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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarterly Period Ended June 30, 2003

or

Commission File Number: 000-24931

S1 CORPORATION

Registrant’s Telephone Number, Including Area Code: (404) 923-3500

NOT APPLICABLE
(Former name if changed since last report.)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

     Shares of common stock outstanding as of August 12, 2003: 70,107,546

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S1 CORPORATION AND SUBSIDIARIES

QUARTERLY PERIOD ENDED JUNE 30, 2003

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PART 1 - FINANCIAL INFORMATION

Item 1 - Financial Statements

S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

See accompanying notes to unaudited condensed consolidated financial statements.

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S1 CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.

BACKGROUND AND BASIS OF PRESENTATION

     S1 Corporation is a global provider of enterprise software solutions for more than 4,000 financial organizations including banks, credit unions, investment firms and insurance companies. Our solutions automate the channels by which financial institutions interact with their customers. 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. We sell our solutions to small, mid-sized and large financial organizations in two geographic regions: (i) the Americas region, and (ii) the International region, consisting of Europe, Middle East and Africa (EMEA) and the Asia-Pacific and Japan (APJ). We refer to our core business segment as the “Financial Institutions” business.

     Through Edify Corporation and its subsidiaries, we provide a variety of customer relationship management (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 combined this business together with the non-financial institutions business of Point Information Systems, a CRM application provider that we acquired in March 2002, collectively referred to as the “Edify” business segment.

     S1 is headquartered in Atlanta, Georgia, USA, with additional domestic offices in Boston, Massachusetts; Charlotte, North Carolina; Austin, Texas; New York, New York; West Hills, California and Santa Clara, California; and international offices in Brussels, Dublin, Hong Kong, Lisbon, London, Luxembourg, Madrid, Munich, Paris, Rotterdam and Singapore. S1 is incorporated in Delaware.

     We accounted for the Edify business assets and liabilities as “held for sale” for the period from July 1, 2002 until April 2003, at which time we determined that we would not be able to sell the Edify business by June 30, 2003 on terms that were agreeable to us. The accompanying financial statements reflect the Edify business as a part of our continuing operations for all periods presented. As a result, we have:

	•		reclassified the assets and liabilities of the Edify business from “assets held for sale” and “liabilities of business held for sale” as of December 31, 2002 and June 30, 2003 in our condensed consolidated balance sheet;
	•		presented the results of operations for the Edify business as a segment of continuing operations in our consolidated statements of operations for all periods presented, which required a retroactive reclassification of revenues and expenses for prior periods previously reported; and
	•		recorded depreciation expense of $0.3 million on the fixed assets of the Edify business and amortization expense of $1.7 million for other intangible assets associated with the Edify business for the nine-month period from July 1, 2002 through March 31, 2003 during the first quarter of 2003.

     We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation of our financial condition as of June 30, 2003 and our results of operations for the three and six months ended June 30, 2003 and cash flows for the six months ended June 30, 2003. The data in the condensed consolidated balance sheet as of December 31, 2002 was derived from our audited consolidated balance sheet as of December 31, 2002, as presented in our Annual Report on Form 10-K for the year ended December 31, 2002. Certain items in the prior financial statements have been reclassified to conform to the current presentation. The condensed consolidated financial statements include the accounts of S1 and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. Our operating results for the

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three and six months ended June 30, 2003 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2003.

2.

SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies

     Our significant accounting policies are included in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2002. Below are significant changes to our accounting policies.

     During December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We implemented SFAS No. 148 effective January 1, 2003 regarding disclosure requirements for condensed financial statements for interim periods. At this time, we do not anticipate making a voluntary change to the fair value based method of accounting for stock-based employee compensation.

     We account for our stock option plans in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148. As such, we record compensation expense on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Additionally, if a modification is made to an existing grant, any related compensation expense is calculated on the date both parties accept the modification and recorded on the date the modification becomes effective. Otherwise, we do not record stock compensation expense when we grant stock options to S1 employees.

     In the three and six months ended June 30, 2003 and 2002, we recognized compensation expense relating to stock options granted with exercise prices less than the market price on the date of grant and for modifications made to the terms of existing grants. Had we determined compensation expense based on the fair value at the grant date for our stock options and stock purchase rights under SFAS No. 123, our net loss would have increased to the unaudited pro forma amounts indicated below: