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United States
Securities and Exchange CommissionWashington, D.C. 20549

FORM 10-Q

|ý                              | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended July 31, 2003.  
|------------------------------ | -----------------------------------------------------------------------------------------------------------------------------
|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

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)

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
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). 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23,792,505 shares as of August 29, 2003.

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CARREKER CORPORATION  Index

|           |         |                                                                                                            |  | PAGE
|---------- | ------- | ---------------------------------------------------------------------------------------------------------- |  | ----
|PART 1:    |         | FINANCIAL INFORMATION                                                                                      |  |     
|           | Item 1. | Financial Statements (unaudited)                                                                           |  | 3   
|           |         | Condensed Consolidated Balance Sheets at July 31, 2003 and January 31, 2003                                |  | 3   
|           |         | Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2003 and 2002  |  | 4   
|           |         | Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended July 31, 2003 |  | 5   
|           |         | Condensed Consolidated Statements of Cash Flows for the three and six months ended July 31, 2003 and 2002  |  | 6   
|           |         | Notes to Condensed Consolidated Unaudited Financial Statements                                             |  | 7   
|           | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations                      |  | 26  
|           | Item 3. | Quantitative and Qualitative Disclosures about Market Risk                                                 |  | 45  
|           | Item 4. | Controls and Procedures                                                                                    |  | 46  
|PART II:   |         | OTHER INFORMATION                                                                                          |  |     
|           | Item 1. | Legal Proceedings                                                                                          |  | 47  
|           | Item 2. | Changes in Securities and Use of Proceeds                                                                  |  | 47  
|           | Item 3. | Defaults Upon Senior Securities                                                                            |  | 47  
|           | Item 4. | Submission of Matters to a Vote of Security Holders                                                        |  | 47  
|           | Item 5. | Other Information                                                                                          |  | 47  
|           | Item 6. | Exhibits and Reports on Form 8-K                                                                           |  | 47  
|SIGNATURES |         | 48                                                                                                        
|EXHIBITS   |         |                                                                                                           

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)

|                                                                                                                                        |                                                                                                                                              | July 31,
2003 |        | January 31,
2003 |  
|--------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ------ | ---------------- | -
|ASSETS                                                                                                                                  |                                                                                                                                             
|Current assets                                                                                                                          |                                                                                                                                              |               |        |                  |  
|                                                                                                                                        | Cash and cash equivalents                                                                                                                    |               | $      | 27,460           |  
|                                                                                                                                        | Accounts receivable, net of allowance of $1,629 and $1,761 at July 31, 2003 and January 31, 2003, respectively                               |               |        | 17,065           |  
|                                                                                                                                        | Prepaid software royalties                                                                                                                   |               |        | 364              |  
|                                                                                                                                        | Prepaid expenses and other current assets                                                                                                    |               |        | 2,561            |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total current assets                                                                                                                    |                                                                                                                                              |               | 47,450 |                  |  
|Property and equipment, net of accumulated depreciation of $16,048 and $14,704 at July 31, 2003 and January 31, 2003, respectively      |                                                                                                                                              |               | 7,839  |                  |  
|Capitalized software costs, net of accumulated amortization of $10,571 and $10,025 at July 31, 2003 and January 31, 2003, respectively  |                                                                                                                                              |               | 1,464  |                  |  
|Acquired developed technology, net of accumulated amortization of $8,927 and $6,867 at July 31, 2003 and January 31, 2003, respectively |                                                                                                                                              |               | 15,273 |                  |  
|Goodwill, net of accumulated amortization of $3,405 at July 31, 2003 and January 31, 2003                                               |                                                                                                                                              |               | 21,193 |                  |  
|Customer relationships, net of accumulated amortization of $3,033 and $2,333 at July 31, 2003 and January 31, 2003, respectively        |                                                                                                                                              |               | 5,367  |                  |  
|Deferred loan costs, net of accumulated amortization of $892 and $676 at July 31, 2003 and January 31, 2003, respectively               |                                                                                                                                              |               | 816    |                  |  
|Other assets                                                                                                                            |                                                                                                                                              |               | 420    |                  |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total assets                                                                                                                            |                                                                                                                                              | $             | 99,822 |                  | $
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                    |                                                                                                                                             
|Current liabilities                                                                                                                     |                                                                                                                                              |               |        |                  |  
|                                                                                                                                        | Accounts payable                                                                                                                             |               | $      | 509              |  
|                                                                                                                                        | Accrued compensation and benefits                                                                                                            |               |        | 7,412            |  
|                                                                                                                                        | Other accrued expenses                                                                                                                       |               |        | 4,422            |  
|                                                                                                                                        | Income tax payable                                                                                                                           |               |        | 100              |  
|                                                                                                                                        | Deferred revenue                                                                                                                             |               |        | 22,614           |  
|                                                                                                                                        | Accrued merger and restructuring costs                                                                                                       |               |        | 2,668            |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total current liabilities                                                                                                               |                                                                                                                                              |               | 37,725 |                  |  
|Long-term debt                                                                                                                          |                                                                                                                                              |               | 12,500 |                  |  
|Deferred revenue                                                                                                                        |                                                                                                                                              |               |       |                  |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total liabilities                                                                                                                       |                                                                                                                                              |               | 50,225 |                  |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Contingencies                                                                                                                           |                                                                                                                                              |               |        |                  |  
|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; 23,792 and 23,574 shares issued at July 31, 2003 and January 31, 2003, respectively |               |        | 238              |  
|                                                                                                                                        | Additional paid-in capital                                                                                                                   |               |        | 104,784          |  
|                                                                                                                                        | Accumulated deficit                                                                                                                          |               |        | (55,422          | )
|                                                                                                                                        | Less treasury stock, at cost: 1 and 27 common shares at July 31, 2003 and January 31, 2003, respectively                                     |               |        | (3               | )
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total stockholders' equity                                                                                                              |                                                                                                                                              |               | 49,597 |                  |  
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  
|Total liabilities and stockholders' equity                                                                                              |                                                                                                                                              | $             | 99,822 |                  | $
|                                                                                                                                        |                                                                                                                                              |               |        |                  |  

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
July 31,        |        | Six Months Ended
July 31, |       
|--------------------------------------------------- | ------------------------------------ | ---------------------------------- | ------ | ------------------------- | ------
|
|Revenues:                                           |                                      |                                    |        |                           |       
|                                                    | Consulting fees                      |                                    | $      | 8,202                     |       
|                                                    | Software license fees                |                                    |        | 8,351                     |       
|                                                    | Software maintenance fees            |                                    |        | 14,284                    |       
|                                                    | Software implementation fees         |                                    |        | 4,508                     |       
|                                                    | Out-of-pocket expense reimbursements |                                    |        | 816                       |       
|                                                    |                                      |                                    |        |                           |       
|                                                    |                                      | Total revenues                     |        |                           | 36,161
|Cost of revenues:                                   |                                      |                                    |        |                           |       
|                                                    | Consulting fees                      |                                    |        | 5,288                     |       
|                                                    | Software license fees                |                                    |        | 1,905                     |       
|                                                    | Software maintenance fees            |                                    |        | 3,070                     |       
|                                                    | Software implementation fees         |                                    |        | 5,027                     |       
|                                                    | Out-of-pocket expenses               |                                    |        | 1,038                     |       
|                                                    |                                      |                                    |        |                           |       
|                                                    |                                      | Total cost of revenues             |        |                           | 16,328
|                                                    |                                      |                                    |        |                           |       
|Gross profit                                        |                                      |                                    | 19,833 |                           |       
|Operating costs and expenses:                       |                                      |                                    |        |                           |       
|                                                    | Selling, general and administrative  |                                    |        | 12,695                    |       
|                                                    | Research and development             |                                    |        | 1,716                     |       
|                                                    | Amortization of intangible assets    |                                    |        | 350                       |       
|                                                    | Restructuring and other charges      |                                    |        | 778                       |       
|                                                    |                                      |                                    |        |                           |       
|                                                    |                                      | Total operating costs and expenses |        |                           | 15,539
|                                                    |                                      |                                    |        |                           |       
|Income from operations                              |                                      |                                    | 4,294  |                           |       
|Other income (expense):                             |                                      |                                    |        |                           |       
|                                                    | Interest income                      |                                    |        | 73                        |       
|                                                    | Interest expense                     |                                    |        | (339                      | )     
|                                                    | Other income (expense)               |                                    |        | 36                        |       
|                                                    |                                      |                                    |        |                           |       
|                                                    |                                      | Total other income (expense)       |        |                           | (230  
|                                                    |                                      |                                    |        |                           |       
|Income before provision (benefit) for income taxes  |                                      |                                    | 4,064  |                           |       
|Provision (benefit) for income taxes                |                                      |                                    | 133    |                           |       
|                                                    |                                      |                                    |        |                           |       
|Net income                                          |                                      | $                                  | 3,931  |                           | $     
|                                                    |                                      |                                    |        |                           |       
|Basic earnings per share                            |                                      | $                                  | 0.17   |                           | $     
|                                                    |                                      |                                    |        |                           |       
|Diluted earnings per share                          |                                      | $                                  | 0.17   |                           | $     
|                                                    |                                      |                                    |        |                           |       
|Shares used in computing basic earnings per share   |                                      |                                    | 23,547 |                           |       
|                                                    |                                      |                                    |        |                           |       
|Shares used in computing diluted earnings per share |                                      |                                    | 23,723 |                           |       
|                                                    |                                      |                                    |        |                           |       

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, 2003                                  |                           | 23,574       |        | $ | 236 |     | $ | 105,263        |         | $ | (56,386
|Net loss                                                     |                           |             |        |   |    |     |   |               |         |   | (2,967 
|                                                             |                           |              |        |   |     |     |   |                |         |   |        
|                                                             | Balance at April 30, 2003 |              | 23,574 |   | $   | 236 |   | $              | 105,263 |   | $      
|                                                             |                           |              |        |   |     |     |   |                |         |   |        
|Reissuance of treasury stock as restricted stock             |                           |             |        |   |    |     |   | (512           | )       |   |       
|Compensation expense related to issuance of restricted stock |                           | 218          |        |   | 2   |     |   | 33             |         |   |       
|Net income                                                   |                           |             |        |   |    |     |   |               |         |   | 3,931  
|                                                             |                           |              |        |   |     |     |   |                |         |   |        
|                                                             | Balance at July 31, 2003  |              | 23,792 |   | $   | 238 |   | $              | 104,784 |   | $      
|                                                             |                           |              |        |   |     |     |   |                |         |   |        

See accompanying notes.

