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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended April 30, 2002. 
|- | -----------------------------------------------------------------------------------------------------------------------------
|o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from
 to
.

Commission file number 0-24201

LOGO

Carreker Corporation(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

75-1622836(IRS Employer Identification No.)4055 Valley View Lane, #1000
Dallas, Texas(Address of principal executive office)

75244(Zip Code)


(972) 458-1981(Registrant's telephone number, including area code)

(Former
name, former address and former fiscal year, if changed since last report)

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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 periods that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý    No o

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.

Common
Stock, $.01 par value23,305,000 shares as of May 31, 2001.

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CARREKER CORPORATION

Index



|                                 |         |    |                                                                                                     | Page
|-------------------------------- | ------- | -- | --------------------------------------------------------------------------------------------------- | ----
|PART 1:    FINANCIAL INFORMATION |         |   
|                                 | Item 1. |    | Financial Statements (unaudited)                                                                    |     
|                                 |         |    | Condensed Consolidated Balance Sheets at April 30, 2002 and January 31, 2002                        |     
|                                 |         |    | Condensed Consolidated Statements of Operations for the three months ended April 30, 2002 and 2001  |     
|                                 |         |    | Condensed Consolidated Statements of Stockholders' Equity for the three months ended April 30, 2002 |     
|                                 |         |    | Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2002 and 2001  |     
|                                 |         |    | Notes to Condensed Consolidated Unaudited Financial Statements                                      |     
|                                 | Item 2. |    | Management's Discussion and Analysis of Financial Condition and Results of Operations               |     
|                                 | Item 3. |    | Quantitative and Qualitative Disclosures about Market Risk                                          |     
|PART II:    OTHER INFORMATION    |         |   
|                                 | Item 1. |    | Legal Proceedings                                                                                   |     
|                                 | Item 2. |    | Changes in Securities and Use of Proceeds                                                           |     
|                                 | Item 3. |    | Defaults Upon Senior Securities                                                                     |     
|                                 | Item 4. |    | Submission of Matters to a Vote of Security Holders                                                 |     
|                                 | Item 5. |    | Other Information                                                                                   |     
|                                 | Item 6. |    | Exhibits and Reports on Form 8-K                                                                    |     
|SIGNATURES                       |         | 42

2

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

CARREKER CORPORATION        Condensed Consolidated Balance Sheets  (Unaudited)  (In thousands, except per share amounts)    ASSETS

|                                                                                                                                         |                                                                                                                                               | April 30,
2002 |         | January 31,
2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ---------------- | -
|Current assets                                                                                                                           |                                                                                                                                               |                |         |                  |  
|                                                                                                                                         | Cash and cash equivalents                                                                                                                     |                | $       | 28,222           |  
|                                                                                                                                         | Accounts receivable, net of allowance of $1,613 and $2,367 at April 30, 2002 and January 31, 2002, respectively                               |                |         | 60,706           |  
|                                                                                                                                         | Federal income tax receivable                                                                                                                 |                |         | 6,979            |  
|                                                                                                                                         | Prepaid software royalties                                                                                                                    |                |         | 368              |  
|                                                                                                                                         | Prepaid expenses and other current assets                                                                                                     |                |         | 3,395            |  
|                                                                                                                                         | Deferred income taxes                                                                                                                         |                |         | 816              |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total current assets                                                                                                                     |                                                                                                                                               |                | 100,486 |                  |  
|Property and equipment, net of accumulated depreciation of $11,845 and $10,682 at April 30, 2002 and January 31, 2002, respectively      |                                                                                                                                               |                | 10,192  |                  |  
|Capitalized software costs, net of accumulated amortization of $8,012 and $7,676 at April 30, 2002 and January 31, 2002, respectively    |                                                                                                                                               |                | 4,022   |                  |  
|Acquired developed technology, net of accumulated amortization of $3,777 and $2,746 at April 30, 2002 and January 31, 2002, respectively |                                                                                                                                               |                | 20,423  |                  |  
|Goodwill, net of accumulated amortization of $3,641 at April 30, 2002 and January 31, 2002                                               |                                                                                                                                               |                | 69,996  |                  |  
|Customer relationships, net of accumulated amortization of $1,283 and $933 at April 30, 2002 and January 31, 2002, respectively          |                                                                                                                                               |                | 7,117   |                  |  
|Deferred loan costs, net of accumulated amortization of $352 and $244 at April 30, 2002 and January 31, 2002, respectively               |                                                                                                                                               |                | 900     |                  |  
|Other assets                                                                                                                             |                                                                                                                                               |                | 226     |                  |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total assets                                                                                                                             |                                                                                                                                               | $              | 213,362 |                  | $
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                     |                                                                                                                                              
|Current liabilities                                                                                                                      |                                                                                                                                               |                |         |                  |  
|                                                                                                                                         | Accounts payable                                                                                                                              |                | $       | 2,644            |  
|                                                                                                                                         | Accrued compensation and benefits                                                                                                             |                |         | 7,368            |  
|                                                                                                                                         | Other accrued expenses                                                                                                                        |                |         | 6,161            |  
|                                                                                                                                         | Deferred revenue                                                                                                                              |                |         | 39,094           |  
|                                                                                                                                         | Accrued merger and restructuring costs                                                                                                        |                |         | 8,576            |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total current liabilities                                                                                                                |                                                                                                                                               |                | 63,843  |                  |  
|Long-term debt                                                                                                                           |                                                                                                                                               |                | 41,500  |                  |  
|Deferred income taxes                                                                                                                    |                                                                                                                                               |                | 816     |                  |  
|Deferred revenue                                                                                                                         |                                                                                                                                               |                | 1,106   |                  |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total liabilities                                                                                                                        |                                                                                                                                               |                | 107,265 |                  |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Stockholders' equity                                                                                                                     |                                                                                                                                               |                |         |                  |  
|                                                                                                                                         | Preferred stock, $.01 par value:
2,000 shares authorized; no shares issued or outstanding                                                     |                |         |                 |  
|                                                                                                                                         | Common stock, $.01 par value:
100,000 shares authorized; 23,305 and 21,924 shares issued at April 30, 2002 and January 31, 2002, respectively |                |         | 233              |  
|                                                                                                                                         | Additional paid-in capital                                                                                                                    |                |         | 103,861          |  
|                                                                                                                                         | Retained earnings (deficit)                                                                                                                   |                |         | 2,522            |  
|                                                                                                                                         | Less treasury stock, at cost: 27 common shares at April 30, 2002 and January 31, 2002, respectively                                           |                |         | (519             | )
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total stockholders' equity                                                                                                               |                                                                                                                                               |                | 106,097 |                  |  
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|Total liabilities and stockholders' equity                                                                                               |                                                                                                                                               | $              | 213,362 |                  | $
|                                                                                                                                         |                                                                                                                                               |                |         |                  |  
|See accompanying notes.                                                                                                                  |                                                                                                                                              

3

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CARREKER CORPORATION  Condensed Consolidated Statements of Operations  (Unaudited)  (In thousands, except per share amounts)

|                                                    |                                      | Three Months Ended
April 30,       |       
|--------------------------------------------------- | ------------------------------------ | ---------------------------------- | ------
|
|Revenues:                                           |                                      |                                    |       
|                                                    | Consulting fees                      |                                    | $     
|                                                    | Software license fees                |                                    |       
|                                                    | Software maintenance fees            |                                    |       
|                                                    | Software implementation fees         |                                    |       
|                                                    | Out-of-pocket expense reimbursements |                                    |       
|                                                    |                                      |                                    |       
|                                                    |                                      | Total revenues                     |       
|Cost of revenues:                                   |                                      |                                    |       
|                                                    | Consulting fees                      |                                    |       
|                                                    | Software license fees                |                                    |       
|                                                    | Software maintenance fees            |                                    |       
|                                                    | Software implementation fees         |                                    |       
|                                                    | Out-of-pocket expense reimbursements |                                    |       
|                                                    |                                      |                                    |       
|                                                    |                                      | Total cost of revenues             |       
|                                                    |                                      |                                    |       
|Gross profit                                        |                                      |                                    | 19,651
|Operating costs and expenses:                       |                                      |                                    |       
|                                                    | Selling, general and administrative  |                                    |       
|                                                    | Research and development             |                                    |       
|                                                    | Amortization of intangible assets    |                                    |       
|                                                    |                                      |                                    |       
|                                                    |                                      | Total operating costs and expenses |       
|                                                    |                                      |                                    |       
|Income from operations                              |                                      |                                    | 2,617 
|Other income (expense):                             |                                      |                                    |       
|                                                    | Interest income                      |                                    |       
|                                                    | Interest (expense)                   |                                    |       
|                                                    | Other income (expense)               |                                    |       
|                                                    |                                      |                                    |       
|                                                    |                                      | Total other income (expense)       |       
|Income before provision (benefit) for income taxes  |                                      |                                    | 1,987 
|Provision (benefit) for income taxes                |                                      |                                    | (1,700
|                                                    |                                      |                                    |       
|Net income                                          |                                      | $                                  | 3,687 
|                                                    |                                      |                                    |       
|Basic earnings per share                            |                                      | $                                  | 0.17  
|                                                    |                                      |                                    |       
|Diluted earnings per share                          |                                      | $                                  | 0.16  
|                                                    |                                      |                                    |       
|Shares used in computing basic earnings per share   |                                      |                                    | 22,302
|Shares used in computing diluted earnings per share |                                      |                                    | 22,697

See accompanying notes.

4

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CARREKER CORPORATION  Condensed Consolidated Statements of Stockholders' Equity  (Unaudited)  (In thousands)

|                                                                   |                           | Common Stock |        |   |     |     |   | Treasury Stock |         |   |       
|------------------------------------------------------------------ | ------------------------- | ------------ | ------ | - | --- | --- | - | -------------- | ------- | - | ------
|
|
|Balance at January 31, 2002                                        |                           | 21,924       |        | $ | 219 |     | $ | 93,680         |         | $ | (1,165
|Purchases of treasury stock                                        |                           |             |        |   |    |     |   |               |         |   |      
|Issuance of shares of common stock upon exercises of stock options |                           | 99           |        |   | 1   |     |   | 653            |         |   |      
|Tax benefit from exercises of stock options                        |                           |             |        |   |    |     |   | 218            |         |   |      
|Sale of common stock                                               |                           | 1,282        |        |   | 13  |     |   | 9,310          |         |   |      
|Net income                                                         |                           |             |        |   |    |     |   |               |         |   | 3,687 
|                                                                   |                           |              |        |   |     |     |   |                |         |   |       
|                                                                   | Balance at April 30, 2002 |              | 23,305 |   | $   | 233 |   | $              | 103,861 |   | $     
|                                                                   |                           |              |        |   |     |     |   |                |         |   |       

See accompanying notes.

