CARREKER CORP - 10-K Annual Report

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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
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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.

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CARREKER CORPORATION
INDEX

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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

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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

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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,

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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.

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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

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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.

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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.

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

SOLUTION DESCRIPTION PRODUCTS OFFERED

Enterprise Solutions Offers customized, bank-wide 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.

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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.

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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.

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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 to the addition of
$2.5 million of costs from Check Solutions and an underlying increase in
personnel costs due to job reassignments attributable to fewer research and
development efforts undertaken in fiscal 2001, but decreased as a percentage of
maintenance fees due to increased revenue levels.

COST OF SOFTWARE IMPLEMENTATION: Cost of software implementation increased
$10.2 million or 182% to $15.9 million for fiscal 2001 from $5.7 million for
fiscal 2000. Cost of software implementation as a percentage of implementation
fees increased to 83% for fiscal 2001 from 61% for fiscal 2000. The acquisition
of Check Solutions increased the costs of software implementation by
$6.8 million for fiscal 2001. The underlying cost of implementations increased
primarily due to increased non-billable time and travel, which was due to delays
in implementation efforts and integration during the third quarter caused by
litigation with Pegasystems, Inc. during that quarter.

OPERATING COSTS AND EXPENSES:

SELLING GENERAL AND ADMINISTRATIVE: Selling general and administrative
expenses increased $21.9 million or 69% to $53.6 million for fiscal 2001 from
$31.7 million for fiscal 2000. Selling, general and administrative expenses as a
percent of revenue increased to 41% for fiscal 2001 from 29% for fiscal 2000.
Selling, general and administrative expenses generally consist of personnel
costs associated with selling, marketing, general management, software
management, provision for doubtful accounts as well as fees for professional
services and other related costs. The acquisition of Check Solutions increased
selling, general and administrative expenses by $13.4 million during fiscal 2001
reflecting the additional costs associated with the Check Solutions' operations.
Underlying selling, general and administrative expenses increased by 27% for
fiscal 2001 as compared to fiscal 2000. The increase in these underlying
expenses reflect increased personnel costs, contract labor, travel, office costs
and infrastructure costs related to the implementation of the PeopleSoft ERP
system and growth in management staff to support projected revenues.

RESEARCH AND DEVELOPMENT: Research and development expenses increased
$2.6 million or 43% to $8.7 million for the fiscal 2001 from $6.1 million for
fiscal 2000. Research and development expenses were principally generated by
Check Solutions, which accounted for $6.0 million of these expenses during
fiscal 2001. These expenses related primarily to our development of the
Adjustments Express Back Office product, which was generally available in the
fourth quarter of fiscal 2001. The increase from Check Solutions was offset by a
decrease in underlying research and development activity, through reduced
personnel costs from employee reductions or job reassignment.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS: Amortization of intangibles
was $4.6 million for fiscal 2001. The amortization results from the periodic
recognition of amortization expense of goodwill and intangible assets acquired
in the Check Solutions acquisition. Goodwill and other indefinite lived
intangibles will cease to be amortized effective February 2002, when we adopt
Statement of Financial Accounting Standards ("SFAS") No. 141 and No. 142. See
further discussion in Note 2 to our Consolidated Financial Statements regarding
the adoption of SFAS No. 141 and No. 142.

MERGER AND RESTRUCTURING COSTS: In connection with the acquisition of Check
Solutions during the quarter ended July 31, 2001, we recorded $15.6 million in
merger-related costs (consisting of $11.3 million attributable to cost of
revenues, $2.3 million attributable to research and development, and
$2.0 million attributable to selling, general and administrative costs).

In connection with the various legal and administrative actions surrounding
the dispute with Pegasystems, Inc. during the quarter ended October 31, 2001, we
recorded an additional $4.2 million of settlement and legal costs and classified
them in merger and restructuring costs in the consolidated statement of
operations. The payment of these costs will be completed during the year ended
January 31, 2003.

32

During the fourth quarter of fiscal 2001, we implemented an additional
reduction in its workforce to adjust staffing levels to a level sufficient to
support projected business activities. Primarily as a result of the reductions,
approximately 95 employees were terminated and a charge of $3.8 million relating
primarily to severance costs was recorded during the quarter.

These costs are summarized below (in thousands):

Included in merger and restructuring costs was $5.5 million of cash
termination benefits associated with the separation of approximately 145
employees. Most of the affected employees left their positions during the
quarter ended January 31, 2002.

We developed the CheckFlow Suite with Pegasystems, Inc. ("Pega") under a
Product Development, Distribution and Sublicensing Agreement effective May 5,
1999 (the "Agreement"). Pega filed suit to restrain us from developing,
marketing, licensing, advertising, leasing or selling any products, including
certain Back Office products acquired during the Check Solutions business
combination, that allegedly compete with products jointly developed under the
Agreement. On October 1, 2001 the Delaware Chancery Court granted Pega's motion
for preliminary injunction. On November 5, 2001, all matters relating to various
legal and administrative actions surrounding this dispute were settled. Under
this Settlement Agreement, we agreed to pay settlement and legal costs totaling
$5.4 million (of which $1.1 million was accrued at July 31, 2001), which
includes royalties on prior period sales of the four Back Office products.
Consistent with the prior Agreement, we will continue to pay Pega royalties
based on future sales of the four Back Office products through October 31, 2006.

Charges related to the CheckFlow Suite included a write-off of capitalized
software costs, a write-off of accounts receivable net of deferred revenue,
settlements and estimated implementation costs for existing CheckFlow customers,
write-off of prepaid royalties previously paid to Pega, and payments under
existing work orders and other product wind-down costs. The implementations
provide for estimated time and labor along with out-of-pockets costs as of
January 31, 2002. If actual costs differ from our estimates, revisions to our
estimated liability would be necessary.

In connection with the Check Solutions acquisition, a $2.3 million
in-process research and development charge was recorded reflecting the estimated
fair value of acquired research and development projects at Check Solutions,
which had not yet reached technological feasibility.

The facility closure charge includes $440,000 for office space, which will
no longer be utilized.

33

The activity related to the merger and restructuring costs reserve balance
during the year ended January 31, 2002 is as follows (in thousands):

INTEREST INCOME: Interest income decreased $0.4 million or 19% to
$1.6 million for fiscal 2001 from $2.0 million for fiscal 2000. Interest income
initially increased during fiscal 2001 due to the addition of $32.0 million of
net proceeds related to our public offering of 2,000,000 shares of common stock,
at a price of $17.00 per share, in November 2000. As these proceeds as well as
approximately $33.7 million of additional cash, were used to fund the Check
Solutions acquisition during the second quarter, we expect interest income to
significantly decrease in the future.

INTEREST EXPENSE: Interest expense is primarily the result of the
borrowings during the second quarter under the three year revolving credit
agreement with a group of banks.

PROVISION (BENEFIT) FOR INCOME TAXES: The provision (benefit) for income
taxes is based on the estimated annual effective tax rate, and includes federal,
state and foreign income taxes. Our effective income tax rate was lowered to
9.9% for fiscal 2001 due to losses we incurred which were not benefited. For us
to realize the benefit of our net operating loss carryforward and other deferred
tax assets recorded as of January 31, 2002, we must generate future taxable
income. Due to significant losses incurred in fiscal 2001, we concluded that the
"more likely than not" criteria required for recognition of deferred tax assets
under SFAS No. 109, ACCOUNTING FOR INCOME TAXES was not met at January 31, 2002.
Thus, a $9.4 million valuation allowance was recorded in fiscal 2001 to fully
reserve the net deferred tax assets which resulted in the unbenefitted losses.
For fiscal 2000, our effective income tax rate was 38%.

On March 7, 2002, the federal tax law changed to allow net operating losses
for taxable years ending in 2001 and 2002 to be carried back an additional three
years. Consistent with the requirements of SFAS No. 109, the impact of this
change in tax law and related five year carryback was not used in the
determination of the Company's tax provision and related deferred tax valuation
allowance for the year ended January 31, 2002. Any impact from this change in
tax law, including any reduction in the valuation allowance as a result of the
expanded carryback period will first be reflected in our tax provision for the
quarterly period ended April 30, 2002.

At January 31, 2002, we had available net operating loss carryforwards of
approximately $14.5 million, which expire in 2022.