5

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

|                                                     |                                                                                   | Three Months Ended
July 31,                                                  |                                       | Six Months Ended
July 31, |      
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------- | ------------------------- | -----
|
|Operating Activities:                                |                                                                                   |                                                                              |                                       |                           |      
|                                                     | Net income                                                                        |                                                                              | $                                     | 3,931                     |      
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                              |                                       |                           |      
|                                                     |                                                                                   | Depreciation and amortization of property and equipment                      |                                       |                           | 832  
|                                                     |                                                                                   | Amortization of capitalized software costs and acquired developed technology |                                       |                           | 1,270
|                                                     |                                                                                   | Amortization of customer relationships                                       |                                       |                           | 350  
|                                                     |                                                                                   | Provision for doubtful accounts                                              |                                       |                           | 25   
|                                                     |                                                                                   | Amortization of deferred loan costs                                          |                                       |                           | 108  
|                                                     |                                                                                   | Compensation earned under restricted stock plan                              |                                       |                           | 35   
|                                                     |                                                                                   | Changes in operating assets and liabilities:                                 |                                       |                           |      
|                                                     |                                                                                   |                                                                              | Accounts receivable                   |                           |      
|                                                     |                                                                                   |                                                                              | Prepaid expenses and other assets     |                           |      
|                                                     |                                                                                   |                                                                              | Accounts payable and accrued expenses |                           |      
|                                                     |                                                                                   |                                                                              | Income taxes payable/receivable       |                           |      
|                                                     |                                                                                   |                                                                              | Deferred revenue                      |                           |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Net cash provided by operating activities            |                                                                                   |                                                                              | 1,788                                 |                           |      
|Investing Activities:                                |                                                                                   |                                                                              |                                       |                           |      
|                                                     | Purchases of property and equipment                                               |                                                                              |                                       | (259                      | )    
|                                                     | Computer software costs capitalized                                               |                                                                              |                                       |                          |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Net cash used in investing activities                |                                                                                   |                                                                              | (259                                  | )                         |      
|Financing Activities:                                |                                                                                   |                                                                              |                                       |                           |      
|                                                     | Purchases of treasury stock                                                       |                                                                              |                                       |                          |      
|                                                     | Payments on long-term debt                                                        |                                                                              |                                       | (2,500                    | )    
|                                                     | Payment of deferred loan costs                                                    |                                                                              |                                       | (456                      | )    
|                                                     | Proceeds from exercises of stock options                                          |                                                                              |                                       |                          |      
|                                                     | Proceeds from sale of common stock                                                |                                                                              |                                       |                          |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Net cash provided by (used in) financing activities  |                                                                                   |                                                                              | (2,956                                | )                         |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                              | (1,427                                | )                         |      
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                              | 28,887                                |                           |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                            | 27,460                                |                           | $    
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|Supplemental disclosures of cash flow information:   |                                                                                   |                                                                              |                                       |                           |      
|                                                     | Cash paid for interest                                                            |                                                                              | $                                     | 322                       |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      
|                                                     | Cash paid for income taxes, net                                                   |                                                                              | $                                     | 36                        |      
|                                                     |                                                                                   |                                                                              |                                       |                           |      

See accompanying notes.

6

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Carreker Corporation  Notes to Condensed Consolidated Unaudited Financial Statements  For the Three and Six Months Ended July 31, 2003 and 2002

1.     Description of Business

Carreker Corporation ("the Company," "Carreker," "our," "we") provides payments-related software and consulting solutions to financial institutions and financial
service providers. These solutions help the Company's customers improve operational efficiency in how payments are processed; enhance revenue and profitability from payments-oriented products and
services; reduce losses associated with fraudulent payment transactions; and evolve toward next-generation payment practices and technologies.

2.     Summary of Significant Accounting Procedures



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

Certain
accounts payable and other accrued expenses amounts at January 31, 2003 have been reclassified to conform to the current presentation.

The
accompanying condensed consolidated unaudited financial statements and notes 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 and six months ended July 31, 2003, are not necessarily indicative of full-year results.

These
financial statements should be read in conjunction with the financial statements, accounting policies and financial notes included in the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2003, 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) that are necessary for a fair representation of financial results for the interim periods
presented.

We
restated our audited financial statements for the years ended January 31, 2002, 2001, 2000 and 1999, and our unaudited financial statements for each of the quarters in the year
ended January 31, 2002 and for the quarters ended April 30, 2002 and July 31, 2002. Refer to the Company's Form 10-K for the year ended January 31, 2003
for details of the restatement as well as the impact of the restatement on the years and quarters previously reported.

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, impairment of
intangibles, 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
primarily consist of demand deposit accounts and shares in a demand money market account comprised of domestic and foreign

7

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commercial
paper, certificates of deposit and U.S. government obligations that are maintained with nationally recognized financial institutions.



Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of temporary cash investments and accounts
receivable. The Company places temporary cash investments with financial institutions and limits its exposure with any one financial institution.

A
significant portion of the Company's business consists of providing consulting services and licensing software to major domestic and international 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. To evaluate a specific customer's ability to pay, the Company analyzes financial statements, payment history, and various information or disclosures
by the customer or other publicly available information. 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 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
fair value of accounts receivable approximates the carrying amount of accounts receivable.

Accounts
receivable, net of allowances, consist of the following (in thousands):

July 31,
2003

January 31,
2003Gross accounts receivable

$
51,035

$
74,918Less amounts in deferred revenue


(32,341
)

(50,398
)Less allowance for doubtful accounts


(1,629
)

(1,761
)Net accounts receivable

$
17,065

$
22,759




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

8

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the
related leases or the respective useful lives of the assets. The components of property and equipment are as follows (in thousands):

July 31,
2003

January 31,
2003Furniture

$
5,075

$
5,071Equipment and software


17,719


17,406Leasehold improvements


1,093


1,202Total cost


23,887


23,679Less accumulated depreciation and amortization


(16,048
)

(14,704
)Net property and equipment

$
7,839

$
8,975


The
Company accounts for the costs of computer software developed or obtained for internal use in accordance with Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,"("SOP
98-1").The Company capitalizes costs of consultants, as well as 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.



The Company accounts for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets,"(SFAS 142). Under the provisions of SFAS 142, an annual assessment of goodwill impairment is
performed. This assessment involves the use of estimates related to fair market values of the Company's reporting units with which the goodwill is associated. The assessment of goodwill impairment in
the future will be impacted if future operating cash flows of the Company's reporting units decline, which would result in decreases in the related estimate of fair market value. The Company performs
its annual impairment analysis as of November 1st of each year and whenever facts and circumstances indicate impairment may exist. Intangible assets not subject to amortization
are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that an asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount exceeds the asset's fair value.

The
Company accounts for long lived assets in accordance with Statement of Financial Accounting Standards No. 144,"Accounting for the Impairment or
Disposal of Long-Lived Assets,"(SFAS 144). Under the provisions of SFAS 144, long-lived assets, such as property, plant and equipment and
purchased intangibles subject to amortization, are tested for recoverability 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 estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset.

9

---



Deferred loan costs consist of loan closing costs and other administrative expenses associated with the Revolving Credit Agreement. On July 31, 2003, the
Revolving Credit Agreement was amended as described in Note 5. In connection with this amendment, the Company incurred approximately $450,000 of deferred loan costs. These costs, along with the
net book value of the original deferred loan costs, are being amortized to interest expense over the 36 month life of the Revolving Credit Agreement.



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. 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: (1) the ratio that current gross revenues for a capitalized software project bears to the total of current and estimated
future gross revenues for that project or (2) the straight-line method over the remaining economic life of the product (generally three to six years). The Company did not capitalize
any software costs for the three months ended July 31, 2003 and July 31, 2002. The Company did not capitalize any software costs for the six months ended July 31, 2003. The
Company capitalized $103,000 of software costs during the six months ended July 31, 2002. The Company recorded amortization related to capitalized software costs of $239,000 and $484,000 for
the three months ended July 31, 2003 and 2002, respectively. The Company recorded amortization related to capitalized software costs of $546,000 and $819,000 for the six months ended
July 31, 2003 and 2002, respectively. Amortization expense is recorded as a component of cost of software license fees in the accompanying condensed consolidated unaudited statements of
operations.

Acquired
developed technology includes purchased technology intangible assets associated with acquisitions. These purchased technology intangibles are initially recorded based on the
fair value ascribed at the time of acquisition.



The Company's revenue recognition policies are in accordance with Statement of Position ("SOP") 97-2,"Software Revenue
Recognition,"as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions,"and Staff Accounting Bulletin ("SAB") No. 101,"Revenue Recognition in Financial Statements."In the case
of software arrangements that require significant production, modification, or customization of software, or the license agreement requires the Company to provide implementation services that are
determined to be essential to other elements of the arrangement, the Company follows the guidance in SOP 81-1,"Accounting for Performance of
ConstructionType and Certain ProductionType Contracts."

Consulting Fees.The Company employs three primary pricing methods in connection with its delivery of consulting services.
First, the Company may price its delivery of consulting services on the

10

---

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 its ability to determine performance milestones and determine dependable
estimates of its costs applicable to each phase of a contract. Because 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 estimatable. Third, the Company may deliver consulting services pursuant to a
value-priced contract with the customer. In this case, the Company is 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 its 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 its solution, subject in either case to a maximum, if any is
agreed to, on the total amount of payments to be made to the Company. The Company must first commit time and resources to develop projections associated with value-pricing contracts before a bank will
commit to purchase its solutions, and the Company therefore assumes the risk of making these commitments with no assurance that the bank will purchase the solution. Costs associated with these
value-pricing contracts are expensed as incurred. 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 the Company 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 services with payments to the Company, the Company may 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 or if 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. 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 with a fixed payment date.

Costs
associated with time and materials, fixed-priced and value-priced consulting fee arrangements are expensed as incurred and are included as a component of the cost of consulting
fees.

The
Company expects that value-pricing contracts will continue to account for a significant portion of its 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 its customers.

11

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Software License Fees.A software license is sold either together with implementation 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. Under SOP 97-2, the Company recognizes
software license revenue upon execution of a contract and delivery of the 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. When the software license arrangement requires the Company to provide implementation services that are essential to the
functionality of the software or significant production, customization or modification of the software is required, both the product license revenue and implementation fees are recognized as services
are performed.

Software
licenses are often sold as part of a multiple element arrangement that may include maintenance, implementation or consulting. The Company determines whether there is vendor
specific objective evidence of fair value ("VSOEFV") for each element identified in the arrangement to determine whether the total arrangement fees can be allocated to each element. If VSOEFV exists
for each element, the total arrangement fee is allocated based on the relative fair value of each element. In cases where there is not VSOEFV for each element, or if it is determined services are
essential to the functionality of the software being delivered, or if significant production, modification or customization of the software is required, the Company defers revenue recognition of the
software license fees. However, if VSOEFV is determinable for all of the undelivered elements, and assuming the undelivered elements are not essential to the delivered elements, the Company will defer
recognition of the full fair value related to the undelivered elements and recognize the remaining portion of the arrangement value through application of the residual method as set forth in SOP
98-9. Where VSOEFV has not been established for certain undelivered elements, revenue for all elements is deferred until those elements have been delivered or their fair values have been
determined. Evidence of VSOEFV is determined for software products based on actual sales prices for the product sold to a similar class of customer and based on pricing strategies set forth in the
Company's price book. Evidence of VSOEFV for services (implementation and consulting) is based upon standard billing rates and the estimated level of effort for individuals expected to perform the
related services. The Company establishes VSOEFV for maintenance agreements using the percentage method such that VSOEFV for maintenance is a percentage of the license fee charged annually for a
specific software product, which in most instances is 20% of the portion of arrangement fees allocated to the software license element.

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.

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. If the annual maintenance fee is not paid at the beginning of the maintenance period, the Company defers revenue
recognition until the time that the maintenance fee is paid by the customer. The Company continues to provide maintenance service while awaiting payment from customers. When

12

---

the
payment is received, revenue is recognized for the period that revenue was previously deferred. This may result in volatility in software maintenance revenue from period to period.

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 its implementation services on a time-and-materials or on a fixed-price basis, and the Company recognizes the related revenues as
services are performed. Costs associated with these engagements are expensed as incurred.

The
Company's contracts typically do not include right of return clauses, and as a result, 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. Under these arrangements, the Company accrues
royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20% to 30% of the associated revenues. Approximately $592,000 and $584,000 of royalty expense
was recorded under these
agreements for the three months ended July 31, 2003 and 2002, respectively, and $1.0 million and $1.4 million for the six months ended July 31, 2003 and 2002, respectively.
Royalty expense is included as a component of the cost of software license fees and cost of software maintenance fees in the accompanying condensed consolidated statements of operations.



Deferred revenue represents amounts paid by customers under terms specified in consulting, software licensing, and maintenance contracts for which completion of
contractual terms or delivery of the software has not occurred. Non-current deferred revenue represents amounts for maintenance to be provided beginning in periods in excess of one year.