5

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CARREKER CORPORATION  Condensed Consolidated Statements of Cash Flows  (Unaudited)  (In thousands)

|                                                     |                                                                               | Three Months Ended
April 30,                                                 |                                      
|---------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------
|
|Operating Activities:                                |                                                                               |                                                                              |                                      
|                                                     | Net income                                                                    |                                                                              | $                                    
|                                                     | Adjustments to reconcile net income to net cash used in operating activities: |                                                                              |                                      
|                                                     |                                                                               | Depreciation and amortization of property and equipment                      |                                      
|                                                     |                                                                               | Amortization of capitalized software costs and acquired developed technology |                                      
|                                                     |                                                                               | Amortization of customer relationships                                       |                                      
|                                                     |                                                                               | Compensation earned under employee/director stock option plan                |                                      
|                                                     |                                                                               | Tax benefit from exercises of stock options                                  |                                      
|                                                     |                                                                               | Deferred income taxes                                                        |                                      
|                                                     |                                                                               | Provision for doubtful accounts                                              |                                      
|                                                     |                                                                               | Amortization of deferred loan costs                                          |                                      
|                                                     |                                                                               | Changes in operating assets and liabilities:                                 |                                      
|                                                     |                                                                               |                                                                              | Accounts receivable                  
|                                                     |                                                                               |                                                                              | Prepaid expenses and other assets    
|                                                     |                                                                               |                                                                              | Prepayment of software royalties     
|                                                     |                                                                               |                                                                              | Accounts payable and accrued expenses
|                                                     |                                                                               |                                                                              | Income taxes payable/receivable      
|                                                     |                                                                               |                                                                              | Deferred revenue                     
|                                                     |                                                                               |                                                                              |                                      
|                                                     | Net cash used in operating activities                                         |                                                                              |                                      
|Investing Activities:                                |                                                                               |                                                                              |                                      
|                                                     | Purchases of short-term investments                                           |                                                                              |                                      
|                                                     | Sales and maturities of short-term investments                                |                                                                              |                                      
|                                                     | Purchases of property and equipment                                           |                                                                              |                                      
|                                                     | Computer software costs capitalized                                           |                                                                              |                                      
|                                                     |                                                                               |                                                                              |                                      
|Net cash used in investing activities                |                                                                               |                                                                              | (1,119                               
|Financing Activities:                                |                                                                               |                                                                              |                                      
|                                                     | Purchases of treasury stock                                                   |                                                                              |                                      
|                                                     | Payments on long-term debt                                                    |                                                                              |                                      
|                                                     | Proceeds from exercises of stock options                                      |                                                                              |                                      
|                                                     | Proceeds from sale of common stock                                            |                                                                              |                                      
|                                                     | Payments on notes payable                                                     |                                                                              |                                      
|                                                     |                                                                               |                                                                              |                                      
|Net cash provided by financing activities            |                                                                               |                                                                              | 7,473                                
|                                                     |                                                                               |                                                                              |                                      
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                                                              | 2,548                                
|Cash and cash equivalents at beginning of period     |                                                                               |                                                                              | 25,674                               
|                                                     |                                                                               |                                                                              |                                      
|Cash and cash equivalents at end of period           |                                                                               | $                                                                            | 28,222                               
|                                                     |                                                                               |                                                                              |                                      
|Supplemental disclosures of cash flow information:   |                                                                               |                                                                              |                                      
|                                                     | Cash paid for interest                                                        |                                                                              | $                                    
|                                                     |                                                                               |                                                                              |                                      
|                                                     | Cash paid for income taxes, net                                               |                                                                              | $                                    
|                                                     |                                                                               |                                                                              |                                      

See accompanying notes.

6

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Carreker Corporation        Notes to Condensed Consolidated Unaudited Financial Statements  for the three months ended April 30, 2002 and 2001

1. Description of Business

Carreker Corporation ("the Company") is a leading provider of consulting and software solutions to the banking industry. The Company's solutions include
comprehensive service offerings coupled with a broad array of state-of-the-art, proprietary software products, which have been designed to address the unique
requirements of the banking industry. These solutions are designed to improve the competitiveness of a bank's financial performance and operations.

2. Summary of Significant Accounting Procedures



The accompanying condensed consolidated unaudited financial statements and notes thereto have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles for interim financial
reporting. The results of operations for the three months ended April 30, 2002 are not necessarily indicative of the results for the full year.

These
financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2002 filed with the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated
unaudited financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair representation of financial results for the interim periods
presented.

The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated
in consolidation.

Upon
adoption of Statements of Financial Accounting Standards No. 141,Business Combinations, and No. 142, Goodwill and Other Intangible Assetson
February 1, 2002, the Company reclassified a $5.0 million (net) assembled workforce intangible to
goodwill and ceased amortization, see Recently Issued Accounting Standards below. The Company reclassified the January 31, 2002 balance sheet to conform with this presentation.

Upon
adoption of the FASB announcement,Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurredon February 1, 2002, the Company characterizes reimbursements received for out-of-pocket expenses incurred as revenue in the statement
of operations. Prior to February 1, 2002, the Company netted reimbursements received for out-of-pocket expenses against the related expenses in the statement of
operations. See Recently Issued Accounting Standards below. The Company reclassified the statement of operations for three months ended April 30, 2001 to conform with this presentation.

Historically
uncollected invoices for maintenance services within our Check Solutions subsidiary were eliminated from both the accounts receivable and deferred revenue accounts. To be
consistent with current industry practice and trends, these invoices totaling $4.9 million and $10.9 million were included in the accounts receivable and deferred revenue accounts at
April 30, 2002 and January 31, 2002, respectively.

7

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The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. As discussed below, the Company makes significant estimates and assumptions in the areas of accounts receivable and revenue
recognition. Although the Company believes that the estimates and assumptions are reasonable, actual results may differ, and such differences could be significant to the Company's financial results.



The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents
consist primarily of demand deposit accounts and shares in a demand money market account comprised of domestic and foreign commercial paper, certificates of deposit and U.S. government obligations
which are maintained with nationally recognized financial institutions.



A significant portion of the Company's business consists of providing consulting services and licensing software to major domestic banks, which gives rise to a
concentration of credit risk in receivables. The Company performs on-going credit evaluations of its customers' financial condition and generally requires no collateral. Because the
Company's accounts receivable are typically unsecured, the Company periodically evaluates the collectibility of its accounts based on a combination of factors, including a particular customer's
ability to pay as well as the age of receivables. In cases where the evidence suggests a customer may not be able to satisfy its obligation to the Company or if the collection of the receivable
becomes doubtful due to a dispute that arises subsequent to the delivery of the Company's products and services, the Company sets up a specific reserve in an amount determined appropriate for the
perceived risk. Most of the Company's contracts include multiple payment milestones, some of which occur in advance of revenue recognition, which mitigates the risk both in terms of collectibility and
adjustments to recorded revenue. The provision for doubtful accounts during the three months ended April 30, 2002 and 2001 was $140,000 and $187,000, respectively.

Accounts
receivable include unbilled amounts that generally represent receivables for work performed and are billed shortly after the end of the period, or for which billings, upon
mutual agreement, have not been presented to the customers. These receivables are generally billed and collected within one year of completion of the service. Accounts receivable include
$20.4 million and $21.0 million of unbilled receivables at April 30, 2002 and January 31, 2002, respectively.

The
fair value of accounts receivable approximates the carrying amount of accounts receivable.

8

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Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective
assets, generally from three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the terms of the related leases or the respective useful
lives of the assets. The components of property and equipment are as follows (in thousands):

April 30,
2002

January 31,
2002Furniture

$
5,036

$
5,035Equipment and software


15,999


15,038Leasehold improvements


1,002


993Total cost


22,037


21,066Less accumulated depreciation and amortization


(11,845
)

(10,682
)Net property and equipment

$
10,192

$
10,384


The
Company accounts for the costs of computer software developed or obtained for internal use in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use".The Company capitalizes costs of consultants, and payroll and
payroll-related costs for employees incurred in developing internal-use computer software. These costs are included in "Equipment and Software". Costs incurred during preliminary project
and post-implementation stages are charged to expense.



Intangible assets, which consist of acquired developed technology, capitalized software costs and customer relationships, have been recorded as the result of
business acquisitions (See Note 3) and are being amortized on the straight-line basis over six years.

Goodwill
is the result of differences, if any, between the aggregate consideration paid for the acquisition and the fair value of the net tangible and intangible assets acquired. Through
January 31, 2002, goodwill was amortized on a straight-line basis over an estimated life of 15 years. Beginning February 1, 2002, goodwill and an intangible asset
representing the assembled workforce will no longer be amortized, but will be subject to an annual impairment test. See Recently Issued Accounting Standards below.



Deferred loan costs consist of loan closing costs and other administrative expenses associated with the Revolving Credit Agreement. The costs are being amortized
to interest expense over the 36 month life of the credit agreement.

9

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The Company reviews long-lived assets, including goodwill and intangible assets, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to projected future
undiscounted cash flows expected to be generated by the asset or business unit. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the estimated fair value of the assets. The assessment of recoverability of long-lived assets will be impacted if estimated future operating cash flows are not
achieved. See Recently Issued Accounting Standards below.



Software costs capitalized include developed technology acquired in acquisitions and costs incurred by the Company in developing its products which qualify for
capitalization. The Company capitalizes the development costs of software, other than internal use software, in accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). The Company's policy is to capitalize software development costs incurred in developing a product once
technological feasibility of the product has been established. Software development costs capitalized also include amounts paid for purchased software on products that have reached technological
feasibility. Technological feasibility of the product is determined after completion of a detailed program design and a determination has been made that any uncertainties related to
high-risk development issues have been resolved. If the process of developing the product does not include a detail program design, technological feasibility is determined only after
completion of a working model which has been beta tested. All software development costs capitalized are amortized using an amount determined as the greater of: (i) the ratio that current gross
revenues for a capitalized software project bears to the total of current and future gross revenues for that project or (ii) the straight-line method over the remaining economic
life of the product (generally three to six years). The Company capitalized $103,000 and $1.6 million, and recorded amortization relating to capitalized software costs and acquired developed
technology of $1.4 million and $1.1 million for the three months ended April 30, 2002 and 2001, respectively.

