S1 CORP /DE/, 10-Q, 2000-08-14

S1 CORP /DE/
10-Q, 2000-08-14
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] 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: 000-24931

S1 CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 58-2395199
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

3390 PEACHTREE ROAD, NE, SUITE 1700 30326
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 812-6200

NOT APPLICABLE
(FORMER NAME IF CHANGED SINCE LAST REPORT.)

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

Shares of common stock outstanding as of August 11, 2000: 55,202,145

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<PAGE> 2

S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 245,498 $ 67,850
Investment securities available for sale (cost of $1,343
at June 30, 2000 and $1,800 at December 31, 1999)....... 43,224 62,754
Accounts receivable, net of allowance for doubtful
accounts and billing adjustments of $7,321 at June 30,
2000 and $8,584 at December 31, 1999.................... 83,046 70,136
Notes receivable.......................................... 1,000 1,500
Prepaid Expenses.......................................... 8,009 6,625
Other current assets...................................... 428 678
---------- ----------
Total current assets............................... 381,205 209,543
Property and equipment, net............................... 53,949 24,580
Intangible assets, net.................................... 98,264 106,508
Notes receivable.......................................... 2,004 --
Goodwill, net............................................. 1,028,163 788,293
Other assets.............................................. 7,916 3,563
---------- ----------
Total assets....................................... $1,571,501 $1,132,487
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,698 $ 29,493
Accrued salaries and benefits............................. 12,257 12,123
Accrued other expenses.................................... 35,356 44,122
Deferred revenues......................................... 29,087 20,469
Notes payable............................................. 4,759 6,351
Current portion of capital lease obligation............... 6,287 759
---------- ----------
Total current liabilities.......................... 99,444 113,317
Deferred revenues......................................... 5,677 9,283
Capital lease obligation, excluding current portion....... 10,105 1,086
Deferred tax liability.................................... 15,386 15,386
Other liabilities......................................... 2,584 2,608
---------- ----------
Total liabilities.................................. 133,196 141,680
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 25,000,000
shares Issued and outstanding 1,208,064 and 1,393,014
shares at June 30, 2000 and December 31, 1999,
respectively........................................... 253,984 23,089
Common stock, $0.01 par value. Authorized 350,000,000
shares. Issued and outstanding 54,988,454 and
48,831,243 shares at June 30, 2000 and December 31,
1999, respectively..................................... 550 488
Additional paid-in capital.............................. 1,590,011 1,126,607
Receivable from the sale of stock....................... (11,783) (11,735)
Accumulated deficit..................................... (436,131) (207,927)
Accumulated other comprehensive income:
Net unrealized gains on investment securities
available for sale, net of taxes..................... 41,056 60,143
Cumulative foreign currency translation adjustment.... 618 142
---------- ----------
Total stockholders' equity......................... 1,438,305 990,807
---------- ----------
Total liabilities and stockholders' equity......... $1,571,501 $1,132,487
========== ==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 3

S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Software licenses........................... $ 15,330 $ 2,330 $ 26,049 $ 4,638
Professional services....................... 37,230 10,911 71,612 18,633
Data center................................. 5,317 2,044 8,824 3,591
Other....................................... 1,207 390 2,968 813
---------- ---------- ---------- ----------
Total revenues...................... 59,084 15,675 109,453 27,675
---------- ---------- ---------- ----------
Direct costs:
Software licenses........................... 1,226 99 2,747 232
Professional services, excluding stock
compensation expense of $24 and $55 in
2000 and 1999, respectively.............. 25,865 6,431 51,749 11,386
Data center................................. 4,806 2,029 8,158 3,716
Other....................................... 1,084 333 2,678 677
---------- ---------- ---------- ----------
Total direct costs.................. 32,981 8,892 65,332 16,011
---------- ---------- ---------- ----------
Gross margin........................ 26,103 6,783 44,121 11,664
Operating expenses:
Selling and marketing, excluding stock
compensation expense of $374 in 2000..... 13,396 1,174 24,802 2,253
Product development, excluding stock
compensation expense of $856 and $130 in
2000 and 1999, respectively.............. 15,830 4,439 30,822 8,760
General and administrative, excluding stock
compensation expense of $1,470 and $29 in
2000 and 1999, respectively.............. 11,451 2,132 20,802 3,694
Depreciation and amortization............... 6,129 1,267 9,533 2,461
Stock option compensation expense........... 1,599 107 2,724 214
Marketing cost from warrants issued......... 362 -- 4,962 --
Merger related costs........................ 6,344 250 13,158 250
Acquired in-process research and
development.............................. 14,100 -- 14,100 --
Amortization of acquisition intangibles..... 112,386 103 189,513 206
---------- ---------- ---------- ----------
Total operating expenses............ 181,597 9,472 310,416 17,838
---------- ---------- ---------- ----------
Operating loss...................... (155,494) (2,689) (266,295) (6,174)
Interest and investment income................ 2,498 527 38,091 754
---------- ---------- ---------- ----------
Net loss...................................... $ (152,996) $ (2,162) $ (228,204) $ (5,420)
========== ========== ========== ==========
Basic and diluted net loss per common share... $ (2.82) $ (0.08) $ (4.36) $ (0.21)
========== ========== ========== ==========
Weighted average common shares outstanding.... 54,167,563 26,051,942 52,332,810 25,378,877
========== ========== ========== ==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4

S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D COMMON STOCK
------------------ ----------------- ----------------- ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------- ------- ------- ------- ------- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999... 428,950 $ 1,062 749,064 $10,000 215,000 $12,027 -- -- 48,831,243 $488
Net loss.................... -- -- -- -- -- -- -- -- -- --
Change in net unrealized
gains on investment
securities available for
sale, net of taxes......... -- -- -- -- -- -- -- -- -- --
Change in cumulative foreign
currency translation
adjustment, net of taxes... -- -- -- -- -- -- -- -- -- --
Realized gain on sale of
investment securities...... -- -- -- -- -- -- -- -- -- --
Proceeds from issuance of
preferred stock, net of
expenses................... -- -- -- -- -- -- 244,000 $231,957 -- --
Conversion of preferred
stock to common stock...... (428,950) (1,062) -- -- -- -- -- -- 857,900 9
Payment on receivable from
the sale of stock.......... -- -- -- -- -- -- -- -- -- --
Interest earned on
receivable from the sale of
stock...................... -- -- -- -- -- -- -- -- -- --
Common stock sold under
employee stock purchase and
option plans............... -- -- -- -- -- -- -- -- 2,595,816 26
Deferred stock option
compensation expense....... -- -- -- -- -- -- -- -- -- --
Warrants issued in
connection with marketing
agreements................. -- -- -- -- -- -- -- -- -- --
Issuance of common stock in
connection with
acquisitions............... -- -- -- -- -- -- -- -- 2,703,495 27
Comprehensive loss..........
-------- ------- ------- ------- ------- ------- ------- -------- ---------- ----
Balance June 30, 2000....... -- $ -- 749,064 $10,000 215,000 $12,027 244,000 $231,957 54,988,454 $550
======== ======= ======= ======= ======= ======= ======= ======== ========== ====

RECEIVABLE ACCUMULATED
ADDITIONAL FROM THE OTHER TOTAL
PAID-IN SALE OF ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
CAPITAL STOCK DEFICIT INCOME EQUITY INCOME (LOSS)
---------- ---------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999... $1,126,607 $(11,735) $(207,927) $ 60,285 $ 990,807
Net loss.................... -- -- (228,204) -- (228,204) $(228,204)
Change in net unrealized
gains on investment
securities available for
sale, net of taxes......... -- -- -- 4,419 4,419 4,419
Change in cumulative foreign
currency translation
adjustment, net of taxes... -- -- -- 476 476 476
Realized gain on sale of
investment securities...... -- -- -- (23,506) (23,506) --
Proceeds from issuance of
preferred stock, net of
expenses................... -- -- -- -- 231,957 --
Conversion of preferred
stock to common stock...... 1,053 -- -- -- -- --
Payment on receivable from
the sale of stock.......... -- 451 -- -- 451 --
Interest earned on
receivable from the sale of
stock...................... 499 (499) -- -- -- --
Common stock sold under
employee stock purchase and
option plans............... 13,938 -- -- -- 13,964 --
Deferred stock option
compensation expense....... 2,353 -- -- -- 2,353 --
Warrants issued in
connection with marketing
agreements................. 4,962 -- -- -- 4,962 --
Issuance of common stock in
connection with
acquisitions............... 440,599 -- -- -- 440,626 --
Comprehensive loss.......... $(223,309)
---------- -------- --------- -------- ---------- =========
Balance June 30, 2000....... $1,590,011 $(11,783) $(436,131) $ 41,674 $1,438,305
========== ======== ========= ======== ==========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

4
<PAGE> 5

S1 CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(228,204) $ (5,420)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization including acquisition
charges.............................................. 199,046 2,665
Acquired in-process research and development......... 14,100 --
Compensation and marketing expense for stock options
and warrants......................................... 7,315 214
Provision for doubtful accounts receivable and
billing adjustments.................................. 1,636 320
Gain on the sale of investment securities available
for sale............................................. (35,057) --
(Increase) decrease in accounts receivable........... (12,482) 172
Increase in prepaid expenses and other assets........ (953) (3,091)
Decrease in accounts payable......................... (18,020) (105)
(Decrease) increase in accrued expenses and other
liabilities.......................................... (12,078) 986
Increase in deferred revenue......................... 1,277 1,700
--------- --------
Net cash used in operating activities.............. (83,420) (2,559)
--------- --------
Cash flows from investing activities:
Net cash acquired through acquisitions.................... 6,040 --
Proceeds from sales of investment securities available for
sale.................................................... 36,546 --
Investments in and advances to unconsolidated companies... (6,883) --
Payment (advance) of notes receivable..................... 500 (6,000)
Purchases of property and equipment and purchased
technology.............................................. (18,402) (4,035)
--------- --------
Net cash provided by (used in) investing
activities....................................... 17,801 (10,035)
--------- --------
Cash flows from financing activities:
Sale of preferred stock, net of expenses.................. 231,957 --
Sale of common stock, net of expenses..................... -- 63,959
Payment on subscription receivables....................... 451 962
Proceeds from sale of common stock under employee stock
purchase and option plans............................... 13,964 4,533
Payments on capital lease obligations..................... (1,480) (514)
Payments on borrowings.................................... (1,601) --
--------- --------
Net cash provided by financing activities.......... 243,291 68,940
--------- --------
Effect of exchange rate changes on cash..................... (24) 12
--------- --------
Net increase in cash........................................ 177,648 56,358
Cash and cash equivalents at beginning of period............ 67,850 14,504
--------- --------
Cash and cash equivalents at end of period.................. $ 245,498 $ 70,862
========= ========
Noncash financing activities:
Conversion of Series A preferred stock to common stock.... 1,062 798
Issuance of Series C Preferred Stock in exchange for
subscription receivable................................. -- 12,027
Acquisition of businesses through issuance of common
stock................................................... 440,626 --
Capital lease obligations................................. 16,039 --
</TABLE>

See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6

S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

S1 Corporation (the "Company" or "S1") develops integrated Internet
software applications that enable financial organizations to offer products,
services and transactions over the Internet in a secure environment. S1
Corporation also offers product integration, training, call center technology
and data center processing services.

The consolidated financial statements include the accounts of S1 and its
wholly owned subsidiaries. Significant intercompany accounts and transactions
have been eliminated in consolidation. The consolidated financial statements for
the three and six month periods ended June 30, 2000 and 1999 are unaudited and
do not include information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows. The interim financial
statements include all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary to present fairly
the Company's consolidated financial statements. The results of operations for
the three and six months ended June 30, 2000 are not necessarily indicative of
the expected results for the year ending December 31, 2000.

2. BUSINESS COMBINATIONS

On April 7, 2000, the Company completed the acquisition of Q Up Systems,
Inc. ("Q Up"), a leading provider of Internet banking and e-commerce portal
solutions for financial institutions, primarily community banks. On April 12,
2000, the Company completed the acquisition of Davidge Data Systems Corp.
("Davidge"), a software company that specializes in middleware and order routing
software and systems for the brokerage industry. Both acquisitions have been
accounted for using the purchase method of accounting with the excess of the
purchase price over the estimated fair value of the net assets recorded as
goodwill. The consolidated financial statements include the results of
operations of Q Up and Davidge from April 7, 2000 and April 1, 2000,
respectively. The amount of $14.1 million allocated to in-process research and
development for the Q Up acquisition was based on the results of an independent
appraisal and was expensed upon acquisition because technological feasibility
had not been established and no future alternative uses existed. Certain related
core technology was valued as existing technology and was not included in the
value of the acquired in-process research and development. The value of the
purchased in-process research and development was determined using an income
approach. This approach involved estimating the present value of the after-tax
cash flows expected to be generated by the purchased in-process research and
development, using risk-adjusted discount rates and revenue forecasts as
appropriate. Finally, a stage of completion factor was applied to the sum of the
present values of the cash flows in the projection period. The stage of
completion factor was calculated giving consideration to the costs incurred to
date on the in-process research and development relative to the total
anticipated costs for each project.

The Company issued 2,453,345 shares of common stock with a value of
approximately $271.3 million for all of the outstanding shares of Q Up.
Approximately 237,000 of the total shares exchanged were issued to escrow in
connection with a general indemnity provision. The Company also exchanged all
outstanding options to purchase Q Up stock into 1,381,824 options to purchase S1
common stock with an estimated fair value of $143.0 million. Of the total
purchase price of $414.9 million, which includes $0.6 million of costs incurred
directly related to the acquisition, $3.4 million was allocated to net assets
acquired, $12.6 million to identifiable intangible assets, $384.8 million to
goodwill and $14.1 million to in-process research and development. The
in-process research and development was expensed upon the closing of the
acquisition. Amounts allocated to goodwill, developed technology, and customer
lists are being amortized on a straight-line basis over three years. The
intangible asset related to the assembled work force is being amortized on a
straight-line basis over five years.

The Company issued 250,150 shares of common stock with a value of
approximately $25.1 million for all of the outstanding shares of Davidge. The
Company also exchanged all outstanding options to purchase
6
<PAGE> 7
S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Davidge stock into 17,615 options to purchase S1 common stock with an estimated
fair value of $1.2 million. Of the total purchase price of $27.0 million, which
includes $0.7 million of acquisition costs, $0.5 million was allocated to net
assets acquired and $26.5 million to goodwill. The amount allocated to goodwill
is being amortized on a straight-line basis over three years.

Unaudited pro forma results of operations of the Company for the six months
ended June 30, 2000 and 1999 would not be materially different as a result of
the acquisitions of Q UP and Davidge and are, therefore, not presented.

3. COMMITMENTS AND CONTINGENCIES

Commencing on May 8, 2000, the Company and certain individuals were named
in several putative shareholder class actions, which the Company expects to be
consolidated into one proceeding. (see Part II, Item 1 of this Form 10-Q). The
Company and the individual Defendants believe that the actions are without merit
and intend to defend them vigorously, but given, the uncertainties of the
litigation process, an outcome cannot be predicted. An adverse verdict could
have a material impact on the Company.

4. STOCKHOLDERS' EQUITY

Basic net loss per share is calculated as loss available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated to reflect the
potential dilution that would occur if stock options or other contracts to issue
common stock were exercised and resulted in additional common stock that would
share in the earnings of the Company. Because of the Company's net losses, the
issuance of additional shares of common stock under stock options and warrants
or upon the conversion of preferred stock would be antidilutive. The total
number of common shares that would have been used in the Company's computation
of diluted earnings per share for the three month period ended June 30, 2000 and
1999 was 68,775,964 and 36,965,151, respectively. The total number of common
shares that would have been used in the Company's computation of diluted
earnings per share for the six month period ended June 30, 2000 and 1999 was
71,863,973 and 36,292,086, respectively.

On May 26, 2000, the Company issued a total of 244,000 shares of newly
authorized convertible preferred stock ("Series D") to five purchasers for a
total of $244 million in cash. The preferred stock is convertible into common
stock at a rate of 29.283 per share. The terms of the Series D Preferred Stock
provide the holders with identical rights to common stockholders with respect to
dividends and distributions in the event of liquidations, dissolution, or
winding up of the Company. The holders of the Series D Preferred Stock are
entitled to voting rights equal to those of the common stockholders.