Deferred
revenue and advance payments from customers consist of the following (in thousands)

July 31,
2003

January 31,
2003Current:Deferred software maintenance fees

$
31,594

$
38,764Deferred software implementation and license fees


23,361


29,23454,955


67,998Less amounts in accounts receivable


(32,341
)

(50,398
)Net deferred revenue and advance payments

$
22,614

$
17,600Non-current:Deferred software maintenance fees

$


$
817Less amount in accounts receivable





Net non-current deferred revenue and advance payments

$


$
817


13

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Research and development costs, that are not subject to capitalization under Statement of Financial Accounting Standards No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed,"("SFAS 86") are expensed as incurred and relate mainly to the
development of new products, new applications, new features or significant enhancements for existing products or applications.



The Company accounts for income taxes using the liability method, whereby deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred
tax assets is adjusted by a valuation allowance, if necessary, to recognize the extent to which based on available evidence, it is more likely than not that the future tax benefits will not be
realized.



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).



The Company has elected to follow Accounting Principles Board ("APB"), Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its employees and director stock options. Under APB 25, if the exercise price of a stock option equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized. The Company accounts for stock-based compensation for non-employees under the fair value method prescribed by
SFAS 123, "Accounting for Stock-Based Compensation"("SFAS 123"). Through July 31, 2003, there have been no significant grants to
non-employees.

On
June 20, 2003, the Company issued 245,000 shares of restricted common stock to several employees. The market price of the stock was $4.35. The stock vests one-third
on June 20, 2006, one-third on June 20, 2007 and one-third on June 20, 2008. The Company is amortizing the resulting compensation expense on a
straight-line basis from the date of issuance through June 20, 2008, and any forfeitures will be accounted for in the period the forfeiture takes place.

Although
SFAS 123 allows APB 25 guidelines to be applied in accounting for stock options, the Company is required to disclose pro forma net income (loss) and net income (loss) per
share as if they had adopted SFAS 123. The following table sets forth the pro forma information as if the provisions of

14

---

SFAS 123
had been applied to account for stock based compensation (in thousands, except per share data):

|                                                                                               |  | Three Months Ended
July 31, |       | Six Months Ended
July 31, |  
|---------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- | -
|
|Net income, as reported                                                                        |  | $                           | 3,931 |                           | $
|Pro forma stock compensation expense computed under the fair value method, net of income taxes |  |                             | (312  | )                         |  
|                                                                                               |  |                             |       |                           |  
|Pro forma net income (loss)                                                                    |  | $                           | 3,619 |                           | $
|                                                                                               |  |                             |       |                           |  
|Basic earnings per common share, as reported                                                   |  | $                           | 0.17  |                           | $
|                                                                                               |  |                             |       |                           |  
|Diluted earnings per common share, as reported                                                 |  | $                           | 0.17  |                           | $
|                                                                                               |  |                             |       |                           |  
|Pro forma basic earnings (loss) per common share                                               |  | $                           | 0.15  |                           | $
|                                                                                               |  |                             |       |                           |  
|Pro forma diluted earnings (loss) per common share                                             |  | $                           | 0.15  |                           | $
|                                                                                               |  |                             |       |                           |  



The Company's future results of operations and financial condition could be impacted by the following factors, among others: dependence on the banking industry,
decline in check volumes, fluctuations in operating results, use of fixed-price or value-priced arrangements, lack of long-term agreements, 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, new focus on providing business process outsourcing with
significant offshore component, ability to attract and retain qualified personnel, customer concentration, indebtedness, competition, potential strategic alliances and acquisitions, proprietary
rights, infringement claims and legal proceedings, dependence on third parties for technology licenses, liability claims, class action lawsuits, stock price fluctuations, continued NASDAQ listing,
international operations, use of independent contractors, changing government and tax regulations, anti-takeover provisions in the Company's 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 November 2002, the EITF reached a consensus on Issue 00-21,"Multiple Deliverable Revenue
Arrangements."EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating
activities. It also addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. The guidance in EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early application permitted. Companies may elect to report the change in accounting as a cumulative
effect of a change in accounting principle in accordance with APB Opinion 20,"Accounting Changes" and SFAS 3, "Reporting Accounting Changes in Interim Financial Statements (an
amendment of APB Opinion No. 28)."We do not currently believe adoption will have a significant impact on our accounting for multiple element arrangements.

15

---

In
June 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation No. 46 clarifies the application of Accounting
Research Bulletin No. 51 and applies immediately to any variable interest entities created after January 31, 2003 and to variable interest entities in which an interest is obtained after
that date. This Interpretation is applicable to the Company in the quarter ending October 31, 2003, for interests acquired in variable interest entities prior to February 1, 2003. This
Interpretation requires variable interest entities to be consolidated if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other
parties or the equity investors lack specified characteristics. The adoption of the Interpretation is not expected to have a material impact on the Company's financial statements.

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. The operating results of Check Solutions are reported in the Business Segment and Revenue Concentration footnote in the Global Payments
Technologies segment. The Company funded the acquisition with $65.2 million in 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 determined by the Company's management, based on information currently available and on current assumptions
about 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.

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

Net assets of Check Solutions

$
6,702Current technology and software products (estimated life of 5-6 years)


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


8,400Assembled workforce


5,600Goodwill


64,998In-process research and development


2,300Total purchase price

$
112,200


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 charge was
included in merger, restructuring and other charges in the statement of operations.

4.     Goodwill and Intangible Assets

The Company adopted SFAS No. 142,"Goodwill and Other Intangible Assets,"effective February 1,
2002. Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no longer

16

---

amortized
but are subject to annual impairment tests in accordance with this statement. Acquired developed technology and customer relationships will continue to be amortized over their useful lives.

The
Company performed an evaluation of its existing goodwill and intangible assets effective November 1, 2002 in accordance with its policy, utilizing various assumptions and
factors to estimate future cash flows to determine the fair value of the business. Due to a decline in the estimated fair value of the reporting unit to which goodwill has been assigned subsequent to
the annual assessment date, the Company determined goodwill was impaired during the quarterly period ended January 31, 2003 and the Company recorded a charge of $46.0 million during that
period to reflect the impairment of goodwill and intangible assets based on declines in the estimated fair value of the Global Payments Technologies segment to which goodwill is allocated. Fair value
was determined considering a number of fair value estimation techniques, including a discounted cash flow analysis and consideration of the market price of the Company's stock.

Customer
relationships with definite useful lives are amortized on a straight-lined basis, resulting in amortization expense of $350,000 for each of the three month periods ended
July 31, 2003 and 2002, respectively, and $700,000 for each of the six month periods ended July 31, 2003 and 2002, respectively.

Acquired
developed technology with useful life of 5-6 years are amortized on a straight-line basis, resulting in amortization expense of
$1.0 million for the three months ended July 31, 2003 and 2002, respectively, and $2.1 million for the six month period ended July 31, 2003 and 2002, respectively.

The
following table sets forth the estimated amortization expense of customer relationships and acquired developed technology for the indicated fiscal years ending January 31 (in
thousands):

Year

Customer
Relationships

Acquired
Developed
Technology2004

$
1,400

$
4,1202005


1,400


4,1202006


1,400


4,1202007


1,400


4,1202008


467


853


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 to fund the acquisition of Check Solutions. On July 31, 2003, the revolving credit was amended to reduce the commitment amount to $30.0 million, and to extend the
maturity date of outstanding borrowings to July 31, 2006. Borrowings under the credit agreement, as amended, currently bear interest equal to either the greater of prime or federal funds rate
plus a margin ranging from 1.25% to 2.25% 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
2.75% to 3.75% 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 0.50% 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 80% of accounts receivable, cash and short-term investments to funded debt. The interest coverage covenant was amended on
July 31, 2003 to be more favorable to the Company. Additionally, the payment of

17

---

dividends
is precluded except upon approval of the banks. Substantially all of the Company's assets collateralize the revolving credit agreement. As of July 31, 2003, the Company is in
compliance with the covenants of the revolving credit agreement, as amended.

At
July 31, 2003, the Company had $12.5 million outstanding under the credit agreement. At July 31, 2003, the interest rate on the debt was 4.375% on 50% of the
outstanding borrowings and 4.50% on the remaining 50%. Because the interest on the debt is variable, the carrying value approximates the fair value. Interest expense, exclusive of the amortization of
deferred loan costs, on the credit agreement was $231,000 and $583,000 for the three months ended July 31, 2003 and 2002, respectively, and $541,000 and $1.2 million for the six months
ended July 31, 2003 and July 31, 2002, respectively.

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 received from the sale to satisfy remaining obligations due certain employees of Check Solutions described in Note 13 below, with the remainder 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 July 31, 2003 because the more likely than not criteria for
future realization of the Company's net deferred tax
assets specified in Statements of Financial Accounting Standards No. 109, "Accounting for Income Taxes,"("SFAS No. 109") were not met.

The
net tax provision of $133,000 and $226,000 for the three and six months ended July 31, 2003, respectively, consists of a provision for state and foreign taxes. The effective
tax rate varies from the federal statutory rate in 2003 primarily due to the expected utilization of net operating loss carryforwards. The net tax provision of $547,000 for the three months ended
July 31, 2002 consists of a provision for state and foreign taxes based on the estimated annual effective rate for the year ended January 31, 2002. The net tax benefit of
$1.1 million for the six months ended July 31, 2002 consists of a $1.9 million tax benefit generated by additional tax loss carrybacks available to the Company as a result of the
Job Creation and Workers Assistance Act of 2002, offset by a $800,000 provision for state and foreign taxes based on the estimated annual effective tax rate for the year ending January 31,
2002. The estimated annual effective tax rate in 2002 was lower than the statutory federal and state rates as a result of the benefits from carryforward of net operating losses expected to be
utilized.

8.     Incentive Compensation Plans

In 2002, the Company introduced two new incentive programs to employees. The variable compensation plan awards employees based on quarterly Company operating
results. At July 31, 2003, substantially all employees are eligible to receive cash awards under the variable compensation plan. The Company did not record any expense under this plan for the
three months ended July 31, 2003 and $605,000 in the three months ended July 31, 2002. The Company did not record any expense under this plan for the six months ended July 31,
2003 and $1.5 million in the six months ended July 31, 2002.

18

---

The
incentive bonus plan awards employees based on the Company's and the applicable business unit's operating results. Substantially, all employees are eligible to receive cash awards
under the incentive bonus plan. Awards from this plan are paid to employees subsequent to the end of the fiscal year. The Company recorded expense under this plan of $1.1 million and
$1.4 million in the three months ended July 31, 2003 and 2002, respectively. The Company recorded expense under this plan of $1.1 million and $2.4 million in the six months
ended July 31, 2003 and 2002, respectively.

9.     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
July 31, |   | Six Months Ended
July 31,
|--------------------------- | ----------------------------------------------------- | --------------------------- | - | -------------------------
|
|Basic earnings per share:   |                                                       |                             |   |                          
|                            | Net income                                            |                             | $ | 3,931                    
|                            |                                                       |                             |   |                          
|                            | Weighted average shares outstanding                   |                             |   | 23,547                   
|                            |                                                       |                             |   |                          
|                            | Basic earnings per share                              |                             | $ | 0.17                     
|                            |                                                       |                             |   |                          
|Diluted earnings per share: |                                                       |                             |   |                          
|                            | Net income                                            |                             | $ | 3,931                    
|                            |                                                       |                             |   |                          
|                            | Weighted average shares outstanding                   |                             |   | 23,547                   
|                            | Assumed conversion of employee stock options          |                             |   | 176                      
|                            |                                                       |                             |   |                          
|                            | Shares used in diluted earnings per share calculation |                             |   | 23,723                   
|                            |                                                       |                             |   |                          
|                            | Diluted earnings per share                            |                             | $ | 0.17                     
|                            |                                                       |                             |   |                          

10.   Contingencies

On June 2, 2003, in the District Court, Dallas County, Texas, Walter Evans brought a shareholders' derivative action, for the benefit of Nominal Defendant
Carreker Corporation against James D. Carreker, John D. Carreker, Jr., James R. Erwin, James L. Fischer, Michael D. Hansen, Donald L. House, Richard R. Lee, Jr., David K. Sias, Ronald G. Steinhart,
and Ernst & Young, LLP and Carreker Corporation, Nominal Defendant (Cause No. 0305505). The complaint alleges that the director defendants breached their fiduciary duty to the company.
In addition the complaint makes certain allegations against the company's independent auditors Ernst & Young, LLP. The complaint seeks unspecified amounts of compensatory damages, as well as
interest and costs, including legal fees from the director defendants.

On
May 29, 2003, in the United States District Court for the Northern District of Texas, Dallas Division, Barbara I. Smith brought a shareholders' derivative action pursuant to
Rule 23.1, Fed.R.Civ.P, for the benefit of Nominal Defendant Carreker Corporation against certain of its current officers and directors, i.e., John D. Carreker, Jr., James D. Carreker, Richard
R. Lee, Jr., James L. Fischer, Donald L. House, David K. Sias and Terry L. Gage (Civil Action No. 303CV1211-D), seeking to remedy their individual breaches of fiduciary duty,
including their knowing violations of Generally Accepted Accounting Principles ("GAAP"), knowing violations of federal and state securities laws, acts of bad faith and other breaches of fiduciary
duty. The plaintiff seeks redress (in the form of, among others,

19

---

unspecified
amounts of compensatory damages, interests and costs, including legal fees) for injuries to the Company and its shareholders caused by Defendants' misfeasance and/or malfeasance during the
period from May 20, 1998 through December 10, 2002.

On
April 16, 2003 the United States District Court for the Northern District of Texas, Dallas Division, issued an order consolidating a number of purported class action lawsuits
against the Company, John D. Carreker Jr. and Terry L. Gage into a Consolidated Action styled In re Carreker Corporation Securities Litigation, Civil Action No. 303CV0250-M. Also,
on March 3, 2003, Claude Alton Coulter filed a purported class action lawsuit (Civil Action No. 503-CV-5-Q) against the Company, John D. Carreker Jr.
and Terry L. Gage in the United States District Court for the Eastern District of Texas, Texarkana Division. These complaints, filed on behalf of purchasers of the Company's common stock between
May 20, 1998 and December 10, 2002, inclusive, allege violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all defendants
and violations of
Section 20(a) of the Exchange Act against the individual defendants. These complaints also allege, among other things, that defendants artificially inflated the value of the Company's stock by
knowingly or recklessly misrepresenting the Company's financial results during the purported class period. The plaintiffs are seeking unspecified amounts of compensatory damages, interests and costs,
including legal fees.

Earnings
Performance Group ("EPG") filed a complaint on or about September 16, 1998 in the Superior Court of New Jersey, Law Division, Essex County seeking to enjoin and restrain
the Company from using any EPG confidential or proprietary information or trade secrets and from employing any former EPG employee in such a manner that disclosure or use of an EPG confidential or
proprietary information or trade secret would be likely. EPG also seeks (a) an accounting of any profits realized from or attributable to the use of any EPG confidential or proprietary
information or trade secret, (b) compensatory and exemplary damages, plus interest and (c) attorneys' fees and costs of suit. On October 14, 1998, the Company removed the case to
the United States District Court for the District of New Jersey. The Company answered the complaint on November 4, 1998, essentially denying the allegations and setting forth various
affirmative defenses. On November 20, 1998, the Company filed an Amended Answer, Separate Defenses and Counterclaim. In the Counterclaim the Company asserts claims for (a) restraint of
trade, (b) tortuous interference with contractual relationships, (c) unfair competition and (d) interference with prospective economic advantage.

The
Company and individual defendants deny the allegations in these complaints and intend to defend themselves vigorously. It is not possible at this time to predict whether the Company
will incur any liability or to estimate the damages, or the range of damages, if any, that the Company might incur in connection with these lawsuits.

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

11.   Business Segments and Revenue Concentration

The tables below show revenues and income (loss) from operations for the periods indicated for the Company's three reportable business segments: Revenue
Enhancement, Global Payments Technologies and Global Payments Consulting. Customer projects are sold on a solution basis, so it is necessary to break them down by segment and allocate accordingly.
Included in "Corporate Unallocated" are costs related to selling and marketing, unallocated corporate overhead expense and

20

---

general
software management. Business segment results including costs for research and development, as well as product royalty expense, the amortization of intangible assets, the write-off
of capitalized software costs and restructuring and other charges were as follows (in thousands):

|                                                                     |                                      | Three Months ended July 31, 2003
|-------------------------------------------------------------------- | ------------------------------------ | --------------------------------
|
|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 restructuring and other charges |                                      | $                               
|                                                                     | Restructuring and other charges      |                                 
|                                                                     |                                      |                                 
|Income (loss) from operations                                        |                                      | $                               
|                                                                     |                                      |                                 

|                                                                     |                                      | Three Months ended July 31, 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 restructuring and other charges |                                      | $                               
|                                                                     | Restructuring and other charges      |                                 
|                                                                     |                                      |                                 
|Income (loss) from operations                                        |                                      | $                               
|                                                                     |                                      |                                 

21

---

|                                                                     |                                      | Six Months ended July 31, 2003
|-------------------------------------------------------------------- | ------------------------------------ | ------------------------------
|
|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 restructuring and other charges |                                      | $                             
|                                                                     | Restructuring and other charges      |                               
|                                                                     |                                      |                               
|Income (loss) from operations                                        |                                      | $                             
|                                                                     |                                      |                               

|                                                                     |                                      | Six Months ended July 31, 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 restructuring and other charges |                                      | $                             
|                                                                     | Restructuring and other charges      |                               
|                                                                     |                                      |                               
|Income (loss) from operations                                        |                                      | $                             
|                                                                     |                                      |                               

During
the three months ended July 31, 2003, the Company formed Carretek LLC, a 51% jointly owned company to offer financial institutions offshore-centric outsourcing of their
business processes and IT services needs. As this outsourcing business is in the development phase and its operations immaterial, the financial results for the three and six months ended
July 31, 2003 are contained in the Corporate-Unallocated business segment in the tables above.

22

---

The
following table summarizes revenues, exclusive of out-of-pocket expense reimbursements, derived from the Company's largest customer and top five customers
during the periods indicated.

Three Months Ended July 31,

Six Months Ended July 31,2003

2002

2003

2002Single customer

12.7
%
10.5
%
9.5
%
10.6
%Top five customers

37.5
%
34.3
%
33.0
%
36.2
%


The
Company markets its solutions in several foreign countries. Revenues, exclusive of out-of-pocket expense reimbursements, attributed to countries based on the
location of the customer were as follows (in thousands):

Three Months Ended
July 31, 2003

Three Months Ended
July 31, 2002Amount

Percent of
total
revenues

Amount

Percent of
total
revenuesUnited States

$
28,290

80.0
%
$
34,881

83.5
%Europe


2,414

6.8


2,347

5.6Australia


1,114

3.2


1,470

3.5Canada


2,116

6.0


2,562

6.1South Africa


1,264

3.6


467

1.1Other


147

0.4


62

0.2Total revenues

$
35,345

100
%
$
41,789

100
%


Six Months Ended
July 31, 2003

Six Months Ended
July 31, 2002Amount

Percent of
total
revenues

Amount

Percent of
total
revenuesUnited States

$
50,411

80.9
%
$
68,477

82.2
%Europe


4,381

7.0


4,789

5.8Australia


2,254

3.6


2,906

3.5Canada


3,439

5.6


4,338

5.2South Africa


1,539

2.5


2,660

3.2Other


254

0.4


120

0.1Total revenues

$
62,278

100
%
$
83,290

100
%


12.   Restructuring and Other Charges

The Company recorded $545,000 in restructuring and other charges during the three month period ended April 30, 2003, principally associated with the
separation of 17 employees, within both the Corporate and Global Payments Consulting ("GPC") business segments. During the quarterly period ended April 30, 2003, the Company recorded a charge
of $139,000 relating to legal and professional fees relating to the Company's restatement efforts and the legal actions described in Note 10.

The
Company recorded $648,000 in restructuring and other charges during the three month period ended July 31, 2003, principally associated with the separation of 9 employees,
within both the

23

---

Corporate
and GPC business segments. During the quarterly period ended July 31, 2003, the Company recorded a charge of $130,000 relating to legal fees relating to the legal actions described in
Note 10.

As
part of the Company's settlement with one of the CheckFlow Suite customers, the customer agreed to pay the Company for the replacement product and installation. These payments are
recorded directly to this reserve and all future expenditures to install the replacement product will be charged against this reserve. During the quarterly period ending July 31, 2003, $366,000
was received from this customer.

The
activity related to the accrued merger and restructuring costs reserve during the six months ended July 31, 2003 is as follows (in thousands):

Workforce
Reductions

Charges
Relating to
CheckFlow
Suite

Facility
Closures

TotalJanuary 31, 2003 reserve balance

$
953

$
1,273

$
124

$
2,350Additions to reserve balance:Severance charges


545








545Reduction to reserve balance:Cash paid


(550
)

(68
)




(618
)April 30, 2003 reserve balance

$
948

$
1,205

$
124

$
2,277Additions to reserve balance:Severance charges


648








648Cash received from customer





366





366Reduction to reserve balance:Cash paid


(563
)

(60
)




(623
)July 31, 2003 reserve balance

$
1,033

$
1,511

$
124

$
2,668


13.   Related Party Transactions

In March 2001, the Company loaned $500,000 to a former officer of the Company pursuant to a Limited Recourse Promissory Note ("Note") collateralized solely
by shares of Exchange Applications, Inc. common stock. The principal was 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 quarterly period 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. During the quarterly period ended July 31, 2002, the Note was deemed worthless resulting in a charge to earnings of $25,000.

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

24

---

14.   Subsequent Event

Pursuant to the Director Stock Option Plan, each outside director on August 1st is granted a number of options with an aggregate
Black-Scholes valuation of $60,000. On August 1, 2003, each outside director received 8,871 options under the Director Stock Option Plan with a Black-Scholes Valuation of $28,210. As there were
no further options available for grant under the Director Stock Option Plan, on August 27, 2003, each outside director received an additional 8,662 options from the 1994 Incentive Stock Option
Plan with the remaining Black-Scholes valuation of $31,790.

25

---



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 "BusinessForward Looking Statements and Risk
Factors" contained in our Form 10-K for the year ended January 31, 2003, as filed with the Securities and Exchange Commission (SEC). Such risks include, without limitation,
dependence on the banking industry, decline in check volumes, fluctuations in operating results, use of fixed-price or value-priced arrangements, lack of long-term agreements, 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, new focus on providing
business process outsourcing with significant offshore component, ability to attract and retain qualified personnel, customer concentration, indebtedness, competition, potential strategic alliances
and acquisitions, proprietary rights, infringement claims and legal proceedings, dependence on third parties for technology licenses, liability claims, class action lawsuits, stock price fluctuations,
continued NASDAQ listing, international operations, use of independent contractors, changing government and tax regulations, 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 the "risk factors" included in
our SEC filings and elsewhere in this report.

Overview

We provide payments-related software and consulting solutions to financial institutions and financial service providers. These solutions help our customers
improve operational efficiency in how payments are processed; enhance revenue and profitability from payments-oriented products and services; reduce losses associated with fraudulent payment
transactions; and evolve toward next-generation payment practices and technologies.

We
are organized into three primary operating divisions: Global Payments Technologies (GPT), Revenue Enhancement (RevE) and Global Payments Consulting (GPC). These divisions represent
our three current reportable business segments. See Note 11 of our Notes to Condensed Consolidated Unaudited Financial Statements. During the three months ended July 31, 2003, we formed
Carretek
LLC, a 51% jointly owned Company to offer financial institutions offshore-centric outsourcing of their business processes and IT services needs. As this outsourcing business is in the development
phase, its operations and financial results are immaterial.