34

YEAR ENDED JANUARY 31, 2001 (FISCAL 2000) COMPARED TO YEAR ENDED JANUARY 31,
2000 (FISCAL 1999)

REVENUES. Our total revenues increased by 45.4% to $110.3 million in fiscal
2000 from $75.8 million in fiscal 1999. The increase was primarily attributable
to growth in revenues from consulting fees. Revenues from consulting fees
increased by 44.2% to $71.7 million in fiscal 2000 from $49.7 million in fiscal
1999. Consulting fees have increased primarily as a result of continued demand
for value-priced Revenue Enhancement Services and Enterprise Solutions. Revenue
Enhancement revenues increased 101.6% to $40.0 million in fiscal 2000 from
$19.8 million in fiscal 1999. Enterprise Solutions increased 34.9% to
$27.7 million in fiscal 2000 from $20.6 million in fiscal 1999. Value-priced
engagements have a favorable reception from customers in the United States and
in our foreign markets. Revenues related to value-priced opportunities tend to
fluctuate period to period and are likely to fluctuate in future periods.
Software license fees increased 28.8% to $18.0 million in fiscal 2000 from
$14.0 million in fiscal 1999. This increase was precipitated by increased demand
for our FraudLink and Back Office solutions. The FraudLink solution has been
particularly successful in both Australia and the United Kingdom. Software
maintenance fees increased 60.7% to $11.2 million in fiscal 2000 from
$7.0 million in fiscal 1999. Increases in software maintenance fees have been
driven by increased software license revenue along with annual rate increases.
Additionally, increases in software maintenance fees have been driven by the
acquisition of new software products that were already subject to annual
maintenance contracts. Software implementation fees increased 81.7% to
$9.3 million in fiscal 2000 from $5.1 million in fiscal 1999. The increase in
software implementation fees have been driven by increased software licensing
activity resulting in the growth in the number of customers requiring these
services.

COST OF REVENUES. Cost of revenues generally consists of personnel costs,
amortization of capitalized software development costs, and third-party
royalties. Total cost of revenues increased by 51.8% to $52.3 million in fiscal
2000 from $34.4 million in fiscal 1999. This increase resulted primarily from an
increase in the cost of revenue for consulting fees, software license fees and
software implementation fees. Cost of revenues for consulting fees increased by
38.5% to $38.2 million in fiscal 2000 from $27.6 million in fiscal 1999. The
increase was primarily the result of increases in personnel and personnel
related costs to support the growth of the Revenue Enhancement and Enterprise
Solutions practices. Cost of revenues for software licenses increased 180.1% to
$5.5 million in fiscal 2000 from $2.0 million in fiscal 1999. The increase was
primarily due to increased amortization of capitalized software costs along with
increased software royalties expense. Cost of revenues for software
implementation increased 137.4% to $5.7 million in fiscal 2000 from
$2.4 million in fiscal 1999. The increase was primarily due to an increase in
personnel cost associated with implementation, training and customer support
related to these engagements. Total cost of revenues as a percentage of total
revenues increased to 47.4% in fiscal 2000 from 45.4% in fiscal 1999, primarily
as a result of increased amortization of capitalized software costs and
third-party royalty expense along with increased personnel costs associated with
software implementations.

OPERATING COSTS AND EXPENSES:

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses generally consist of personnel costs associated with selling,
marketing, general management and software management, as well as fees for
professional services and other related costs. Selling, general and
administrative expenses increased by 25.3% to $31.7 million in fiscal 2000 from
$25.3 million in fiscal 1999. The increase in these expenses primarily reflected
the addition of sales, management and administrative staff during fiscal 2000
associated with our growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 28.8% in fiscal 2000 from 33.4% in fiscal
1999.

RESEARCH AND DEVELOPMENT. Research and development expenses generally
consist of personnel and related costs of developing solutions. In certain
instances we have contracted with a third-party to develop our solutions.
Research and development expenses increased to $6.1 million in fiscal 2000

35

compared to $4.8 million in fiscal 1999. Research and development expenses as a
percentage of revenues decreased to 5.5% in fiscal 2000 from 6.4% in fiscal
1999. Research and development expenses as a percentage of non-consulting
revenue decreased to 15.7% in fiscal 2000 from 18.4% in fiscal 1999.

OTHER INCOME. Other income increased to $1.7 million in fiscal 2000 from
$1.1 million in fiscal 1999. Other income increased as a result of higher
earnings on cash and cash equivalents, and short-term investments.

PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$8.3 million in fiscal 2000 from $4.4 million in fiscal 1999, reflecting an
effective tax rate of 38% and 36% for fiscal 2000 and fiscal 1999, respectively.
Increases in the estimated annual effective rate resulted from increased state
taxes and also increased non-deductibility of certain expenses.

36

SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth unaudited quarterly data for each of our last
eight quarters ended January 31, 2002. The data has been derived from our
unaudited consolidated financial statements that, in management's opinion,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of this information when read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Report. We believe that quarter-to-quarter comparisons of our financial
results are not necessarily meaningful and should not be relied upon as any
indication of future performance.

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

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

37

Our quarterly results may vary significantly depending primarily on factors,
such as:

- 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;

- 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.

Because of the above factors, along with such non-recurring items such as
merger and restructuring costs and write-off of capitalized software costs and
prepaid software royalties, the results of any particular quarter may not be
indicative of the results for the full year. There can be no assurance that we
will continue to experience growth in revenues and earnings.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded our operations and cash expenditures primarily
with cash generated from operating activities. At January 31, 2002, we had a
working capital of $23.7 million compared to $111.8 million at January 31, 2001.
We had $25.7 million in cash and cash equivalents at January 31, 2002, a
decrease of $37.4 million from $63.1 million in cash and cash equivalents at
January 31, 2001. At January 31, 2002, we had $44.0 million of long-term debt.
Based on our cash forecasts, we expect to use cash from an equity offering
discussed below and cash from operating activities to fund our operations in
fiscal 2002.

Cash used in operating activities was $7.9 million in fiscal 2001 compared
to cash provided by operating activities of $11.2 million in fiscal 2000 and
$14.1 million in fiscal 1999. Operating cash flows decreased in fiscal 2001
primarily due to our net loss for fiscal 2001, increases in accounts receivable,
prepayments of software royalties and decreases in deferred revenues.

Average days' sales outstanding fluctuate for a variety of reasons,
including the timing of billings specified by contractual agreement, and
receivables for expense reimbursements. The following table contains the
quarterly days sales outstanding (DSO) with a comparative column which adds
reimbursed

38

expenses to the revenue portion of the computation. Reimbursed expenses are
travel and out of pocket expenses, which are not considered revenue but are
included in outstanding receivables.

Cash used in investing activities during fiscal 2001 was $72.5 million, and
was primarily related to the acquisition of Check Solutions Company. Cash used
in investing activities during fiscal 2000 was $11.1 million, and was primarily
related to the purchase of two companies, Automated Integrated Solutions, Inc.
and X-Port Software, Inc., along with purchases of property and equipment. Cash
used in investing activities was $8.5 million in fiscal 1999, and was related to
purchases of property and equipment and capitalization of computer software
costs.

Financing activities provided cash of $43.0 million in fiscal 2001 and
$37.0 million in fiscal 2000 compared to cash used in financing activities of
$0.3 million in fiscal 1999. Cash provided by financing activities in fiscal
2001 resulted primarily from $45 million drawn on our revolving credit agreement
entered into to assist in funding the Check Solutions acquisition. The cash
provided by financing activities in fiscal 2000 related to our public offering
of 2,000,000 shares of common stock on November 3, 2000 which raised
$31.5 million after deducting the costs of the offering.

On June 6, 2001, we entered into a three-year revolving credit agreement
with a group of banks in an amount not to exceed $60.0 million. At January 31,
2002, we had borrowed $44.0 million to fund the acquisition of Check Solutions.
All outstanding borrowings are due on June 5, 2004. Borrowings under the credit
agreement bear interest equal to either the greater of prime or federal funds
rate plus a margin ranging from 0.00% to 0.75% depending on our ratio of funded
debt to Earnings Before Interest, Taxes Depreciation and Amortization
("EBITDA"); or London Interbank Offered Rate ("LIBOR") plus a margin equal to
1.50% to 2.25% depending on our ratio of funded debt to EBITDA. Interest
payments are due quarterly. We are required to pay a commitment fee equal to
0.25% to 0.50% depending on our ratio of funded debt to EBITDA on the unused
amount of the revolving credit agreement. The revolving credit agreement
contains customary affirmative and negative covenants including financial
covenants requiring the maintenance of specified interest coverage, ratio of
EBITDA to funded debt, and ratio of accounts receivable, cash and short-term
investments to funded debt. Additionally, the payment of dividends is precluded
subject to the approval of the banks. Effective October 31, 2001, we entered
into an amendment to the credit agreement to reflect the impact of the decline
in recent operating results. Under the amendment, margin rates were increased on
prime or federal funds based loans to 2.00%, and on LIBOR based loans to 3.50%.
Effective August 1, 2002, margins will decrease to a range of 0.50% to 1.25% on
prime or federal funds based loans, and to a range of 2.00% to 2.75% on LIBOR
based loans. Substantially all of our assets collateralize this revolving credit
agreement. Also under the amendment, certain covenants were adjusted to levels
we expect to achieve. As of January 31, 2002, we are in compliance with the
covenants of the revolving credit agreement, as amended. While there can be no
assurance, we believe we will continue to meet these covenants during the year
ended January 31, 2003. Any instances of non-compliance would negatively impact
our liquidity.

Our ability to make additional borrowings under this revolving credit
agreement is limited by a formula based on our outstanding accounts receivable.
Additionally, if our accounts receivable decreases below certain levels as
defined in the revolving credit agreement, mandatory prepayments of

39

the debt may be required. At January 31, 2002, $3.8 million of additional
borrowing capacity was available to us under the formula.

