CARREKER CORP - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 31, 2002
OR

/ / 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 75-1622836
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

4055 VALLEY VIEW LANE
DALLAS, TEXAS 75244 75244
(Address of principal executive offices) (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $0.01 per share
(Title of class)
------------------------

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

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

The aggregate market value on April 5, 2002 of the voting and non-voting
common equity held by non-affiliates of the registrant was $174,064,535.

Number of shares of registrant's Common Stock, par value $0.01 per share,
outstanding as of April 5, 2002: 23,234,742.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

CARREKER CORPORATION
INDEX

2

PART I

ITEM 1. BUSINESS.

UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "WE," "US," "OUR,"
"COMPANY," "CARREKER," OR "CARREKER CORPORATION" WHEN USED IN THIS FORM 10-K
("REPORT") AND IN THE ANNUAL REPORT TO THE STOCKHOLDERS REFERS TO CARREKER
CORPORATION, A DELAWARE CORPORATION, AND ITS CONSOLIDATED SUBSIDIARIES AND
PREDECESSORS. THIS REPORT CONTAINS SOME FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. WHEN USED THEREIN IN THIS REPORT, THE
WORDS "EXPECTS," "PLANS," "BELIEVES," "ANTICIPATING," "ESTIMATES," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. ACTUAL RESULTS
AND THE TIMING OF SOME EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN OR
CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS,
INCLUDING WITHOUT LIMITATION THOSE SET FORTH UNDER "--RISK FACTORS" BELOW.

OUR BUSINESS FOCUS

We are a leading provider of integrated consulting and software solutions
that enable banks to increase their revenues, reduce their costs and enhance
their delivery of customer services. Our offerings, uniquely tailored to the
needs of the banking industry, fall into three groups:

- REVENUE ENHANCEMENT--increases banks' revenues through market segmentation
and improved customer pricing structures;

- GLOBAL TECHNOLOGY--assists banks in transitioning from paper to
electronic-based payment systems and minimizing payment processing
expenses, and optimizing inventory management of a bank's cash-on-hand,
including management of how much and where cash will be needed; and

- ENTERPRISE SOLUTIONS--integrates systems, combines operations and improves
workflows and internal operational processes.

We have over 20 years of experience in the banking industry. This
experience, combined with our professional staff and managers, many of whom are
former bankers and experts in complex bank operations, and our advanced
technological expertise, positions us to address effectively the challenges and
anticipate opportunities that banks face in today's increasingly competitive
environment. Our customer list includes over 200 financial institutions in the
United States, Canada, the United Kingdom, Ireland and Australia, including 70
of the largest 100 banks in the United States.

INDUSTRY BACKGROUND

The banking industry is one of the nation's largest industries, with
aggregate assets of approximately $7.2 trillion as of June 2000, according to
the Federal Deposit Insurance Corporation. While banks historically have focused
on reducing their operating expenses to remain competitive, they are
increasingly focused on developing new sources of revenue growth that capitalize
on their core competencies, automating operations to increase efficiencies and
outsourcing some banking functions to sustain market value growth. To this end,
banks are expending significant resources both internally and on solutions
purchased from external vendors, including outsourcing arrangements. Key
industry trends driving our market opportunity include:

CONSOLIDATION. The banking industry continues to experience substantial
consolidation. As banks grow by acquisition, they require the integration of
operational processes and technological applications that serve to increase
revenues from a larger customer base, achieve efficiencies of scale associated
with increased operating size and enhance customer service through a nationwide
presence and consequent broader geographic reach.

REGULATORY CHANGE. The banking industry is characterized by continuing
regulatory changes. Regulations in certain areas have been relaxed while
regulations in other areas have become more

3

restrictive. Revisions to regulations also have permitted interstate banking,
which allows bank holding companies to own banks in multiple states under a
single charter and, consequently, to capture the operating and structural
efficiencies that such expanded operations make possible. In addition,
deregulation in certain sectors of the banking industry has led to increased
competition for banks from insurance companies, brokerage houses and other
financial institutions in areas of business which were previously the exclusive
domain of banks. These changes have presented banks with both challenges and
opportunities to improve their operations and achieve competitive advantages.

EVOLVING TECHNOLOGIES. Rapid technological innovation has increased
customers' expectations and, as a result, has created new means for banks to
gain competitive advantages. Increasingly, customers are requiring that their
banks provide a broader scope of banking services quickly and easily through
automated teller machines, or ATMs, by telephone or over the Internet.
Additionally, technological development has provided banks with the potential
for numerous operational enhancements. For instance, technology currently allows
for the electronic storage of images of documents, including checks, as well as
the ability to recall and use that data quickly and simultaneously at multiple
locations. Technology also currently enables banks to minimize their non-earning
assets by reducing their reserve requirements. Furthermore, technological
developments are fueling industry-wide advancements, such as the conversion from
a paper to an electronic-based check clearing process. The electronic processing
and clearing of checks has been gaining increasing acceptance as an efficient
and viable solution for eliminating the time-consuming and expensive movement of
paper.

EMERGENCE OF THE INTERNET. The Internet increasingly is being used as a
medium for financial transactions and services, including bill payment and
presentment processing, cash management, payroll and other services for
commercial customers. One area of particular interest to banks is the impact
that the rapid growth of business to business, or B2B, e-commerce is having on
their customers. As the trend towards B2B e-commerce accelerates, we believe
that banks, as trusted intermediaries, are well-positioned to electronically
process, transmit, record, archive, provide customer service and mitigate the
risks associated with their customers' B2B transactions.

In order to compete effectively in this dynamic environment, banks often
must identify effective and innovative solutions to address their unique
requirements and re-design, and in some cases completely replace, their
operational systems. Effective development and implementation of these solutions
is technically challenging, time-consuming and expensive, and banks often are
faced with a choice between building internal, custom solutions or purchasing
third party offerings. The development of internal solutions necessarily
involves either re-deploying already stretched resources or acquiring new
resources that increase fixed costs, which typically results in isolated,
departmental solutions. In addition, traditional third party solutions typically
are not designed to the banking industry's unique requirements and are often
inflexible, requiring banks to conform their work processes to available
systems. The situation is exacerbated by the fact that effective solutions
cannot be developed in isolation, given the increasingly interdependent nature
of bank-to-bank operations. Traditional third party solutions are also limited
as some offer analysis and consultation regarding a bank's operations, while
others only provide specific software applications, resulting in a piecemeal
approach to solutions development. By using multiple providers, banks face
increased costs, more complex implementation and delayed realization of
benefits. As a result, banks are in need of a solution provider, specializing in
the banking industry, to provide integrated consulting services and
technological applications.

THE CARREKER SOLUTION

Our products and services are designed to address the unique requirements of
the banking industry. These solutions combine consulting services and
technological applications to enable banks to

4

identify and implement e-finance solutions, increase revenues, reduce costs and
enhance delivery of customer services. The key characteristics of our solutions
include:

INTEGRATED AND CONSULTATIVE APPROACH. We combine our consulting expertise
and proprietary technology to serve as a single-source provider of
fully-integrated solutions that address the critical needs of banks. This
approach sets us apart from providers of partial solutions that require banks to
seek costly additional expertise or implementation services to attain a complete
solution. By offering integrated solutions, we achieve more rapid identification
and implementation of solutions than would a piecemeal approach.

COMPREHENSIVE DELIVERY MODEL. We are able to deliver our solutions in a
variety of ways to meet our clients' needs. These delivery methods include
traditional software licensing and associated consulting, third party
web-hosting and licensing software for use by multiple banks in a shared
operating environment. Our ability to deliver products and services in a variety
of methods allows us to provide solutions to a wider range of clients.

ADVANCED TECHNOLOGY. We incorporate the latest technological developments,
including web-enabled systems and protocols, to produce software applications
that can be expanded with minimal effort, are functional and are able to
interface with a bank's current or legacy systems. In addition, our current and
past participation in inter-bank organizations, such as the Electronic Check
Clearinghouse Organization, enables us to stay at the forefront of technological
innovations in the industry.

COMPELLING BUSINESS PROPOSITION FOR CLIENTS. Our solutions reduce
investment risk for our clients by increasing revenues or reducing costs in a
relatively short period of time. In addition, in appropriate circumstances, we
value-price certain of our solutions, whereby we receive a percentage of the
amount of additional revenues or reduced costs achieved by the customer. These
arrangements allow banks to fund their investments in our solutions with the
benefits derived from their implementation.

BROAD ARRAY OF SERVICES AND TECHNOLOGY. We believe that our offerings are
the broadest in the banking industry, enabling us to provide a bank with an
expert solution targeted to a narrow area of a bank's operations or to address a
broad range of a bank's operational requirements. We believe that offering a
wide variety of solutions, from revenue enhancement to cost reduction to
improved delivery of customer services, enhances the value we offer to our
customers. In addition, our solutions embrace critical aspects of e-finance,
including mitigation of fraud, electronic processing of paper-based payments,
archiving of historical transactions and research and adjustments relating to
each of these functions. Our complementary groups of products and services, when
offered together, are able to deliver comprehensive solutions to banks. We
believe we are ideally positioned to assist banks in the transformation of their
financial transaction processing expertise into profitable revenue opportunities
with their commercial customers.