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

26

---

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.

Restatement

We restated our audited financial statements for the years ended January 31, 2002, 2001, 2000 and 1999, and our unaudited financial statements for each of
the quarters in the year ended January 31, 2002 and for the quarters ended April 30, 2002 and July 31, 2002. Refer to our Form 10-K for the year ended
January 31, 2003 for details of the restatement, as well as the impact of the restatement on the years and quarters previously reported.

Products and Services

Global Payments Technologies Solutions.Carreker's technology solutions help financial institutions address the needs of some
critical payment services and delivery functions that impact overall operating costs and risk management. These functions include 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). The Global Payments Technologies solutions suite addresses
these key functions in the context of improving operational efficiency and a gradual transition from paper to electronic-based payment systems. In addition, we offer technology solutions that optimize
the inventory management of a bank's cash stock levels, including managing how much is needed, when it is needed and where it is needed. 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 ATM cash supplies.

Specific
solutions in the Global Payments Technologies group include:

|Solution               |  | Description                                                                                                                                                                                     |  | Products Offered                                                                                                                                                                
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Fraud Mitigation       |  | Automated fraud detection and prevention solutions that reduce incidents of check fraud, deposit fraud, check kiting, and electronic fraud. Scalable solutions are offered for community banks. |  | FraudLink On-Us, FraudLink Deposit, FraudLink Kite, FraudLink Positive Pay, FraudLink eTracker, FraudLink PC, CORE, FraudLink ACHeCK, eFraudLink.com, Fraud Solutions Consulting
|Back Office Processing |  | Products that bring new efficiencies to back-office operations through leading-edge image, workflow, and RECO (character recognition) technologies.                                             |  | Adjustments/Express, Exceptions/Express, Input/Express, Inbound Returns/Express, Image Bulk-File, All Transactions File and Fine Sort                                           
|Remittance Processing  |  | Both host- and client/server-based platforms for improved productivity in processing retail and wholesale remittance transactions.                                                              |  | NeXGen Remittance                                                                                                                                                               
|                       |  |                                                                                                                                                                                                 |  |                                                                                                                                                                                 

27

---

|Conventional Check Capture     |  | An extensive array of enhancement products that add flexibility and usability to IBM's Check Processing Control System (CPCS) and the IBM 3890/XP series of Document Processors.                                                                                                         |  | Conventional Capture Products, CPCS Enhancements Products, XP/Productivity Tools, Platform Emulation, NeXGen Settlement, NeXGen Balancing, LTA (Large Table Access)                                                                   
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Check Image Capture            |  | Products and services related to the capture, storage and delivery of check images.                                                                                                                                                                                                      |  | ALS & CIMS Products, NeXGen Image Processor, Image Enhancement Products, Reject Repair, RECO Technology, Image POD, Image Delivery Products, Delivery Express                                                                         
|Check Image Archive Management |  | Comprehensive array of check image archive management products that may be tailored to a bank's unique requirements based on their operational environments and volumes. Carreker offers archive technology for both in-house solutions and shared
outsource providers.                  |  | Check Image Archive-AIX, Check Image Archive-MVS, Check Image Archive Load                                                                                                                                                            
|Image Applications             |  | Applications providing new solutions that address revenue enhancement and expense reduction issues through the application of image, workflow and RECO technologies.                                                                                                                     |  | Image Statements, NeXGen Remittance, + CDRom Delivery, Exceptions/Express, Inbound Returns/Express, Adjustments/Express, Input/Express, Express Capture, Payee Name Verification, Amount Encoding Verification, Image Quality Analysis
|Global Tracking                |  | A complete bar code tracking system eliminates manual log sheets, automates data gathering and maximizes workflow by tracking accountable mail, branch bags, item volumes, currency bags, incoming domestic and international deposits, outgoing cash
letters, exceptions and much more. |  | Receive Sentry                                                                                                                                                                                                                        
|eMetrics                       |  | Performance-measurement software suite that uses historical data to generate key performance indicators, item processing volume data, productivity statistics and quality control benchmarks.                                                                                            |  | Lumen, ProModel, eiMICR, eiStats, eiQuality, eiPerform                                                                                                                                                                                
|                               |  |                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                       

28

---

|Electronic Check Presentment |  | Enables banks to transition from paper-based to electronic payment systems by automating key elements of the processing stream, as well as improving a bank's yield from float management. These solutions are designed to reduce and eventually eliminate
the movement of paper payments through the system, improving productivity, reducing errors, increasing customer satisfaction and reducing fraud.                                                    |  | CheckLink, CheckLink PC, Deposit Manager, Branch Truncation Manager, Cnotes
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------
|Float Management             |  | Solutions that manage a bank's float through float analysis, pricing and a comprehensive consulting practice to improve profitability, reporting, workflow and check clearing operations. These products also provide critical activity summaries, aid in
creating multiple availability and pricing schedules, and pinpoint the cost/profitability of any transaction or relationship.                                                                        |  | Float Analysis System, Float Pricing System                                
|ATM Solutions                |  | Advanced ATM monitoring and management improving ATM availability and ensuring service levels are met. These solutions include an automated ATM monitoring and dispatching system for maximizing network availability; an Internet-based cash forecasting
and inventory management desktop system for reducing cash needs by 20-40% across the enterprise; and a real-time Internet-based system for efficient handling of ATM service requests and responses. |  | eiManager, eiGateway, iCom                                                 
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                            

29

---

|Cash Solutions |  | A product suite, now optimized through Web-based software solutions, that dramatically reduces the amount of cash banks, financial institutions and companies need to hold as cash-on-hand throughout vault, branch and ATM networks. These solutions also
automate and standardize the cash ordering process. Consulting solutions can drive further efficiency and automation in vault, branch and ATM operations. |  | iCom, ReserveLink, ReserveLink Plus, Cash Supply Chain Consulting
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------
|Logistics      |  | Improves margins related to the cash product by reducing operational infrastructure and cash movement (armored transportation) expense; optimizes the cash delivery channel and associated workflows; assesses the cash strategic direction, pricing
components, customer approach and existing service levels.                                                                                                      |  | Cash Supply Chain Consulting                                     

Revenue Enhancement Solutions.The Revenue Enhancement division includes two business units: RevE and EnAct. RevE is a highly
specialized division that provides consulting services focused on tactical methods of increasing banks' fee income. The scope and depth of this practice has expanded throughout its 12 year
history and now includes retail, small business, and commercial deposits, treasury management, consumer and commercial lending, credit card lending and trust and investment services. Our solutions
involve developing strategies that enable our clients to take advantage of electronification trends, often gaining first mover advantages for our clients. In addition to developing strategies, our
business model ensures that we continue to translate those strategies into tactical implementations with measurable revenue streams. Our client base has continued to expand with very high penetration
rates in the markets in which we operate. Thus, we have experienced a trend of becoming longer term strategic partners with our clients.

Another
component of our Revenue Enhancement Division is our business providing EnAct software and proprietary sales management methodology. Our Customer Value Management and EnAct
solutions assist financial institutions in leveraging central intelligence with local insight. This enables our clients to recognize those customers and prospects representing the greatest value or
potential. Our approach is unique and complimentary to many CRM investments that banks have made in recent years and is designed to focus their activities such that they can actually attain the
returns that have been promised.

Global Payments Consulting.Carreker helps financial institutions pro-actively plan, prepare and optimize for the
regulatory, competitive and technological impacts affecting the financial payments environment.

Our
Global Payments Consulting (GPC) division provides strategic planning and implementation advisory services for financial institutions. We provide payment research services,
predictive financial

30

---

and
operational modeling, organizational design, and business planning services focused on assisting financial institutions in preparing and positioning their organization for the rapidly changing
payment landscape of financial services.

GPC
has specialized advisory services focused on operational and infrastructure planning, implementation and measurements associated with the changing payment technology and delivery
landscape. Specific areas of focus and expertise are business infrastructure planning in image processing, float/available fund optimization, operational migration planning and fraud and risk
management across all types of payments. In addition, Carreker provides comprehensive advisory services around Check 21 (anticipated to be passed later this fiscal year) readiness, business
case assessments, and operational and business integration requirements for financial institutions.

Outsourcing.Carretek LLC is a jointly owned company with Majesco Software Inc., the US subsidiary of Mastek Limited,
a leading Indian outsourcing company with global operations. Carretek enables financial institutions and their processors to realize the benefits of offshore-centric outsourcing (offshoring) of their
business processes and IT services needs. These benefits could include reduction in operating costs, improvements in productivity, and enhancement of quality.

Initially,
Carretek is focused on offshoring payments-related business processes and IT services such as custom software development and application maintenance services. Within this
area of expertise, the Carretek offering includes a flexible array of offshore outsourcing services to financial institutions, which include: global sourcing strategy development (consulting,
methodology, and tools) to help banks understand their offshoring opportunities and optimize their decisions in this regard; outsourcing of selected payment processes to India through a range of
business models suited to each bank's needs; and application development, maintenance and support.

Carretek
draws on Carreker's expertise in payments systems and associated business processes to help banks rationalize the business case for transitioning some of these processes to
cost-efficient offshore locations and improving banks' return on investments in payments technologies. Carreker's image-related technologies, already in place at many large U.S. banks,
enable such transitioning and leverage the banks' previous investment in these systems.

31

---

Results of Operations

For the periods indicated, the following table sets forth the percentage 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
July 31,

Six Months Ended
July 31,2003

2002

2003

2002Revenues:Consulting fees

22.7
%
29.8
%
23.2
%
25.9
%Software license fees

23.1

27.7

23.2

29.9Software maintenance fees

39.5

25.5

35.7

25.0Software implementation fees

12.5

13.1

14.6

14.8Out-of-pocket expense reimbursements

2.2

3.9

3.3

4.4Total revenues

100.0

100.0

100.0

100.0Cost of revenues:Consulting fees

14.6

16.4

15.9

16.0Software license fees

5.2

4.8

5.6

4.3Software maintenance fees

8.5

5.7

9.6

6.0Software implementation fees

13.9

10.8

15.3

11.3Out-of-pocket expenses

2.9

4.4

3.6

5.0Total cost of revenues

45.1

42.1

50.0

42.6Gross profit

54.9

57.9

50.0

57.4Operating costs and expenses:Selling, general and administrative

35.1

28.9

38.5

29.2Research and development

4.8

7.3

5.5

7.0Amortization of intangible assets

1.0

0.8

1.1

0.8Restructuring and other charges

2.1



2.2

Total operating costs and expenses

43.0

37.0

47.3

37.0Income (loss) from operations

11.9

20.9

2.7

20.4Other income (expense), net

(0.6
)
(1.4
)
(0.8
)
(1.4
)Income (loss) before provision (benefit) for income taxes

11.3

19.5

1.9

19.0Provision (benefit) for income taxes

0.4

1.3

0.4

(1.2
)Net income (loss)

10.9
%
18.2
%
1.5
%
20.2
%


32

---

For
the periods indicated, the following table sets forth the selected items comprising cost of revenues as a percentage of the revenues generated by that category of our operations. The
period-to-period comparisons of financial results are not necessarily indicative of future results.

Three Months Ended
July 31,

Six Months Ended
July 31,2003

2002

2003

2002Cost of revenues:Consulting fees

64.5
%
55.0
%
68.6
%
62.0
%Software license fees

22.8

17.2

24.3

14.4Software maintenance fees

21.5

22.3

26.9

24.1Software implementation fees

111.5

82.4

104.8

76.2Out-of-pocket expenses

127.2

116.1

107.1

110.8


Revenues:Our total revenues decreased by $7.3 million, or 16.8%, to $36.2 million for the three months ended
July 31, 2003, from $43.5 million for the three months ended July 31, 2002, and by $22.7 million, or 26.1%, to $64.4 million for the six months ended July 31,
2003, from $87.1 million for the six months
ended July 31, 2002. The decrease in total revenue for both the three and six months ended July 31, 2003, as compared to the three and six months ended July 31, 2002, was a result
of declines in consulting fees, software license fees and software implementation fees, which were partially offset by an increase in software maintenance fees. Each of these components of revenue is
described in more detail below.

