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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2002

OR

For the transition period from         to

Commission file number: 000-24931

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

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

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

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

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

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

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

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

Documents Incorporated by Reference

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

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S1 CORPORATION AND SUBSIDIARIES

FOR THE YEAR ENDED DECEMBER 31, 2002

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PART I

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PART I

Item 1. Business.

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

Business Overview

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

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

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

General Background

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

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

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

Industry Background

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

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

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

The S1 Solution

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

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

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

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

S1 Vision and Strategy

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

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

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

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

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

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

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

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

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

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

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

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

Increase Emphasis on Selling Packaged Products

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

Grow Our Sales Channel Program through Strategic Alliances with Key Partners

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

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

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

S1 Products

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

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

  S1 Banking Solutions

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

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

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

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

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

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

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

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

  S1 Insurance Solutions

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

•

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

  S1 Voice Solutions

•

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

  S1 CRM Solutions

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

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•

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

  Financial Reporting Solutions

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

  Account Aggregation

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

S1 Services

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

  S1 Hosting Services

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

  S1 Customer Support

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

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

  S1 Professional Services

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

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

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

Customers and Markets

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

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

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

Strategic Alliances and Partners

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

Sales and Marketing

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

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

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

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

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

Product Development

      Our product development efforts are focused on:

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

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

Competition

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

In-house Development Organizations

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

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

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  Best of Breed Solution Providers

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

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

  Core Processing Vendors

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

Business Held for Sale

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

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

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

Government Regulation

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

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

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

Employees

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

Available Information

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

Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

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

Market volatility may affect the price of our common stock

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

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

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

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

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

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

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

Network or Internet security problems could damage our reputation and business

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

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

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

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

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

•

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

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

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

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

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

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

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

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

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

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

International operations and currency exchange rate fluctuations may adversely affect us

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

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

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•		greater difficulties in trade accounts receivable collection; and
•		possible adverse tax consequences.

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

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

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

We are subject to government regulation

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

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

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

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

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

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

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

•

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

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

Item 2. Properties.

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

Item 3. Legal Proceedings.

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

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

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

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

	(a)		Not applicable.
	(b)		Not applicable.
	(c)		Not applicable.