STRATEGY

Our objective is to advance our position as a leading provider of integrated
consulting and software solutions to banks. Key elements of our strategy
include:

EXPAND CUSTOMER BASE. We seek to increase our customer base by building on
our strong relationships with larger banks to market our solutions to their
peers, selected smaller banks and other financial institutions. We also have
partnered with several service providers or resellers, including Fiserv, Inc.
and Metavante Corporation, to establish alternate marketing and distribution
channels of certain of our solutions through those companies to smaller banks.
Additionally, we strive to capitalize on our position as a leading provider of
e-finance solutions to the banking industry in the United States to continue to
pursue international customers, particularly banks elsewhere in North America,
Europe,

5

South Africa and Australia. When regulatory change or technological
breakthroughs create a significant economic opportunity, the quality and breadth
of our customer base allows us to rapidly penetrate the industry with valuable
solutions.

CROSS-MARKET OUR PRODUCTS AND SERVICES TO OUR EXISTING CUSTOMER BASE. Once
customers contract for one or more of our products or services, we strive to
develop and expand our relationships by cross-marketing other products and
services to those customers. Over the course of these relationships, we are able
to increase revenues from our existing customer base with minimal additional
sales expense by providing multiple products and services. These relationships
typically do not involve the time and customer acquisition costs associated with
the development of new relationships.

USE OF VALUE-PRICING AND RECURRING REVENUE ARRANGEMENTS. We intend to
continue to share in the value that our solutions create for customers by
expanding the use of pricing methods and negotiated arrangements to generate
high-margin and recurring revenues. We plan to continue to use value-pricing for
solutions in appropriate circumstances where increased revenues or reduced costs
resulting from such solutions can be readily projected and measured. In
addition, we intend to expand our practice of structuring license fees for
software-based solutions according to the usage of the software, which is
intended to transform a one-time license fee into a recurring revenue stream.

PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. We strive to form alliances
with selected partners whose solutions and expertise, when combined with ours,
provide incremental, value-added benefits to banks and their customers. In
addition to such alliances, we also seek to make selective acquisitions of
complementary businesses that would enable us to expand our line of products and
services, grow our customer base or pursue new business opportunities.

ENHANCE BRAND AWARENESS. We plan to continue to build our brand awareness
and reputation to expand our customer base and attract new strategic alliances,
acquisition candidates and talented consultants, managers and employees. We
promote the Carreker brand through our web site, direct mail, "user" conferences
conducted exclusively for our customers, participation in industry conferences
and trade shows, publication of "white papers" related to specific aspects of
our services, customer newsletters and informational listings in trade journals.

PRODUCTS AND SERVICES

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

6

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

SOLUTION DESCRIPTION PRODUCTS OFFERED

Revenue Enhancement Provides consulting services Revenue Enhancement Consulting
that assess the existing and Methodology
policies and procedures of banks
to increase their revenue
streams and reduce interest and
operating expenses. These
assessments generally focus on a
variety of a bank's operations,
including deposits, treasury
management, commercial lending,
credit cards, automobile
finance, mortgage and other
consumer lending operations.
Revenue Enhancement engagements
typically take four to seven
months to complete and we
believe are relatively
non-intrusive to the client.

EnAct EnAct is a customer relationship EnAct Methodology, Consulting
management software and and Technology
methodology. EnAct enables
companies to focus their
resources on customers who
represent the highest potential
value, and then drive customer
interactions consistently across
every customer channel, to
increase profitability of its
customer base.

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

7

ensuring a high level of customer service through timely replenishment of cash
in ATMs. Specific solutions within this group include:

SOLUTION DESCRIPTION PRODUCTS OFFERED

Fraud Mitigation Provides effective fraud detection FraudLink On-us, FraudLink Deposit,
and management software featuring FraudLink Kite, FraudLink
automated approaches to solving the PositivePay, FraudLink eTracker,
growing problem of fraudulent FraudLink PC
financial transactions, including
bad checks drawn on banks for
payment, fraudulent items deposited
with banks for credit and check
kiting.

Back Office Brings new efficiencies to back Adjustments/Express, Exceptions/
office operations through the use Express, Input/Express, Inbound
of state-of-the-art image and Returns/Express, Image Bulk-File
workflow technologies. and Fine Sort

Remittance Provides both a host-based and NeXGen Remittance
client/ server based platform for
processing Retail and Wholesale,
remittance transactions.

Check Capture Offers an extensive array of Image Processor 2, Conventional
enhancement products that add Capture, CPCS Enhancements, XP/
flexibility and usability to IBM's Productivity Tools, Platform
Check Processing Control System Emulation
(CPCS) and the 3890/XP series of
reader/sorters.

Image Capture Products and services related to ALS, Image Statements, Net Deliver/
check image capture, storage, Reject Repair, RECO, Image POD,
delivery and their related Image Delivery, Image Enhancements
applications.

Archive Management Comprehensive array of check image Check Image Archive AIX, Check
archive management products which Image Archive MVS, Check Image
may be tailored to a bank's unique Archive Load
requirements based on their
operational environments and
volumes.

Global Tracking Offers an automated track and trace Receive Sentry
system designed to monitor items
from the time they enter a bank's
processing stream to final
disposition, which enables a bank
to improve labor productivity by
channeling resources to the place
they are most needed.

eMetrics Focuses on performance-measurement eiLumen, eiPerform, eiStats,
by using historical data to eiMicr, eiQuality
generate key performance
indicators, item processing volume
data, productivity statistics and
quality control benchmarks.

8

SOLUTION DESCRIPTION PRODUCTS OFFERED

Electronic Check Presentment Enables banks to transition away CheckLink, CheckLink PC, Deposit
from paper-based payment systems to Manager, Branch Truncation
electronic by automating key Management, Cnotes
elements of the processing stream
as well as improving a bank's yield
from float management. The aim of
this product and service is to
reduce and eventually eliminate the
movement of paper payment
instruments through the system,
automate error-prone payment
processing functions, consolidate
payment information and provide a
measure of fraud prevention.

Float Management Focuses on funding requirements and Float Analysis System, Float
overall profitability by properly Pricing System, Consulting
managing a bank's float through
float analysis, pricing and a
comprehensive consulting practice
to improve profitability,
reporting, workflow and
check-clearing operations. It
provides critical activity
summaries, aids in creating
multiple availability and pricing
schedules as well as pinpointing
the cost/profitability of any
transaction or relationship.

ATM Solutions Advances ATM monitoring and eiManager, eiGateway
management through the use of
Internet connectivity to provide
electronic notification of cash
and/or servicing needs. Scalable to
the largest ATM networks, it
forecasts cash and servicing needs,
dispatches vendors for cash
replenishment and maintenance
services, records completed work
and reconciles vendor invoices, all
via an electronic communication
infrastructure.

Cash Solutions Reduces the amount of non-earning iCom, Reserve Link, Reserve
assets required in reserve accounts LinkPlus
and as cash-on-hand to meet
operating needs. Using both
technology and process
reengineering, it provides
management tools for forecasting,
tracking and optimizing a bank's
inventory of currency. This group
of solutions frees underutilized
money for more productive uses.

Logistics Reduces armored car transportation Consulting Services
costs incurred by banks in moving
cash between locations and
replenishing ATMs. It optimizes
armored car utilization based on
ATM locations and usage, route
structures and delivery frequency,
as well as ATM deposit processing
requirements.

9

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

SOLUTION DESCRIPTION PRODUCTS OFFERED

Enterprise Solutions Offers customized, bank-wide Project Management, eSolutions,
conversions, consolidation and Integration, Process
integration consulting solutions Optimization, Line of Business
in areas beyond payments Consulting
systems, including consulting
and project management services
and IT consulting for various
projects.

Expense reduction processes are
optimization strategies to help
banks reduce operation expenses
across the enterprises.

Strategic Services Assists customers in planning e-Vision Consulting, Strategy
and implementing a total Consulting, Shared Services
e-finance and payment strategy. Consulting

CUSTOMERS

A majority of our revenues are generated from contracts with banks
maintaining assets in excess of $5.0 billion. We currently provide services or
products to 20 of the 20 largest banks in the United States as measured by total
assets by Sheshunoff Information Services. Our five largest customers accounted
for approximately 30%, 49% and 58% of total revenues during the fiscal years
ended January 31, 2002, 2001 and 2000, respectively. Wells Fargo & Company and
U.S. BANK, N.A. accounted for approximately 9% and 7% of total revenues,
respectively, during the year ended January 31, 2002, and U.S. BANK, N.A.
accounted for approximately 27% of total revenues during the year ended
January 31, 2001.

