use the WebTone software for internal purposes and
to resell to our customers. In exchange, WebTone received a
license to market and demonstrate the S1 software to its
customers. This agreement is considered a non-monetary exchange
and accordingly, has not been given any accounting recognition
in the consolidated financial statements. There has been no
significant activity under this agreement since its inception.
In May 2000, we made an additional investment in WebTone of
$1.0 million.

We performed certain administrative and technical
services for WebTone amounting to $47,000 in 1999, $24,000 in
2000 and $271,000 in 2001. As of December 31, 2000 and
2001, we had a receivable from WebTone related to these services
of $39,000 and $152,000, respectively. Additionally, during
2000, WebTone paid $242,000 for space it subleased from us and
$85,000 to purchase furniture and fixtures in the subleased
space. During 2001, WebTone paid $161,000 for space it subleased
from us and $110,000 to purchase used computer equipment. Our
investment in WebTone is recorded on our balance sheet at cost
in the amount of $1.2 million at December 31, 2001.
Our chairman of the board of directors was on the board of
directors of WebTone until July 2001.



| |                        
| | -----------------------
| | McCall Consulting Group

During 1999, 2000 and 2001, we paid a technology
consulting company, McCall Consulting Group, $3.0 million,
$4.4 million and $800,000, respectively, for consulting
services. As of December 31, 2000, we had a payable to
McCall Consulting Group of $234,000. As of December 31,
2001, there was no such payable. The president of McCall
Consulting Group was a director of S1 during 1999, 2000 and
2001, until his retirement in May 2001.



| |              
| | -------------
| | Accenture LLP

In February 1999, we entered into a strategic
partnership with Accenture. We issued a warrant to purchase
200,000 shares of S1 common stock to Accenture in February
1999. The number of shares represented by the warrant was
adjusted to reflect the May 1999 two-for-one split of S1s
common stock. In April 1999, we issued 72,800 shares of S1
common stock to an affiliate of Accenture. Jackson L.
Wilson, Jr., a director of S1, is a member of the Executive
Committee of Accenture. S1 and Accenture paid each other for
professional services performed on contracts where the other
entity was the primary contractor. In 1999, we paid Accenture a
total of $10.0 million for such work and Accenture paid us
a total of $627,000. In 2000, S1 paid Accenture a total of
$25.6 million for such work and Accenture paid S1 a total
of $192,000. In 2001, we paid Accenture a total of
$6.6 million. We had a net payable to Accenture of
$2.9 million and $57,000 at December 31, 2000 and
2001, respectively.



| |             
| | ------------
| | Yodlee, Inc.

As a result of our sale of VerticalOne to Yodlee
in January 2001, as discussed in Note 4, we own
approximately 32% of Yodlee at December 31, 2001. The
chairman of our board of directors is also a director of Yodlee.
At December 31, 2001, the carrying value of our investment
in Yodlee was $1.0 million. 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, as amended, 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

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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 July
2005, 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, we recouped approximately
$1.2 million from our customers and Yodlee under this
agreement.

Under the data center agreement, we agreed to
provide Yodlee with certain data center services for a fee.
During 2001, we provided data center services in the amount of
$215,000 for Yodlee under this agreement from the commencement
date through December 31, 2001. The data center agreement
expires in January 2003. At December 31, 2001, we had a
receivable from Yodlee of $201,500 for services performed under
this agreement.

Under the facilities sublease, we agreed to
reimburse Yodlee for certain office space rentals and utilities
through December 31, 2001. We owed Yodlee $75,000 under
this agreement at December 31, 2001.



|    |                   
|--- | ------------------
|19. | 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:

|                                                      |                             |                                             |        |       |        |      |        |       |        |  |        |       |        | 
|----------------------------------------------------- | --------------------------- | ------------------------------------------- | ------ | ----- | ------ | ---- | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                      |                             | 1999                                        |        | 2000  |        | 2001
|                                                      |                             |                                             |        |       |        |     
|                                                      |                             |                                            
|                                                      |                             | (In thousands)                             
|Weighted average common shares outstanding            |                             |                                             | 29,228 |       |        |      | 54,096 |       |        |  | 59,242 |      
|Weighted average affect of common stock
	equivalents: |                             |                                             |        |       |        |      |        |       |        |  |        |      
|                                                      | Convertible preferred stock |                                             |        | 8,380 |        |      |        | 5,357 |        |  |        | 8,258 |       
|                                                      | Stock options               |                                             |        | 1,928 |        |      |        | 7,055 |        |  |        | 5,216 |       
|                                                      | Stock warrants              |                                             |        | 457   |        |      |        | 226   |        |  |        |      |       
|                                                      |                             |                                             |        |       |        |      |        |       |        |  |        |      
|                                                      |                             | Weighted average diluted shares outstanding |        |       | 39,993 |      |        |       | 66,734 |  |        |       | 72,716 | 
|                                                      |                             |                                             |        |       |        |      |        |       |        |  |        |      



|    |                                             
|--- | --------------------------------------------
|20. | Quarterly Financial Information
	(Unaudited)