At January 31, 2002, we had material commitments for our operating leases,
as described in Note 7 in our Notes to Consolidated Financial Statements,
including commitments of approximately $4.2 million in fiscal 2002. We have no
material commitments for our capital expenditures. In fiscal 2002, we expect
capital expenditures to be similar or slightly less than levels experienced in
fiscal 2001.

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

On April 5, 2002, we sold 1,282,214 shares to a group of investors in a
private transaction. In connection with this transaction, we intend to file a
registration statement on Form S-3, following the filing of this annual report
on Form 10-K for the year ended January 31, 2002, seeking to register the resale
of such shares. We utilized the approximately $9.3 million of net proceeds that
were received from the sale to satisfy existing obligations due to certain
former employees of Check Solutions, with the remainder being used for working
capital. Such amounts were paid on April 5, 2002. See Note 13 in our Notes to
Consolidated Financial Statements.

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

The following summarizes our contractual obligations at January 31, 2002 and
the effect these contractual obligations are expected to have on our liquidity
and cash flows in future periods (in thousands):

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

(1) Borrowings under the revolving credit agreement are subject to repayment
based on our outstanding accounts receivable levels, as defined in the
revolving credit agreement. See Note 4 to our Notes to Consolidated
Financial Statements.

ACCOUNTING POLICIES

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

40

assumptions are reasonable, actual results may differ, and such differences
could be significant to our financial results.

REVENUE RECOGNITION

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

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

Regardless of the pricing method employed by us in a given contract, we are
typically reimbursed on a monthly basis for out-of-pocket expenses incurred on
behalf of our customers. Expenses are netted against reimbursements for
consolidated financial statement reporting purposes, for fiscal 2001, 2000 and
1999. Beginning February 1, 2002, we will begin to characterize reimbursements
received for

41

out-of-pocket expenses incurred as revenue in the statement of operations in
accordance with a recent FASB announcement. See "Recently Issued Accounting
Standards".

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

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

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

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

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

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

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

ALLOWANCE FOR DOUBTFUL ACCOUNTS

A large proportion of our revenues and receivables are attributable to our
customers in the banking industry. Our trade accounts receivable balance is
recorded net of allowances for amounts not expected to be collected from our
customers. Because our accounts receivable are typically unsecured, we
periodically evaluate the collectibility of our accounts based on a combination
of factors, including a

42

particular customer's ability to pay as well as the age of receivables. To
evaluate a specific customer's ability to pay, we analyze financial statements,
payment history, and various information or disclosures by the customer or other
publicly available information. In cases where the evidence suggests a customer
may not be able to satisfy its obligation to us or if the collection of the
receivable becomes doubtful due to a dispute that arises subsequent to the
delivery of our products and services, we set up a specific reserve in an amount
we determine appropriate for the perceived risk. Most of our contracts include
multiple payment milestones, some of which occur in advance of revenue
recognition, which mitigates our risk both in terms of collectibility and
adjustments to recorded revenue.

SOFTWARE COSTS CAPITALIZED, GOODWILL AND OTHER INTANGIBLE ASSETS

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

Through January 31, 2002, goodwill and other intangible assets were
amortized using the straight-line method over lives of six to fifteen years.
Effective February 1, 2002, goodwill will no longer be amortized. See "Recently
Issued Accounting Standards" below. The goodwill will be assessed on an annual
basis for impairment at the reporting unit level by applying a fair value based
test.

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

MERGER AND RESTRUCTURING

During fiscal year 2001, we recorded significant reserves in connection with
our acquisition of Check Solutions and subsequent operational restructurings.
These reserves contain significant estimates pertaining to work force
reductions, and the settlement of contractual obligations resulting from our
actions. Although we do not anticipate significant changes, the actual costs may
differ from these estimates.

43

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with Statement No. 142. Other intangible assets will continue to be
amortized over their useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. Application of the nonamortization provisions of the Statement
No. 142 is expected to result in an increase in net income of $5.5 million
($0.25 per share using the dilutive number of shares at January 31, 2002) per
year. During 2002, we will perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of February 1, 2002 and have
not yet determined what the effect of these will be on the earnings and
financial position of the Company.

In October 2001, the FASB issued SFAS No. 144 "ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS". SFAS No. 144, which replaces SFAS No. 121
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF," requires long-lived assets to be measured at the lower of
carrying amount or fair value less the cost to sell. SFAS No. 144 also broadens
disposal transaction reporting related to discontinued operations. SFAS No. 144
is effective for financial statements issued for fiscal years beginning after
December 15, 2001. We do not anticipate that a charge, if any, related to the
adoption of SFAS No. 144 in fiscal 2002 will be significant.

In November 2001, the FASB issued a Staff Announcement Topic D-103 covering
the "INCOME STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR OUT OF
POCKET EXPENSES INCURRED" ("Announcement"). The Announcement requires companies
to characterize reimbursements received for out of pocket expenses incurred as
revenue in the statement of operations. We netted reimbursements received for
out of pocket expenses against the related expenses in the accompanying
consolidated statements of operations. The Announcement is to be applied in
financial reporting periods beginning after December 15, 2001 and comparative
financial statements for prior periods are to be reclassified to comply with the
guidance in this announcement. We will adopt the Announcement beginning in the
first quarter of fiscal 2002. The Announcement is not expected to have a
significant impact on gross margin and will have no effect on net income, but
will increase consulting fees and software implementation fees and related costs
of revenues.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

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

We account for our investment instruments in accordance with Statement of
Financial Accounting Standards No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES" ("SFAS 115"). We treat all of our cash equivalents
and short-term investments as available-for-sale under SFAS 115.

Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment income may fall
short of expectations due to changes in interest rates, or we may suffer losses
in principal if forced to sell securities which have seen a decline in market
value due to changes in interest rates. Our investment securities are held for
purposes other than trading. All investments were liquidated as of January 31,
2002. The weighted-

44

average interest rate on investment securities at January 31, 2001 was 4.5%.
Amortized cost of short-term investments held at January 31, 2001 was
$15.4 million, which approximates fair value.

We currently have $44.0 million outstanding under our revolving credit
agreement at January 31, 2002. As described in Note 4 of our Notes to
Consolidated Financial Statements, the interest rate is variable. At
January 31, 2002, the interest rate on $35.0 million of the debt is 5.44% and
the interest rate on $9.0 million of the debt is 5.25%.

FOREIGN CURRENCY RISK

Less than 5% of our accounts receivable balance at January 31, 2002 and 2001
was denominated in a foreign currency. Our exposure to adverse movements to
foreign exchange rates is not significant. Therefore, we do not currently hedge
our foreign currency exposure. Historically, foreign currency gains and losses
have not had a significant impact on our results of operations or financial
position. We will continue to evaluate the need to adopt a hedge strategy in the
future and may implement a formal strategy if the volume of our business
transacted in foreign currencies increases.

45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CARREKER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors........... 47

Consolidated Balance Sheets as of January 31, 2002 and
2001...................................................... 48

Consolidated Statements of Operations for the years ended
January 31, 2002, 2001 and 2000........................... 49

Consolidated Statements of Stockholders' Equity for the
years ended January 31, 2002, 2001 and 2000............... 50

Consolidated Statements of Cash Flows for the years ended
January 31, 2002, 2001 and 2000........................... 51

Notes to Consolidated Financial Statements.................. 52

46

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Carreker Corporation

We have audited the accompanying consolidated balance sheets of Carreker
Corporation (the Company), as of January 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carreker
Corporation at January 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2002, in conformity with accounting principles generally accepted in
the United States.

/s/ ERNST & YOUNG LLP

Dallas, Texas
March 7, 2002 (except for Note 13,
as to which the date is April 5, 2002)

47

CARREKER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes.

48

CARREKER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes.

49

CARREKER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

See accompanying notes.

50

CARREKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes

51

CARREKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING PROCEDURES

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

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

Certain prior year amounts have been reclassified to conform to the current
year presentation.

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

CASH AND CASH EQUIVALENTS

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

SHORT-TERM INVESTMENTS

The Company considers investments with maturities of greater than three
months, when purchased, to be short-term investments based on the freely
tradable nature of the investments, and management's expectation that they will
not be held for greater than one year. Short-term investments consist primarily
of tax exempt municipal bonds. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates their
designation as of each balance sheet date. All debt securities have been
determined by management to be available for sale. Available for sale securities
are stated at amortized cost, which approximates fair value. The fair value of
debt securities is determined based upon current market value price quotes by
security. As of January 31, 2002, all short-term investments have been
liquidated.