SOLUTIONS DEVELOPMENT

Our solutions development activities focus on identifying specific bank
needs, which includes prototyping promising applications, test marketing new
products, developing sales strategies and coordinating distribution and on-going
maintenance for each of our solutions. In certain instances, we have contracted
with third party software development companies to develop our solutions.

We frequently receive customer requests for new services and/or software. We
strive to develop solutions in response to these requests and historically have
been able to partner with our customers and share some or all of the development
costs. In addition to customer-funded solutions development, we have invested
significant amounts in solutions development, including expenditures of
$8.7 million, $6.1 million and $4.8 million for research and development in the
years ended January 31, 2002, 2001 and 2000, respectively. Further, some of our
key product introductions have resulted from the adaptation of products
developed for customers to a wider market. In exchange for either a one-time
payment and/or on-going royalties, we are often able to obtain the right to
develop, enhance and market these modified products.

10

Additionally, we believe our leadership role in the banking industry through
our relationship with the Electronic Check Clearing House Organization positions
us to identify and develop interbank solutions that have bilateral or
multilateral banking industry implications and to anticipate, recognize and
respond to the changing needs of the banking industry.

TECHNOLOGY

Our historical software products incorporate open systems architecture and
protocols to provide maximum scalability and functionality and to interface with
a bank's current and legacy systems. Our core proprietary technologies, for both
our client/server software products and mainframe software products, are
primarily directed at using a standard set of components, drivers and
application interfaces so that our software products are constructed from
reusable components which are linked together in a tool-set fashion.

With respect to many of our newer products, we have adopted an
Internet-based development methodology that operates on NT or Unix platforms.
These products support many of the industry-standard Web browsers, such as
Microsoft Internet Explorer and AOL Netscape, and databases, such as Oracle 8i
or SQL. These products can be delivered as an ASP or as standard packaged
product.

We continue to enhance our second-generation computer systems, which are
primarily IBM mainframe-based or client server applications, and to use common
computer tools to integrate the data from these computer programs into our new
products.

SALES AND MARKETING

We have developed strong relationships with many senior bank executives as a
result of our delivery of effective solutions to many of the largest banks in
the United States for over 20 years. As of January 31, 2002, we had 22 Account
Relationship Managers, who are responsible for managing our day-to-day
relationships with our customers. 17 are responsible for domestic bank
relationships, and 5 are responsible for the International bank relationships.
Our Account Relationship Managers' responsibilities include identifying
customers' needs and assisting our group managers in presenting their solutions
and concluding sales. Our Account Relationship Managers work closely with our
executive officers, who serve as Executive Relationship Managers to our
customers. We also employ technical sales support staff, who are familiar with
our technology and who participate in opportunities to sell technology-based
solutions.

We derive a significant portion of our business through customer referrals.
In addition, we market our services through a variety of media, including:

- our web site;

- direct mail;

- user conferences conducted exclusively for our customers;

- participation in industry conferences and trade shows;

- publication of "white papers" related to specific aspects of our services;

- customer newsletters; and

- informational listings in trade journals.

As of January 31, 2002, we employed a marketing staff of 13 individuals,
including graphics designers, writers, administrative coordinators and a Web
master.

11

COMPETITION

We compete with third-party providers of services and software products to
the banking industry, which include consulting firms and software companies.
Many of these competitors have significantly greater financial, technical,
marketing and other resources than we do. However, we believe that our market
position with respect to these competitors is enhanced by virtue of our unique
ability to deliver fully integrated consulting services and software solutions
focused on enabling banks to identify and implement e-finance solutions,
increase their revenues, reduce their costs and enhance their delivery of
customer services. We believe that we compete based on a number of factors,
including:

- quality of solutions;

- scope of solutions provided;

- industry expertise;

- access to decision makers within banks;

- ease and speed of solutions implementation; and

- price.

In addition to competing with a variety of third parties, we experience
competition from our customers and potential customers when they develop,
implement and maintain their own services and applications. In addition,
customers or potential customers could enter into strategic relationships with
one or more of our competitors to develop, market and sell competing services or
products. As a result, we must continually demonstrate to existing and
prospective customers the advantages of purchasing our services and products.

GOVERNMENT REGULATION

Our primary customers are banks. Although the services we currently offer
have not been subject to any material industry-specific government regulation,
the banking industry is heavily regulated. Our products and services must allow
banking customers to comply with all applicable regulations, and as a result, we
must understand the intricacies and application of many government regulations.
The regulations most applicable to our provision of solutions to banks include
requirements establishing minimum reserve requirements, governing funds
availability and the collection and return of checks, and establishing rights,
liabilities and responsibilities of parties in electronic funds transfers. For
example, our Revenue Enhancement and related consulting services assist banks
with minimizing their reserves while complying with federal reserve
requirements. In addition, the expedited availability and check return
requirements imposed by funds availability regulations have increased fraud
opportunities dramatically, and our Global Technology Solutions products and
services address this concern while complying with such regulations.

While we are not directly subject to federal or state regulations
specifically applicable to financial institutions, such as banks, thrifts and
credit unions, the Federal Deposit Insurance Corporation, the National Credit
Union Administration, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency, and various state regulatory authorities typically
assert the right to observe the operations of companies to which certain
functions of financial institutions (such as data processing) are outsourced.
These regulators may from time to time also claim the right to observe the
operations of companies like us that provide software to financial institutions.
In addition, financial institutions with whom we do business may from time to
time require, by contract or otherwise, that evaluations of our internal
controls be performed by independent auditors or by the financial institutions
themselves.

12

PROPRIETARY RIGHTS

We rely upon a combination of patent, copyright, trademark and trade secret
laws, including the use of confidentiality agreements with employees,
independent contractors and third parties and physical security devices to
protect our proprietary technology and information. We have a number of issued
patents and registered trademarks and have filed applications for additional
patents and trademarks in the United States. We vigorously defend our
proprietary rights.

We enter into invention assignment and confidentiality agreements with our
employees and independent contractors and confidentiality agreements with
certain customers. We also limit access to the source codes for our software and
other proprietary information. We believe that due to the rapid pace of
innovation within the software industry, factors such as the technological and
creative expertise of our personnel, the quality of our solutions, the quality
of our technical support and training services and the frequency of release of
technology enhancements are more important to establishing and maintaining a
technology leadership position than the various legal protections available for
our technology.

We are not aware that we are infringing any proprietary rights of third
parties. We rely upon certain software that we license from third parties,
including software that is integrated with our internally developed software and
used in our solutions to perform key functions. We are not aware that any
third-party software being re-sold by us is infringing upon proprietary rights
of other third-parties.

EMPLOYEES

As of January 31, 2002, we had 685 employees. Of these employees, 115
provided consulting services, 443 worked in the technical group, 35 performed
sales and marketing, customer relations and business development functions and
92 persons performed corporate, finance and administrative functions. We have no
unionized employees, and we believe that our employee relations are good.

INDEPENDENT CONTRACTORS

We provide consulting and technical services and develop software in part
through the use of independent contractors who are not our employees. During
fiscal year 2001, we used approximately 38 independent contractors to provide
consulting and technical services, most of whom worked from their homes or from
customers' offices. Many of these contractors are former bank executives, and we
believe that their experience in the banking industry enables them to provide
industry-specific solutions to our customers.

13

RISK FACTORS

THIS REPORT AND THE ANNUAL REPORT TO STOCKHOLDERS CONTAIN SOME
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS.
ACTUAL RESULTS AND THE TIMING OF SOME EVENTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN OR CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER
OF FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH BELOW AND ELSEWHERE
IN THIS REPORT. IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE
FOLLOWING FACTORS, WHICH MAY AFFECT OUR CURRENT POSITION AND FUTURE PROSPECTS,
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING US AND AN INVESTMENT IN OUR COMMON
STOCK.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

OUR PERFORMANCE DEPENDS ON THE BANKING INDUSTRY, AND ANY CHANGE IN THE BANKING
INDUSTRY'S DEMAND FOR OUR SOLUTIONS COULD REDUCE OUR REVENUES AND HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

We derive substantially all of our revenues from solutions provided to banks
and other participants in the banking industry. Accordingly, our future success
significantly depends upon this industry's continued demand for our solutions.
We believe that an important factor in our growth has been substantial changes
in the banking industry in recent years, as manifested by continuing
consolidation, regulatory change, technological innovation, the emergence of the
Internet and other trends. If this environment of change were to slow, we could
experience reduced demand for our solutions. In addition, the banking industry
is sensitive to changes in economic conditions and is highly susceptible to
unforeseen events, such as domestic or foreign political instability, recession,
inflation or other adverse occurrences that may result in a significant decline
in the utilization of bank services. Furthermore, due to concerns regarding data
security and other factors, banks have been and may in the future be hesitant to
adopt electronic solutions, which can adversely affect the demand for our
solutions. Any event that results in decreased consumer or corporate use of bank
services, or increased pressures on banks towards the in-house development and
implementation of revenue enhancement or cost reduction measures, could have a
material adverse effect on our business, financial condition and results of
operations.