5. SEGMENT REPORTING

S1 operates in three business segments, Internet Financial Services, Call
Center Technology and Internet Aggregation Services. The Internet Financial
Services segment builds, delivers and operates integrated, transactional and
brandable Internet applications for financial institutions worldwide, available
as an in-house solution or outsourced to the S1 Data Center. Through the Call
Center Technology, S1 offers interactive voice response and voice e-Commerce
technology. The Internet Aggregation Services segment provides technology that
enables consumers to aggregate personal account information from multiple
sources. S1 manages the business based on these operating segments.

S1 evaluates the performance of its operating segments based on revenues,
direct costs and operating income, excluding depreciation and amortization,
stock option compensation expense, marketing cost from warrants issued, merger
related costs and amortization of acquisition intangibles. In addition, the
Company provides general and administrative services to the operating segments
on a shared service basis and does not allocate these costs to the individual
segments, therefore the general and administrative costs are included in

7
<PAGE> 8
S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

the other category. The Company does not produce reports that measure the
performance according to any asset-based metrics.

For the three and six months ended June 30, 2000, one major customer
accounted for approximately 24% and 28% of total revenues, respectively. For the
three months ended June 30, 1999, three major customers accounted for
approximately 46%, 17% and 13% of total revenues. For the six months ended June
30, 1999, three major customers accounted for approximately 45%, 15% and 14% of
total revenues, respectively.

DIVISIONAL STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 2000
----------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses... $ 7,652 $ -- $ 7,678 $ -- $ 15,330
Professional
services.......... 33,224 -- 4,006 -- 37,230
Data center......... 4,733 584 -- -- 5,317
Other............... 1,207 -- -- -- 1,207
------- ------- ------- -------- --------
Total revenues.... 46,816 584 11,684 -- 59,084
------- ------- ------- -------- --------
Direct costs:
Software licenses... 260 -- 966 -- 1,226
Professional
services.......... 22,994 -- 2,871 -- 25,865
Data center......... 4,339 467 -- -- 4,806
Other............... 1,084 -- -- -- 1,084
------- ------- ------- -------- --------
Total direct
costs........... 28,677 467 3,837 -- 32,981
------- ------- ------- -------- --------
Gross margin...... 18,139 117 7,847 -- 26,103
------- ------- ------- -------- --------
Operating expenses:
Selling and
marketing......... 6,327 1,187 3,983 1,899 13,396
Product
development....... 12,323 1,549 1,958 -- 15,830
General and
administrative.... -- -- -- 11,451 11,451
------- ------- ------- -------- --------
Total operating
expenses........ 18,650 2,736 5,941 13,350 40,677
------- ------- ------- -------- --------
Operating loss*...... $ (511) $(2,619) $ 1,906 $(13,350) $(14,574)
======= ======= ======= ======== ========
As a percentage of
total revenues:
Software licenses... 16% 0% 66% -- 26%
Professional
services.......... 71% 0% 34% -- 63%
Data center......... 10% 100% 0% -- 9%
Other............... 3% 0% 0% -- 2%
------- ------- ------- -------- --------
Total revenues.... 100% 100% 100% -- 100%
------- ------- ------- -------- --------

<CAPTION>
QUARTER ENDED JUNE 30, 1999
--------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses... $ 2,330 $-- $-- $ -- $ 2,330
Professional
services.......... 10,911 -- -- -- 10,911
Data center......... 2,044 -- -- -- 2,044
Other............... 390 -- -- -- 390
------- -- -- ------- -------
Total revenues.... 15,675 -- -- -- 15,675
------- -- -- ------- -------
Direct costs:
Software licenses... 99 -- -- -- 99
Professional
services.......... 6,431 -- -- -- 6,431
Data center......... 2,029 -- -- -- 2,029
Other............... 333 -- -- -- 333
------- -- -- ------- -------
Total direct
costs........... 8,892 -- -- -- 8,892
------- -- -- ------- -------
Gross margin...... 6,783 -- -- -- 6,783
------- -- -- ------- -------
Operating expenses:
Selling and
marketing......... 1,174 -- -- -- 1,174
Product
development....... 4,439 -- -- -- 4,439
General and
administrative.... -- -- -- 2,132 2,132
------- -- -- ------- -------
Total operating
expenses........ 5,613 -- -- 2,132 7,745
------- -- -- ------- -------
Operating loss*...... $ 1,170 $-- $-- $(2,132) $ (962)
======= == == ======= =======
As a percentage of
total revenues:
Software licenses... 15% -- -- -- 15%
Professional
services.......... 70% -- -- -- 70%
Data center......... 13% -- -- -- 13%
Other............... 2% -- -- -- 2%
------- -- -- ------- -------
Total revenues.... 100% -- -- -- 100%
------- -- -- ------- -------

</TABLE>

8
<PAGE> 9
S1 CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 2000
----------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct costs:
Software licenses... 1% 0% 8% -- 2%
Professional
services.......... 49% 0% 25% -- 44%
Data center......... 9% 80% 0% -- 8%
Other............... 2% 0% 0% -- 2%
------- ------- ------- -------- --------
Total direct
costs........... 61% 80% 33% -- 56%
------- ------- ------- -------- --------
Gross margin...... 39% 20% 67% -- 44%
------- ------- ------- -------- --------
Operating expenses:
Selling and
marketing......... 14% 203% 34% -- 23%
Product
development....... 26% 265% 17% -- 27%
General and
administrative.... 0% 0% 0% -- 19%
------- ------- ------- -------- --------
Total operating
expenses........ 40% 468% 51% -- 69%
Operating loss*...... (1%) (448%) 16% 0% (25%)
======= ======= ======= ======== ========
Direct costs as a
percentage of
revenue:
Software licenses... 3% 0% 13% -- 8%
Professional
services.......... 69% 0% 72% -- 69%
Data center......... 92% 80% 0% -- 90%
Other............... 90% 0% 0% -- 90%
------- ------- ------- -------- --------
Total direct
costs........... 61% 80% 33% -- 56%
------- ------- ------- -------- --------
Gross margin...... 39% 20% 67% -- 44%
======= ======= ======= ======== ========