ACCOUNTS RECEIVABLE

A significant portion of the Company's business consists of providing
consulting services and licensing software to major domestic banks, which gives
rise to a concentration of credit risk in receivables. The Company performs
on-going credit evaluations of its customers' financial condition and generally
requires no collateral. Because the Company's accounts receivable are typically

52

unsecured, the Company periodically evaluates the collectibility of its accounts
based on a combination of factors, including a particular customer's ability to
pay as well as the age of receivables. To evaluate a specific customer's ability
to pay, the Company analyzes financial statements, payment history, and various
information or disclosures by the customer or other publicly available
information. In cases where the evidence suggests a customer may not be able to
satisfy its obligation to the Company or if the collection of the receivable
becomes doubtful due to a dispute that arises subsequent to the delivery of the
Company's products and services, the Company sets up a specific reserve in an
amount we determine appropriate for the perceived risk. Most of the Company's
contracts include multiple payment milestones, some of which occur in advance of
revenue recognition, which mitigates the risk both in terms of collectibility
and adjustments to recorded revenue. Write-offs of receivables during the three
years ended January 31, 2002, 2001 and 2000 were $1,010,000, $1,763,000 and
$502,000, respectively.

Accounts receivable include unbilled amounts that represent receivables for
work performed for which billings upon mutual agreement have not been presented
to the customers. These receivables are generally billed and collected within
one year of completion of the service. Accounts receivable include $20,958,000
and $24,055,000 of unbilled receivables at January 31, 2002 and 2001,
respectively.

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

PROPERTY AND EQUIPMENT

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

The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with Statement of Position 98-1,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE". The Company capitalizes costs of consultants, and payroll and
payroll-related costs for employees incurred in developing internal-use computer
software. These costs are included in "Equipment and Software". Costs incurred
during preliminary project and post-implementation stages are charged to
expense.

INTANGIBLE ASSETS AND GOODWILL

Intangible assets, which consist of developed technology and software
products, customer relations and assembled workforce, have been recorded as the
result of business acquisitions (See Note 3) and are being amortized on the
straight-line basis over six years. Developed technology and software products
acquired are classified as a component of capitalized software costs in the
accompanying consolidated balance sheets.

53

Goodwill is the result of differences, if any, between the aggregate
consideration paid for the acquisition and the fair value of the net tangible
and intangible assets acquired. Goodwill is amortized on a straight-line basis
over an estimated life of 15 years. Beginning in the first quarter of the year
ended January 31, 2003, goodwill will no longer be amortized, but will be
subject to an annual impairment test. See "Recently Issued Accounting Standards"
below.

DEFERRED LOAN COSTS

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

SOFTWARE COSTS CAPITALIZED

Software costs capitalized include developed technology acquired in
acquisitions and costs incurred by the Company in developing its products which
qualify for capitalization. The Company capitalizes the development costs of
software, other than internal use software, in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). The Company's
policy is to capitalize software development costs incurred in developing a
product once technological feasibility of the product has been established.
Software development costs capitalized also include amounts paid for purchased
software on products that have reached technological feasibility. Technological
feasibility of the product is determined after completion of a detailed program
design and a determination has been made that any uncertainties related to
high-risk development issues have been resolved. If the process of developing
the product does not include a detail program design, technological feasibility
is determined only after completion of a working model which has been beta
tested. All software development costs capitalized are amortized using an amount
determined as the greater of: (i) the ratio that current gross revenues for a
capitalized software project bears to the total of current and future gross
revenues for that project or (ii) the straight-line method over the remaining
economic life of the product (generally three to six years). The Company
capitalized, excluding software acquired through business combinations,
$3,964,000, $928,000 and $4,259,000, and recorded amortization relating to
software development costs capitalized of $3,099,000, $3,822,000, and $1,189,000
in the years ended January 31, 2002, 2001 and 2000, respectively.

REVENUE RECOGNITION

Effective February 1, 2000, the Company adopted Statement of Position
("SOP") 98-9, MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION WITH
RESPECT TO CERTAIN TRANSACTIONS, which did not require a significant change to
the Company's revenue recognition policies. In December 1999, the Securities and
Exchange Commission ("SEC"), issued Staff Accounting Bulletin ("SAB") No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which was adopted retroactive to
February 1, 2000. The adoption of SAB 101 did not materially affect the
Company's revenue recognition policies.

54

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

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

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

55

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

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

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

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

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

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

ROYALTIES

In connection with software license and maintenance agreements entered into
with certain banks and purchase agreements with vendors under which the Company
acquired software technology used in products sold to its customers, the Company
is required to pay royalties on sales of certain software products, including
four Back Office products and the Branch Truncation Management product. Under
these arrangements, the Company accrues royalty expense when the associated
revenue is recognized. The royalty percentages generally range from 20% to 30%.
Approximately $2,465,000, $1,914,000 and $577,000 of royalty expense was
recorded under these agreements in the years ended January 31, 2002, 2001 and
2000, respectively. Royalty expense is included as a component of the cost of
software licenses in the accompanying consolidated statements of operations.

56

DEFERRED REVENUE

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

RESEARCH AND PRODUCT DEVELOPMENT COSTS

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

EARNINGS PER SHARE

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

STOCK-BASED COMPENSATION

The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" ("APB Opinion No. 25"). In March 2000, the Financial Accounting
Standards Board Statement ("FASB") issued Interpretation No. 44, "ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION (AN INTERPRETATION OF APB
OPINION NO. 25)," ("FIN 44"), which became effective July 1, 2000. The adoption
of the provisions of FIN 44 did not have a material impact on the Company's
consolidated financial position or results of operations. As required under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION," the Company provides pro forma disclosure of net income and
earnings per share. See Note 6.

RISKS AND UNCERTAINTIES

The Company's future results of operations and financial condition could be
impacted by the following factors, among others: dependence on the banking
industry, customer concentration, indebtedness, fluctuations in operating
results, eligibility of shares for sale in the market, use of fixed-price or
value-priced arrangements, lack of long-term agreements, ability to gain market
acceptance, ability to manage growth, dependence on key personnel, product
liability, rapid technological change and dependence on new products, dependence
on third-party providers and the Internet, ability to attract and retain
qualified personnel, competition, potential strategic alliances and
acquisitions, proprietary rights, claims and legal proceedings, international
operations, use of independent contractors, changing government and tax
regulations, anti-takeover provisions in our charter and impairment of goodwill
or intangible assets. Negative trends in the Company's operating results could
result in noncompliance of financial covenants related to its revolving credit
agreement, which could impair the Company's liquidity. See description of the
Company's revolving credit agreement and related financial covenants in Note 4.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" (SFAS 133).
SFAS 133, as amended, was effective for us

57

beginning February 1, 2001. We do not currently utilize derivative financial
instruments. Therefore, the adoption of SFAS 133 did not have any impact on our
results of operation or financial position.

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company will apply the new
rules on accounting for goodwill and other intangible assets beginning in the
first quarter of 2002. Application of the nonamortization provisions of the
Statement is expected to result in an increase in net income of $5.5 million
($0.25 per share using the dilutive number of shares at January 31, 2002) per
year. During 2002, the Company 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 and has not yet determined what the effect of this change, if any, will
be on the earnings and financial position of the Company.

In October 2001, the FASB issued SFAS No. 144 "ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS". SFAS No. 144, which replaces SFAS No. 121
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF," requires long-lived assets to be measured at the lower of
carrying amount or fair value less the cost to sell. SFAS No. 144 also broadens
disposal transaction reporting related to discontinued operations. SFAS No. 144
is effective for financial statements issued for fiscal years beginning after
December 15, 2001. We do not anticipate that a charge, if any, related to the
adoption of SFAS No. 144 in fiscal 2002 will be significant.

In November 2001, the FASB issued an announcement on the topic of "INCOME
STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR OUT OF POCKET EXPENSES
INCURRED" (the "Announcement"). The Announcement requires companies to
characterize reimbursements received for out of pocket expenses incurred as
revenue in the statement of operations. The Company has netted reimbursements
received for out of pocket expenses against the related expenses in the
accompanying consolidated statements of operations. The Announcement is to be
applied in financial reporting periods beginning after December 15, 2001 and
comparative financial statements for prior periods are to be reclassified to
comply with the guidance in this announcement. The Company will adopt the
Announcement beginning in the first quarter of fiscal 2002. The Announcement is
not expected to have a significant impact on gross margin and will have no
effect on net income, but will increase consulting fees and software
implementation fees and related cost of revenues.

3. BUSINESS COMBINATIONS

On February 10, 2000, the Company acquired all of the outstanding stock of
Automated Integrated Solutions, Inc., an Ontario Company ("AIS") for
$2.3 million in cash and additional cash payments to AIS shareholders of up to
$2.0 million based on achievement of specified revenue targets over three years.
The transaction was accounted for as a purchase transaction with $2.3 million of
the purchase price allocated to capitalized software which will be amortized
over a four year period.

On May 29, 2000, the Company acquired all of the outstanding stock of X-Port
Software, Inc., an Ontario Company ("X-Port") for $3.0 million in cash. The
transaction was accounted for as a purchase transaction with approximately
$3.0 million of the purchase price allocated to capitalized software which was
to be amortized over a four year period. However, during the three months ended
July 31, 2001, the Company recorded a non-cash charge of $2.8 million
representing the write-off of the remaining net book value of the capitalized
software. See Note 11.

In connection with the acquisition of X-Port, the Company entered into a
separate agreement with the former owner of X-Port for consulting and
development services through 2003. The payments for

58

consulting total $616,000 over the three year period and the development
services fees total $1.0 million with an additional $400,000 if certain other
criteria are met. In January 2002, the Company terminated this agreement with
the former owner of X-Port. The resulting charge of $1.1 million is included in
merger and restructuring costs in the accompanying consolidated statement of
operations.