A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR BUSINESS,
THE LOSS OF ANY ONE OF THEM COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND
FINANCIAL CONDITION.

Our five largest customers accounted for approximately 30%, 49% and 58% of
total revenues during the fiscal years ended January 31, 2002, 2001 and 2000,
respectively. Wells Fargo & Company and U.S. BANK, N.A. accounted for
approximately 9% and 7% of total revenues, respectively, during the year ended
January 31, 2002, and U.S. BANK, N.A. accounted for approximately 27% of total
revenues during the year ended January 31, 2001. Our significant customers have
changed from period to period. However, a significant portion of our current
revenues is derived from customers who were major customers in prior years, and
we are therefore dependent to a significant degree on our ability to maintain
our existing relationships with these customers. There can be no assurance that
we will be successful in maintaining our existing customer relationships or in
securing additional customers, and there can be no assurance that we can retain
or increase the volume of business that we do with such customers. In
particular, continuing consolidation within the banking industry may result in
the loss of one or more significant customers. Any failure by us to retain one
or more of our large customers, maintain or increase the volume of business done
for such customers or establish profitable relationships with additional
customers could have a material adverse effect on our business, financial
condition and results of operations.

14

OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

In June 2001, we completed a revolving credit facility and borrowed on the
line to facilitate the purchase of Check Solutions Company. Our indebtedness
could have important consequences for our business. For example, it could:

- Increase our vulnerability to general adverse economic and industry
conditions;

- Limit our ability to obtain additional financing;

- Require the dedication of a substantial portion of our cash flows from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of capital to fund our
growth strategy, working capital, capital expenditures, acquisitions and
other general corporate purposes; and

- Limit our flexibility in planning for, or reacting to, changes in our
business and the industry.

Further, effective October 2001 we amended the terms of the revolving credit
facility to reflect the impact of a decline in our recent operating results. The
amended terms included adjustments to certain financial covenants and also a
temporary increase in the interest rates applicable to the indebtedness
outstanding under the credit facility. While we believe that we will meet the
amended financial covenant targets, there can be no assurance that we will be
able to do so and, if we are not able to meet these targets, what actions our
lenders might take.

MANY FACTORS, SOME BEYOND OUR CONTROL, COULD CAUSE FLUCTUATIONS IN OUR OPERATING
RESULTS, WHICH COULD RESULT IN A LOWER MARKET PRICE FOR OUR COMMON STOCK.

We have experienced in the past, and expect to experience in the future,
significant fluctuations in quarterly operating results. Such fluctuations may
be caused by many factors, including but not limited to:

- the extent and timing of revenues recognized, particularly in light of our
historical tendency to have a disproportionately large portion of our
contract signings near the end of each quarter;

- increases in costs beyond anticipated levels, especially in the context of
costs incurred under value-pricing contracts or fluctuations in software
royalty expense due to a change in future product mix;

- the degree of customer acceptance of new solutions;

- the introduction of new or enhanced solutions by us or our competitors;

- our mix of revenues derived from consulting and management service fees on
the one hand, and software-related fees on the other;

- customer budget cycles and priorities and purchasing cycles;

- competitive conditions in the industry;

- seasonal factors;

- timing of consolidation decisions by customers;

- the extent of customers' international expansion; and

- general economic conditions.

Due to the foregoing factors, many of which are beyond our control, our
quarterly revenues and operating results are difficult to forecast. It is
possible that our future quarterly results of operations

15

from time to time will not meet the expectations of securities analysts or
investors, which could have a material adverse effect on the market price of our
common stock.

THE NUMBER OF SHARES OF OUR STOCK ELIGIBLE FOR SALE MAY ADVERSELY AFFECT THE
PRICE OF OUR COMMON STOCK.

We are planning to file a registration statement on Form S-3 immediately
following the filing of this annual report seeking to register the resale of
1,282,214 shares that we recently sold privately to a group of investors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." We are not certain whether these
investors intend to sell the shares of our common stock that they purchased, but
when the registration statement is declared effective, and for so long as it
remains effective, these investors will be free to resell their shares. In
addition, except for approximately 3,300,000 shares of our common stock held by
our affiliates as of April 5, 2002, as defined in Rule 144 under the Securities
Act of 1933, all of our remaining outstanding shares of common stock are freely
tradable without restriction or registration under the Securities Act. As of
April 5, 2002, we also had outstanding options entitling their holders to
acquire an aggregate of 5,121,072 shares of our common stock, of which options
covering 1,609,089 shares were exercisable. The shares issued upon the exercise
of these options may be resold immediately. The market price of our common stock
could drop due to sales of a large number of shares of our common stock by our
new investors or any other stockholders, or due to the perception that these
sales could occur.

OUR USE OF FIXED-PRICE AND VALUE-PRICED ARRANGEMENTS FOR CUSTOMER PROJECTS COULD
REDUCE OUR REVENUES AND NET INCOME, WHICH COULD RESULT IN DECREASED OPERATING
MARGINS OR LOSSES.

We primarily price our solutions on a time-and-materials, fixed-price or
value-priced basis. In connection with fixed-price projects, we occasionally
incur costs in excess of our projections and as a result achieve lower margins
than expected or may incur losses with respect to projects. In connection with
value-priced projects, we are paid based on an agreed percentage of either
projected or actual increased revenues or decreased costs derived by the bank
generally over a period of up to twelve months following the implementation of
our solutions. We typically must first commit time and resources to develop such
projections before a bank will commit to purchase our solutions and therefore
assume the risk of making these commitments and incurring related expenses with
no assurance that the bank will purchase the solutions. In addition, from time
to time, a customer will not achieve projected revenues or savings because it
belatedly decides not to implement our solutions or the solutions do not produce
the projected results, in which case we may not be able to collect any or all of
the fees provided for in the customer's contract. The nature of our fixed-priced
and value-priced arrangements can result in decreased operating margins or
losses and could materially and adversely affect our business, financial
condition and results of operations.

WE DO NOT TYPICALLY ENTER INTO LONG-TERM AGREEMENTS WITH OUR CUSTOMERS, WHICH
MAKES IT MORE DIFFICULT TO PLAN AND EFFICIENTLY ALLOCATE OUR RESOURCES, AND ANY
DEFERRAL, MODIFICATION OR CANCELLATION OF A CUSTOMER PROJECT CAN ADVERSELY
AFFECT OUR OPERATING RESULTS.

We typically provide services to customers on a project-by-project basis
without long-term agreements. When a customer defers, modifies or cancels a
project, we must be able to rapidly re-deploy our personnel to other projects in
order to minimize the under-utilization of our personnel and the resulting
adverse impact on operating results. In addition, our operating expenses are
relatively fixed and cannot be reduced on short notice to compensate for
unanticipated variations in the number or size of projects in progress. As a
result, any delay, modification or cancellation of a customer project, or any
disruption of our business relationships with any of our significant customers
or with a

16

number of smaller customers could have a material adverse effect on our
business, financial condition and results of operations.

WE HAVE EXPERIENCED RAPID GROWTH IN OUR BUSINESS, AND THERE CAN BE NO ASSURANCE
THAT WE WILL BE ABLE TO MAINTAIN THIS GROWTH RATE. IF WE ARE ABLE TO MAINTAIN
IT, OUR OPERATIONAL AND FINANCIAL RESOURCES COULD BE STRAINED, WHICH COULD CAUSE
US TO LOSE CUSTOMERS, PREVENT US FROM OBTAINING NEW CUSTOMERS AND INCREASE OUR
OPERATING EXPENSES.

We have experienced significant growth in recent years, but there can be no
assurance that we will be able to maintain this growth rate. If we are not
successful in maintaining this growth rate, our business could be negatively
affected. To be successful in maintaining our growth rate, we anticipate that
additional expansion may be required in order to address potential market
opportunities. Any further growth would place further demands on our management,
operational capacity and financial resources. We anticipate that we will need to
recruit large numbers of qualified personnel in all areas of our operations,
including management, sales, marketing, delivery and software development. There
can be no assurance that we will be effective in attracting and retaining
additional qualified personnel, expanding our operational capacity or otherwise
managing growth. In addition, there can be no assurance that our systems,
procedures or controls will be adequate to support any expansion of our
operations. As a result of acquisitions and continued growth, the needs of our
management information systems are expected to expand and change, which could
result in the implementation of new or modified management information systems
and procedures. This may necessitate additional training of existing personnel
or the hiring of additional personnel. If we cannot implement the new, or
modified, management information systems in a timely manner, our ability to
manage growth effectively or generate timely operating and financial reports
could be materially and adversely affected. The failure to manage growth
effectively could have a material adverse effect on our business, financial
condition and results of operations.

OUR FUTURE SUCCESS SIGNIFICANTLY DEPENDS ON THE EXPERIENCE OF OUR KEY PERSONNEL,
AND THE LOSS OF ANY ONE OF THEM COULD IMPAIR OUR ABILITY TO DO BUSINESS.