The following table shows selected unaudited
consolidated quarterly statement of operations data for the
years ended December 31, 2000 and 2001. 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

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S1 CORPORATION AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


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,
|                                            |  | 2000                                  |          | 2000     |  | 2000      |          | 2000(2)  |  | 2001(3)  |          | 2001(4)  |  | 2001      |          | 2001(5) 
|                                            |  |                                       |          |          |  |           |          |          |  |          |          |          |  |           |          |         
|                                            |  |                                      
|                                            |  | (In thousands, except per share data)
|Total revenues                              |  | $                                     | 50,369   |          |  | $         | 59,084   |          |  | $        | 64,379   |          |  | $         | 60,056   |          |  | $ | 63,105  |   |  | $ | 66,092  |   |  | $ | 70,560  |   |  | $ | 78,553  |  
|Gross margin(1)                             |  |                                       | 18,018   |          |  |           | 26,103   |          |  |          | 28,315   |          |  |           | 22,865   |          |  |   | 28,372  |   |  |   | 38,134  |   |  |   | 45,389  |   |  |   | 51,283  |  
|Operating loss                              |  |                                       | (110,801 | )        |  |           | (155,494 | )        |  |          | (137,909 | )        |  |           | (837,749 | )        |  |   | (37,579 | ) |  |   | (36,920 | ) |  |   | (21,828 | ) |  |   | (16,451 | )
|Net loss                                    |  |                                       | (75,208  | )        |  |           | (152,996 | )        |  |          | (136,100 | )        |  |           | (813,374 | )        |  |   | (92,062 | ) |  |   | (43,588 | ) |  |   | (29,616 | ) |  |   | (56,277 | )
|Basic and diluted net loss per common share |  |                                       | (1.49    | )        |  |           | (2.82    | )        |  |          | (2.46    | )        |  |           | (14.45   | )        |  |   | (1.58   | ) |  |   | (0.74   | ) |  |   | (0.50   | ) |  |   | (0.92   | )



---



| | 
| | 
| | 



|    |                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 and amortization of property and
	equipment.
|   
|(2) | Our operating loss, net loss and net loss per
	common share for the three months ended December 31, 2000,
	reflect (i) an impairment charge of $664.9 million for
	goodwill and other intangible assets and (ii) a
	restructuring charge of $14.7 million.                                                           
|   
|(3) | 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.                                                                                                                                                                    
|   
|(4) | 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.                                                                                                                                                               
|   
|(5) | 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.                                                                                                                                                   

21.     Subsequent
Events

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. Under the terms of the transaction, we
acquired Regency from Transaction Systems Architects, Inc. for
400,561 shares of S1 common stock and $6.0 million in cash.

In March 2002, we completed the acquisition of
the assets and subsidiaries of Point Holdings, Ltd., a Dublin,
Ireland based multi-channel CRM provider. Under the terms of the
agreement, we acquired the business of Point for
1,073,986 shares of S1 common stock and $500,000 in cash.

These acquisitions were accounted for using the
purchase method of accounting prescribed by SFAS No. 141 as
of the closing date of the transactions.

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Schedule II

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 1999, 2000
AND 2001

|                              |                                                          |                |   |             |  |            |  |            |  |            |  |          |   |  |  |          |   |  |   |         | 
|----------------------------- | -------------------------------------------------------- | -------------- | - | ----------- |  | ---------- |  | ---------- |  | ---------- |  | -------- | - |  |  | -------- | - |  | - | ------- | 
|                              |                                                          |                |   |             |  |            |  |           
|                              |                                                          |                |   | Additions   |  |            |  |           
|                              |                                                          |                |   |             |  |            |  |           
|                              |                                                          | Balance at     |   | Charged to  |  | Charged to |  |            |  | Balance at
|                              |                                                          | beginning      |   | costs and   |  | other      |  |            |  | end of    
|Description                   |                                                          | of period      |   | expenses(5) |  | accounts   |  | Deductions |  | period    
|                              |                                                          |                |   |             |  |            |  |            |  |           
|                              |                                                          |               
|                              |                                                          | (In thousands)
|Year ended December 31, 1999: |                                                          |                |   |             |  |            |  |            |  |            |  |          |   |  |  |          |   |  |   |        
|                              | Allowance for doubtful accounts and billing
	adjustments |                | $ | 415         |  |            |  | 785        |  |            |  | 7,929(2  | ) |  |  | 545(1    | ) |  | $ | 8,584   | 
|                              | Valuation allowance for deferred taxes                   |                | $ | 27,808      |  |            |  | 7,015      |  |            |  | 44,130(3 | ) |  |  | 23,456(4 | ) |  | $ | 55,497  | 
|                             
|Year ended December 31, 2000: |                                                          |                |   |             |  |            |  |            |  |            |  |          |   |  |  |          |   |  |   |        
|                              | Allowance for doubtful accounts and billing
	adjustments |                | $ | 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 and billing
	adjustments |                | $ | 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 | 