Consulting Fees:Revenues from consulting fees decreased by $4.7 million, or 36.7%, to $8.2 million for the
three months ended July 31, 2003, from $12.9 million for the three months ended July 31, 2002. Consulting fees decreased by $7.5 million, or 33.7%, to $15.0 million
for the six months ended July 31, 2003, from $22.5 million for the six months ended July 31, 2002. Consulting fees are primarily derived from Revenue Enhancement's value-priced
engagements and from Global Payments Consulting business segments consulting solutions. Consulting revenue from Revenue Enhancement decreased $2.9 million, or 27.2%, to $7.8 million for
the three months ended July 31, 2003, from $10.7 million for the three months ended July 31, 2002. Consulting revenue from Revenue Enhancement decreased $4.2 million, or
23.5%, to $13.9 million for the six months ended July 31, 2003, from $18.1 million for the six months ended July 31, 2002. We are facing strong competition and downward
pricing pressure and our revenue realization timelines have continued to be extended within Revenue Enhancement. Additionally, we have seen our Revenue Enhancement consulting fees derived from our
international customer base remain relatively flat for the three months ended July 31, 2003, as compared to the three months ended July 31, 2002, while Revenue Enhancement consulting
fees from our international customer base have declined $2.6 million for the six months ended July 31, 2003, as compared to the six months ended July 31, 2002. Global Payments
Consulting revenue decreased $1.6 million, or 80.9% to $385,000 for the three months ended July 31, 2003, from $2.0 million for the three months ended July 31, 2002. Global
Payments Consulting revenue decreased $3.2 million, or 77.3%, to $943,000 for the six months ended July 31, 2003, from $4.2 million for the six months ended July 31, 2002.
Traditionally, the Global Payments Consulting business segment generated IT consulting revenues particularly when a financial institution customer was merging or consolidating. With the reduction in
the number and size of these mergers, we are transitioning this business segment to address enterprise-wide payment strategies and image enabling planning and integration. Although we
believe we are making progress in the transition, we continue to be cautious about the prospects for this business segment as the transition takes place.

Software License Fees:Revenues from software license fees decreased $3.7 million, or 30.7%, to $8.4 million
for the three months ended July 31, 2003 from $12.1 million for the three months ended

33

---

July 31,
2002. Revenues from software license fees decreased $11.2 million, or 42.8%, to $14.9 million for the six months ended July 31, 2003 from $26.1 million for
the six months ended July 31, 2002. The majority of our software license arrangements are sold with implementation services that are essential to the functionality of the software. In these
cases, software license fees are recognized as the essential services are performed. We have continued to experience delayed customer purchasing decisions as customer technology budgets remained
tight. In addition, our customers are in a period of transition as the form of payments transfer from traditional paper checks to electronic forms of payments. The predictability of the timing, form
and sequence of this transition may be causing our customers to delay buying decisions. This general market weakness became particularly visible beginning in the latter half of fiscal 2002. These
conditions, intense competition and customer anxiety over the possible outcome of our special investigation have contributed to the lower software revenue in both the three and six month periods ended
July 31, 2003. In the first half of fiscal 2002, software license fees were higher due to sales of our Check Image Archive software to a provider of image archive services to financial
institutions. This software required no implementation services and the associated revenue was recognized immediately, resulting in increased revenues of $3.8 million and $7.5 million
for the three and six months ended July 31, 2002, respectively.

Software Maintenance Fees:Revenues from software maintenance fees increased $3.2 million, or 28.8%, to
$14.3 million for the three months ended July 31, 2003, from $11.1 million for the three months ended July 31, 2002. Software maintenance fees have increased by
$1.2 million, or 5.7%, to $23.0 million for the six months ended July 31, 2003 from $21.8 million for the six months ended July 31, 2002. Software maintenance fees
represent annually renewable product and telephone support for our software customers. 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. We defer revenue recognition on maintenance fees until cash is collected. However, because we continue to provide maintenance services
while awaiting payment from customers, when the payment is received, revenue is recognized for the period that revenue was previously deferred. This can cause
quarter-to-quarter fluctuations. In the three months ended July 31, 2003, we collected a significant portion of the maintenance renewal invoices that were uncollected at
April 30, 2003, which was the primary contributor to the sharp increase in maintenance revenue in the three months ended July 31, 2003, as compared to the three months ended
July 31, 2002. A portion of the increase for the six months ended July 31, 2003, compared to the previous year was the result of new maintenance contracts along with normal maintenance
price increases.

Software Implementation Fees:Revenues from software implementation fees decreased $1.2 million, or 20.8%, to
$4.5 million for the three months ended July 31, 2003, from $5.7 million for the three months ended July 31, 2002. Revenues from software implementation fees decreased by
$3.5 million, or 27.1%, to $9.4 million for the six months ended July 31, 2003, from $12.9 million for the six months ended July 31, 2002. The decline in software
implementation fee revenue for the three and six months ended July 31, 2003, as compared to the three and six months ended July 31, 2002, can be primarily attributed to declines in new
software licensed within our Global Payments Technologies business segment. Additionally, during the three months ended July 31, 2003, we deferred recognition of $587,000 and reversed $181,000
of software implementation revenue on a project when it was concluded that
collection was not considered probable. Any future recoveries related to this contract will be recognized only when the cash is received.

Out-of-Pocket Expense Reimbursements:Revenues from out-of-pocket expense
reimbursements decreased $854,000, or 51.1%, to $816,000 for the three months ended July 31, 2003, from $1.7 million for the three months ended July 31, 2002. Revenue from
out-of-pocket expense reimbursements decreased $1.8 million, or 44.6%, to $2.1 million for the six months ended July 31, 2003 from $3.9 million for
the six months ended July 31, 2002. Decreases in these reimbursements are primarily the result of a general decline within all of our business segments, especially in our Global Payments

34

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Consulting
business segment. Engagements in this segment usually require our employees to be at the customer location for extended periods of time. Additionally during the three and six months ended
July 31, 2003, we did not recognize approximately $79,000 and $182,000, respectively, of out-of-pocket expense reimbursements due to a contractual provision within one
of our Revenue Enhancement engagements. We expect to recover the majority of these out-of-pocket expenses when the contract is amended before the end of fiscal 2003.

Cost of Revenues:Our total cost of revenues was $16.3 million, or 45.1%, of total revenue for the three months ended
July 31, 2003, and was $18.3 million, or 42.1% of total revenue for the three months ended July 31, 2002. Our total cost of revenues was $32.2 million, or 50.0%, of total
revenue for the six months ended July 31, 2003, and was $37.1 million, or 42.6%, of total revenue for the six months ended July 31, 2002. In absolute dollars the decrease in the
cost of revenues for both the three and six months ended July 31, 2003, compared to the three and six months ended July 31, 2002, is the direct result of lower costs of consulting,
especially within our Global Payments Consulting business segment. These cost reductions were the result of headcount reductions within this business segment. In addition, with the decline in
consulting engagements and software implementations, out-of-pocket expenses from air travel and lodging have also declined, as discussed below. The increase in these costs as a
percentage of total revenue is a result of the 16.8% decline in total revenues and a 10.7% decline in these costs during the three months ended July 31, 2003, as compared to the three months
ended July 31, 2002, and a 26.1% decline in total revenues and a 13.1% decline in these costs for the six months ended July 31, 2003, as compared to the six months ended July 31,
2002. We expect to continue our efforts to reduce expenses in absolute dollars in the second half of fiscal 2003 for existing business segments.

Cost of Consulting:Our cost of consulting was $5.3 million, or 64.5% of consulting fees for the three months ended
July 31, 2003, and was $7.1 million, or 55.0%, of consulting fees for the three months ended July 31, 2002. Our cost of consulting was $10.3 million, or 68.6%, of
consulting fees for the six months ended July 31, 2003 and was $14.0 million, or 62.0%, of consulting fees for the six months ended July 31, 2002. Cost of consulting decreased in
absolute dollars due primarily to reduced personnel-related and contract labor costs through cost reduction and restructuring efforts completed in the last half of fiscal 2001 and during fiscal 2002,
particularly within the Global Payments Consulting ("GPC") business segment. The costs of consulting within GPC declined $1.4 million, or 51.5%, to $1.3 million for
the three months ended July 31, 2003, from $2.7 million for the three months ended July 31, 2002. The costs of consulting within GPC declined $2.6 million, or 47.8%, to
$2.8 million for the six months ended July 31, 2003, from $5.4 million for the six months ended July 31, 2002. The majority of our consulting fee revenue is driven by
value-priced engagements within our Revenue Enhancement business segment that fluctuate significantly from period-to-period; as a result, our consulting costs as a percentage
of revenue will also fluctuate based on the amount of value-priced revenue recognized.

Cost of Software Licenses:Our cost of software licenses was $1.9 million, or 22.8%, of software license fees for the
three months ended July 31, 2003, and $2.1 million, or 17.2%, of software license fees for the three months ended July 31, 2002. Our cost of software licenses was
$3.6 million, or 24.3%, of software license fees for the six months ended July 31, 2003 and $3.8 million, or 14.4%, of software license fees for the six months ended
July 31, 2002. Cost of software licenses consist principally of amortization of capitalized software costs, amortization of acquired developed technology and royalties payable to third parties.
Despite the fixed nature of approximately $1.3 million per quarter of amortization of capitalized software costs, costs of acquired developed technology and costs of software licenses as a
percentage of software license fees will fluctuate based on the level of software license fee revenue recognized. Additionally, in connection with software license agreements entered into with certain
banks and purchase agreements with vendors under which our acquired software technology is used in products sold to our customers, we are required to pay royalties on sales of certain software

35

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products.
Under these arrangements, we record royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20% to 30% of the associated revenue.
Approximately $592,000 and $584,000 of royalty expense was recorded under these agreements for the three months ended July 31, 2003 and 2002, respectively, and $1.0 million and
$1.4 million for the six months ended July 31, 2003 and 2002, respectively.

Cost of Software Maintenance:Our cost of software maintenance was $3.1 million, or 21.5%, of software maintenance
fees for the three months ended July 31, 2003, and $2.5 million, or 22.3%, of software maintenance fees for the three months ended July 31, 2002. Our cost of software maintenance
was $6.2 million, or 26.9%, of software maintenance fees for the six months ended July 31, 2003, and $5.2 million, or 24.1%, of software maintenance fees for the six months ended
July 31, 2002. In absolute dollars, the costs of software maintenance have increased in both the three and six months ended July 31, 2003, as compared to the three and six months ended
July 31, 2002, as a result of traditional Research and Development employees working on software development projects classified as maintenance. Because our maintenance revenue is not
recognized until the cash is collected, maintenance revenue can fluctuate from period-to-period and as a result our cost of software maintenance as a percentage of related
maintenance revenue will also fluctuate.

Cost of Software Implementation:Our cost of software implementation was $5.0 million, or 111.5%, of software
implementation fees for the three months ended July 31, 2003 and $4.7 million, or 82.4%, of software implementation fees for the three months ended July 31, 2002. Our cost of
software implementation was $9.9 million, or 104.8%, of software implementation fees for the six months ended July 31, 2003 and $9.8 million, or 76.2%, of software implementation
fees for the six months ended
July 31, 2002. In absolute dollars, the costs of software implementation have remained relatively flat in the three and six months ended July 31, 2003, as compared to the three and six
months ended July 31, 2002. The increase of our costs of software implementation, as a percentage of the related software implementation revenue, was the result of declines in new software
licensed within our Global Payments Technologies business segment, compounded by a deferral of $587,000 and a reversal of $181,000 of software implementation revenue during the three months ended
July 31, 2003, on a project when it was concluded that collection was not considered probable. Any future recoveries related to this contract will be recognized only when the cash is received.