Our future success depends, in significant part, upon the continued services
of John D. Carreker, Jr., our Chairman of the Board and Chief Executive Officer,
as well as other executive officers and key personnel. The loss of services of
Mr. Carreker or one or more of our other executive officers or key employees
could have a material adverse effect on our business, financial condition and
results of operations, and there can be no assurance that we will be able to
retain our executive officers or key personnel. We do not maintain key-man life
insurance covering any of our executive officers or other key personnel.

OUR SOFTWARE AND SOLUTIONS MAY CONTAIN DEFECTS OR ERRORS, WHICH COULD ADVERSELY
AFFECT OUR BUSINESS AND SUBJECT US TO LIABILITY CLAIMS.

Our solutions at times in the past have been, and in the future may be,
incompatible with the operating environments of our customers or inappropriate
to address their needs, resulting in additional costs being incurred by us in
rendering services to our customers. Further, like other software products, our
software occasionally has contained undetected errors, or "bugs," which become
apparent through use of the software. Because our new or enhanced software
initially is installed at a limited number of sites and operated by a limited
number of users, such errors and/or incompatibilities may not be detected for a
number of months after delivery of the software. The foregoing errors in the
past have resulted in the deployment of our personnel and funds to cure errors,
occasionally resulting in cost overruns and delays in solutions development and
enhancement. Moreover, solutions with substantial errors could be rejected by or
result in damages to customers, which could have a material adverse effect on
our business, financial condition and results of operations. There can be no
assurance

17

that errors or defects will not be discovered in the future, potentially causing
delays in solution implementation or requiring design modifications that could
adversely affect our business, financial condition and results of operations. It
is also possible that errors or defects in our solutions could give rise to
liability claims against us.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW TECHNOLOGIES AND
SERVICES TO MEET THE CHANGING NEEDS OF OUR CURRENT AND FUTURE CUSTOMERS, AND OUR
INABILITY TO INTRODUCE NEW SOLUTIONS COULD NEGATIVELY IMPACT OUR ABILITY TO DO
BUSINESS AND MAINTAIN OUR FINANCIAL CONDITION.

We regularly undertake new projects and initiatives in order to meet the
changing needs of our customers. In so doing, we invest substantial resources
with no assurance of their ultimate success. We believe our future success will
depend, in part, upon our ability to:

- enhance our existing solutions;

- design and introduce new solutions that address the increasingly
sophisticated and varied needs of our current and prospective customers;

- develop leading technology; and

- respond to technological advances and emerging industry standards on a
timely and cost-effective basis.

There can be no assurance that future advances in technology will be
beneficial to, or compatible with, our business or that we will be able to
incorporate such advances into our business. In addition, keeping abreast of
technological advances in our business may require substantial expenditures and
lead-time. There can be no assurance that we will be successful in using new
technologies, adapting our solutions to emerging industry standards or
developing, introducing and marketing solution enhancements or new solutions, or
that we will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of these solutions. If we
incur increased costs or are unable, for technical or other reasons, to develop
and introduce new solutions or enhancements of existing solutions in a timely
manner in response to changing market conditions or customer requirements, our
business, financial condition and results of operations could be materially and
adversely affected.

OUR FOCUS ON PROVIDING AN APPLICATION SERVICE PROVIDER, OR ASP, SOFTWARE HOSTING
MODEL SUBJECTS US TO RISKS ASSOCIATED WITH AN INCREASED DEPENDENCE ON
THIRD-PARTY PROVIDERS AND THE INTERNET.

Our ASP software hosting model gives rise to numerous risks, particularly
risks related to our heightened dependence on third party providers and the
Internet. The success of our ASP software hosting model partially depends on the
performance of the third party application service provider with whom we have
contracted to provide software hosting services. In addition, we are also
dependent on the Internet as a reliable network backbone capable of supporting
our customers' use of our software. There can be no assurance that our solutions
that rely on Internet access will be protected against disruptions, delays or
losses due to technical difficulties, natural causes or security breaches. These
problems may adversely affect the success of our ASP software hosting model and
could negatively impact our operating results. We may also be subject to any
governmental adoption of regulations that charge Internet access fees or impose
taxes on subscriptions. Currently, there are few laws or regulations that
specifically regulate the Internet; however, such laws and regulations, if
adopted, may increase our operating expenses.

18

THERE IS INTENSE COMPETITION IN OUR INDUSTRY FOR QUALIFIED BANKING PROFESSIONALS
AND TECHNICAL AND MANAGERIAL PERSONNEL, AND OUR FAILURE TO ATTRACT AND RETAIN
THESE PEOPLE COULD AFFECT OUR ABILITY TO RESPOND TO BANKING AND TECHNOLOGICAL
CHANGE AND TO INCREASE OUR REVENUES.

Our future success depends upon our continuing ability to attract and retain
highly qualified banking, technical and managerial personnel. Competition for
such personnel is intense, and we at times have experienced difficulties in
attracting the desired number of such individuals. Further, our employees have
left us to work in-house with our customers and with our competitors. There can
be no assurance that we will be able to attract or retain a sufficient number of
highly qualified employees or independent contractors in the future. If we are
unable to attract personnel in key positions, our business, financial condition
and results of operations could be materially and adversely affected.

WE FACE INCREASED COMPETITION THAT COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS AND LOSS OF MARKET SHARE, ANY OF WHICH COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS.

We compete with third-party providers of services and software products to
the banking industry that include consulting firms and software companies. Many
of our competitors have significantly greater financial, technical, marketing
and other resources than we do. Our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than we can. Also, several of our current and potential competitors
have greater name recognition and larger customer bases that such competitors
could leverage to increase market share at our expense. We expect to face
increased competition as other established and emerging companies enter the
banking services market. Increased competition could result in price reductions,
fewer customer orders and loss of market share, any of which could materially
and adversely affect our business, financial condition and results of
operations. There can be no assurance that we will be able to compete
successfully against current or future competitors, and the failure to do so
would have a material adverse effect upon our business, financial condition and
results of operations.

In addition to competing with a variety of third parties, we experience
competition from our customers and potential customers. From time to time, these
potential customers develop, implement and maintain their own services and
applications for revenue enhancements, cost reductions and/or enhanced customer
services, rather than purchasing services and related products from third
parties. There can be no assurance that these customers or other potential
customers will perceive sufficient value in our solutions to justify investing
in them. In addition, customers or potential customers could enter into
strategic relationships with one or more of our competitors to develop, market
and sell competing services or products.

WE MAY BE UNABLE TO FULLY BENEFIT FROM OUR STRATEGIC ALLIANCES AND ACQUISITIONS,
WHICH COULD NEGATIVELY AFFECT OUR BUSINESS AND HINDER OUR ABILITY TO REALIZE
EXPECTED BENEFITS.

We regularly evaluate opportunities and may enter into strategic alliances,
or make acquisitions of other businesses, products or technologies. Risks
inherent in alliances may include, among others:

- substantial investment of our resources in the alliance;

- inability to realize the intended benefits of an alliance;

- increased reliance on third parties;

- increased payment of third-party licensing fees or royalties for the
incorporation of third-party technology into our solutions; and

- inadvertent transfer of our proprietary technology to strategic
"partners."

19

Acquisitions involve numerous risks, including:

- difficulties in identifying suitable acquisition candidates;

- competition for acquisitions with other companies, many of which have
substantially greater resources than we do;

- failure to close after expending time and resources;

- inability to obtain sufficient financing on acceptable terms to fund
acquisitions;

- requirement that the acquisition may be funded through additional debt
obligations which therefore would increase interest expense;

- volatility of stock price due to one-time charges to earnings;

- difficulties in assimilating acquired operations and products into our
business;

- maintaining uniform standards, controls, procedures and policies;

- potential loss of customers and strategic partners of acquired companies;

- potential loss of key employees of acquired companies;

- diversion of management's attention from other business concerns;

- amortization of acquired intangible assets; and

- failure of acquired businesses, products or technologies to perform as
expected or to achieve expected levels of revenues, profitability or
productivity.

There can be no assurance that we will be successful in identifying and
entering into strategic alliances or making acquisitions, if at all, and any
inability to do so could have a material adverse effect on our business,
financial condition and results of operations.

We expect that future acquisitions, if any, could provide for consideration
to be paid in cash, shares of our common stock, or a combination of cash and our
common stock. If the consideration for an acquisition transaction is paid in
common stock, this could further dilute existing stockholders. Any impairment or
amortization of a significant amount of goodwill or other assets resulting from
an acquisition transaction could materially impair our operating results and
financial condition.

OUR INABILITY TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY OR TO PREVENT ITS
UNAUTHORIZED USE COULD DIVERT OUR FINANCIAL RESOURCES AND CAUSE SIGNIFICANT
EXPENDITURES, WHICH COULD MATERIALLY HARM OUR BUSINESS.

Our success significantly depends upon our proprietary technology and
information. We rely upon a combination of patent, copyright, trademark and
trade secret laws and confidentiality procedures to protect our proprietary
technology and information. We have a number of issued patents and registered
trademarks. There can be no assurance that the steps we have taken to protect
our services and products are adequate to prevent misappropriation of our
technology or that our competitors independently will not develop technologies
that are substantially equivalent or superior to our technology. Furthermore, it
is very difficult to police unauthorized use of our software due to the nature
of software. Any such misappropriation of our proprietary technology or
information or the development of competitive technologies could have a material
adverse effect on our business, financial condition and results of operations.

In addition, the laws of some countries in which our software is distributed
do not protect our intellectual property rights to the same extent as the laws
of the United States. For example, the laws of a number of foreign jurisdictions
in which we license our software protect trademarks solely on the

20

basis of the first to register. We currently do not possess any trademark
registrations in foreign jurisdictions, although we do have copyright protection
of our software under the provisions of various international conventions.
Accordingly, intellectual property protection of our services and products may
be ineffective in many foreign countries. In summary, there can be no assurance
that the protection provided by the laws of the United States or such foreign
jurisdictions will be sufficient to protect our proprietary technology or
information.

INFRINGEMENT CLAIMS BY THIRD PARTIES CAN SUBJECT US TO SUBSTANTIAL LIABILITY AND
EXPENSES AND CAN IMPAIR OUR ABILITY TO SELL OUR SOLUTIONS.

We may need to litigate claims against third parties to enforce our
intellectual property rights, protect our trade secrets, determine the validity
and scope of the proprietary rights of others or defend against claims of
infringement or invalidity. We may be required to incur significant costs in
reaching a resolution to the asserted claims, or any other claims that may be
asserted against us. There can be no assurance that the resolution of a claim
would not require us to pay damages or obtain a license to the third party's
intellectual property rights in order to continue licensing our software as
currently offered or, if such a third-party license is required, that it would
be available on terms acceptable to us. The resolution of claims may also divert
our management resources. If we cannot adequately protect our proprietary
rights, it could have a material adverse effect on our business, operating
results and financial condition.

WE DEPEND ON THIRD PARTIES FOR TECHNOLOGY LICENSES, AND IF WE CANNOT OBTAIN
SATISFACTORY LICENSES OUR BUSINESS COULD SUFFER.

Some technology used in our current software and software in development
includes technology licensed from third parties. These licenses generally
require us to pay royalties and to fulfill confidentiality obligations. The
termination of any such licenses, or the failure of the third party licensors to
adequately maintain or update their products, could result in delays in our
ability to implement solutions or in delays in the introduction of our new or
enhanced solutions while we search for similar technology from alternative
sources, if any, which could prove costly. Any need to implement alternative
technology could prove to be very expensive for us, and any delay in solution
implementation could result in a material adverse effect on the business,
financial condition and results of our operations. It may also be necessary or
desirable in the future to obtain additional licenses for use of third-party
products in our solutions, and there can be no assurance that we will be able to
do so on commercially reasonable terms, if at all.

WE MAY FACE LIABILITY CLAIMS RELATED TO THE USE OF OUR SOLUTIONS, INCLUDING
THOSE WHICH ARISE OUT OF THE USE OF OUR ASP SOFTWARE HOSTING MODEL, AND THE
DEFENSE OF THESE CLAIMS COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION.

As a result of our provision of solutions that address critical functions of
bank operations, we are exposed to possible liability claims from banks and
their customers. Although we have not experienced any material liability claims
to date, there can be no assurance that we will not become subject to such
claims in the future. A liability claim against us could have a material adverse
effect on our business, financial condition and results of operations.

Our ASP software hosting model requires the storage and transmission of
sensitive business information of our customers electronically over the
Internet. The difficulty of securely storing confidential information
electronically has been a significant issue in conducting electronic commerce
and in carrying out banking operations over the Internet. Our ASP software
hosting model requires us to spend significant capital and other resources to
protect against the threat of security breaches or computer viruses, or to
alleviate problems caused by breaches or viruses. To the extent that our
activities or the activities of our customers require the storage and
transmission of confidential

21

information, such as banking records or credit information, security breaches
and viruses could expose us to claims, litigation or other possible liabilities.
Our inability to prevent security breaches or computer viruses could also cause
our customers to lose confidence in our solutions and terminate their
relationships with us.

WE ARE SUBJECT TO CLAIMS AND LEGAL PROCEEDINGS FROM TIME TO TIME THAT COULD HAVE
A MATERIAL ADVERSE EFFECT ON US.

We are subject to third party claims and are named as a defendant in legal
proceedings from time to time. We may be damaged as a result of an asserted
claim, and we may be required to incur substantial costs in reaching a
resolution of a claim. Any such claim may also divert our management resources.
A significant judgment against us in connection with any legal proceedings could
have a material adverse effect on our business, financial condition and results
of operations. Although we do not believe that the costs or liability that may
result from the resolution of currently pending claims or legal proceedings
against us will be material, there can be no assurance in this regard. See
"Legal Proceedings."

OUR STOCK PRICE HAS FLUCTUATED SIGNIFICANTLY AND, IN THE EVENT OF A DOWNTURN IN
OUR STOCK PRICE, WE COULD FACE SECURITIES CLASS ACTION LITIGATION.

There has been significant volatility in the market price of our common
stock, as well as in the market price of securities of many companies in the
technology and emerging growth sectors. Factors which may have a significant
impact on the market price of our common stock include the following:

- quarterly variations in our results of operations or results of operations
of our competitors;

- changes in earnings estimates or recommendations by securities analysts;

- developments in our industry and in the banking industry;

- general market and economic conditions; and

- other factors, including factors unrelated to our operating performance or
that of our competitors.

We believe that factors such as quarterly fluctuations in financial results
or announcements by us, our competitors, banks and other bank industry
participants could cause the market price of our common stock to fluctuate
substantially. In addition, the stock market may experience extreme price and
volume fluctuations that often are unrelated to the operating performance of
specific companies. Market fluctuations or perceptions regarding the banking
industry and general economic or political conditions may adversely affect the
market price of the common stock. In the past, following declines in the market
price of a company's securities, securities class-action litigation often has
been instituted against that company. Litigation of this type, if instituted
against us, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on our
business, financial condition and results of operations.

WE FACE RISKS IN CONNECTION WITH THE EXPANSION OF OUR INTERNATIONAL OPERATIONS,
WHICH COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

We provide solutions to banks outside the United States, and a key component
of our growth strategy is to broaden our international operations. Our
international operations are subject to risks inherent in the conduct of
international business, including:

- unexpected changes in regulatory requirements;

- fluctuations in exchange rates and devaluations of foreign currencies;

22

- export license requirements;

- tariffs and other economic barriers to free trade;

- restrictions on the export of critical technology;

- difficulties in staffing international projects;

- political and economic instability;

- limited intellectual property protection;

- longer accounts receivable cycles and difficulties in collecting payments;
and

- potentially adverse tax and labor consequences.

Some of our international sales are denominated in local currencies, and the
impact of future exchange rate fluctuations on our financial condition and
results of operations cannot be accurately predicted. There can be no assurance
that fluctuations in currency exchange rates in the future will not have a
material adverse effect on revenue from international sales and thus our
business, financial condition and results of operations.

OUR USE OF INDEPENDENT CONTRACTORS EXPOSES US TO LEGAL AND TAX RISKS WHICH, IF
DETERMINED AGAINST US, COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL
CONDITION.

We often provide solutions through independent contractors. As we do not
treat these individuals as our employees, we do not pay federal or state
employment taxes or withhold federal or state employment or income taxes from
compensation paid to such persons. We also do not consider these persons
eligible for coverage or benefits provided under our employee benefit plans or
include these persons when evaluating the compliance of our employee benefit
plans with the requirements of the Internal Revenue Code. Additionally, we do
not treat such persons as employees for purposes of worker's compensation, labor
and employment, or other legal purposes. From time to time, we may face legal
challenges to the appropriateness of the characterization of these individuals
as independent contractors from governmental agencies, the independent
contractors themselves or some other person or entity. The determination of such
a legal challenge generally will be determined on a case-by-case basis in view
of the particular facts of each case. The fact specific nature of this
determination raises the risk that from time to time an individual that we have
characterized as an independent contractor will be reclassified as an employee
for these or other legal purposes.

In the event persons engaged by us as independent contractors are determined
to be employees by the Internal Revenue Service or any applicable taxing
authority, we would be required to pay applicable federal and state employment
taxes and withhold income taxes with respect to these individuals and could
become liable for amounts required to be paid or withheld in prior periods and
for costs, penalties and interest thereon. In addition, we could be required to
include these individuals in our employee benefit plans on a retroactive, as
well as a current, basis. Furthermore, depending on the party that makes the
legal challenge and the remedy sought, we could be subject to other liabilities
sought by governmental authorities or private persons. During the fiscal years
2001 and 2000, we used approximately 38 and 75 independent contractors,
respectively. Any challenge by the IRS, state authorities or private litigants
resulting in a determination that these individuals are employees could have a
material adverse effect on our business, financial condition and results of
operations.