<CAPTION>
QUARTER ENDED JUNE 30, 1999
--------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct costs:
Software licenses... 1% -- -- -- 1%
Professional
services.......... 41% -- -- -- 41%
Data center......... 13% -- -- -- 13%
Other............... 2% -- -- -- 2%
------- -- -- ------- -------
Total direct
costs........... 57% -- -- -- 57%
------- -- -- ------- -------
Gross margin...... 43% -- -- -- 43%
------- -- -- ------- -------
Operating expenses:
Selling and
marketing......... 7% -- -- -- 7%
Product
development....... 28% -- -- -- 28%
General and
administrative.... 0% -- -- -- 14%
------- -- -- ------- -------
Total operating
expenses........ 36% -- -- -- 49%
Operating loss*...... 7% 0% 0% 0% (6%)
======= == == ======= =======
Direct costs as a
percentage of
revenue:
Software licenses... 4% -- -- -- 4%
Professional
services.......... 59% -- -- -- 59%
Data center......... 99% -- -- -- 99%
Other............... 85% -- -- -- 85%
------- -- -- ------- -------
Total direct
costs........... 57% -- -- -- 57%
------- -- -- ------- -------
Gross margin...... 43% -- -- -- 43%
======= == == ======= =======
</TABLE>

---------------
* Excluding depreciation and amortization, stock option compensation expense,
marketing cost from warrant issued, merger related costs and amortization of
acquisition intangibles.

9
<PAGE> 10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

This quarterly report contains forward-looking statements and information
relating to us and our subsidiaries. The words "believes," "expects," "may,"
"will," "should," "projects," "contemplates," "anticipates," "forecasts,"
"intends" or similar terminology identify forward-looking statements. These
statements are based on the beliefs of management as well as assumptions made
using information currently available to management. Because these statements
reflect the current views of management concerning future events, they involve
risks, uncertainties and assumptions. Therefore, actual results may differ
significantly from the results discussed in the forward-looking statements. You
are urged to read the risk factors described in our Form 10-K for the year ended
December 31, 1999 filed with the Securities and Exchange Commission on March 30,
2000. We undertake no obligation to update publicly any forward-looking
statement for any reason, even if new information becomes available.

The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes appearing elsewhere herein and in
our Form 10-K for the year ended December 31, 1999.

GENERAL

We are a leading global infrastructure provider of Internet-based solutions
for financial organizations. Through our "engage, enable, everywhere" strategy,
we provide the solutions that empower our client banks, brokerage firms and
insurance companies to engage and enable their customers to access their
financial information and conduct transactions everywhere the Internet is
available. We believe our solutions empower our clients to increase revenue,
strengthen customer relationships and gain competitive advantage by meeting the
evolving needs of their customers across various lines of business, market
segments and delivery channels.

We provide a comprehensive set of Internet-based financial services
solutions which touch every significant facet of the financial services
industry. From banking, brokerage and insurance to personal financial management
and tax preparation capabilities, our suites of consumer, retail, small business
and corporate applications provide a comprehensive set of solutions for global,
national, regional and local financial organizations. Our solutions, including
our VerticalOne personal information aggregation service and our Edify
interactive voice response technology, reach beyond traditional online financial
services to help financial organizations deliver value to their customers,
resulting in greater customer retention and increased revenue opportunities for
our clients. In addition, we have implemented wireless solutions in the United
States, Europe and Australia that allow our clients' customers to access account
information and conduct transactions through cellular telephones and hand-held
personal digital assistants.

On April 7, 2000, we completed the acquisition of Q-Up. On April 12, 2000,
we completed the acquisition of Davidge. On November 10, 1999, we completed the
acquisitions of Edify and VerticalOne. On November 18, 1999, we completed the
acquisition of FICS. All of these acquisitions have been accounted for as
purchase business combinations. Accordingly, the results of operations for the
three and six months ended June 30, 1999 do not include the results of
operations for these acquired companies.

Revenues

We derive our revenues primarily from three sources:

Software licenses. We receive license fees from direct licensees and
third-party data processors. Direct licensees install and operate our products
in their own environments. We generally receive an initial license fee plus
ongoing fees which are based on either the number of end-users or a percentage
of the initial license fee. We generally recognize revenues from software
license sales upon shipment where no significant obligations remain. When
services are considered essential to the functionality of the software, the
software license and the related services are recognized over the implementation
period using the percentage of completion method of accounting.

A portion of our software license revenue is being recognized on a
straight-line basis over either the term of the agreement or, for contracts
without a term, the estimated period during which post-contract support is
10
<PAGE> 11

expected to be provided. Under these arrangements, post-contract support and
maintenance were bundled as part of the license agreements and sufficient vendor
specific evidence did not exist to allocate the total fee to all elements of the
arrangement.

Third-party data processors install our products in their own data
processing centers and license the product to their client institutions,
typically smaller financial services entities like community banks and thrifts.
We receive monthly fees from third party data processors based on the total
number of end-users served by the processors' client institutions. These fees
are recognized as revenue in the period earned.