On June 6, 2001, the Company completed the acquisition of Check Solutions
Company, a New York general partnership ("Check Solutions") for $110.2 million
in cash, plus an additional $2.0 million of direct acquisition costs. Check
Solutions is a check and image processing software and installation business
that services the payment-processing sector of the financial industry. The
operating results of Check Solutions are reported in the Business Segment and
Revenue Concentration footnote in the Global Technology Solutions segment. The
Company funded the acquisition through $65.2 million of its cash, and funded the
remaining $45.0 million from proceeds under the revolving credit agreement as
described in Note 4.

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

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

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

Net assets of Check Solutions............................... $ 3,663
Current technology and software products (estimated life of
5-6 years)................................................ 24,200
Customer relationships (estimated life of 6 years).......... 8,400
Assembled workforce (estimated life of 6 years)............. 5,600
Goodwill (estimated life of 15 years)....................... 68,037
In-process research and development......................... 2,300
--------
Total purchase price...................................... $112,200
========

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

The following unaudited pro forma financial information for the year ended
January 31, 2002 and 2001, assumes the Check Solutions acquisition occurred at
the beginning of the respective periods (In thousands, except per share data).

The unaudited pro-forma financial information for the year ended
January 31, 2001 combines the Company's historical statement of operations for
the year ended January 31, 2001 with Check Solutions' historical statement of
operations for the year ended December 31, 2000. The unaudited pro-forma
financial information for the year ended January 31, 2002 combines the Company's

59

statement of operations for the year ended January 31, 2002, which includes
Check Solutions since the acquisition date of June 6, 2001 with Check Solutions
historical statement of operations for the four months ended May 31, 2001.

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

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

4. REVOLVING CREDIT AGREEMENT

On June 6, 2001, the Company entered into a three-year revolving credit
agreement with a group of banks in an amount not to exceed $60.0 million. All
outstanding borrowings are due on June 5, 2004. Borrowings under the credit
agreement bear interest equal to either the greater of prime or federal funds
rate plus a margin ranging from 0.00% to 0.75% depending on the Company's ratio
of funded debt to EBITDA; or LIBOR plus a margin equal to 1.50% to 2.25%
depending on the Company's ratio of funded debt to EBITDA. Interest payments are
due quarterly. The Company is required to pay a commitment fee equal to 0.25% to
0.50% depending on the Company's ratio of funded debt to EBITDA on the unused
amount of the revolving credit agreement. The revolving credit agreement
contains customary affirmative and negative covenants including financial
covenants requiring the maintenance of specified interest coverage, ratio of
EBITDA to funded debt, and ratio of accounts receivable, cash and short-term
investments to funded debt. Additionally, the payment of dividends is precluded
subject to the approval of the banks. Effective October 31, 2001, the Company
entered into an amendment to the credit agreement to reflect the impact of the
decline in recent operating results. Under the amendment, margin rates were
increased on prime or federal funds based loans to 2.00%, and on LIBOR based
loans to 3.50%. Effective August 1, 2002, margins will decrease to a range of
0.50% to 1.25% on prime or federal funds based loans, and to a range of 2.00% to
2.75% on LIBOR based loans. Substantially all of the Company's assets
collateralize the revolving credit agreement. Also under the amendment, certain
covenants were eliminated for the period ended October 31, 2001, and future
covenants were adjusted to levels the Company expects to achieve. As of
January 31, 2002, the Company is in compliance with the covenants of the
revolving credit agreement, as amended. The Company's ability to make additional
borrowings under this revolving credit agreement is limited by a formula based
on the Company's outstanding accounts receivable. Additionally, if the Company's
accounts receivable balance decreases below certain levels as defined in the
revolving credit agreement, mandatory prepayments of the debt may be required.
At January 31, 2002, $3.8 million of additional borrowing capacity was available
to the Company.

At January 31, 2002, the Company has $44.0 million outstanding under the
agreement in connection with the acquisition of Check Solutions. At January 31,
2002, the interest rate on $35.0 million of the debt is 5.44% and the interest
rate on $9.0 million of the debt is 5.25%. As the interest on the debt is
variable, the carrying value approximates the fair value. Interest expense on
the Revolving Credit Agreement was $1,878,000 million for the year ended
January 31, 2002.

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5. PROVISION (BENEFIT) FOR INCOME TAXES

The Company's provision (benefit) for income taxes consists of the following
(in thousands):

The provisions (benefit) for income taxes differ from the amounts computed
by applying the statutory United States federal income tax rate to income before
provision, (benefit) for income taxes as follows (in thousands):

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Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax assets and liabilities are as follows (in thousands):

At January 31, 2002, the Company had available to it net operating loss
carryforwards of approximately $14.5 million, which expire in 2022. The Company
has established a valuation allowance to reserve its net deferred tax assets at
January 31, 2002 because the more likely than not criteria for future
realization of the Company's net deferred tax assets specified in SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, were not met.

6. BENEFIT PLANS

STOCK OPTION PLANS

Effective October 7, 1994, the Company adopted the 1994 Long Term Incentive
Plan (the Long Term Incentive Plan) under which officers and employees may be
granted awards in the form of incentive stock options, non-qualified stock
options and restricted shares. The exercise price per share for the common stock
issued pursuant to incentive stock options under the Long Term Incentive Plan
shall be no less than 100% of the fair market value on the date the option is
granted. The exercise price per share for non-qualified stock options under the
Long Term Incentive Plan may be determined by the Compensation Committee of the
Company's Board of Directors (the Committee), but may not be less than the par
value of the shares. Options granted under the Long Term Incentive Plan become
exercisable and vest as determined by the Committee. To date, options granted
under the Long Term Incentive Plan fully vest within four years from the date of
grant. The term of each option granted under the Long Term Incentive Plan shall
be as the Committee determines, but in no event shall any option have a term of
longer than ten years from the date of grant. Options may be granted pursuant to
the Long Term Incentive Plan indefinitely, unless the Board of Directors
terminates the Long Term Incentive Plan.

On January 31, 1998, the Committee issued 84,700 shares of restricted stock
with a fair market value of $8.90 per share to certain key employees under the
Company's Long Term Incentive Plan. Holders of restricted stock retain all
rights of a stockholder, except the shares cannot be sold until they vest. Upon
employee termination, all unvested shares are forfeited to the Company. On
December 15, 1999, 23,100 shares were forfeited due to an employee termination.
The remaining restricted shares

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vested in full on January 31, 2001. At January 31, 2000, there was deferred
compensation related to the restricted shares totaling $183,000. The deferred
compensation was charged to expense ratably over the vesting period.

The Company has a Director Stock Option Plan (the Director Plan) under which
non-employee members of the Company's Board of Directors may be granted options
to purchase shares of the Company's Common Stock. Effective July 19, 2001,
options granted under the Director Plan are granted at fair market value as of
the grant date, vest at the rate of 25% per calendar quarter, and expire if not
exercised ten years from the date of grant or at an earlier date as determined
by the Committee and specified in the applicable stock option agreement. Prior
to July 19, 2001, options granted under the Director Plan were granted at 50% of
the fair market value on the grant date, became exercisable one year from the
date of the grant or in one or more installments and expired fifteen years from
the date of grant or at an earlier date as determined by the Committee and
specified in the applicable stock option agreement. During the years ended
January 31, 2002, 2001 and 2000, options to purchase 31,792 shares, 15,557
shares and 9,168 shares, respectively, of common stock were granted to
Directors. Due to options issued prior to July 19, 2001 being issued at less
than fair market value on the grant date, the Company recorded deferred
compensation at the dates of grant during the years ended January 31, 2002, 2001
and 2000 of $56,246, $77,500 and $27,500, respectively, to be expensed ratably
over the vesting period. At January 31, 2002, there was no remaining deferred
compensation related to Director options.

Stock option transactions under all plans for the years ended January 31,
2002, 2001 and 2000, are as follows (in thousands, except per share amounts):

Information related to options outstanding at January 31, 2002, is
summarized below (in thousands, except per share amounts):

As of January 31, 2002, the Company has reserved for issuance under the Long
Term Incentive Plan 5,692,367 shares of common stock, of which 4,294,758 shares
are subject to currently outstanding

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options to employees, and 1,397,609 shares are reserved for future awards. As of
January 31, 2002, the Company has reserved for issuance under the Director Plan
195,314 shares of Common Stock, of which 68,113 shares are subject to currently
outstanding options, and 127,201 shares are reserved for future awards.

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee and director stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS 123
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, no compensation expense is
recorded when the exercise price of the Company's employee stock options equals
the fair value of the underlying stock on the date of grant. Compensation equal
to the intrinsic value of employee stock options is recorded when the exercise
price of the stock options is less than the fair value of the underlying stock
on the date of grant. Any resulting compensation is amortized to expense over
the option's vesting period. During the years ended January 31, 2002, 2001 and
2000, total compensation expense recorded relating to employee and director
stock options was approximately $56,000, $260,000 and $332,000, respectively.