From time to time new legislation may be proposed to establish more
stringent requirements for the engagement of independent contractors. We are
unable to assess the likelihood that any such legislation will be enacted.
Further, our ability to retain independent contractors could in the future
deteriorate, due in part to the lower commitment level that these contractors
have to us.

23

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD FORCE US TO CHANGE OUR
OPERATIONS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY TO
MAINTAIN OUR CURRENT BUSINESS.

Our primary customers are banks. Although the solutions that we currently
offer have not been subject to any material, specific government regulation, the
banking industry is regulated heavily, and we expect that such regulation will
affect the relative demand for our solutions. While we are not directly subject
to federal or state regulations specifically applicable to financial
institutions, such as banks, thrifts and credit unions, the Federal Deposit
Insurance Corporation, the National Credit Union Administration, the Office of
Thrift Supervision, the Office of the Comptroller of the Currency, and various
state regulatory authorities typically assert the right to observe the
operations of companies to which certain functions of financial institutions
(such as data processing) are outsourced. These regulators may from time to time
also claim the right to observe the operations of companies like us that provide
software to financial institutions. In addition, financial institutions with
whom we do business may from time to time require, by contract or otherwise,
that evaluations of our internal controls be performed by independent auditors
or by the financial institutions themselves. There can be no assurance that
federal, state or foreign governmental authorities will not adopt new
regulations, and any adoption of new regulations could require us to modify our
current or future solutions. The adoption of laws or regulations affecting us or
our customers' businesses could reduce our growth rate or could otherwise have a
material adverse effect on our business, financial condition and results of
operations.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW COULD
PREVENT OR DELAY POTENTIAL ACQUISITION BIDS, INCLUDING BIDS WHICH MAY BE
BENEFICIAL TO OUR STOCKHOLDERS.

Our certificate of incorporation and bylaws contain provisions that may have
the effect of delaying, deterring or preventing a potential takeover that our
stockholders may consider to be in their best interests. The certificate and
bylaws provide for a classified board of directors serving staggered terms of
three years, prevent stockholders from calling a special meeting of stockholders
and prohibit stockholder action by written consent. The certificate also
authorizes only the board of directors to fill vacancies, including
newly-created directorships, and states that our directors may be removed only
for cause and only by the affirmative vote of holders of at least two-thirds of
the outstanding shares of the voting stock, voting together as a single class.
In addition, our board of directors may issue up to 2,000,000 shares of
preferred stock in one or more series and can fix the rights, preferences,
privileges and restrictions thereof without any further vote or action by our
stockholders. The issuance of shares of preferred stock may prevent or delay a
change of control transaction.

In addition, Section 203 of the Delaware General Corporation Law, which is
applicable to us, restricts certain business combinations with interested
stockholders even if such a combination would be beneficial to stockholders.
These provisions may inhibit a non-negotiated merger or other business
combination. The anti-takeover provisions of the Delaware General Corporation
Law prevent us from engaging in a "business combination" with any "interested
stockholder" for three years following the date that the stockholder became an
interested stockholder. For purposes of Delaware law, a "business combination"
includes a merger or consolidation involving us and the interested stockholder
and the sale of more than 10% of our assets. In general, Delaware law defines an
"interested stockholder" as any entity or person beneficially owning more than
15% of the outstanding voting stock of a corporation and any entity or person
affiliated with or controlling or controlled by such entity or person. Under
Delaware law, a Delaware corporation may opt out of the anti-takeover
provisions. We do not intend to opt out of these anti-takeover provisions.

The foregoing provisions could discourage potential acquisition proposals
and could delay or prevent a change in control transaction. They could also
discourage others from making tender offers for our shares. As a result, these
provisions may prevent the market price of our common stock from

24

reflecting the effects of actual or rumored takeover attempts. These provisions
may also prevent significant changes in our board of directors and management.

THE ADOPTION OF THE FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINANCIAL
ACCOUNTING STANDARD NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS AS OF
FEBRUARY 1, 2002 COULD ADVERSELY AFFECT OUR FUTURE RESULTS OF OPERATIONS AND
FINANCIAL POSITION.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement. As of January 31, 2001, we had goodwill and intangible
assets valued at $77.5 million. We will apply the new rules on accounting for
goodwill and other intangible assets beginning with the first quarter of 2002.
Also during 2002, we will perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of February 1, 2002 to
determine if a transition impairment charge should be recognized under
SFAS 142. We will thereafter annually test for impairment. There can be no
assurance that such tests will not result in a determination that these assets
have been impaired. If at any time it is determined that an impairment has
occurred, we will be required to reflect the impaired value as a charge
resulting in a reduction in earnings in the quarter such impairment is
identified and a corresponding reduction in the net asset value of the Company.

WE CANNOT PREDICT EVERY EVENT AND CIRCUMSTANCE WHICH MAY IMPACT OUR BUSINESS
AND, THEREFORE, THE RISKS AND UNCERTAINTIES DISCUSSED ABOVE MAY NOT BE THE ONLY
ONES YOU SHOULD CONSIDER.

The risks and uncertainties discussed above are in addition to those that
apply to most businesses generally. In addition, as we continue to grow our
business, we may encounter other risks of which we are not aware at this time.
These additional risks may cause serious damage to our business in the future,
the impact of which we cannot estimate at this time.

ITEM 2. PROPERTIES.

Our principal executive office is a leased facility with approximately
72,443 square feet of space in Dallas, Texas. The lease agreement for this space
expires on May 31, 2010. We also lease approximately 19,000 square feet in
Atlanta, Georgia pursuant to a lease agreement which expires on March 1, 2003,
approximately 3,638 square feet in Toronto, Canada, pursuant to a lease
agreement which expires February 28, 2006, approximately 4,100 square feet in
London, England, pursuant to a lease agreement which expires September 29, 2006,
approximately 45,757 square feet in Memphis, Tennessee pursuant to a lease
agreement which expires August 31, 2005 and approximately 40,307 square feet in
Charlotte, North Carolina pursuant to a lease agreement which expires
December 31, 2008. We believe that our facilities are well maintained and in
good operating condition and are adequate for our present and anticipated levels
of operations

ITEM 3. LEGAL PROCEEDINGS.

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

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

No matter was submitted to a vote of our stockholders during the quarterly
period ended January 31, 2002.

25

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our Common Stock has traded on the NASDAQ National Market under the symbol
"CANI" since May 20, 1998, the date of our initial public offering. At
January 31, 2002, there were approximately 204 record holders of our Common
Stock, although we believe that the number of beneficial owners of our Common
Stock is substantially greater. The table below sets forth for the fiscal
quarters indicated the high and low sale prices for the Common Stock, as
reported by the NASDAQ National Market.

We have not paid a cash dividend on shares of our common stock since our
incorporation. We currently intend to retain our earnings in the future to
support operations and finance our growth and, therefore, do not intend to pay
cash dividends on the common stock in the foreseeable future. Any payment of
cash dividends in the future will be at the discretion of the board of directors
and subject to some limitations under the Delaware General Corporation Law.
However, our revolving credit agreement, which is described in Note 4 of our
Notes to Consolidated Financial Statements, currently prohibits the payment of
any cash dividends.

On April 5, 2002, we sold 1,282,214 shares to a group of institutional
investors in a private transaction exempt from registration under The Securities
Act of 1933 pursuant to Section 4(2) thereof. In connection with this
transaction, we are planning to file a registration statement on Form S-3
following the filing of this annual report seeking to register the resale of
such shares. The approximately $9.3 million of net proceeds that were received
were used to satisfy an existing obligation with respect to the Check Solutions
acquisition as described in Notes 12 and 13 of our Notes to Consolidated
Financial Statements, with the remainder being used for working capital.

26

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated statements of operations data for each of the
three years in the period ended January 31, 2002 and the consolidated balance
sheet data as of January 31, 2002 and 2001 have been derived from our audited
consolidated financial statements which are included elsewhere in this Report.
The consolidated balance sheet data as of January 31, 2000, 1999, and 1998, and
the consolidated statement of operations data for the years ended January 31,
1999 and 1998, have been derived from our audited consolidated financial
statements not included in this Report. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Report.

- ------------------------

(1) On June 6, 2001, we completed the acquisition of Check Solutions Company, a
New York general partnership ("Check Solutions"). The operating results of
Check Solutions are included in our results of operations from the date of
acquisition. See Note 3 of our Notes to Consolidated Financial Statements
for information concerning our acquisition of Check Solutions.

(2) See Note 11 of our Notes to Consolidated Financial Statements for
information concerning the Merger, Restructuring and Write-off of
Capitalized Software Costs and Prepaid Software Royalties for the year ended
January 31, 2002.

(3) See Note 5 of our Notes to Consolidated Financial Statements for information
concerning the provision (benefit) for income taxes for the year ended
January 31, 2002.