Professional Services. We provide professional services related to the
installation and integration of our products. These services include:

- installing the product at direct licensees and third-party data
processing centers;

- integrating the financial organization data processing systems with our
data center for data center clients;

- providing product enhancements;

- consulting; and

- training.

Revenues derived from contracts to provide services on a time and materials
basis are recognized as the related services are performed. Revenues from
professional services provided on a fixed fee basis are recognized using the
percentage of completion method, measured by the percentage of labor hours
incurred to date to estimated total labor hours for each contract.

Data Center. We receive recurring monthly fees from financial institutions
that have chosen to use our software and outsource the processing of their
financial transactions to our data center. These fees are generally based on the
number of end users of the client institution. In addition, we receive monthly
fees for technical support. We recognize these revenues as the services are
performed.

Customer Concentrations. As a result of the size of the companies S1 does
business with, the magnitude of the implementations for companies of this size
and our limited amount of capacity to perform implementations, in any given
period a significant portion of our revenues may be attributed to a limited
number of clients. For the three and six months ended June 30, 2000, one major
customer accounted for approximately 24% and 28% of total revenues,
respectively. For the three months ended June 30, 1999, three major customers
accounted for 46%, 17%, and 13% of total revenue, respectively. For the six
months ended June 30, 1999, three major customers accounted for 45%, 15% and 14%
of total revenue, respectively.

11
<PAGE> 12

S1 CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE, PER SHARE, END-USER AND PER END-USER DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
6/30/99 9/30/99 12/31/99 3/31/00 6/30/00
------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................... $15,675 $24,799 $ 40,416 $ 50,369 $ 59,084
Direct costs....................... 8,892 15,167 21,911 32,351 32,981
------- ------- --------- --------- ---------
Gross margin............. 6,783 9,632 18,505 18,018 26,103
------- ------- --------- --------- ---------
Operating expenses:
Selling and marketing............ 1,174 1,153 8,763 11,406 13,396
Product development.............. 4,439 5,221 10,055 14,992 15,830
General and administrative....... 2,132 3,291 6,928 9,351 11,451
Depreciation and amortization.... 1,267 1,465 2,998 3,404 6,129
Stock option compensation
expense....................... 107 107 797 1,125 1,599
Marketing cost from warrants
issued........................ -- -- 715 4,600 362
Merger related costs............. 250 1,851 6,643 6,814 6,344
Acquired in-process research and
development................... -- -- 59,300 -- 14,100
Amortization of acquisition
intangibles................... 103 -- 40,000 77,127 112,386
------- ------- --------- --------- ---------
Total operating
expenses............... 9,472 13,088 136,199 128,819 181,597
------- ------- --------- --------- ---------
Operating loss..................... $(2,689) $(3,456) $(117,694) $(110,801) $(155,494)
======= ======= ========= ========= =========

SUMMARY INCOME STATEMENT ANALYSIS
(AS A PERCENTAGE OF TOTAL
REVENUES)
<CAPTION>
6/30/99 9/30/99 12/31/99 3/31/00 6/30/00
------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................... 100% 100% 100% 100% 100%
Direct costs....................... 57% 61% 54% 64% 56%
------- ------- --------- --------- ---------
Gross margin............. 43% 39% 46% 36% 44%
------- ------- --------- --------- ---------
Operating expenses:
Selling and marketing............ 7% 5% 22% 23% 23%
Product development.............. 28% 21% 25% 30% 27%
General and administrative....... 14% 13% 17% 19% 19%
Depreciation and amortization.... 8% 6% 7% 7% 10%
Stock option compensation
expense....................... 1% 0% 2% 2% 3%
Marketing cost from warrants
issued........................ 0% 0% 2% 9% 1%
Merger related costs............. 2% 7% 16% 14% 11%
Acquired in-process research and
development................... 0% 0% 147% 0% 24%
Amortization of goodwill and
acquisition charges........... 1% 0% 99% 153% 190%
------- ------- --------- --------- ---------
Total operating
expenses............... 60% 53% 337% 256% 307%
------- ------- --------- --------- ---------
Operating loss..................... (17)% (14)% (291)% (220)% (263)%
======= ======= ========= ========= =========
</TABLE>

12
<PAGE> 13

DIVISIONAL STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 2000
----------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software licenses...... $ 7,652 $ -- $7,678 $ -- $ 15,330
Professional
services............. 33,224 -- 4,006 -- 37,230
Data center............ 4,733 584 -- -- 5,317
Other.................. 1,207 -- -- -- 1,207
------- ------- ------ -------- --------
Total revenues....... 46,816 584 11,684 -- 59,084
------- ------- ------ -------- --------
DIRECT COSTS:
Software licenses...... 260 -- 966 -- 1,226
Professional
services............. 22,994 -- 2,871 -- 25,865
Data center............ 4,339 467 -- -- 4,806
Other.................. 1,084 -- -- -- 1,084
------- ------- ------ -------- --------
Total direct costs... 28,677 467 3,837 -- 32,981
------- ------- ------ -------- --------
Gross margin......... 18,139 117 7,847 -- 26,103
------- ------- ------ -------- --------
OPERATING EXPENSES:
Selling and
marketing............ 6,327 1,187 3,983 1,899 13,396
Product development.... 12,323 1,549 1,958 -- 15,830
General and
administrative....... 11,451 11,451
------- ------- ------ -------- --------
Total operating
expenses........... 18,650 2,736 5,941 13,350 40,677
------- ------- ------ -------- --------
Operating loss*......... (511) (2,619) 1,906 (13,350) (14,574)
======= ======= ====== ======== ========
AS A PERCENTAGE OF TOTAL
REVENUES:
Software licenses...... 16% 0% 66% -- 26%
Professional
services............. 71% 0% 34% -- 63%
Data center............ 10% 100% 0% -- 9%
Other.................. 3% 0% 0% -- 2%
------- ------- ------ -------- --------
Total revenues....... 100% 100% 100% -- 100%
------- ------- ------ -------- --------
DIRECT COSTS:
Software licenses...... 1% 0% 8% -- 2%
Professional
services............. 49% 0% 25% -- 44%
Data center............ 9% 80% 0% -- 8%
Other.................. 2% 0% 0% -- 2%
------- ------- ------ -------- --------
Total direct costs... 61% 80% 33% -- 56%
------- ------- ------ -------- --------
Gross margin......... 39% 20% 67% -- 44%
------- ------- ------ -------- --------
OPERATING EXPENSES:
Selling and
marketing............ 14% 203% 34% -- 23%
Product development.... 26% 265% 17% -- 27%
General and
administrative....... 0% 0% 0% -- 19%
------- ------- ------ -------- --------
Total operating
expenses........... 40% 468% 51% -- 69%
------- ------- ------ -------- --------
Operating loss*......... (1%) (448%) 16% 0% (25%)
======= ======= ====== ======== ========

<CAPTION>
QUARTER ENDED JUNE 30, 1999
----------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software licenses...... $ 2,330 $ -- $ -- $ -- $ 2,330
Professional
services............. 10,911 -- -- -- 10,911
Data center............ 2,044 -- -- -- 2,044
Other.................. 390 -- -- -- 390
------- ------- ------ -------- --------
Total revenues....... 15,675 -- -- -- 15,675
------- ------- ------ -------- --------
DIRECT COSTS:
Software licenses...... 99 -- -- -- 99
Professional
services............. 6,431 -- -- -- 6,431
Data center............ 2,029 -- -- -- 2,029
Other.................. 333 -- -- -- 333
------- ------- ------ -------- --------
Total direct costs... 8,892 -- -- -- 8,892
------- ------- ------ -------- --------
Gross margin......... 6,783 -- -- -- 6,783
------- ------- ------ -------- --------
OPERATING EXPENSES:
Selling and
marketing............ 1,174 -- -- -- 1,174
Product development.... 4,439 -- -- -- 4,439
General and
administrative....... -- -- -- 2,132 2,132
------- ------- ------ -------- --------
Total operating
expenses........... 5,613 -- -- 2,132 7,745
------- ------- ------ -------- --------
Operating loss*......... 1,170 -- -- (2,132) (962)
======= ======= ====== ======== ========
AS A PERCENTAGE OF TOTAL
REVENUES:
Software licenses...... 15% -- -- -- 15%
Professional
services............. 70% -- -- -- 70%
Data center............ 13% -- -- -- 13%
Other.................. 2% -- -- -- 2%
------- ------- ------ -------- --------
Total revenues....... 100% -- -- -- 100%
------- ------- ------ -------- --------
DIRECT COSTS:
Software licenses...... 1% -- -- -- 1%
Professional
services............. 41% -- -- -- 41%
Data center............ 13% -- -- -- 13%
Other.................. 2% -- -- -- 2%
------- ------- ------ -------- --------
Total direct costs... 57% -- -- -- 57%
------- ------- ------ -------- --------
Gross margin......... 43% -- -- -- 43%
------- ------- ------ -------- --------
OPERATING EXPENSES:
Selling and
marketing............ 7% -- -- -- 7%
Product development.... 28% -- -- -- 28%
General and
administrative....... 0% -- -- -- 14%
------- ------- ------ -------- --------
Total operating
expenses........... 36% -- -- -- 49%
------- ------- ------ -------- --------
Operating loss*......... 7% 0% 0% 0% (6%)
======= ======= ====== ======== ========
</TABLE>

13
<PAGE> 14
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 2000
----------------------------------------------------------
INTERNET INTERNET CALL
FINANCIAL AGGREGATION CENTER
SERVICES SERVICES TECHNOLOGY OTHER TOTAL
--------- ----------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct costs as a
percentage of revenue:
Software licenses...... 3% 0% 13% -- 8%
Professional
services............. 69% 0% 72% -- 69%
Data center............ 92% 80% 0% -- 90%
Other.................. 90% 0% 0% -- 90%
------- ------- ------ -------- --------
Total direct costs... 61% 80% 33% -- 56%
------- ------- ------ -------- --------
Gross margin......... 39% 20% 67% -- 44%
======= ======= ====== ======== ========

* Excluding depreciation and amortization, stock option compensation expense,
marketing cost from warrant issued, merger related costs and amortization of
acquisition intangibles.

COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

Total revenues increased by $43.4 million to $59.1 million for the three
months ended June 30, 2000 from $15.7 million in the three months ended June 30,
1999, an increase of 277%. The primary components of revenue were $15.3 million
in software license fees, $37.2 million in professional services fees, $5.3
million in data center fees and $1.2 million in other revenue. Total revenues
increased by $81.8 million to $109.5 million for the six months ended June 30,
2000 from $27.7 million for the six months ended June 30, 1999.

Direct costs increased by $24.1 million to $33.0 million for the three
months ended June 30, 2000 from $8.9 million for the three months ended June 30,
1999, and increase of 271%. Direct costs increased by $49.3 million to $65.3
million in the six months ended June 30, 2000 from $16.0 million for the three
months ended June 30, 1999. Direct costs represented 56% and 60% of total
revenues in the three and six months ended June 30, 2000, respectively, compared
to 57% and 58% or total revenue in the three and six months ended June 30, 1999,
respectively.