Information regarding pro forma net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee and director
stock options under the fair value method of SFAS 123. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model assuming volatility of 1.260 in 2002, .846 in 2001 and .862 in 2000, and
the following assumptions for 2002, 2001 and 2000, respectively:
weighted-average risk free interest rate of 4.6%, 6.2% and 5.6%, no dividends,
and a weighted average expected life of 4.5 years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee and director stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands, except per share amounts):

The pro forma disclosures only include the effect of options granted
subsequent to January 31, 1995. Accordingly, the pro forma information does not
reflect the pro forma effect of all previous stock option grants of the Company,
and thus is not indicative of future amounts until SFAS 123 is applied to all
outstanding stock options.

PROFIT SHARING PLAN

The Company has adopted a profit sharing plan pursuant to Section 401(k) of
the Internal Revenue Code (the Code) whereby participants may contribute a
percentage of compensation not in excess of the maximum allowed under the Code.
The plan provides for a matching contribution by the Company. Employer matching
contributions amounted to $1,662,000, $1,268,000 and $792,000 for the

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fiscal years ended January 31, 2002, 2001 and 2000, respectively. The Company
may make additional contributions at the discretion of the Board of Directors.
No discretionary contribution was made during 2002, 2001, or 2000.

BONUS PLAN

The Company pays discretionary bonuses to key employees based primarily on
Company profitability and the extent to which individuals meet agreed-upon
objectives for the year. The Company recorded bonus expense of approximately
$3,238,000, $2,938,000 and $2,132,000 for the fiscal year ended January 31,
2002, 2001 and 2000, respectively.

7. LEASE COMMITMENTS

The Company leases office facilities and certain equipment under operating
leases for various periods. Leases that expire are generally expected to be
renewed or replaced by other leases. Rental expense under operating leases for
the fiscal years ended January 31, 2002, 2001 and 2000 was approximately
$4,374,000, $2,664,000 and $1,826,000, respectively. Future minimum base rents
under terms of non-cancelable operating leases are as follows (in thousands):

Year ending January 31:

2003........................................................ $ 4,225
2004........................................................ 3,837
2005........................................................ 3,792
2006........................................................ 3,481
2007 and thereafter......................................... 9,874
-------
Total....................................................... $25,209
=======

8. EARNINGS PER SHARE

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

Options totaling 4,236,056, 4,000 and 1,328,585 in fiscal years ending
January 31, 2002, 2001 and 2000 respectively, have been excluded from the
diluted earnings per share computation, as the options were anti-dilutive.

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9. CONTINGENCIES

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

10. SEGMENTS

The tables below show revenues and income (loss) from operations for the
periods indicated for our three reportable business segments: Revenue
Enhancement, Global Technology Solutions and Enterprise Solutions. Our customer
projects are sold on a solution basis, so it is necessary to break them down by
segment and allocate accordingly. During the year ended January 31, 2002, the
Company updated the composition of its reportable business segments to combine
the Cash Solutions and Payment Solutions business segments with Check Solutions
to form the Global Technology Solutions business segment. Segment information
from all prior periods have been reclassified to conform with the current
presentation. Included in "Corporate Unallocated" are costs related to selling
and marketing, unallocated corporate overhead expense and general software
management. Business segment results include costs for research and development
as well as product royalty expense, the amortization of goodwill and intangible
assets, the write-off of capitalized software costs and merger-related costs (in
thousands):

Revenues derived from a single major customer accounted for approximately
9%, 27% and 24% of total revenue in the fiscal years ended January 31, 2002,
2001 and 2000, respectively. Revenue derived from our five largest customers
accounted for approximately 30%, 49% and 58% of total revenue in the fiscal
years ended January 31, 2002, 2001 and 2000, respectively.

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The Company markets its solutions in several foreign countries. Revenues for
fiscal years ended January 31, 2002, 2001 and 2000 attributed to countries based
on the location of the customers was as follows (in thousands):

11. MERGER, RESTRUCTURING AND WRITE-OFF OF CAPITALIZED SOFTWARE COSTS AND
PREPAID SOFTWARE ROYALTIES

In connection with the acquisition of Check Solutions during the quarter
ended July 31, 2001, the Company recorded $15.6 million in merger-related costs
(consisting of $11.3 million attributable to cost of revenues, $2.3 million
attributable to research and development, and $2.0 million attributable to
selling, general and administrative costs).

In connection with the various legal and administrative actions surrounding
a dispute with Pegasystems, Inc. during the quarter ended October 31, 2001, the
Company recorded an additional $4.2 million of settlement and legal costs and
classified them in merger and restructuring costs in the accompanying statement
of operations. The payment of these costs will be completed during the year
ending January 31, 2003.

During the fourth quarter of fiscal 2001, the Company implemented a
reduction in the workforce to adjust staffing levels to a level sufficient to
support projected business activities. Primarily, as a result of the reductions,
approximately 95 employees were terminated and a charge of $3.8 million related
primarily to severance costs was recorded during the quarter.

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These costs are summarized below (in thousands):

Included in merger and restructuring costs was $5.5 million of cash
termination benefits associated with the separation of approximately 145
employees. Most of the affected employees left their positions during the
quarter ended January 31, 2002.

The Company developed the CheckFlow Suite with Pegasystems, Inc. ("Pega")
under a Product Development, Distribution and Sublicensing Agreement effective
May 5, 1999 (the "Agreement"). Pega filed suit to restrain the Company from
developing, marketing, licensing, advertising, leasing or selling any products,
including certain Back Office products acquired during the Check Solutions
business combination, that allegedly compete with products jointly developed
under the Agreement. On October 1, 2001 the Delaware Chancery Court granted
Pega's motion for preliminary injunction. On November 5, 2001, all matters
relating to various legal and administrative actions surrounding this dispute
were settled. Under this Settlement Agreement, the Company agreed to pay
settlement and legal costs totaling $5.4 million (of which $1.1 million was
accrued at July 31, 2001), which includes royalties on prior period sales of the
four Back Office products. Consistent with the prior Agreement, the Company will
continue to pay Pega royalties based on future sales of the four Back Office
products through October 31, 2006.

Charges related to the CheckFlow Suite included a write-off of capitalized
software costs, a write-off of accounts receivable net of deferred revenue,
settlements and estimated implementation costs for existing CheckFlow customers,
write-off of prepaid royalties previously paid to Pega, and payments under
existing work orders and other product wind-down costs. The implementations
provide for estimated time and labor along with out-of-pocket costs as of
January 31, 2002. If actual costs differ from our estimates, revisions to our
estimated liability would be necessary.

In connection with the Check Solutions acquisition, a $2.3 million
in-process research and development charge was recorded reflecting the estimated
fair value of acquired research and development projects at Check Solutions,
which have not yet reached technological feasibility.

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The facility closure charge includes $440,000 for office space, which will
no longer be utilized.

The activity related to the merger and restructuring costs reserve balance
during the year ended January 31, 2002 is as follows (in thousands):

During the quarterly period ended July 31, 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 the Company's 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, the Company entered into an alliance with Exchange
Applications, Inc. ("Xchange"). As part of this alliance the Company became the
exclusive provider of the EnAct customer relationship software and methodology
to the banking industry. Under the EnAct agreement, the Company became obligated
for guaranteed royalty payments of $12.5 million. Based on the Company's
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, the Company negotiated with Exchange and received a
commitment for $960,000 as a partial offset to expenses incurred to enhance and
support the EnAct software for the existing customer base. Through January 31,
2002, the Company reflected $480,000 of this reimbursement as a reduction in
cost of revenue.

12. RELATED PARTY TRANSACTIONS

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

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In connection with the completion of the Check Solutions acquisition, the
Company assumed a $10.0 million obligation to certain employees of Check
Solutions, including a current officer of the Company. At January 31, 2002,
approximately $6.7 million of this obligation was outstanding.

13. SUBSEQUENT EVENT

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

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY.

The following table sets forth information regarding our current executive
officers and directors.

JOHN D. CARREKER, JR. has served as our Chairman of the Board of Directors
and Chief Executive Officer since our formation in 1978. John D. Carreker, Jr.
and James D. Carreker are brothers.

MICHAEL D. HANSEN has served as a director of the Company since
December 2001. Mr. Hansen has served as President and Chief Operating Officer of
the Company since December 2001. From October 2000 to December 2001 Mr. Hansen
served as Executive Vice President and Managing Director of the Company. From
1998 to September 2000, Mr. Hansen served as the Head of Commercial Services and
Executive Vice President and the Managing Director of Commercial Banking of Bank
One Corporation. From 1995 to 1998, Mr. Hansen served as the President of
Operations Services of Bank One Corporation. His term as director expires in
2003.

TERRY L. GAGE has served as Executive Vice President, Treasurer and Chief
Financial Officer since October 1995 and was elected Assistant Secretary in
April 1997. From October 1986 to April 1995, Mr. Gage served as Treasurer and
Chief Financial Officer of FAAC Incorporated, a company specializing in
technology engineering and consulting services.