---

|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(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) | A significant portion of the amounts provided for
	billing adjustments was recorded as a reduction to revenue.




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.

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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.




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.




PART IV




Item 14.     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.

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

|        |     |                     |  |                                                                                                                                                                                                                                                                          
|------- | --- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                    
|No.     |     | 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)                                             

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|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ----- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                    
|No.     |       | Exhibit Description
|        |       |                    
|        | 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)                                                                                                           
|        | 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 Bto 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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|        |       |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ----- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                    
|No.     |       | Exhibit Description
|        |       |                    
|        | 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)
|        | 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 Bto 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).*                                                                                                                                                                                                                                                                                                                    

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|        |       |                     |  |                                                                                                                                                                                                                                                                                    
|------- | ----- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                    
|No.     |       | Exhibit Description
|        |       |                    
|        | 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).* 
|        | 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.*                                                                                                                                                                                    
|        | 10.37 |                     |  | Separation Agreement dated as of October 26,
	2001, by and between S1 and Daniel H. Drechsel.*                                                                                                                                                                                     
|        | 21    |                     |  | Subsidiaries of S1.                                                                                                                                                                                                                                                                
|        | 23.1  |                     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                              
|        | 23.2  |                     |  | Consent of Ernst & Young LLP, Independent
	Auditors                                                                                                                                                                                                                                
|        | 99.1  |                     |  | Financial Statements of Yodlee, Inc.                                                                                                                                                                                                                                               



---



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

(b) Reports on Form 8-K

We did not file any Current Reports on
Form 8-K with the Securities and Exchange Commission during
the quarter ended December 31, 2001.

83



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of March 25,
2002.



| |               
| | --------------
| | S1 CORPORATION



| |     |                       
| | --- | ----------------------
| | By: | /s/ JAIME W. ELLERTSON

| |                        
| | -----------------------
| |                        
| | Jaime 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 25, 2002.

|                                                 |  |                                                                                         |  | 
|------------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | 
|                                                 |  |                                                                                        
|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/ HOWARD J. RUNNION, JR.Howard J. Runnion, Jr. |  | Director                                                                               
|                                                
|/s/ JACKSON L. WILSON, JR.Jackson L. Wilson, Jr. |  | Director                                                                               

84



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##### Table of Contents



EXHIBIT INDEX

|        |    |    |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | -- |  | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |  |                    
|No.     |    |    |  | 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)
|        | 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)                                                                                

85



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##### Table of Contents



|        |    |     |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | -- | --- |  | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                    
|No.     |    |     |  | Exhibit Description
|        |    |     |  |                    
|        | 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)
|        | 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)                                                                                                                                                                         

86



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##### Table of Contents



|        |    |     |  |                     |  |                                                                                                                                                                                                                                                                                                                                                                  
|------- | -- | --- |  | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                    
|No.     |    |     |  | Exhibit Description
|        |    |     |  |                    
|        | 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).*                                                                               
|        | 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).*                                                                                                    

87



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##### Table of Contents



|        |    |     |  |                     |  |                                                                                                                                                                                                                                                                                     
|------- | -- | --- |  | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |                    
|No.     |    |     |  | Exhibit Description
|        |    |     |  |                    
|        | 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.*                                                                                                                                                                                     
|        | 10 | .37 |  |                     |  | Separation Agreement dated as of October 26,
	2001, by and between S1 and Daniel H. Drechsel.*                                                                                                                                                                                      
|        | 21 |     |  |                     |  | Subsidiaries of S1.                                                                                                                                                                                                                                                                 
|        | 23 | .1  |  |                     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                               
|        | 23 | .2  |  |                     |  | Consent of Ernst & Young LLP, Independent
	Auditors                                                                                                                                                                                                                                 
|        | 99 | .1  |  |                     |  | Financial Statements of Yodlee, Inc.                                                                                                                                                                                                                                                



---



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

88