(4) See Notes 2 and 8 of our Notes to Consolidated Financial Statements for
information concerning the calculation of basic and diluted earnings per
share.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

THE FOLLOWING DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS," ELSEWHERE IN THIS REPORT OR IN
THE INFORMATION INCORPORATED BY REFERENCE IN THIS REPORT. YOU SHOULD READ THE
FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" INCLUDED IN THIS REPORT, AS WELL AS OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT.

OUR FISCAL YEAR ENDS ON JANUARY 31. REFERENCES CONTAINED IN THIS REPORT TO A
GIVEN FISCAL YEAR REFER TO THE TWELVE-MONTH PERIOD ENDED JANUARY 31 OF THE
SUCCEEDING YEAR. FOR EXAMPLE, OUR FISCAL YEAR ENDED JANUARY 31, 2002 IS REFERRED
TO IN THIS REPORT AS "FISCAL 2001."

OVERVIEW

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

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

28

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

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

RESULTS OF OPERATIONS

The following discussion of our results of operations for the fiscal years
ended January 31, 2002, 2001 and 2000 is based upon data derived from the
statements of operations contained in our audited Consolidated Financial
Statements appearing elsewhere in this Report. The following table sets forth
this data as a percentage of total revenues.

29

YEAR ENDED JANUARY 31, 2002 (FISCAL 2001) COMPARED TO YEAR ENDED JANUARY 31,
2001 (FISCAL 2000)

REVENUES. Our total revenues increased by $21.4 million or 19% to
$131.7 million in fiscal 2001 from $110.3 million in fiscal 2000. After
adjusting for the $50.2 million of revenue attributable to the acquisition of
Check Solutions on June 6, 2001, underlying revenue decreased 26% for fiscal
2001. The decrease primarily resulted from a decline in Consulting Fees in both
the Revenue Enhancement and Enterprise Solutions business segments.

CONSULTING FEES: Revenues from consulting fees decreased by $28.9 million
or 40% to $42.8 million for fiscal 2001 from $71.7 million for fiscal 2000.
Consulting fees have decreased primarily due to a decrease within the Revenue
Enhancement and Enterprise Solutions business segments. The Check Solutions
acquisition had no impact on consulting fees. Revenue Enhancement revenues
decreased by $14.0 million or 35% to $26.0 million for fiscal 2001 from
$40.0 million in fiscal 2000. Due to the lower number of engagements and general
economic conditions, we experienced lower revenues from Revenue Enhancement's
value-priced engagements. In an effort to mitigate these factors and to allow
customers to more closely match expected benefits from our Revenue Enhancement
services, we began in the quarter ended October 31, 2001 to offer payment terms
which extend beyond 12 months. Enterprise Solutions consulting fees decreased
$10.0 million or 36% to $17.7 million for fiscal 2001 from $27.7 million for
fiscal 2000. During the fiscal year, economic conditions caused banks to delay
the timing of IT spending decisions, increasing pricing pressures on these
engagements, and slowed mergers or consolidations which also drive revenue for
the Enterprise Solutions segment, resulting in lower overall consulting fees.

SOFTWARE LICENSE FEES: Revenues from software license fees increased
$22.3 million or 123% to $40.3 million from $18.0 million for fiscal 2000. After
adjusting for the software license fees attributable to the Check Solutions
acquisition of $24.5 million for fiscal 2001, our underlying software license
fees decreased 12% as compared to fiscal 2000. The underlying decrease in
software license fees in fiscal 2001 is due principally to the decision to
discontinue our CheckFlow product line during the quarter ended July 31, 2001 in
light of products available through the acquisition of Check Solutions. This
decrease was partially offset by software license growth in FraudLink Solutions.

SOFTWARE MAINTENANCE FEES: Revenues from software maintenance fees
increased $18.1 million or 162% to $29.3 million for fiscal 2001 from
$11.2 million for fiscal 2000. After adjusting for software maintenance fees
attributable to the Check Solutions acquisition of $15.8 million for fiscal
2001, our underlying software maintenance fees increased 21% for fiscal 2001 as
compared to fiscal 2000. Our underlying software maintenance fees have increased
as a result of increased software license revenue derived principally from our
FraudLink Solutions during fiscal 2001, resulting in an increased number of
customers and products under maintenance contracts. Maintenance contracts are
also normally subject to annual rate increases, usually between 5% and 10%,
which are expected to continue in the future.

SOFTWARE IMPLEMENTATION FEES: Revenues from software implementation fees
increased $9.9 million or 106% to $19.2 million for fiscal 2001 from
$9.3 million for fiscal 2000. After adjusting for software implementation fees
attributable to the Check Solutions acquisition of $9.9 million, our underlying
software implementation fees were flat for fiscal 2001 as compared to fiscal
2000. The lack of growth of software implementation fees is due to our product
mix. The majority of the software license growth is in the FraudLink Solutions,
which generally require less complicated and therefore smaller implementation
engagements.

COST OF REVENUES: Our total cost of revenues have increased $27.7 million
or 53% to $80.0 million for fiscal 2001 from $52.3 million for fiscal 2000.
After adjusting for costs of revenues attributable to the Check Solutions
acquisition of $12.9 million for fiscal 2001 and write-off of capitalized
software costs and prepaid software royalties of $14.9 million for fiscal 2001,
our underlying cost of revenues in fiscal 2001 were flat as compared to fiscal
2000. The increased costs as a percentage of revenues in

30

fiscal 2001 as compared to fiscal 2000 is a result of higher personnel costs
during periods where corresponding revenues have been flat or declining.

COST OF CONSULTING: Cost of consulting decreased $3.2 million or 8% to
$35.0 million for fiscal 2001 from $38.2 million for fiscal 2000. Cost of
consulting as a percentage of consulting fees increased to 82% for fiscal 2001
from 53% for fiscal 2000. There has been no impact on these costs attributable
to the Check Solutions acquisition. Cost of consulting as a percentage of
corresponding revenue has increased due to reductions in revenue levels over
comparable periods. The decrease in the cost of consulting is due to reduced
personnel through merger and restructuring efforts, contract labor and travel
costs.

COST OF SOFTWARE LICENSES: Cost of software licenses increased
$1.4 million or 24% to $6.9 million for fiscal 2001 from $5.5 million for fiscal
2000. Costs of software licenses increased principally due to the addition of
$3.6 million of costs from Check Solutions, offset by underlying decreases in
software royalties and software amortization from our existing products. Cost of
software licenses as a percentage of license fees decreased to 17% in fiscal
2001 from 31% in fiscal 2000. The decrease in cost of software licenses as a
percentage of license fees was driven principally by increases in license fee
revenue including revenues resulting from the acquisition of Check Solutions.

In connection with software license and maintenance agreements entered into
with certain banks and purchase agreements with vendors under which we acquired
software technology used in products sold to its customers, we are required to
pay royalties on sales of certain software products, including four Back Office
products and the Branch Truncation Management product. Under these arrangements,
we accrue royalty expense when the associated revenue is recognized. The royalty
percentages generally range from 20% to 30%. Approximately $2,465,000 and
$1,914,000 of royalty expense was recorded under these agreements in the years
ended January 31, 2002 and 2001, respectively. Royalty expense is included as a
component of the cost of software license in the accompanying consolidated
statements of operations. Depending on our future product mix, our margins from
software license fees may be negatively impacted by increased software royalty
expense.

WRITE-OFF OF CAPITALIZED SOFTWARE COSTS AND PREPAID SOFTWARE
ROYALTIES: During the second quarter of fiscal 2001, in connection with the
Company's periodic impairment review of its portfolio of software products, the
Vault software acquired in the X-Port business combination in May 2000 was
deemed to be impaired. Based on our calculation of the expected cash flows of
the product, a $2.8 million non-cash charge was recorded. The charge resulted
from the loss of two key transactions and the projected changes in the approach
to selling and delivering the software and related services under a time or
usage model.

Effective March 31, 2001, we entered into an alliance with Exchange
Applications, Inc. ("Xchange"). As part of this alliance we became the exclusive
provider of their EnAct customer relationship software and methodology to the
banking industry. Under the agreement, we became obligated for guaranteed
royalty payments of $12.5 million. Based on our periodic evaluation of the
future cash flows associated with this product, a liability for the remaining
$2.5 million obligation was accrued at October 31, 2001, and the carrying value
of the prepaid software royalties, at that time, of $9.6 million was reduced to
zero. This analysis resulted in a charge of $12.1 million to "cost of revenue"
during the quarter ended October 31, 2001.

During December 2001, we negotiated with Xchange and received a commitment
for $960,000 as a partial offset to expenses to be incurred to enhance and
support the EnAct software for the existing customer base. Through January 31,
2002, we reflected $480,000 of this reimbursement as a reduction in our cost of
revenue.

COST OF SOFTWARE MAINTENANCE: Cost of software maintenance increased
$4.4 million or 152% to $7.3 million for fiscal 2001 from $2.9 million for
fiscal 2000. Costs of software maintenance as a percentage of software
maintenance fees decreased to 25% for fiscal 2001 from 26% for fiscal 2000.

31

Costs of software maintenance increased principally due