10

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Consulting Fees.The Company employs three primary pricing methods in connection with the delivery of consulting services.
First, the Company may price our delivery of consulting services on the basis of time and materials, in which case the customer is charged agreed upon daily rates for services performed and
out-of-pocket expenses. In this case, the Company is generally paid fees and related amounts on a monthly basis, and the Company recognizes revenues as the services are
performed. Second, the Company may deliver consulting services on a fixed-price basis. In this case, the Company is paid on a monthly basis or pursuant to an agreed upon payment schedule, and the
Company recognizes revenues paid on a percentage-of-completion basis. The Company believes that this method is appropriate because of our ability to determine performance
milestones and determine dependable estimates of our costs applicable to each phase of a contract. Since financial reporting of these contracts depends on estimates, which are assessed continually
during the term of the contract, costs are subject to revisions as the contract progresses. Anticipated losses on fixed-price contracts are recognized when estimable. Third, the Company may deliver
consulting services pursuant to a value-priced contract with the customer. In this case, we are paid, on an agreed upon basis with the customer, either a specified percentage of (1) the
projected increased revenues and/or decreased costs that are expected to be derived by the customer generally over a period of up to twelve months following implementation of the solution or
(2) the actual increased revenues and/or decreased costs experienced by the customer generally over a period of up to twelve months following implementation of the solution, subject in either
case to a maximum, if any is agreed to, on the total amount of payments to be made to us. These contracts typically provide for the Company to receive a percentage of the projected or actual increased
revenues and/or decreased costs, with payments to be made to us pursuant to an agreed upon schedule ranging from one to twelve months in length. The Company recognizes revenues generated from
consulting services in connection with value-priced contracts based upon projected results only upon completion of all services and agreement upon the actual fee to be paid (even though billings for
these services may be delayed by mutual agreement for periods not to exceed twelve months). In an effort to allow customers to more closely match expected benefits from our services with payments to
the Company, during the third quarter of fiscal 2001, the Company began to offer payment terms which extend beyond 12 months. When the Company enters into an agreement which has a significant
component of the total amount payable under the agreement due beyond 12 months and it is determined payments are not fixed and determinable at the date the agreement was entered into, revenue
under the arrangement will be recognized as payments become due and payable. Under this approach, upon contract signing, a completed backlog of revenue is established which is incrementally recognized
as revenue over future quarters as amounts become due and payable under the agreement. When fees are to be paid based on a percentage of actual revenues and/or savings to customers, the Company
recognizes revenues only upon completion of all services and as the amounts of actual revenues or savings are confirmed by the customer.

11

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The
Company typically must first commit time and resources to develop projections associated with value-pricing contracts before a bank will commit to purchase our solutions, and the
Company therefore assumes the risk of making these commitments with no assurance that the bank will purchase the solutions. The Company expects that value-pricing contracts will continue to account
for a large percentage of our revenues in the future. As a consequence of the use of value-pricing contracts and due to the revenue recognition policy associated with those contracts, the Company's
results of operations will likely fluctuate significantly from period to period.

Regardless
of the pricing method employed by the Company in a given contract, the Company is typically reimbursed on a monthly basis for out-of-pocket expenses
incurred on behalf of our customers. Historically, expenses have been netted against reimbursements for consolidated financial statement reporting purposes. Beginning February 1, 2002, the
Company began to characterize reimbursements received for out-of-pocket expenses incurred as revenue in the consolidated statement of operations in accordance with a recent
FASB announcement, see Recently Issued Accounting Standards below. All comparative prior periods have been adjusted to reflect this change.

Software License Fees.In the event that a software license is sold either together with consulting services or on a
stand-alone basis, the Company is usually paid software license fees in one or more installments, as provided in the customer's contract but not to exceed twelve months. The Company recognizes
software license revenues in accordance with the American Institute of Certified Public Accountants' Statement of Position 97-2,"Software Revenue
Recognition."Under SOP 97-2, the Company recognizes software license revenues upon execution of a contract and delivery of software, provided that the license fee
is fixed and determinable, no significant production, modification or customization of the software is required, and collection is considered probable by management.

Although
substantially all of the Company's current software licenses provide for a fixed price license fee, some licenses instead provide for the customer to pay a monthly license fee
based on actual use of the software product. The level of license fees earned by the Company under these arrangements will vary based on the actual amount of use by the customer. Revenue under these
arrangements is recognized on a monthly basis as earned.

Software Maintenance Fees.In connection with the sale of a software license, a customer may elect to purchase software
maintenance services. Most of the customers that purchase software licenses from the Company also purchase software maintenance services, which typically are renewed annually. The Company charges an
annual maintenance fee, which is typically a percentage of the initial software license fee. The annual maintenance fee generally is paid to the Company at the beginning of the maintenance period, and
the Company recognizes these revenues ratably over the term of the related contract.

Software Implementation Fees.In connection with the sale of a software license, a customer may elect to purchase software
implementation services, including software enhancements, patches and other software support services. Most of the customers that purchase software licenses from the Company also purchase software
implementation services. The Company prices our implementation services on a time-and-materials or on a fixed-price basis, and the Company recognizes the related revenues as
services are performed.

12

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Revenues
for agreements that include one or more elements to be delivered at a future date are recognized based on the relative fair value of those elements determined using
vendor-specific objective evidence. If fair values have not been established for certain undelivered elements, revenue is deferred until those elements have been delivered or their fair values have
been determined.

The
Company's contracts typically do not include right of return clauses. As a result, the Company has experienced few returns or cancellations for its products, and accordingly the
Company does not record a provision for returns.



In connection with software license and maintenance agreements entered into with certain banks and purchase agreements with vendors under which the Company
acquired software technology used in products sold to its customers, the Company is required to pay royalties on sales of certain software products, including four Back Office products and the Branch
Truncation Management product. Under these arrangements, the Company accrues royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20% to 30%.
Approximately $658,000 and $118,000 of royalty expense was recorded under these agreements for the three months ended April 30, 2002 and 2001, respectively. Royalty expense is included as a
component of the cost of software licenses in the accompanying consolidated statements of operations.



Deferred revenue principally represents amounts prepaid by customers under annual maintenance contracts and occasionally represents prepayments for consulting and
software licensing for which completion of contractual terms or delivery of the software has not occurred. Long-term deferred revenue represents amounts received for maintenance to be
provided beginning in periods on or after May 1, 2003.



Research and product development costs, which are not subject to capitalization under Statement of Financial Accounting Standards (SFAS) 86, "Accounting for the
Cost of Computer Software to be Sold, Leased, or Otherwise Marketed," are expensed as incurred and relate mainly to the development of new products, new applications, new features or enhancements for
existing products or applications and sustaining maintenance activities.



Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is
computed using the weighted average number of shares of common stock outstanding during each period and common equivalent shares consisting of stock options (using the treasury stock method).

13

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The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees"("APB Opinion No. 25") and the Financial Accounting Standards Board Statement ("FASB") Interpretation
No. 44,"Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25),"("FIN 44").



The Company's future results of operations and financial condition could be impacted by the following factors, among others: dependence on the banking industry,
customer concentration, indebtedness, fluctuations in operating results, eligibility of shares for sale in the market, use of fixed-price or value-priced arrangements, lack of long-term
agreements, ability to gain market acceptance, ability to manage growth, dependence on key personnel, product liability, rapid technological change and dependence on new products, dependence on
third-party providers and the Internet, ability to attract and retain qualified personnel, competition, potential strategic alliances and acquisitions, proprietary rights, claims and legal
proceedings, international operations, use of independent contractors, changing government and tax regulations, anti-takeover provisions in our charter and impairment of goodwill or
intangible assets. Negative trends in the Company's operating results could result in noncompliance of financial covenants related to its revolving credit agreement, which could impair the Company's
liquidity. See description of the Company's revolving credit agreement and related financial covenants in Note 5.



In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142,Goodwill and Other Intangible Assets, effective for fiscal
years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment
tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company applied the new rules on accounting for goodwill and other
intangible assets beginning February 1, 2002. Upon adoption, the Company reclassified a $5.0 million (net) assembled workforce intangible to goodwill and ceased amortization. Application
of the nonamortization provisions of the Statement is expected to result in an increase in net income of $5.5 million ($0.24 per share using the dilutive number of shares at April 30,
2002) per year. The Company is currently performing along with an outside valuation firm, the initial impairment test of goodwill and indefinite lived intangible assets as of February 1, 2002
to determine if a transition impairment charge should be recognized under SFAS 142. While the initial impairment analysis is not complete, the Company does not expect the analysis to result in
any significant effect on the earnings and financial position of the Company.

14

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The
assessment of goodwill impairment in the future will be impacted if projected future operating cash flows of the reporting unit are not achieved, resulting in decreases in the
related estimated fair market values. All goodwill and indefinite lived intangibles relates to the Company's acquisition of Check Solutions Company (see Note 3) which closed on June 6,
2001. All goodwill and indefinite lived intangibles are included as a component of the Global Technology Solutions business segment.

In
October 2001, the FASB issued SFAS No. 144"Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 144, which replaces SFAS No. 121"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of,"requires long-lived assets to be measured at the lower of carrying amount or fair value less the cost to sell. SFAS No. 144 also broadens disposal
transaction reporting related to discontinued operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. There was no
effect on the earnings and financial position of the Company related to the adoption of SFAS No. 144.

In
November 2001, the FASB issued an announcement on the topic of"Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred"(the "Announcement"). The Announcement requires companies to characterize reimbursements received for
out-of-pocket expenses incurred as revenue in the statement of operations. Prior to February 1, 2002, the Company netted reimbursements received for
out-of-pocket expenses against the related expenses in the accompanying consolidated statements of operations. The Announcement is to be applied in financial reporting periods
beginning after December 15, 2001 and comparative financial statements for prior periods are to be reclassified to comply with the guidance in this announcement. The Company adopted the
Announcement beginning February 1, 2002, and reclassified prior comparative financial statements.

15

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The
Announcement will have no effect on net income, but the revised revenues, cost of revenues, and resulting gross margin percentage for the last four quarters is as follows (in
thousands):

|                  |                                                              | April 30,
2001         |        | July 31,
2001 |        | October 31,
2001 |        | January 31,
2002 |     | Total  |       
|----------------- | ------------------------------------------------------------ | ---------------------- | ------ | ------------- | ------ | ---------------- | ------ | ---------------- | --- | ------ | ------
|Revenues:         |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|                  | Consulting fees                                              |                        | $      | 14,845        |        | $                | 10,655 |                  | $   | 7,066  |       
|                  | Software license fees                                        |                        |        | 5,235         |        |                  | 12,057 |                  |     | 7,169  |       
|                  | Software maintenance fees                                    |                        |        | 3,197         |        |                  | 6,437  |                  |     | 9,257  |       
|                  | Software implementation fees                                 |                        |        | 2,127         |        |                  | 4,703  |                  |     | 6,192  |       
|                  | Out-of-pocket expense reimbursements                         |                        |        | 3,061         |        |                  | 2,231  |                  |     | 2,612  |       
|                  |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|                  |                                                              | Total revenues         |        |               | 28,465 |                  |        | 36,083           |     |        | 32,296
|Cost of revenues: |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|                  | Consulting fees                                              |                        |        | 10,095        |        |                  | 8,974  |                  |     | 8,090  |       
|                  | Software license fees                                        |                        |        | 1,139         |        |                  | 1,737  |                  |     | 2,001  |       
|                  | Write-off of capitalized software costs and prepaid software |                        |        |              |        |                  | 2,819  |                  |     | 12,089 |       
|                  | Software maintenance fees                                    |                        |        | 1,196         |        |                  | 1,745  |                  |     | 2,004  |       
|                  | Software implementation fees                                 |                        |        | 1,725         |        |                  | 3,412  |                  |     | 4,903  |       
|                  | Out-of-pocket expense reimbursements                         |                        |        | 3,110         |        |                  | 2,999  |                  |     | 3,027  |       
|                  |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|                  |                                                              | Total cost of revenues |        |               | 17,265 |                  |        | 21,686           |     |        | 32,114
|                  |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|Gross profit      |                                                              | $                      | 11,200 |               | $      | 14,397           |        | $                | 182 |        | $     
|                  |                                                              |                        |        |               |        |                  |        |                  |     |        |       
|Gross profit %    |                                                              |                        | 39.3   | %             |        | 39.9             | %      |                  | 0.6 | %      |       
|                  |                                                              |                        |        |               |        |                  |        |                  |     |        |       

3. Business Combinations

On June 6, 2001, the Company completed the acquisition of Check Solutions Company, a New York general partnership ("Check Solutions") for
$110.2 million in cash, plus an additional $2.0 million of direct acquisition costs. Check Solutions is a check and image processing software and installation business that services the
payment-processing sector of the financial industry which expands our suite of software products and strengthens our software development management capabilities. The operating results of Check
Solutions are reported in the Global Technology Solutions segment and has been included in the Company's consolidated operating results from the date of acquisition (June 6, 2001) forward. The
Company funded the acquisition through $65.2 million of its cash, and funded the remaining $45.0 million from proceeds under the revolving credit agreement as described in Note 5.