ROBERT M. OLSON, JR. has served as Executive Vice President and Managing
Director since July 1998. From July 1994 until July 1998, Mr. Olson served as
Executive Vice President, Operations & Technology for Magna Group, Inc., a
financial services institution.

JOSEPH M. ROWELL has served as President, Global Technology Solutions since
February 2002. From June 2001 to January 2002, Mr. Rowell served as President of
Carreker Check Solutions LLC, a wholly owned subsidiary of the Company. For the
five years prior to this time Mr. Rowell served as President of Check Solutions
Company, a software and services company serving financial institutions.

BLAKE A. WILLIAMS has served as Executive Vice President and Managing
Director of Revenue Enhancement since July 2001. For two years prior to that
time, Mr. Williams was the SVP and

72

Managing Director of Revenue Enhancement. Mr. Williams has been with the Company
for eleven years in various management and consulting roles.

TOD V. MONGAN has served as Senior Vice President, and Secretary since
December 2001. Mr. Mongan has served as General Counsel to the Company since
February 2001. For the five years prior to that time Mr. Mongan served as Senior
Vice President, General Counsel, Secretary and Chief Administrative Officer for
BancTec, Inc., a worldwide systems integration, manufacturing and services
company.

JAMES D. CARREKER has served as a director of the Company since 1984.
Mr. Carreker served as Chairman of the Board of Directors of Wyndham
International, Inc., a hotel management and leasing company from March 1999 to
October 2000. Mr. Carreker served as Chief Executive Officer of Wyndham
International, and from January 1998 to June 1999 Mr. Carreker also served as a
director of Patriot American Hospitality, Inc. Patriot was a hotel real estate
investment trust until it became a wholly-owned subsidiary of Wyndham
International in June 1999. Mr. Carreker served as President and Chief Executive
Officer of Wyndham Hotel Corporation, a national hotel company from May 1996,
and as a director of Wyndham from February 1996, until the merger of Wyndham
with Patriot in January 1998. Mr. Carreker also served as President and Chief
Executive Officer of Trammell Crow Company, a national real estate company as
well as President of Burdines Department Stores, located in Florida. He
currently serves as a director of Crow Holdings, Outrigger Hotels & Resorts,
Pier 1 Imports and WinsLoew Furniture, Inc. John D. Carreker, Jr. and James D.
Carreker are brothers. His term expires in 2004.

JAMES R. ERWIN has served as a director of the Company since May 2001.
Mr. Erwin is currently Managing Director and Partner of Erwin Graves &
Associates, L.P., a management consulting company. Mr. Erwin served as Vice
Chairman-Texas and Senior Client Executive-Southwest of Bank of America, N.A.
from October 1998 to May 2000, was Vice Chairman for Texas and Corporate Finance
Executive-West for NationsBank Corp from January 1994 to October 1998, and was
Executive Vice President, Manager of Operations and Technology for NationsBank
Corp. from October 1991 to January 1994. Mr. Erwin has served as a director of
Trammell Crow Company, a diversified real estate service company, since
December 1997. In May 2001 Mr. Erwin was elected to the Board of Texas Capital
Bancshares, Inc. His term expires in 2002.

DONALD L. HOUSE has served as a director of the Company since March 30,
1998. From January 1993 until December 1997, Mr. House served as Chairman of the
Board of Directors of SQL Financials International, Inc. (now known as Clarus
Corporation), a developer of electronic commerce application software;
Mr. House continues to serve as a director of Clarus Corporation, where he is a
member of its audit committee. Mr. House is Chairman of Ockham
Technologies, Inc., a provider of sales management software, and he is on the
board of several other private technology companies. His term expires in 2002.

JAMES L. FISCHER has served as a director of the Company since 1984.
Mr. Fischer retired in 1984 from Texas Instruments Incorporated ("TI"), an
electronics manufacturer, where he served in a variety of positions over
29 years. At the time of his retirement, Mr. Fischer served as Executive Vice
President and Principal Financial Officer of TI. His term expires in 2003.

RICHARD R. LEE, JR.has served as a director of the Company since 1984.
Mr. Lee has served as President of Lee Financial Corporation, a financial
advisory firm, since 1975. His term expires in 2003.

DAVID K. SIAS has served as a director of the Company since October 1993 and
served as a consultant to the Company from November of that year until
July 2001. Mr. Sias has been a partner of eVentures International, LLL, a
venture capital group that specializes in start-up firms in the software arena,
since 1999. From 1997 until 1999, Mr. Sias was a director and advisor to ADS
Associates, a privately held software company. Prior to that time Mr. Sias was
with Bankers Trust Company, New

73

York for over thirty years where he led several of the bank's major businesses
to include it's International Division as well as its Global Operating and
Information Systems. His term expires in 2004.

RONALD G. STEINHART has served as a director of the Company since
April 2001. Mr. Steinhart served as Chairman and Chief Executive Officer,
Commercial Banking Group of Bank One Corporation from December 1996 until his
retirement in January 2000. From January 1995 to December 1996, Mr. Steinhart
was Chairman and Chief Executive Officer of Bank One Texas, N.A. Mr. Steinhart
joined Bank One in connection with the merger of Team Bank, which he founded in
1988. Mr. Steinhart serves on the Board of Managers of Compass Variable
Accounts, as a Director of United Auto Group, Inc., and as a Trustee of Prentiss
Properties Trust and MFS/Sun Life Series Trust. His term expires in 2004.

ITEM 11. EXECUTIVE COMPENSATION AND OTHER MATTERS.

The following information sets forth certain compensation provided to the
Company's five most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers") for each of the last three fiscal
years:

SUMMARY COMPENSATION TABLE (FISCAL YEAR ENDED JANUARY 31, 2002)

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

(1) Richard J. Jerrier, former Executive Vice President and Managing Director of
the Company, resigned his position as of February 28, 2002. In Fiscal Year
2001, Mr. Jerrier earned a salary of $339,794 and had other compensation of
$4,944.

(2) Includes Company contributions to the Employee 401(K) Savings Plan on behalf
of each of the Named Executive Officers.

(3) Includes an auto allowance of $5,738 that Mr. Rowell received pursuant to
his employment agreement.

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OPTION GRANTS IN LAST FISCAL YEAR:

The following table sets forth, for each of the identified Named Executive
Officers, information concerning the number of options granted during the fiscal
year ended January 31, 2002.

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

(1) The options vest equally in increments over four years beginning June 8,
2001.

(2) The options vest equally in increments over four years beginning June 6,
2001.

(3) Mr. Olson's option vesting has been accelerated pursuant to the terms of a
previous agreement with the Company dated May 21, 1999.

(4) Based on a total of 1,913,570 options granted during the fiscal year ended
January 31, 2002. During the fiscal year ended January 31, 2002, 228,937
outstanding options were cancelled.

(5) The option exercise price for the common stock is based on the fair market
value on the date of grant as determined pursuant to the terms of the 1994
Long Term Incentive Plan.

(6) Options may terminate before their expiration date upon death, disability or
termination of employment of the optionee.

(7) In accordance with the rules of the Commission, shown are the gains or
"option spreads" that would exist for the respective options granted. These
gains are based on the assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term. These assumed compound rates of stock price appreciation
are mandated by the rules of the Commission and do not represent our
estimate or projection of future prices of our common stock.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES:

The following table sets forth, for each of the identified Named Executive
Officers, information concerning the number of shares received during the fiscal
year ended January 31, 2002 upon exercise

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of options and the aggregate dollar amount received from such exercise, as well
as the number and value of securities underlying unexercised options held on
January 31, 2002.

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

(1) Based on the difference between the option exercise price and the closing
sales price of the Company's Common Stock as reported on the Nasdaq National
Market on the exercise date.

(2) Based on the difference between the option exercise price and the closing
sale price of $5.25 of the Company's Common Stock as reported on the Nasdaq
National Market on January 31, 2002, the last trading day prior to the
closing of the Company's fiscal year ended January 31, 2002, multiplied by
the number of shares underlying the options.

EXECUTIVE EMPLOYMENT AGREEMENTS

The Company is a party to an employment agreement with Mr. Carreker with a
term beginning February 1, 1997 extending through January 31, 1999. Pursuant to
its terms, the agreement was renewed by Mr. Carreker for additional one-year
terms (through January 31, 2003) by giving six months' prior written notice to
the Company in 1998, 1999, 2000 and 2001. The agreement provides that
Mr. Carreker will receive a base annual salary of not less than $450,000 and
will be eligible to receive bonuses as determined by the Board of Directors in
its sole discretion. The agreement may be terminated at any time by the Board of
Directors, with or without cause. Upon termination of the agreement by
Mr. Carreker due to a breach on the part of the Company or by the Company
without cause, Mr. Carreker will be entitled to receive, on the Company's
regular payroll dates and less required withholdings, his salary at the current
rate for the remaining term of the agreement. Mr. Carreker has agreed to reduce
his base salary by ten percent (10%) to reflect his participation in the
Company's Variable Compensation Plan.