Cost of Out-of-Pocket Expense Reimbursements:Our cost of out-of-pocket
expense reimbursements was $1.0 million, or 127.2% of related revenues for the three months ended July 31, 2003, and was $1.9 million, or 116.1% of related revenues for the three
months ended July 31, 2002. Our cost of out-of-pocket expense reimbursements was $2.3 million, or 107.1% of related revenues for the six months ended
July 31, 2003, and was $4.3 million, or 110.8% of related revenues for the six months ended July 31, 2002. Costs of out-of-pocket expense reimbursements
have generally declined along with reduced engagements within our Global Payments Consulting business segment. This segment has historically had engagements which required extended stays at customer
locations. Subject to timing differences, the substantial majority of these expenses are billed to customers and recorded as Out-of-Pocket Expense Reimbursements revenue. Gross
margins will fluctuate due to contractual terms, such as the timing of billing for the out-of-pocket expenses and limitations or caps in the amount of expense that can be
billed to the customer.

Selling, General and Administrative:Our selling, general and administrative expenses were $12.7 million, or 35.1%, of
total revenue for the three months ended July 31, 2003, and $12.6 million, or 28.9%, of total revenue for the three months ended July 31, 2002. Our selling, general and
administrative expenses were $24.8 million, or 38.5%, of total revenue for the six months ended July 31, 2003, and $25.4 million, or 29.2%, of total revenue for the six months
ended July 31, 2002. Selling, general and administrative expenses generally consist of personnel costs such as salaries, commissions and other incentive compensation along with travel
associated with selling, marketing,

36

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general
management and software management. Additionally, the provision for doubtful accounts, as well as fees for professional services and other related costs are classified within selling, general
and administrative expense. In absolute dollars, selling, general and administrative costs have remained flat for the three months ended July 31, 2003, as compared to the three months ended
July 31, 2002. These costs have decreased for the six months ended July 31, 2003, as compared to the six months ended July 31, 2002, as a result of decreases in certain personnel
costs. The increase in these costs as a percent of total revenue is the result of a 16.8% decline in total revenue for the three months ended July 31, 2003, as compared to the three months
ended July 31, 2002 and a 26.1% decline in total revenue for the six months ended July 31, 2003, as compared to the six months ended July 31, 2002. We have reduced certain
selling, general and administrative expenses during the first two quarters of fiscal 2003, however, we redeployed these funds in targeted areas to provide a foundation for future growth. The absolute
amount of selling, general and administrative expenses is not expected to decline significantly in the last half of fiscal 2003.

Research and Development:Research and development costs were $1.7 million, or 4.8%, of total revenue for the three
months ended July 31, 2003, and $3.2 million, or 7.3%, of total revenue for the three months ended July 31, 2002. Our research and development costs were $3.5 million, or
5.5%, of total revenue for the six months ended July 31, 2003, and $6.2 million, or 7.0%, of total revenue for the six months ended July 31, 2002. Research and development costs
have decreased for the three months ended July 31, 2003, as compared to July 31, 2002, as a result of a concentration of projects classified as cost of software maintenance. We have
continued to invest in our solutions, in support of revenue growth and quality enhancements, and we expect Research and Development activities to increase for the balance of fiscal 2003 and into
fiscal 2004 as we invest in technologies to meet our customers' needs for shifting from paper-based payments to electronic payments.

Amortization of Intangible Assets:Our amortization of intangibles was $350,000, or 1.0%, of total revenue for the three
months ended July 31, 2003, and $350,000, or 0.8%, of total revenue for the three months ended July 31, 2002. Our amortization of intangibles was $700,000, or 1.1%, of total revenue for
the six months ended July 31, 2003, and $700,000, or 0.8%, of total revenue for the six months ended July 31, 2002. The expense for the three months ended July 31, 2003 and 2002
is a result of the recognition of amortization expense for a customer relationship intangible asset acquired in the Check Solutions acquisition.

Restructuring and other charges:We recorded $648,000 of restructuring and other charges during the three month period ended
July 31, 2003, and $1.2 million during the six months ended July 31, 2003. These charges consist principally of severance for terminated employees.

37

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The
activity related to the accrued merger and restructuring costs reserve during our three and six month period ended July 31, 2003 is as follows (in thousands):

Workforce
Reductions

Charges
Relating to
CheckFlow
Suite

Facility
Closures

TotalReserve balance at January 31, 2003

$
953

$
1,273

$
124

$
2,350Additions to reserve balance:Severance charges


545








545Reductions to reserve balance:Cash paid


(550
)

(68
)




(618
)Reserve balance at April 30, 2003

$
948

$
1,205

$
124

$
2,277Additions to reserve balance:Severance charges


648








648Cash received from customers





366





366Reductions to reserve balance:Cash paid


(563
)

(60
)




(623
)Reserve balance at July 31, 2003

$
1,033

$
1,511

$
124

$
2,668


We
also recorded $130,000 and $269,000 of legal and professional fees relating to our restatement effort and associated legal actions during the three and six months ended
July 31, 2003.

Interest Income:Interest income decreased $52,000 to $73,000 for the three months ended July 31, 2003, from $125,000
for the three months ended July 31, 2002. Interest income decreased $39,000 to $154,000 for the six months ended July 31, 2003, from $193,000 for the six months ended July 31,
2002. The level of interest income is determined by the available funds for investment and by the effective interest rates earned. If lower interest rates persist, we expect interest income to
continue to be minimal during fiscal 2003.

Interest Expense:Interest expense decreased $357,000 to $339,000 for the three months ended July 31, 2003, from
$696,000 for the three months ended July 31, 2002. Interest expense decreased $724,000 to $757,000 for the six months ended July 31, 2003, from $1.5 million for the six months
ended July 31, 2002. Interest expense decreased on both a three and six month basis due to a decreased amount of borrowings outstanding under the revolving credit agreement and decreased
interest rates.

Provision (Benefit) for Income Taxes:The Company has established a valuation allowance to reserve its net deferred tax
assets at July 31, 2003 because the more likely than not criteria for future realization of the Company's net deferred tax assets specified in Statements of Financial Accounting Standards
No. 109, "Accounting for Income Taxes,"("SFAS No. 109") were not met. The net tax provision of $133,000 and $226,000 for the three and
six months ended July 31, 2003, respectively, consists of a provision for state and foreign taxes. The effective tax rate varied from the federal statutory rate in 2003 primarily due to the
expected utilization of net operating loss carryforwards. The net tax provision of $547,000 for the three months ended July 31, 2002 consists of a provision for state and foreign taxes based on
the estimated annual effective rate for the year ended January 31, 2002. The net tax benefit of $1.1 million for the six months ended July 31, 2002 consists of a
$1.9 million tax benefit generated by additional tax loss carrybacks available to the Company as a result of the Job Creation and Workers Assistance Act of 2002, offset by a $800,000 provision
for state and foreign taxes based on the estimated annual effective tax rate for the year ending January 31, 2002. The estimated

38

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annual
effective tax rate in 2002 was lower than the statutory federal and state rates as a result of the benefits from carryforward of net operating losses expected to be utilized.

Liquidity and Capital Resources

At July 31, 2003, we had working capital of $9.7 million compared with $17.9 million at January 31, 2003. We had $27.5 million
in cash and cash equivalents at July 31, 2003, an increase of $474,000 from $27.0 million in cash and cash equivalents at January 31, 2003. At July 31, 2003, we had
$12.5 million of long-term debt compared to $25.0 million at January 31, 2003. The decrease in working capital is a direct result of the payments made on the
long-term debt during the quarterly period ended July 31, 2003.

During
the three months ended July 31, 2003, we generated $1.8 million of cash from operating activities, as compared to generating $11.5 million during the three
months ended July 31, 2002. During the six months ended July 31, 2003, we generated $14.0 million of cash from operating activities, as compared to generating $7.7 million
during the six months ended July 31, 2002. The decrease in cash generated from operating activities during the three month period ended July 31, 2003, as compared to the three months
ended July 31, 2002, is primarily the result of decreased net income, an increase in accounts receivable and a decline in deferred revenue. The increase in the cash generated from operating
activities for the six months ended July 31, 2003, as compared to the six months ended July 31, 2002, is primarily the result of assumed obligations paid to certain employees of Check
Solutions during the six months ended July 31, 2002.

The
timing of cash collections can cause fluctuations from quarter-to-quarter in our cash generated from operating activities. 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):

Quarter ended

DSOJuly 31, 2003

43April 30, 2003

51January 31, 2003

72October 31, 2002

97July 31, 2002

73


From
an investing perspective, we used $259,000 and $782,000 during the three months ended July 31, 2003 and 2002, respectively. Cash used in investing activities was $570,000 and
$1.9 million during the six months ended July 31, 2003 and 2002, respectively. These uses of cash are comprised of purchases of property and equipment and capitalized software
development.

From
a financing perspective, we used $3.0 million during the three months ended July 31, 2003, as compared to using $4.9 million during the period ended
July 31, 2002. Cash used in financing activities for the six months ended July 31, 2003 was $13.0 million, and the cash provided by financing activities was $2.6 million
during the six months ended July 31, 2002. The cash used in financing activities during the three and six months ended July 31, 2003 was comprised of $2.5 million and
$12.5 million, respectively, of payments on our revolving credit agreement. The remaining amounts were closing costs related to the amendment of the Revolving Credit Agreement paid during the
three months ended July 31, 2003. The cash generated from financing activities during the six months ended July 31, 2002, was the result of the sale of 1,282,214 shares of common stock
to a group of institutional investors in a private transaction in which $9.3 million of net proceeds were received during the three months ended April 30, 2002.

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 to fund the acquisition
of Check Solutions. On July 31, 2003,

39

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the
revolving credit was amended to reduce the commitment amount to $30.0 million, and to extend the maturity date of outstanding borrowings to July 31, 2006. As of the date of the
extension, the outstanding balance was $12.5 million. Borrowings under the credit agreement, as amended, currently bear interest equal to either the greater of prime or federal funds rate plus
a margin ranging from 1.25% to 2.25% depending on our ratio of funded debt to Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), or LIBOR plus a margin equal to 2.75% to 3.75%
depending on the Company's ratio of funded debt to EBITDA. Interest payments are due quarterly. We are required to pay a commitment fee equal to 0.50% 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 80% of accounts receivable, cash and short-term investments to funded debt. The interest coverage covenant was amended on July 31, 2003 to be more
favorable to the Company. Additionally, the payment of dividends is precluded except upon the approval of the banks. Substantially all of our assets collateralize the revolving credit agreement. As of
July 31, 2003, we are in compliance with the covenants of the revolving credit agreement, as amended.

At
July 31, 2003, we had $12.5 million outstanding under the credit agreement. At July 31, 2003, the interest rate on the debt was 4.375% on 50% of the outstanding
borrowings and 4.50% on the remaining 50%. Because the interest on the debt is variable, the carrying value approximates the fair value. Interest expense, exclusive of the amortization of deferred
loan costs, on the credit agreement was $231,000 and $583,000 for the three months ended July 31, 2003 and 2002, respectively, and $541,000 and $1.2 million for the six months ended
July 31, 2003 and July 31, 2002, respectively.

We
expect that existing cash and cash generated from operating activities will be sufficient to meet our anticipated cash needs for working capital, capital expenditures and other
activities for at least the next 12 months. However, if current sources are not sufficient to meet our needs, we may seek to borrow under the existing credit agreement or seek additional equity
or debt financing. There can be no assurance that additional financing would be available on acceptable terms, if at all. We are presently
involved in a number of lawsuits, the outcome of which could affect our liquidity. Further, in the future we may pursue acquisitions of businesses, products or technologies that could complement or
expand our business and product offerings, which could change our financing needs. 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.