The
acquisition was accounted for by the purchase method of accounting, and accordingly, the statements of operations include the results of Check Solutions beginning June 6,
2001. The assets acquired and liabilities assumed were recorded at estimated fair values as determined by the Company's management, based on information currently available and on current assumptions
as to future operations.

The
Company has obtained an independent appraisal of the fair values of the identified intangible assets, which are being amortized on a straight-line basis.

16

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A
summary of the assets acquired and liabilities assumed in the acquisition follows (in thousands):

Net assets of Check Solutions

$
3,663Current technology and software products (estimated life of 5-6 years)


24,200Customer relationships (estimated life of 6 years)


8,400Assembled workforce


5,600Goodwill


68,037In-process research and development


2,300Total purchase price

$
112,200


Effective
February 1, 2002, the Goodwill and the Assembled workforce intangible are no longer being amortized but are subject to annual impairment testing. See Recently Issued
Accounting Standards.

In
connection with the acquisition of Check Solutions, a portion of the purchase price was allocated to acquired in-process research and development ("IPR&D"). The
$2.3 million attributed to IPR&D was expensed on the date of the acquisition as the IPR&D projects had not reached technological feasibility nor had any alternative future use.

The
following unaudited pro forma financial information for the three months ended April 30, 2001, assumes the Check Solutions acquisition occurred at the beginning of the
respective period (in thousands, except per share data).

Three Months Ended
April 30, 2001Revenue

$40,504Net income (loss)

(623)Basic earnings (loss) per share

(0.03)Diluted earnings (loss) per share

(0.03)


The
unaudited pro-forma financial information for the three months ended April 30, 2001 combines the Company's historical statement of operations for the three months
ended April 30, 2001 with Check Solutions' historical statement of operations for the three months ended April 30, 2001.

The
pro-forma information reflects adjustments for amortization of acquired software costs, customer relationship intangible asset, goodwill, the assembled workforce
intangible, additional interest expense and amortization of deferred loan costs related to the new credit agreement, a reduction in interest income, and the income tax impact of these adjustments.

The
unaudited pro forma financial information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations that may occur in the future
or what would have occurred had the acquisition of Check Solutions been affected on the dates indicated.

17

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4. Intangible Assets

Excluding goodwill and intangible assets reclassified into goodwill on February 1, 2002, amortization expense on intangible assets was $350,000 and $0 for
the three months ended April 30, 2002 and 2001, respectively.

The
following table sets forth the estimated amortization expense of intangible assets for the fiscal years ending January 31, (in thousands):

Year

Amount2003

$1,4002004

1,4002005

1,4002006

1,4002007

1,400


5. Revolving Credit Agreement

On June 6, 2001, the Company entered into a three-year revolving credit agreement with a group of banks in an amount not to exceed
$60.0 million. All outstanding borrowings are due on June 5, 2004. Borrowings under the credit agreement bear interest equal to either the greater of prime or federal funds rate plus a
margin ranging from 0.00% to 0.75% depending on the Company's ratio of funded debt to Earnings before interest, taxes, depreciation and amortization ("EBITDA"), or LIBOR plus a margin equal to 1.50%
to 2.25% depending on the Company's ratio of funded debt to EBITDA. Interest payments are due quarterly. The Company is required to pay a commitment fee equal to 0.25% to 0.50% depending on the
Company's ratio of funded debt to EBITDA on the unused amount of the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants including
financial covenants requiring the maintenance of specified interest coverage, ratio of EBITDA to funded debt, and ratio of accounts receivable, cash and short-term investments to funded
debt. Additionally, the payment of dividends is precluded subject to the approval of the banks. Effective October 31, 2001, the Company entered into an amendment to the credit agreement to
reflect the impact of the decline in recent operating results. Under the amendment, margin rates were increased on prime or federal funds based loans to 2.00%, and on LIBOR based loans to 3.50%.
Effective August 1, 2002, margins will decrease to a range of 0.50% to 1.25% on prime or federal funds based loans, and to a range of 2.00% to 2.75% on LIBOR based loans. Substantially all of
the Company's assets collateralize the revolving credit agreement. Also under the amendment, certain covenants were eliminated for the period ended October 31, 2001, and future covenants were
adjusted to levels the Company expects to achieve. As of April 30, 2002, the Company is in compliance with the covenants of the revolving credit agreement, as amended. The Company's ability to
make additional borrowings under this revolving credit agreement is determined by a formula based on the Company's outstanding accounts receivable. Additionally, if the Company's accounts receivable
balance decreases below certain levels as defined in the revolving credit agreement, mandatory prepayments of the debt may be required. At April 30, 2002, $9.6 million of additional
borrowing capacity was available to the Company.

18

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At
April 30, 2002, the Company has $41.5 million outstanding under the agreement in connection with the acquisition of Check Solutions. At April 30, 2002, the
interest rate on $35.0 million of the debt is 5.438% and the interest rate on $6.5 million of the debt is 5.375%. As the interest on the debt is variable, the carrying value approximates
the fair value. Interest expense on the Revolving Credit Agreement was $609,000 for the three months ended April 30, 2002.

6. Common Stock Offering

On April 5, 2002, the Company sold 1,282,214 shares to a group of institutional investors in a private transaction. In connection with this transaction,
the Company filed a registration statement on Form S-3 following the filing of its annual report on Form 10-K for the year ended January 31, 2002 to
register the resale of such shares. The Form S-3 was deemed effective on May 15, 2002. On April 5, 2002, the Company utilized the net proceeds of approximately
$9.3 million that were received from the sale to satisfy remaining obligations due to certain former employees of Check Solutions described in Note 12 below, with the remainder being
used for working capital.

7. Provision (Benefit) for Income Taxes

The Company has established a valuation allowance to reserve its net deferred tax assets at April 30, 2002 because the more likely than not criteria for
future realization of the Company's net deferred tax assets specified in SFAS No. 109 "Accounting for Income Taxes", were not met.

The
net tax benefit of $1.7 million is a result of a $1.9 million tax benefit generated by additional tax loss carrybacks available to the Company as a result of the
recently passed Job Creation and Workers Assistance Act of 2002, offset by a $200,000 provision for taxes based on an estimated annual effective tax rate of 10% for the year ending January 31,
2003. The estimated annual effective tax rate is lower than the statutory federal and state rates as a result of the carryforward of additional net operating losses expected to be utilized during the
year ending January 31, 2003.

19

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8. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

Three Months Ended
April 30,2002

2001Basic earnings per share:Net income

$
3,687

$
1,312Weighted average shares outstanding


22,302


21,764Basic earnings per share

$
0.17

$
0.06Diluted earnings per share:Net income

$
3,687

$
1,312Weighted average shares outstanding


22,302


21,764Assumed conversion of employee stock options


395


968Shares used in diluted earnings per share calculation


22,697


22,732Diluted earnings per share

$
0.16

$
0.06


9. Contingencies

The Company is periodically involved in various legal actions and claims which arise in the normal course of business. In the opinion of management, the final
disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations.

10. Segments

The tables below show revenues and income (loss) from operations for the periods indicated for our three reportable business segments: Revenue Enhancement, Global
Technology Solutions and Enterprise Solutions. Our customer projects are sold on a solution basis, so it is necessary to break them down by segment and allocate accordingly. The Company updated the
composition of its reportable business segments to combine the Cash Solutions and Payment Solutions business segments with Check Solutions to form the Global Technology Solutions business segment.
Segment information from all prior periods have been reclassified to conform with the current presentation. Included in "Corporate Unallocated" are costs related to selling and marketing, unallocated
corporate overhead expense and general software management.

20

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Business
segment results include costs for research and development as well as product royalty expense, the amortization of goodwill and intangible assets, the write-off of
capitalized software costs and merger-related costs (in thousands):

|                                                                       |                                      | Three Months ended April 30, 2002
|---------------------------------------------------------------------- | ------------------------------------ | ---------------------------------
|
|Revenues:                                                              |                                      |                                  
|                                                                       | Consulting fees                      |                                  
|                                                                       | Software license fees                |                                  
|                                                                       | Software maintenance fees            |                                  
|                                                                       | Software implementation fees         |                                  
|                                                                       | Out-of-pocket expense reimbursements |                                  
|                                                                       | Intercompany revenue                 |                                  
|                                                                       |                                      |                                  
|                                                                       |                                      | Total revenues                   
|                                                                       |                                      |                                  
|Income (loss) from operations before amortization of intangible assets |                                      | $                                
|                                                                       | Amortization of intangible assets    |                                  
|                                                                       |                                      |                                  
|Income (loss) from operations                                          |                                      | $                                
|                                                                       |                                      |                                  

|                                                                       |                                      | Three Months ended April 30, 2001
|---------------------------------------------------------------------- | ------------------------------------ | ---------------------------------
|
|Revenues:                                                              |                                      |                                  
|                                                                       | Consulting fees                      |                                  
|                                                                       | Software license fees                |                                  
|                                                                       | Software maintenance fees            |                                  
|                                                                       | Software implementation fees         |                                  
|                                                                       | Out-of-pocket expense reimbursements |                                  
|                                                                       |                                      |                                  
|                                                                       |                                      | Total revenues                   
|                                                                       |                                      |                                  
|Income (loss) from operations before amortization of intangible assets |                                      | $                                
|                                                                       | Amortization of intangible assets    |                                  
|                                                                       |                                      |                                  
|Income (loss) from operations                                          |                                      | $                                
|                                                                       |                                      |                                  

Revenues
exclusive of out-of-pocket expense reimbursements, derived from a single major customer accounted for approximately 12.0% and 23.8% of total revenue for
the three months ended April 30, 2002 and 2001, respectively. Revenue derived from our five largest customers accounted for approximately 41.4% and 50.1% of total revenue for the three months
ended April 30, 2002 and 2001, respectively.

21

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The
Company markets its solutions in several foreign countries. Revenues, exclusive of out-of-pocket expense reimbursements, for the three months ended
April 30, 2002 and 2001 attributed to countries based on the location of the customers was as follows (in thousands):

|              |                | April 30,
2002 |        | April 30,
2001
|------------- | -------------- | -------------- | ------ | --------------
|
|United States |                | $              | 28,044 |               
|Europe        |                |                | 2,666  |               
|Australia     |                |                | 837    |               
|Canada        |                |                | 1,105  |               
|South Africa  |                |                | 2,562  |               
|              |                |                |        |               
|              | Total revenues |                | $      | 35,214        
|              |                |                |        |               

11. Merger and Restructuring Charges

There were no additional merger and restructuring charges during the three months ended April 30, 2002.

The
activity related to the merger and restructuring costs reserve balance during the three months ended April 30, 2002 is as follows (in thousands):

|                                 |  | Workforce
Reductions |       | Charges
relating to
CheckFlow
Suite |   | Facility
Closures |   | Total |    
|-------------------------------- |  | -------------------- | ----- | ----------------------------------- | - | ----------------- | - | ----- | ---
|January 31, 2002 reserve balance |  | $                    | 3,542 |                                     | $ | 7,341             |   | $     | 367
|Cash paid                        |  |                      | (958  | )                                   |   | (1,655            | ) |       | (61
|                                 |  |                      |       |                                     |   |                   |   |       |    
|April 30, 2002 reserve balance   |  | $                    | 2,584 |                                     | $ | 5,686             |   | $     | 306
|                                 |  |                      |       |                                     |   |                   |   |       |    

12. Related Party Transactions

In March 2001, the Company loaned $500,000 to an officer of the Company pursuant to a Limited Recourse Promissory Note ("Note"). The principal is due in
full on March 30, 2004. In January 2002, the Note was adjusted to its estimated fair value of $125,000 resulting in a charge to earnings of $375,000. During the three months ended
April 30, 2002, the Note was adjusted to its estimated fair value of $25,000 resulting in an additional charge to earnings of $100,000.

In
connection with the completion of the Check Solutions acquisition, the Company assumed a $10.0 million obligation to certain employees of Check Solutions, including a current
officer of the Company. During the three months ended January 31, 2002, $3.3 million of this obligation was paid and during the three months ended April 30, 2002 the remaining
$6.7 million was paid.

22

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

All statements other than statements of historical fact contained in this report, including statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" concerning our financial position and liquidity, results of operations, prospects for future growth, and other matters are, forward-looking statements. Although we
believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause our results to
differ materially from the results discussed in, or contemplated by, such forward-looking statements include the risks described under "Risk Factors" in the company's Form 10-K for
the fiscal year ended January 31, 2002, on file with the Commission. Such risks include, without limitation, dependence on the banking industry, customer concentration, indebtedness,
fluctuations in our operating results, eligibility of shares for sale in the market, use of fixed-price or value-priced arrangements, lack of long-term agreements, ability to gain market
acceptance, ability to manage growth, dependence on key personnel, product liability, rapid technological change and dependence on new products, dependence on third-party providers and the Internet,
ability to attract and retain qualified personnel, competition, potential strategic alliances and acquisitions, proprietary rights, claims and legal proceedings, international operations, use of
independent contractors, changing government and tax regulations, and anti-takeover provisions in our charter and impairment of goodwill or intangible assets. All forward-looking
statements in this report are expressly qualified in their entirety by the cautionary statements in this paragraph, in "Risk Factors" (as set forth in the aforementioned Form 10-K)
and elsewhere in this report. Negative trends in the Company's operating results could result in noncompliance of financial covenants related to its revolving credit agreement, which could impair the
Company's liquidity. See description of our revolving credit agreement and related financial covenants in our Notes to Condensed Consolidated Unaudited Financial Statements.

Overview

We are a leading provider of integrated consulting and software solutions that enable banks to identify and implement e-finance solutions, increase
their revenues, reduce their costs and enhance their delivery of customer services. We were founded in 1978 to provide consulting services to banks, and we subsequently integrated software products
into our banking solutions. With our acquisition of Check Solutions in June 2001, we were able to significantly enhance our portfolio of software products. The acquisition of Check Solutions
was accounted for as a purchase.

We
separate our business operations into three reportable business segments: Revenue Enhancement, Global Technology Solutions and Enterprise Solutions. See Note 10 of our Notes to
Condensed Consolidated Unaudited Financial Statements.

We
derive our revenues from consulting fees, software license fees, software maintenance fees, and software implementation fees. While many customer contracts provide for both the
performance of consulting services and the license of related software, some customer contracts require only the performance of consulting services or only a software license (and, at the election of
the customer, related implementation services and/or annual software maintenance services). We enter into these contracts with our customers on a project-by-project basis.

We
seek to establish long-term relationships with our customers that will lead to on-going projects utilizing our solutions. We are typically retained to perform
one or more discrete projects for a customer, and we use these opportunities to extend our solutions into additional areas of the customer's operations. To this end, a significant portion of our
current revenues is derived from customers who were customers in prior years, and we are therefore dependent to a significant degree on our ability to maintain our existing relationships with these
customers.

23

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Products and Services

We offer a wide range of innovative solutions that enable banks to identify and implement e-finance solutions, increase their revenues, reduce their
costs and enhance their delivery of customer services. By combining our consulting services with our proprietary technology applications, we help banks improve their current operations and provide
access to the benefits of the Internet economy. Our offerings, uniquely tailored to the needs of the banking industry, fall into three complementary groups. These groups, Revenue Enhancement, Global
Technology Solutions and Enterprise Solutions, we believe we offer products and services that, when combined, deliver optimal benefits. During the second quarter of fiscal 2001, the Company combined
the Cash Solutions group with the Payment Solutions group, along with the acquisition of Check Solutions Company, a New York general partnership ("Check Solutions"), to form the Global Technology
Solutions group reflecting the common thread of technology between these activities. The Check Solutions suite of products are also included within the Global Technology Solutions group.

Revenue Enhancement.Revenue Enhancement consulting services enable banks to improve workflows, internal operational
processes and customer pricing structures.

|Solution            |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Products Offered                                        
|------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------
|Revenue Enhancement |  | Provides consulting services that assess the existing policies and procedures of banks to increase their revenue streams and reduce interest and operating expenses. These assessments generally focus on a variety of a bank's operations, including
deposits, treasury management, commercial lending, credit cards, automobile finance, mortgage and other consumer lending operations. Revenue Enhancement engagements typically take four to seven months to complete and we believe are relatively
non-intrusive to the client. |  | Revenue Enhancement Consulting and Methodology, Celerity
|CVM/EnAct           |  | CVM/EnAct is a customer relationship management software methodology. CVM/EnAct enables companies to focus their resources on customers who represent the highest potential value, and then drive customer interactions consistently across every customer
channel, to increase profitability of its customer base.                                                                                                                                                                                                                   |  | CVM/EnAct Methodology, Consulting and Technology        

24

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Global Technology Solutions.Global Technology Solutions addresses the needs of a critical function of banks, the processing
of payments made by one party to another. This includes presentment of checks in paper and electronic form, determination of the availability of funds, identification and mitigation of fraudulent
payments, handling irregular items such as checks returned unpaid (exceptions), maintaining a record of past transactions (archiving), responding to related customer inquiries (research) and
correcting any errors that are discovered (adjustments). Global Technology Solutions approaches these key functions in the context of improving operational efficiency and a gradual transition from
paper to electronic-based payment systems. Another specific area that Global Technology Solutions specializes in is optimizing the inventory management of a bank's
cash-on-hand, including managing how much is needed, when it is needed and where it is needed. We believe our solutions reduce the amount of cash banks need to hold in reserve
accounts and as cash-on-hand, while ensuring a high level of customer service through timely replenishment of cash in ATMs. Specific solutions within this group include:

|Solution         |  | Description                                                                                                                                                                                                                                                                        |  | Products Offered                                                                                              
|---------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Fraud Mitigation |  | Provides effective fraud detection and management software featuring automated approaches to solving the growing problem of fraudulent financial transactions, including bad checks drawn on banks for payment, fraudulent items deposited with banks for
credit and check kiting. |  | FraudLink On-us, FraudLink Deposit, FraudLink Kite, FraudLink PositivePay, FraudLink eTracker, FraudLink PC   
|Back Office      |  | Brings new efficiencies to back office operations through the use of state-of-the-art image and workflow technologies.                                                                                                                                                             |  | Adjustments/Express, Exceptions/Express, Input/Express, Inbound Returns/Express, Image Bulk-File and Fine Sort
|Remittance       |  | Provides both a host-based and client/server based platform for processing Retail and Wholesale remittance transactions.                                                                                                                                                           |  | NeXGen Remittance                                                                                             
|Check Capture    |  | Offers an extensive array of enhancement products that add flexibility and usability to IBM's Check Processing Control System (CPCS) and the 3890/XP series of reader/sorters.                                                                                                     |  | Image Processor 2, Conventional Capture, CPCS Enhancements, XP/Productivity Tools, Platform Emulation         
|Image Capture    |  | Products and services related to check image capture, storage, delivery and their related applications.                                                                                                                                                                            |  | ALS, Image Statements, Net Deliver/Reject Repair, RECO, Image POD, Image Delivery, Image Enhancements         
|                 |  |                                                                                                                                                                                                                                                                                    |  |                                                                                                               
|                 |  |                                                                                                                                                                                                                                                                                    |  |                                                                                                               

25

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|Solution                     |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Products Offered                                                              
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                               
|Archive Management           |  | Comprehensive array of check image archive management products which may be tailored to a bank's unique requirements based on their operational environments and volumes.                                                                                                                                                                                                                                                                                            |  | Check Image Archive AIX, Check Image Archive MVS, Check Image Archive Load    
|Global Tracking              |  | Offers an automated track and trace system designed to monitor items from the time they enter a bank's processing stream to final disposition, which enables a bank to improve labor productivity by channeling resources to the place they are most
needed.                                                                                                                                                                                                         |  | Receive Sentry                                                                
|eMetrics                     |  | Focuses on performance-measurement by using historical data to generate key performance indicators, item processing volume data, productivity statistics and quality control benchmarks.                                                                                                                                                                                                                                                                             |  | eiLumen, eiPerform, eiStats, eiMicr, eiQuality                                
|Electronic Check Presentment |  | Enables banks to transition away from paper-based payment systems to electronic by automating key elements of the processing stream as well as improving a bank's yield from float management. The aim of this product and service is to reduce and
eventually eliminate the movement of paper payment instruments through the system, automate error-prone payment processing functions, consolidate payment information and provide a measure of fraud prevention. |  | CheckLink, CheckLink PC, Deposit Manager, Branch Truncation Management, Cnotes
|Float Management             |  | Focuses on funding requirements and overall profitability by properly managing a bank's float through float analysis, pricing and a comprehensive consulting practice to improve profitability, reporting, workflow and check-clearing operations. It
provides critical activity summaries, aids in creating multiple availability and pricing schedules as well as pinpointing the cost/profitability of any transaction or relationship.                           |  | Float Analysis System, Float Pricing System, Consulting                       
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                               
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                               

26

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|Solution       |  | Description                                                                                                                                                                                                                                                                                                                                                                                                    |  | Products Offered                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                     
|ATM Solutions  |  | Advances ATM monitoring and management through the use of Internet connectivity to provide electronic notification of cash and/or servicing needs. Scalable to the largest ATM networks, it forecasts cash and servicing needs, dispatches vendors for
cash replenishment and maintenance services, records completed work and reconciles vendor invoices, all via an electronic communication infrastructure. |  | eiManager, eiGateway                
|Cash Solutions |  | Reduces the amount of non-earning assets required in reserve accounts and as cash-on-hand to meet operating needs. Using both technology and process reengineering, it provides management tools for forecasting, tracking and optimizing a bank's
inventory of currency. This group of solutions frees underutilized money for more productive uses.                                                          |  | iCom, Reserve Link, Reserve LinkPlus
|Logistics      |  | Reduces armored car transportation costs incurred by banks in moving cash between locations and replenishing ATMs. It optimizes armored car utilization based on ATM locations and usage, route structures and delivery frequency, as well as ATM deposit
processing requirements.                                                                                                                             |  | Consulting Services                 

27

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Enterprise Solutions.Enterprise Solutions provides conversion, consolidation and integration consulting services and
products on a bank-wide basis. These services and products are particularly in demand in the context of continuing consolidation activity in the banking industry and the pressure by
customers on banks to define and implement their e-finance strategies. Key elements of this group include:

|Solution             |  | Description                                                                                                                                                                                                                 |  | Products Offered                                                                              
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------
|Enterprise Solutions |  | Offers customized, bank-wide conversions, consolidation and integration consulting solutions in areas beyond payments systems, including consulting and project management services and IT consulting for various projects. |  | Project Management, eSolutions, Integration, Process Optimization, Line of Business Consulting
|                     |  | Expense reduction processes are optimization strategies to help banks reduce operation expenses across the enterprises.                                                                                                     |  |                                                                                               
|Strategic Services   |  | Assists customers in planning and implementing a total e- finance and payment strategy.                                                                                                                                     |  | e-Vision Consulting, Strategy Consulting, Shared Services Consulting                          

28

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Results of Operations

The following table sets forth for the periods indicated, the percentages that selected items in the unaudited condensed consolidated statements of operations
bear to total revenues. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Three Months Ended
April 30,2002

2001Revenues:Consulting fees

24.0
%
52.2
%Software license fees

24.7

18.4Software maintenance fees

26.5

11.2Software implementation fees

17.8

7.5Out-of-pocket expense reimbursements

7.0

10.7Total revenues

100.0

100.0Cost of revenues:Consulting fees

19.1

35.5Software license fees

5.2

4.0Software maintenance fees

6.0

4.2Software implementation fees

11.6

6.1Out-of-pocket expense reimbursements

6.2

10.9Total cost of revenues

48.1

60.7Gross profit

51.9

39.3Operating costs and expenses:Selling, general and administrative

38.0

31.4Research and development

6.0

3.0Amortization of intangible assets

1.0

Total operating costs and expenses

45.0

34.4Income from operations

6.9

4.9Other income (expense)

(1.7
)
2.4Income before provision (benefit) for income taxes

5.2

7.3Provision (benefit) for income taxes

(4.5
)
2.7Net income

9.7
%
4.6
%


29

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The
following table sets forth, for the periods indicated, the cost of revenues as a percentage of their respective revenue. The period-to-period comparisons of
financial results are not necessarily indicative of future results.

Three Months Ended
April 30,2002

2001Cost of revenues:Consulting fees

79.7
%
68.0
%Software license fees

21.3

21.8Software maintenance fees

22.9

37.4Software implementation fees

64.6

81.1Out-of-pocket expense reimbursements

87.6

101.6


30

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Three Months Ended April 30, 2002 (Fiscal 2002) Compared to Three Months Ended April 30, 2001 (Fiscal 2001)

Revenues.Our total revenues increased by $9.4 million, or 33%, to $37.9 million for the quarter ended
April 30, 2002 from $28.5 million for the quarter ended April 30, 2001. After adjusting for the $15.4 million of revenue attributable to the acquisition of Check Solutions,
on June 6, 2001, which is included in the Global Technology Solutions business segment, underlying revenue decreased 21% for the three months ended April 30, 2002. The decrease primarily
resulted from a decline in Consulting Fees, primarily in the Enterprise Solutions business segment.

Consulting Fees:Revenues from consulting fees decreased by $5.7 million or 39% to $9.1 million for the quarter
ended April 30, 2002, from $14.8 million for the quarter ended April 30, 2001. Consulting fees are lower primarily due to a decrease within the Enterprise Solutions business
segment. The Check Solutions acquisition had no impact on consulting fees. Revenue Enhancement revenues decreased by $425,000, or 5%, to $7.4 million for the quarter ended April 30,
2002, from $7.8 million for the quarter ended April 30, 2001. Consulting revenue from Revenue Enhancement's value-priced engagements has remained steady for the quarter ended
April 30, 2002, compared with the quarter ended April 30, 2001. However, consulting revenue from the Revenue Enhancement business segment has improved since reaching a low point during
the quarter ended October 31, 2001. The primary reasons for the turnaround are an improvement in international engagements and increased penetration into smaller financial institutions (Tier II
and Tier III). Enterprise Solutions consulting fees decreased $4.8 million, or 74%, to $1.6 million for the quarter ended April 30, 2002, from $6.4 million for the quarter
ended April 30, 2001. This decline reflects lower demand for IT consulting services, in addition, few financial institutions are merging or consolidating.

Software License Fees:Revenues from software license fees increased $4.1 million or 78% to $9.3 million from
$5.2 million for the quarter ended April 30, 2001. A principal reason for the overall growth in software license fees was $3.7 million of Check Image Achive software licensed
during the quarter ended April 30, 2002 by a provider of image achive services to financial institutions. This software was acquired in the Check Solutions acquisition during the quarter ended
July 31, 2001. After adjusting for $4.9 million of software license fees attributable to the Check Solutions acquisition for the quarter ended April 30, 2002, our underlying
software license fees decreased 16% compared with the quarter ended April 30, 2001. The underlying decrease in software license fees is due principally to a decline in sales of our Fraud
Mitigation Solution suite of FraudLink products. The decrease in FraudLink sales was partially offset by an increase in our Branch Truncation Management product within the Electronic Check Presentment
Solution suite.

Software Maintenance Fees:Revenues from software maintenance fees increased $6.8 million or 214% to
$10.0 million for the quarter ended April 30, 2002 from $3.2 million for the quarter ended April 30, 2001. After adjusting for software maintenance fees attributable to the
Check Solutions acquisition of $6.8 million for the quarter ended April 30, 2002, the overall underlying maintenance fees remained flat. We experienced increased FraudLink product
maintenance principally due to increased software license fees during fiscal 2001; however, this increase was offset by decreases in maintenance fees from several products within our Back Office
Solution suite that are being replaced by software acquired in the Check Solutions acquisition.

Software Implementation Fees:Revenues from software implementation fees increased $4.6 million or 217% to
$6.7 million for the quarter ended April 30, 2002 from $2.1 million for the quarter ended April 30, 2001. After adjusting for software implementation fees attributable to
the Check Solutions acquisition of $3.3 million, our underlying software implementation fees increased $1.4 million or 64% for the quarter ended April 30, 2002 compared with the
quarter ended April 30, 2001. The growth in software implementation fees is principally due to the addition of the CVM/EnAct solution within the Revenue Enhancement business segment. This
offering was introduced at the end of the quarter ended April 30, 2001.

31

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Cost of Revenues:Our total cost of revenues has increased $966,000 or 6% to $18.2 million for the quarter ended
April 30, 2002 from $17.3 million for the quarter ended April 30, 2001. After adjusting for cost of revenues attributable to the Check Solutions acquisition of $4.9 million
for the quarter ended April 30, 2002, our underlying cost of revenues for the quarter ended April 30, 2002 has decreased $3.9 million or 23% as compared to the quarter ended
April 30, 2001. The decreasing cost of revenues is a direct result of the restructuring efforts carried out in fiscal 2001. The primary reason for the decreased cost of revenues is decreased
personnel related costs, such as salaries and travel, along with a reduction in the use of third-party contractors, in both the Enterprise Solutions and Revenue Enhancement business segments.

Cost of Consulting:Cost of consulting decreased $2.8 million or 28% to $7.3 million for the quarter ended
April 30, 2002 from $10.1 million for the quarter ended April 30, 2001. Cost of consulting as a percentage of consulting fees increased to 80% for the quarter ended
April 30, 2002 from 68% for the quarter ended April 30, 2001. There has been no impact on these costs attributable to the Check Solutions acquisition. Cost of consulting as a percentage
of corresponding revenue has increased due to reductions in revenue levels over comparable periods in the Enterprise Solutions business segment. The decrease in the cost of consulting is due to
reduced personnel related costs through merger and restructuring efforts, along with reduced contract labor and travel costs.

Cost of Software Licenses:Cost of software licenses increased $849,000 or 75% to $2.0 million for the quarter ended
April 30, 2002 from $1.1 million for the quarter ended April 30, 2001. Costs of software licenses increased principally due to the addition of $1.2 million of costs from
Check Solutions, which were offset by an underlying decrease in software amortization from our existing products. Cost of software licenses as a percentage of license fees decreased to 21% for the
quarter ended April 30, 2002 from 22% for the quarter ended April 30, 2001. The decrease in cost of software licenses as a percentage of license fees was driven principally by increases
in license fee revenue including revenues resulting from the acquisition of Check Solutions.

In
connection with software license and maintenance agreements entered into with certain banks and purchase agreements with vendors under which we acquired software technology used in
products sold to our customers, we are required to pay royalties on sales of certain software products, including four Back Office products and the Branch Truncation Management product. Under these
arrangements, we accrue royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20% to 30%. Approximately $658,000 and $118,000 of royalty expense was
recorded under these agreements for the quarter ended April 30, 2002 and 2001, respectively. Royalty expense is included as a component of the cost of software license in the accompanying
consolidated statements of operations. Depending on our future product mix, our margins from software license fees may vary.

Cost of Software Maintenance:Cost of software maintenance increased $1.1 million or 92% to $2.3 million for
the quarter ended April 30, 2002 from $1.2 million for the quarter ended April 30, 2001. Costs of software maintenance as a percentage of software maintenance fees decreased to
23% for the quarter ended April 30, 2002 from 37% for the quarter ended April 30, 2001. Costs of software maintenance decreased principally due to the addition of higher margin
maintenance fee revenue derived from the Check Solutions acquisition.

Cost of Software Implementation:Cost of software implementation increased $2.7 million or 153% to $4.4 million
for the quarter ended April 30, 2002 from $1.7 million for the quarter ended April 30, 2001. Cost of software implementation as a percentage of implementation fees decreased to
65% for the quarter ended April 30, 2002 from 81% for the quarter ended April 30, 2001. The acquisition of Check Solutions increased the costs of software implementation by
$2.0 million for the quarter ended April 30, 2002; however these costs were derived from higher margin software implementation fee revenue.