The Company is a party to employment agreements with Messrs. Hansen and
Rowell. Mr. Hansen's agreement has an initial term extending through
October 2003 and Mr. Rowell's agreement has an initial term extending through
June 2004. Each of Messrs. Hansen and Rowell's agreements will renew
automatically for successive one (1) year terms at the end of the initial period
unless either party notifies the other six (6) months in advance of the
expiration of the initial or renewal period. Under the agreements each of
Messrs. Hansen and Rowell receive an annual base salary of not less than
$340,000 and $350,000, respectively (subject to annual review and discretionary
increases), and each is entitled to a bonus of up to seventy percent of his
annual base salary on terms no less favorable than those applicable to other
high-level officers of the Company in each year of the applicable agreement if
the Board of Directors, in its sole discretion, so determines. The agreements
may be terminated at any time by the Company with or without cause, and may be
terminated by the executive if the Company is in material breach of the
applicable agreement. Upon termination by the executive due to a breach on the
part of the Company or by the Company without cause, the executive will be
entitled to receive, on the Company's regular payroll dates and less required
withholdings, his salary at the current rate for the remaining term of the
agreement (in addition, under certain circumstances, Messrs. Hansen and Rowell
would be entitled to receive certain bonus payments).

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Messrs. Hansen and Rowell have agreed to reduce their base salaries by ten
percent (10%) to reflect their participation in the Company's Variable
Compensation Plan.

DIRECTOR COMPENSATION

Employee directors do not receive compensation for their services as
directors. Non-employee directors receive an annual retainer of $12,000, payable
quarterly, a fee of $2,000 per board meeting attended, a fee of $650 per
committee meeting attended, and a fee of $150 for each chairman attending a
committee meeting. Under the Company's Director Stock Option Plan, non-employee
directors are awarded options to purchase Common Stock on the first day of each
board compensation year (August 1), exercisable at the fair market value of the
Common Stock on such date. The number of options awarded is determined pursuant
to an option pricing formula, so that the fair value of the option award will
equal $60,000.

COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of Messrs. Fischer, Erwin and Lee. The
Audit Committee consists of Messrs. Fischer, House, Lee and Steinhart. None of
these individuals was at any time during the fiscal year ended January 31, 2002,
or any other time, an officer or employee of the Company. No member of the
Compensation Committee or Audit Committee serves as a member of the board of
directors, compensation committee or audit committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors, Compensation Committee or Audit Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

OUTSTANDING CAPITAL STOCK AND STOCK OWNERSHIP OF DIRECTORS, CERTAIN
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS:

As of January 31, 2002, the Company had issued and outstanding 21,897,029
shares of Common Stock, par value $.01 per share ("Common Stock").

The following table sets forth information as of January 31, 2002, regarding
the beneficial ownership of the Company's Common Stock by each person or group
known by management of the Company to own more than five percent of the
outstanding shares of Common Stock of the Company, by each of the Company's
executive officers named in the Summary Compensation Table below, by each of the
Company's directors and by all of its directors and executive officers as a
group.

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The information for the five percent owners is derived solely from Schedules
13D and 13G filed with the Commission. Except as otherwise noted, the address
for each owner is 4055 Valley View Lane, Suite 1000, Dallas, Texas, 75244.

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

* Less than 1%

(1) Various persons have the right to receive or the power to direct the
receipt of dividend from, or the proceeds from the sale of, the Common
Stock of the Company. The interest of one person, Fidelity Low Priced Stock
Fund, an investment company registered under the Investment Company Act of
1940, in the Common Stock of the Company amounted to 2,188,400 shares at
December 31, 2001. Edward C. Johnson 3d, FMR Corp., through its control of
Fidelity, and the Funds each has sole power to dispose of the 2,188,400
shares owned by the Funds. Neither FMR Corp. nor Edward C. Johnson 3d has
the sole power to vote or direct the voting of the shares owned directly by
the Fidelity Funds, which power resides with the Funds' Boards of Trustees.

Members of the Edward C. Johnson 3d family are the predominant owners of
Class B shares of common stock of FMR Corp., representing approximately 49%
of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
Johnson owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P. Johnson is a Director
of FMR Corp. The Johnson family group and all other Class B shareholders
have entered into a shareholders' voting agreement under which all Class B
shares will be voted in accordance with the majority vote of Class B shares.
Accordingly, through their ownership of voting common stock and the
execution of the shareholders' voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR Corp.

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(2) Includes 315,079 shares held in a family limited partnership for which
Mr. Carreker is the general partner and 12,500 shares that are exercisable
by Mr. Carreker within sixty days.

(3) Includes 6,000 shares held by Patricia L. Sias, the wife of Mr. Sias, as to
which Mr. Sias disclaims beneficial ownership and 9,660 shares that are
exercisable by Mr. Sias within sixty days.

(4) Includes 214,091 shares that are exercisable by Mr. Olson within sixty
days.

(5) Includes 6,576 shares held by children of Mr. Carreker and 82,117 shares
currently held in trust, as to which Mr. Carreker disclaims beneficial
ownership and 14,492 shares that are exercisable by Mr. Carreker within
sixty days.

(6) Includes 5,000 shares held by Lee Financial Corporation and 11,576 shares
currently held in trust, as to which Mr. Lee disclaims beneficial ownership
and 16,159 shares that are exercisable by Mr. Lee within sixty days. Of the
shares owned by Mr. Lee, 83,000 have been pledged as security for a loan.

(7) Includes 2,000 shares held by Elizabeth Fischer, the wife of Mr. Fischer,
as to which Mr. Fischer disclaims beneficial ownership and 16,159 shares
that are exercisable by Mr. Fischer within sixty days.

(8) Includes 54,788 shares that are exercisable by Mr. House within sixty days.

(9) Includes 36,666 shares that are exercisable by Mr. Hansen within sixty
days.

(10) Includes 16,450 shares that are exercisable by Mr. Williams within sixty
days.

(11) Includes 1,960 shares that are exercisable by Mr. Erwin within sixty days.

(12) Includes 1,960 shares that are exercisable by Mr. Steinhart within sixty
days.

(13) Includes 438,373 shares that are exercisable by the directors and
executive officers as a group within sixty days.

EQUITY COMPENSATION PLAN INFORMATION (IN THOUSANDS, EXCEPT PER SHARE
EXERCISE PRICE AMOUNTS):

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In March 2001 the Company loaned $500,000 to Mr. Robert E. Hall pursuant to
a Limited Recourse Promissory Note. Pursuant to the terms of the Note, interest
shall accrue annually at a rate of five percent (5%) and all principal and
accrued interest is due in full on March 30, 2004.

79

In connection with our acquisition of Check Solutions Company we entered
into an Assumption Agreement with Joseph M. Rowell, the President of our
wholly-owned subsidiary Carreker Check Solutions LLC, under which we assumed
certain obligations of Check Solutions Company to pay Mr. Rowell $5,550,000
pursuant to a Goodwill Purchase Agreement. We agreed to pay this amount in four
equal installments of $1,387,500, payable in either cash, fully registered
shares of our common stock, or a combination thereof, in our sole discretion. We
elected to satisfy our obligation to Mr. Rowell through payment of the full cash
amount, $1,387,500 of which we paid during fiscal 2001 and $4,162,500 of which
we paid in early fiscal 2002.

The Company has adopted a policy providing that all transactions between the
Company and related parties will be subject to approval by a majority of all
disinterested directors; and must be on terms no less favorable than those that
could otherwise be obtained from unrelated third parties.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. The following financial statements are filed as part of this
report:

Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of January 31, 2002 and 2001
Consolidated Statements of Operations for the years ended
January 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the
years ended January 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years ended
January 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements

2. Consolidated Financial Statement Schedules

Financial Statement Schedules for which provision is made in
the applicable accounting regulations of the Securities and
Exchange Commission have been excluded, as they are not
required under the related instructions or the information
required has been included in the Company's Consolidated
Financial Statements.

3. The following documents are filed or incorporated by
reference as exhibits to this report:

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

+ Management contract or compensatory plan or arrangement. The Company will
furnish a copy of any exhibit listed above to any shareholder without charge
upon written request to Mr. Terry L. Gage, Chief Financial Officer, 4055
Valley View Lane, Suite 1000, Dallas, TX 75244.

* Filed herewith.

(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.

(c) The Index to Exhibits filed or incorporated by reference pursuant to
Item 601 of Regulation S-K and the Exhibits being filed with this Report
are included following the signature pages to this Form 10-K

(d) Not applicable.

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POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of Carreker Corporation, a Delaware
corporation, and the undersigned directors and officers of Carreker Corporation
hereby constitutes and appoints John D. Carreker, Jr. and Terry L. Gage, or any
one of them, its or his true and lawful attorney-in-fact and agent, for it or
him and in its or his name, place and stead, in any and all capacities, with
full power to act alone, to sign any and all amendments to this Report, and to
file each such amendment to the Report, with all exhibits thereto, and any and
all other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
or he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

CARREKER CORPORATION
By: /s/ JOHN D. CARREKER, JR.
-----------------------------------------
John D. Carreker, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

Dated: April 15, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
in the capacities indicated on April 15, 2002.