The
following summarizes our contractual obligations at July 31, 2003 and the effect these contractual obligations are expected to have on our liquidity and cash flows in future
periods (in thousands):

|                           |  |   |        | Payments Due by Period
|-------------------------- |  | - | ------ | ----------------------
|
|Revolving credit agreement |  | $ | 12,500 |                       
|Operating leases           |  |   | 19,219 |                       
|                           |  |   |        |                       
|                           |  | $ | 31,719 |                       
|                           |  |   |        |                       

40

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Critical Accounting Policies

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 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.

Revenue
Recognition

Our
revenue recognition policies are in accordance with Statement of Position ("SOP") 97-2,"Software Revenue Recognition,"as
amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions,"and Staff
Accounting Bulletin ("SAB") No. 101,"Revenue Recognition in Financial Statements."In the case of software arrangements that require significant
production, modification, or customization of software, or the license agreement requires the Company to provide implementation services that are determined to be essential to other elements of the
arrangement, the Company follows the guidance in SOP 81-1,"Accounting for Performance of ConstructionType and Certain ProductionType
Contracts."

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 generally 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 generally 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. Because 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. We 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 solution. Costs associated with these value-pricing contracts are expensed as
incurred.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, we may offer payment terms which extend beyond
12 months. When we enter into an agreement that has a significant component of the total amount payable under the agreement due beyond 12 months or if it is determined payments are not
fixed and determinable at the date the agreement is entered into,

41

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revenue
under the arrangement will be recognized as payments become due and payable. 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 with a fixed payment date.

Costs
associated with time and materials, fixed-priced and value-priced consulting fee arrangements are expensed as incurred and are included as a component of the cost of consulting
fees.

We
expect that value-priced contracts will continue to account for a significant portion of our revenues in the future. As a consequence of the use of value-priced 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.

Software License Fees.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. Under SOP 97-2, we recognize software license
revenue upon execution of a contract and delivery of the 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. When the software license arrangement requires us to provide implementation services that are essential to the functionality of the
software or significant production, customization or modification of the software is required, both the product license revenue and implementation fees are recognized as services are performed.

Software
licenses are often sold as part of a multiple element arrangement that may include maintenance, implementation or consulting. We determine whether there is vendor specific
objective evidence of fair value ("VSOEFV") for each element identified in the arrangement to determine whether the total arrangement fees can be allocated to each element. If VSOEFV exists for each
element, the total arrangement fee is allocated based on the relative fair value of each element. In cases where there is not VSOEFV for each element, or if it is determined services are essential to
the functionality of the software being delivered, or if significant production, modification or customization of the software is required, we defer revenue recognition of the software license fees.
However, if VSOEFV is determinable for all of the undelivered elements, and assuming the undelivered elements are not essential to the delivered elements, we will defer recognition of the full fair
value related to the undelivered elements and recognize the remaining portion of the arrangement value through application of the residual method as set forth in SOP 98-9. Where VSOEFV has
not been established for certain undelivered elements, revenue for all elements is deferred until those elements have been delivered or their fair values have been determined. Evidence of VSOEFV is
determined for software products based on actual sales prices for the product sold to a similar class of customer and based on pricing strategies set forth in our price book. Evidence of VSOEFV for
services (installation, implementation and consulting) is based upon standard billing rates and the estimated level of effort for individuals expected to perform the related services. We establish
VSOEFV for maintenance agreements using the percentage method such that VSOEFV for maintenance is a percentage of the license fee charged annually for specific software product, which in most
instances is 20% of the portion of arrangement fees allocated to the software license element.

Although
substantially all of our current software licenses provide for a fixed-price license fee, some licenses 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.

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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. If the annual maintenance fee is not paid at the beginning of the maintenance period, we defer revenue recognition until the time that the maintenance
fee is paid by the customer. We continue to provide maintenance service while awaiting payment from customers. When the payment is received, revenue is recognized for the period that revenue was
previously deferred. This may result in volatility in software maintenance revenue from period-to-period.

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 us also purchase software
implementation services. We price our implementation services on a time-and-material or on a fixed-price basis, and we recognize the related revenues as services are performed.
Costs associated with these engagements are expensed as incurred.

Our
contracts typically do not include right of return clauses, and as a result, we do not record a provision for returns.

Royalties

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. Under these arrangements, we accrue royalty expense when the associated revenue is recognized.
The royalty percentages generally range from 20%-30% of the associated revenues. Royalty expense is included as a component of the cost of software license fees and cost of software
maintenance fees in the accompanying consolidated statement of operations.

Allowance
for Doubtful Accounts

A
large proportion of our revenues and receivables are 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. If
circumstances change, such as higher than expected defaults or an unexpected material adverse change in a customer's ability to meet their financial obligations to us, our estimates of recoverability
of amounts due us could be reduced by a material amount.

Software
Costs Capitalized, Goodwill, Other Intangible Assets and Other Long-Lived Assets

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
software development costs, other than costs for 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

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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 that has been beta tested. All capitalized software development costs are amortized using an amount determined as the greater of: (1) 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 (2) the straight-line method over the remaining
economic life of the product (generally three to six years).

Goodwill
and intangibles with indefinite lives are assessed on an annual basis for impairment at the reporting unit level by applying a fair value based test. We performed the initial
impairment test of goodwill and intangibles with indefinite lives assets at February 1, 2002 and a follow up test at November 1, 2002 to determine if an impairment charge should be
recognized under SFAS 142. The initial impairment analysis did not result in any write-down of capitalized costs. We perform an annual impairment assessment on
November 1st of each year or 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. During the period ended January 31, 2003, events and circumstances caused us to revaluate goodwill
resulting in an impairment charge of $46.0 million. Goodwill at July 31, 2003 totaled $21.2 million.
Further deterioration in market conditions, increases in interest rates and changes in our projections with respect to the Global Payments Technologies reporting unit to which goodwill is allocated
would result in additional impairment charges in the future.

Merger,
Restructuring and Other Charges

During
fiscal year 2001, we recorded significant reserves in connection with our acquisition of Check Solutions and subsequent operational restructurings. Additional reserves were
recorded during the three and six months ended July 31, 2003 and 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.

Contingencies

We
are subject to proceedings, lawsuits and other claims. We are required to assess the likelihood of any adverse judgments of outcomes to these matters as well as potential ranges of
probable losses. A determination of the amount or reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the
future due to new developments in each matter or changes in insurance coverage or approach such as change in settlement strategy.

Income
Taxes

We
recognize deferred tax assets or liabilities for the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. We review our
deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing
temporary

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differences.
As a result of our cumulative net losses we have provided a full valuation allowance against our net deferred tax assets. In addition, we expect to provide a full valuation allowance of
any future tax benefits until we can sustain a level of profitability that demonstrates our ability to utilize these assets.

Recently Issued Accounting Standards

In November 2002, the EITF reached a consensus on Issue 00-21,"Multiple Deliverable Revenue
Arrangements."EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating
activities. It also addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. The guidance in EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early application permitted. Companies may elect to report the change in accounting as a cumulative
effect of a change in accounting principle in accordance with APB Opinion 20,"Accounting Changes" and SFAS 3, "Reporting Accounting Changes in Interim Financial Statements (an
amendment of APB Opinion No. 28)."We do not currently believe adoption will have a significant impact on our accounting for multiple element arrangements.

In
June 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation No. 46 clarifies the application of Accounting
Research Bulletin No. 51 and applies immediately to any variable interest entities created after January 31, 2003 and to variable interest entities in which an interest is obtained after
that date. This Interpretation is applicable to the Company in the quarter ending October 31, 2003, for interests acquired in variable interest entities prior to February 1, 2003. This
Interpretation requires variable interest entities to be consolidated if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other
parties or the equity investors lack specified characteristics. The adoption of the Interpretation is not expected to have a material impact on the Company's financial statements.

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 that have seen a decline in market value
due to changes in interest rates. Our investment securities are held for purposes other than trading. At July 31, 2003, we did not hold any fixed-rate investments.

We
currently have $12.5 million outstanding under our revolving credit agreement at July 31, 2003. As described in Note 5 of our Notes to Condensed Consolidated
Unaudited Financial Statements, the interest rate is variable. At July 31, 2003, the interest rate on the debt was 4.375% on 50% of the outstanding borrowings and 4.5% on the remaining 50%.

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We currently have operations in several international locations including Canada, United Kingdom, South Africa and Australia. As a result, we have assets and
liabilities outside the United States that are subject to fluctuations in foreign currency exchange rates. Due to the nature of these operations, we currently utilize the U.S. Dollar as the functional
currency for all international operations.

An
insignificant portion of our accounts receivable balance at July 31, 2003 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 our business transacted in foreign currencies increases.

Item 4. Controls and Procedures

Disclosure Controls

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file
with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC.

Our
management, under the supervision and with the participation of our Chief Executive and Chief Financial Officers, is responsible for evaluating the effectiveness of our disclosure
controls and procedures. As of July 31, 2003, they carried out an evaluation of our disclosure controls and procedures, and except as noted below, the Chief Executive and Chief Financial
Officers believe that these procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within
the required time periods.

In
designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.

Internal Controls

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

As
mentioned in our Form 10-Q for the period ended April 30, 2003, we had begun a project to move all items from the restatement workbook to our corporate
accounting system, thus eliminating any off-line entries that require consolidation, and enhancing the analytical procedure of comparing forecasted revenue to actual revenue on a project
basis. This project was completed as of July 31, 2003, as anticipated.

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PART II:    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

The information contained under Part II, Item 1 (Legal Proceedings) in our Form 10-Q for the period ended April 30, 2003 is herby
incorporated by reference.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

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

At our Annual Meeting of Stockholders held on June 17, 2003, two proposals were adopted by our stockholders: (1) the election of three directors as
Class II directors for terms expiring at the Annual Meeting of Stockholders in 2006 as described in our Proxy Statement for the Annual Meeting (Messrs. James L. Fischer, Michael D.
Hansen and Richard R. Lee, Jr. were re-elected as directors, and (2) the ratification of the appointment of Ernst & Young LLP as independent certified
public accountants of the Company for the fiscal year ending January 31, 2004. The number of shares cast for and against as well as the number of abstentions as to each of these matters (other
than the election of directors) are as follows:

|Election of Directors |  | Shares For |  | Shares Withheld |  | 
|--------------------- |  | ---------- |  | --------------- |  | 
|James L. Fischer      |  | 21,165,825 |  | 1,028,368       |  | 
|Michael D. Hansen     |  | 21,960,403 |  | 233,790         |  | 
|Richard R. Lee, Jr.   |  | 21,529,351 |  | 664,842         |  | 
|                      |  |            |  |                 |  | 

|Proposal                    |  | Shares For |  | Shares Against |  | Abstentions
|--------------------------- |  | ---------- |  | -------------- |  | -----------
|Ratification of accountants |  | 21,831,305 |  | 317,267        |  | 45,621     

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K



| | Number |  | Exhibit Description                                                                                                                                                                                                                                       
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1   |  | Fourth Amendment to Credit Agreement effective July 31, 2003 among Carreker Corporation as Borrower, J.P. Morgan Chase Bank (formerly known as The Chase Manhattan Bank) as Administrative Agent and Issuing Bank, and
Comerica Bank as Syndication Agent.
| | 10.2   |  | Separation Agreement with Terry L. Gage dated June 23, 2003                                                                                                                                                                                               
| | 31.1   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
| | 31.2   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
| | 32.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    
| | 32.2   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 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: | September 11, 2003
|    |                                                                                                 |  |       |                   
|By: | /s/FRANK W. TILLEYFrank W. Tilley
Chief Financial Officer                                       |  | Date: | September 11, 2003

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