32

---

Operating Costs and Expenses:

Selling General and Administrative:Selling general and administrative expenses increased $5.5 million or 61% to
$14.4 million for the quarter ended April 30, 2002 from $8.9 million for the quarter ended April 30, 2001. Selling, general and administrative expenses as a percent of
revenue increased to 38% for the quarter ended April 30, 2002 from 31% for the quarter ended April 30, 2001. Selling, general and administrative expenses generally consist of personnel
costs associated with selling, marketing, general management, software management, provision for doubtful accounts, as well as fees for professional services and other related costs. The acquisition
of Check Solutions increased selling, general and administrative expenses by $5.0 million during the quarter ended April 30, 2002 reflecting the additional costs associated with the
Check Solutions' operations. Underlying selling, general and administrative expenses increased by 5% for the quarter ended April 30, 2002 as compared with the quarter ended April 30,
2001. The increase in these underlying expenses reflect higher personnel costs, contract labor, travel, office costs, depreciation and infrastructure costs related to the implementation of the
PeopleSoft ERP system and growth in management staff to support projected revenues.

Research and Development:Research and development expenses increased $1.4 million or 163% to $2.3 million for
the quarter ended April 30, 2002, from $867,000 for the quarter ended April 30, 2001. Research and development expenses were principally generated by Check Solutions, which accounted for
$1.4 million of these expenses during the quarter ended April 30, 2002.

Amortization of Goodwill and Intangible Assets:Amortization of intangible assets was $350,000 for the quarter ended
April 30, 2002. The amortization results from the periodic recognition of amortization expense for a customer relationship intangible asset acquired in the Check Solutions acquisition. Goodwill
and other indefinite lived intangibles ceased to be amortized effective February 1, 2002, when we adopted Statement of Financial Accounting Standards ("SFAS") No. 141 and No. 142.
See further discussion in Note 2 to our Condensed Consolidated Unaudited Financial Statements regarding the adoption of SFAS No. 141 and No. 142.

Interest Income:Interest income decreased $702,000 or 91% to $68,000 for the quarter ended April 30, 2002 from
$770,000 for the quarter ended April 30, 2001. Interest income has declined due to the use of funds to fund the Check Solutions acquisition during the quarter ended July 31, 2001. We
expect interest income to be insignificant during fiscal 2002.

Interest Expense:Interest expense increased $729,000 to $785,000 for the quarter ended April 30, 2002 from $56,000
for the quarter ended April 30, 2001. Interest expense is primarily the result of the borrowings during the quarter ended July 31, 2001 under the three year revolving credit agreement
with a group of banks to fund the Check Solutions acquisition.

Provision (Benefit) for Income Taxes:The net tax benefit of $1.7 million is the result of a $1.9 million tax
benefit generated by additional tax loss carrybacks available to us as a result of the recently passed Job Creation and Workers Assistance Act of 2002, offset by a $200,000 provision for taxes based
on an estimated annual effective rate of 10% for the year ending January 31, 2003. The estimated annual effective tax rate is lower than the statutory federal and state rates as a result of the
carryforward of additional net operating losses expected to be utilized during the year ending January 31, 2003.

33

---



Liquidity and Capital Resources

Historically, we have funded our operations and cash expenditures primarily with cash generated from operating activities. At April 30, 2002, we had
working capital of $36.6 million compared with $23.7 million at January 31, 2002. We had $28.2 million in cash and cash equivalents at April 30, 2002, an increase of
$2.5 million from $25.7 million in cash and cash equivalents at January 31, 2002. At April 30, 2002, we had $41.5 million of long-term debt.

Cash
used in operating activities was $3.8 million for the three months ended April 30, 2002, compared with cash used in operating activities of $7.7 million for the
three months ended April 30, 2001. During the quarter ended April 30, 2002, we made payments on obligations assumed from the Check Solutions acquisition. These payments were partially
offset by strong collections of outstanding accounts receivable balances. During the quarter ended April 30, 2001, we made a $6.0 million guaranteed royalty payment to Exchange
Applications, Inc.

Average
days' sales outstanding fluctuate for a variety of reasons, including the timing of billings specified by contractual agreement, and receivables for expense reimbursements. The
following table contains the quarterly days sales outstanding (DSO) with a comparative column which excludes uncollected maintenance invoices from the accounts receivable portion of the calculation.

Quarter ended

DSO

DSO excluding uncollected
maintenance invoicesApril 30, 2002

144

121January 31, 2002

140

107October 31, 2001

159

133July 31, 2001

146

131April 30, 2001

151

142


Cash
used in investing activities was $1.1 million and $792,000 during the quarters ended April 30, 2002 and 2001, respectively. This use of cash was primarily related to
purchases of property and equipment and capitalization of computer software costs.

Financing
activities provided cash of $7.4 million in the quarter ended April 30, 2002 and $411,000 the quarter ended April 30, 2001. The cash provided by financing
activities in the quarter ended April 30, 2002 related to our common stock offering of 1,282,214 shares to a group of institutional investors in a private transaction on April 5, 2002.
The $9.3 million of net proceeds were used to satisfy obligations due to certain former employees of Check Solutions, with the remainder used for working capital. Additionally, we paid
$2.5 million on our revolving credit agreement during the quarter ended April 30, 2002.

34

---

On
June 6, 2001, we entered into a three-year revolving credit agreement with a group of banks in an amount not to exceed $60.0 million. At April 30,
2002, we had $41.5 million outstanding to fund the acquisition of Check Solutions. All outstanding borrowings are due on June 5, 2004. Borrowings under the credit agreement bear interest
equal to either the greater of prime or federal funds rate plus a margin ranging from 0.00% to 0.75% depending on our ratio of funded debt to Earnings Before Interest, Taxes Depreciation and
Amortization ("EBITDA"); or London Interbank Offered Rate ("LIBOR") plus a margin equal to 1.50% to 2.25% depending on our ratio of funded debt to EBITDA. Interest payments are due quarterly. We are
required to pay a commitment fee equal to 0.25% to 0.50% depending on our ratio of funded debt to EBITDA on the unused amount of the revolving credit agreement. The revolving credit agreement contains
customary affirmative and negative covenants including financial covenants requiring the maintenance of specified interest coverage, ratio of EBITDA to funded debt, and ratio of accounts receivable,
cash and short-term investments to funded debt. Additionally, the payment of dividends is precluded subject to the approval of the banks. Effective October 31, 2001, we entered into
an amendment to the credit agreement to reflect the impact of the decline in recent operating results. Under the amendment, margin rates were increased on prime or federal funds based loans to 2.00%,
and on LIBOR based loans to 3.50%. Effective August 1, 2002, margins will decrease to a range of 0.50% to 1.25% on prime or federal funds based loans, and to a range of 2.00% to 2.75% on LIBOR
based loans. Substantially all of our assets collateralize this revolving credit agreement. Also under the amendment, certain covenants were adjusted to levels we expect to achieve. As of
April 30, 2002, we were in compliance with the covenants of the revolving credit agreement, as amended. While there can be no assurance, we believe we will continue to meet these covenants
during the year ended January 31, 2003. Any instances of non-compliance would negatively impact our liquidity.

Our
ability to make additional borrowings under this revolving credit agreement is limited by a formula based on our outstanding accounts receivable. Additionally, if our accounts
receivable decrease below certain levels as defined in the revolving credit agreement, mandatory prepayments of the debt may be required. At April 30, 2002, $9.6 million of additional
borrowing capacity was available to us under the formula.

We
may in the future pursue acquisitions of businesses, products or technologies that could complement or expand our business and product offerings. Any material acquisition or joint
venture could result in a decrease in our working capital depending on the amount, timing and nature of the consideration to be paid.

We
believe that current cash balances and expected future cash flows will be sufficient to meet our anticipated cash needs for working capital, capital expenditures and other activities
during fiscal 2002. However, if current sources are not sufficient to meet our needs, we may seek additional equity or debt financing. There can be no assurance that additional financing would be
available on acceptable terms, if at all. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary. The failure to secure additional financing when needed could have a material adverse effect on our business, financial condition and
results of operations.



In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we use certain estimates and
assumptions that affect the reported amounts and related disclosures and our estimates may vary from actual results. We consider the following four accounting policies as the most important to the
portrayal of our financial condition and those that require the most subjective judgment. Although we believe that our estimates and assumptions are reasonable, actual results may differ, and such
differences could be significant to our financial results.

35

---



Consulting Fees.We employ three primary pricing methods in connection with our delivery of consulting services. First, we
may price our delivery of consulting services on the basis of time and materials, in which case the customer is charged agreed upon daily rates for services performed and
out-of-pocket expenses. In this case, we are paid fees and related amounts on a monthly basis, and we recognize revenues as the services are performed. Second, we may deliver
consulting services on a fixed-price basis. In this case, we are paid on a monthly basis or pursuant to an agreed upon payment schedule, and we recognize revenues paid on a
percentage-of-completion basis. We believe that this method is appropriate because of our ability to determine performance milestones and determine dependable estimates of our
costs applicable to each phase of a contract. Since financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contract, costs are subject to
revisions as the contract progresses. Anticipated losses on fixed-priced contracts are recognized when estimable. Third, we may deliver consulting services pursuant to a value-priced contract with the
customer. In this case, we are paid, on an agreed upon basis with the customer, either a specified percentage of (1) the projected increased revenues and/or decreased costs that are expected to
be derived by the customer generally over a period of up to twelve months following implementation of our solution or (2) the actual increased revenues and/or decreased costs experienced by the
customer generally over a period of up to twelve months following implementation of our solution, subject in either case to a maximum, if any is agreed to, on the total amount of payments to be made
to us. These contracts typically provide for us to receive a percentage of the projected or actual increased revenues and/or decreased costs, with payments to be made to us pursuant to an agreed upon
schedule ranging from one to twelve months in length. We recognize revenues generated from consulting services in connection with value-priced contracts based upon projected results only upon
completion of all services and agreement upon the actual fee to be paid (even though billings for these services may be delayed by mutual agreement for periods not to exceed twelve months). In an
effort to allow customers to more closely match expected benefits from our services with payments to us, during the third quarter of fiscal 2001, we began to offer payment terms which extend beyond
12 months. When we enter into an agreement which has a significant component of the total amount payable under the agreement due beyond 12 months and it is determined payments are not
fixed and determinable at the date the agreement was entered into, revenue under the arrangement will be recognized as payments become due and payable. Under this approach, upon contract signing, a
completed backlog of revenue is established which is incrementally recognized as revenue over future quarters as amounts become due and payable under the agreement. When fees are to be paid based on a
percentage of actual revenues and/or savings to our customers, we recognize revenues only upon completion of all services and as the amounts of actual revenues or savings are confirmed by the
customer.

We
typically must first commit time and resources to develop projections associated with value-pricing contracts before a bank will commit to purchase our solutions, and we therefore
assume the risk of making these commitments with no assurance that the bank will purchase the solutions. We expect that value-pricing contracts will continue to account for a large percentage of our
revenues in the future. As a consequence of the use of value-pricing contracts and due to the revenue recognition policy associated with those contracts, our results of operations will likely
fluctuate significantly from period to period.

Regardless
of the pricing method employed by us in a given contract, we are typically reimbursed on a monthly basis for out-of-pocket expenses incurred on behalf
of our customers. Expenses are netted against reimbursements for consolidated financial statement reporting purposes, for fiscal 2001, 2000 and 1999. Beginning February 1, 2002, we began to
characterize reimbursements received for out-of-pocket expenses incurred as revenue in the statement of operations in accordance with a recent FASB announcement. See Recently
Issued Accounting Standards.

36

---

Software License Fees.In the event that a software license is sold either together with consulting services or on a
stand-alone basis, we are usually paid software license fees in one or more installments, as provided in the customer's contract but not to exceed 12 months. We recognize software license
revenues in accordance with the American Institute of Certified Public Accountants' Statement of Position 97-2, "Software Revenue Recognition." Under SOP 97-2, we recognize
software license revenues upon execution of a contract and delivery of software, provided that the license fee is fixed and determinable, no significant production, modification or customization of
the software is required, and collection is considered probable by management.

Although
substantially all of our current software licenses provide for a fixed price license fee, some licenses instead provide for the customer to pay a monthly license fee based on
the actual use of the software product. The level of license fees earned by us under this arrangement will vary based on the actual amount of use by the customer. Revenue under these arrangements is
recognized on a monthly basis.

In
connection with software license and maintenance agreements entered into with certain banks and purchase agreements with vendors under which we acquired software technology used in
products sold to its customers, we are required to pay royalties on sales of certain software products, including four Back Office products and Branch Truncation Management product. Under these
arrangements, we accrue royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20%-30%. Royalty expense is included as a component of the
cost of software licenses in the accompanying consolidated statement of operations.

Software Maintenance Fees.In connection with our sale of a software license, a customer may elect to purchase software
maintenance services. Most of the customers that purchase software licenses from us also purchase software maintenance services, which typically are renewed annually. We charge an annual maintenance
fee, which is typically a percentage of the initial software license fee. The annual maintenance fee generally is paid to us at the beginning of the maintenance period, and we recognize these revenues
ratably over the term of the related contract.

Software Implementation Fees.In connection with our sale of a software license, a customer may elect to purchase software
implementation services, including software enhancements, patches and other software support services. Most of the customers that purchase software licenses from us also purchase software
implementation services. We price our implementation services on a time-and-materials or on a fixed-price basis, and we recognize the related revenues as services are performed
as these services are not essential to the functionality of the associated software.

Revenues
for agreements that include one or more elements to be delivered at a future date are recognized based on the relative fair value of those elements determined using
vendor-specific objective evidence. If fair values have not been established for certain undelivered elements, revenue is deferred until those elements have been delivered or their fair values have
been determined.

Our
contracts do not include right of return clauses. As a result, we have experienced few returns or cancellations for our products, and accordingly we do not record a provision for
returns.

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A substantial proportion of our revenues and receivables is attributable to our customers in the banking industry. Our trade accounts receivable balance is
recorded net of allowances for amounts not expected to be collected from our customers. Because our accounts receivable are typically unsecured, we periodically evaluate the collectibility of our
accounts based on a combination of factors, including a particular customer's ability to pay as well as the age of receivables. In cases where the evidence suggests a customer may not be able to
satisfy its obligation to us or if the collection of the receivable becomes doubtful due to a dispute that arises subsequent to the delivery of our products and services, we set up a specific reserve
in an amount we determine appropriate for the perceived risk.



Software costs capitalized include developed technology acquired in acquisitions and costs incurred by us in developing our products that qualify for
capitalization. We capitalize our development costs of software, other than internal use software, in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for Costs of Computer Software to be
Sold, Leased or Otherwise Marketed"("SFAS 86"). Our policy is to capitalize software development costs
incurred in developing a product once technological feasibility of the product has been established. Software development costs capitalized also include amounts paid for purchased software on products
that have reached technological feasibility. Technological feasibility of the product is determined after completion of a detailed program design and a determination has been made that any
uncertainties related to high-risk development issues have been resolved. If the process of developing the product does not include a detailed program design, technological feasibility is
determined only after completion of a working model which has been beta tested. All software development costs capitalized are amortized using an amount determined as the greater of: (i) the
ratio that current gross revenues for a capitalized software project bears to the total of current and future projected gross revenues for that project or (ii) the straight-line
method over the remaining economic life of the product (generally three to six years).

Through
January 31, 2002, goodwill and other intangible assets were amortized using the straight-line method over lives of 6 to 15 years. Effective
February 1, 2002, goodwill and the indefinite lived intangibles are no longer amortized. See Recently Issued Accounting Standards below. The goodwill and indefinite lived intangibles will be
assessed on an annual basis for impairment at the reporting unit level by applying a fair value based test. We are currently performing with an outside valuation firm, the initial impairment test of
goodwill and indefinite lived intangible assets at February 1, 2002 to determine if a transition impairment charge should be recognized under SFAS 142. While the initial impairment
analysis is not complete, we do not expect the analysis to result in any significant effect on our earnings and financial position.

We
periodically evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of other long-lived assets warrant revision or that
the remaining balance may not be recoverable. When factors indicate that other long-lived assets should be evaluated for possible impairment, we use an estimate of undiscounted future net
cash flows over the remaining life of the asset to determine if impairment has occurred. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent
from other asset groups. An impairment in the carrying value of an asset is assessed when the undiscounted, expected future operating cash flows derived from the asset are less than its carrying
value. Management believes that assumptions used to determine cash flows are reasonable, but actual future cash flows may differ from those estimated. If we determine an asset has been impaired, the
impairment is recorded based on the estimated fair value of the impaired asset.

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During fiscal year 2001, we recorded significant reserves in connection with our acquisition of Check Solutions and subsequent operational restructurings. No
additional reserves were recorded during the quarter ended April 30, 2002. These reserves contain significant estimates pertaining to work force reductions, and the settlement of contractual
obligations resulting from our actions. Although we do not anticipate significant changes, the actual costs may differ from these estimates.



In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141,Business
Combinations, and No. 142,Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over their useful lives. We applied the new rules on accounting for goodwill and other intangible assets beginning
February 1, 2002. Upon adoption, we reclassified a $5.0 million (net) assembled workforce intangible to goodwill and ceased amortization. Application of the nonamortization provisions of
the Statement is expected to result in an increase in net income of $5.5 million ($0.24 per share using the dilutive number of shares at April 30, 2002) per year. We are currently
performing along with an outside valuation firm, the initial test of goodwill and indefinite lived intangible assets as of February 1, 2002 to determine if a transition impairment charge should
be recognized under SFAS 142. While the initial impairment analysis is not complete, we do not expect the analysis to result in any significant effect on our earnings and financial position.

The
assessment of goodwill impairment in the future will be impacted if projected future operating cash flows of the reporting unit are not achieved, resulting in decreases in the
related estimated fair market values. All goodwill and indefinite lived intangibles relates to our acquisition of Check Solutions Company (see Note 3) which closed on June 6, 2001. All
goodwill and indefinite lived intangibles are included as a component of the Global Technology Solutions business segment.

In
October 2001, the FASB issued SFAS No. 144"Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 144, which replaces SFAS No. 121"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of,"requires long-lived assets to be measured at the lower of carrying amount or fair value less the cost to sell. SFAS No. 144 also broadens disposal
transaction reporting related to discontinued operations. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. There was no
effect on our earnings and financial position related to the adoption of SFAS No. 144.

In
November 2001, the FASB issued an announcement on the topic of"Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred"(the "Announcement"). The Announcement requires companies to characterize reimbursements received for out of pocket
expenses incurred as revenue in the statement of operations. Prior to February 1, 2002, we netted reimbursements received for out-of-pocket expenses against the related
expenses in the accompanying consolidated statements of operations. The Announcement is to be applied in financial reporting periods beginning after December 15, 2001, and comparative financial
statements for prior periods are to be reclassified to comply with the guidance in this announcement. We adopted the Announcement beginning February 1, 2002, and prior periods have been
adjusted to reflect the change (see Note 2).

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We invest our cash in a variety of financial instruments. These investments are denominated in U.S. dollars and maintained with nationally recognized financial
institutions, and mutual fund companies.

We
account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). We treat all of our cash equivalents and short-term investments as available-for-sale under SFAS 115.

Investments
in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may
fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have seen a decline in market value due to changes in interest
rates. Our investment securities are held for purposes other than trading. At April 30, 2002, we did not hold any fixed rate investments.



We currently have $41.5 million outstanding under our revolving credit agreement at April 30, 2002. As described in Note 5 of our Notes to
Condensed Consolidated Unaudited Financial Statements, the interest rate is variable. At April 30, 2002, the interest rate on $35 million of the debt is 5.438% and the interest rate on
$6.5 million of the debt is 5.375%.

At
April 30, 2002, we did not hold any fixed rate short-term investments.



An insignificant portion of our accounts receivable balance at April 30, 2002 was denominated in a foreign currency. Our exposure to adverse movements to
foreign exchange rates is not significant. Therefore, we do not currently hedge our foreign currency exposure, however, we do try to limit our foreign currency exposure by negotiating foreign currency
exchange rates within our customer contracts. Historically, foreign currency gains and losses have not had a significant impact on our results of operations or financial position. We will continue to
evaluate the need to adopt a hedge strategy in the future and may implement a formal strategy if the volume of our business transacted in foreign currencies increases.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject from time to time to certain claims and legal proceedings arising in the ordinary course of our business. Although we do not believe that the cost
or liability that may result from the resolution of currently pending claims or legal proceedings against us will be material to our financial condition or results of operation, there can be no
assurance in this regard.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On April 5, 2002, we sold 1,282,214 shares to a group of institutional investors in a private transaction. In connection with this transaction, we filed a
registration statement on Form S-3 following the filing of its annual report on Form 10-K for the year ended January 31, 2002 to register the resale of
such shares. The Form S-3 was deemed effective on May 15, 2002. On April 5, 2002, we utilized the approximately $9.3 million of net proceeds that were received
from the sale to satisfy remaining obligations due to certain former employees of Check Solutions, with the remainder being used for working capital.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

ExhibitsNumber                        Exhibit Description(b)

Reports on Form 8-KWe filed the following Current Report on Form 8-K with the Securities and Exchange Commission during the quarter ended April 30, 2002:(i)

A current report on Form 8-K dated April 5, 2002 was filed with Securities and Exchange Commission April 8, 2002.(ii)

A current report on Form 8-K dated April 18, 2002 was filed with Securities and Exchange Commission April 18, 2002.


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SIGNATURES

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

|    |  |                                                                                                 |  | CARREKER CORPORATION
|--- |  | ----------------------------------------------------------------------------------------------- |  | --------------------
|    |  |                                                                                                 |  |                     
|By: |  | /s/JOHN D. CARREKER, JR.John D. Carreker, Jr.
Chairman of the Board and
Chief Executive Officer |  | Date: June 13, 2002 
|By: |  | /s/TERRY L. GAGETerry L. Gage
Executive Vice President and
Chief Financial Officer              |  | Date: June 13, 2002 

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