S1 operates in three business segments, Internet Financial Services, Call
Center Technology and Internet Aggregation Services. The Internet Financial
Services segment builds, delivers and operates integrated, transactional and
brandable Internet applications for financial institutions worldwide, available
as an in-house solution or outsourced to the S1 Data Center. Through the Call
Center Technology, S1 offers interactive voice response and voice e-Commerce
technology. The Internet Aggregator Services provides technology that enables
consumers to aggregate financial information from multiple sources. S1 manages
the business based on these operating segments.

S1 evaluates the performance of its operating segments based on revenues,
direct costs and operating income, excluding depreciation and amortization,
stock option compensation expense, marketing cost from a warrant issued, merger
related costs and amortization of acquisition intangibles. In addition, the
Company provides general and administrative services to the operating segments
on a shared services basis and does not allocate these costs to the individual
segments, therefore the general and administrative costs are included in the
other category.

INTERNET FINANCIAL SERVICES DIVISION

Revenues, Direct Costs and Gross Margins

Total revenues increased by $31.1 million to $46.8 million for the three
months ended June 30, 2000 from $15.7 million in the three months ended June 30,
1999, an increase of 199%. The primary components of revenue were $7.7 million
in software license fees, $33.2 million in professional service fees, $4.7
million in data center fees and $1.2 million of other revenue primarily related
to third party hardware and software sales. Total revenues increased by $58.7
million to $86.4 for the six months ended June 30, 2000 from $27.7 million in
the six months ended June 30, 1999, an increase of 212%. We have experienced
domestic competitive pricing pressures during the most recent quarter, which we
expect to have an impact on revenues and gross margins in the future.

14
<PAGE> 15

Direct costs increased by $19.8 million to $28.7 million in the three
months ended June 30, 2000 from $8.9 million in the three months ended June 30,
1999, an increase of 223%. Direct costs increased by $40.8 million to $56.8
million in the six months ended June 30, 2000 from $16.0 million in the six
months ended June 30, 1999, an increase of 255%. Direct costs represented 61% of
total revenues in the quarter ended June 30, 2000 compared to 57% of total
revenues in the quarter ended June 30, 1999. Direct costs represented 66% of
total revenues in the six months ended June 30, 2000 compared to 58% of total
revenues in the quarter ended June 30, 1999.

Software license. Software license fees increased by $5.3 million to $7.7
million in the three months ended June 30, 2000 from $2.3 million in the three
months ended June 30, 1999, an increase of 228%. Software license fees increased
by $6.7 million to $11.3 million in the six months ended June 30, 2000 from $4.6
million in the six months ended June 30, 1999, an increase of 144%. Software
license fees represented 16% of total revenues in the three months ended June
30, 2000 compared to 15% of total revenues in the three months ended June 30,
1999. Software license fees represented 13% of total revenues in the six months
ended June 30, 2000 compared to 17% of total revenues in the six months ended
June 30, 1999. The majority of the increase relates to the acquisitions of Q-Up,
which occurred in April 2000, and Edify, which occurred in the fourth quarter of
1999.

Direct software license costs consist primarily of the cost of third-party
software used in the S1 Consumer Suite. Direct costs associated with software
licenses increased by $161,000 to $260,000 in the three months ended June 30,
2000 from $99,000 in the three months ended June 30, 1999, an increase of 163%.
Direct costs associated with software licenses increased by $52,000 to $284,000
in the six months ended June 30, 2000 from $232,000 in the six months ended June
30, 1999, an increase of 22%. Direct costs associated with software licenses
represented 3% of software license fees in the three and six months ended June
30, 2000 compared to 4% and 5% of software license fees in the three and six
months ended June 30, 1999, respectively. We anticipate that direct costs
associated with software licenses as a percentage of revenue could continue to
increase in future periods as additional products are sold that include
third-party software.

Professional services. Professional services revenues increased by $22.3
million to $33.2 million in the three months ended June 30, 2000 from $10.9
million in the three months ended June 30, 1999, an increase of 205%.
Professional services revenues increased by $45.6 million to $64.2 million in
the six months ended June 30, 2000 from $18.6 million in the six months ended
June 30, 1999, an increase of 245%. Professional services revenues represented
71% of total revenues in the three months ended June 30, 2000 compared to 70% of
total revenues in the three months ended June 30, 1999. Of the $22.3 million
increase in the three months ended June 30, 2000, $14.0 million is related to
the acquisition in the second quarter of 2000 and fourth quarter of 1999.
Professional services revenues represented 74% of total revenues in the six
months ended June 30, 2000 compared to 67% of total revenues in the six months
ended June 30, 1999. Approximately, $25.3 million of the $45.6 increase for the
six months ended June 30, 2000 relates to the acquisitions in the second quarter
of 2000 and fourth quarter of 1999. The remaining increases for the three and
six months ended June 30, 2000 were driven by several large implementation
projects and a large product enhancement project.

Direct professional services costs consist primarily of personnel and
related infrastructure costs. Direct costs associated with professional services
increased by $16.6 million to $23.0 million in the three months ended June 30,
2000 from $6.4 million in the three months ended June 30, 1999, an increase of
258%. Direct costs associated with professional services increased by $35.0
million to $46.4 million in the six months ended June 30, 2000 from $11.4
million in the six months ended June 30, 1999, an increase of 307%.
Approximately $9.7 million and $20.2 million of the increase in professional
services costs for the three and six months ended June 30, 2000, respectively,
is attributable to the acquisitions in 1999 and 2000. The remaining increase for
the three and six months ended June 30, 2000 relates to additional resources
needed to perform work on the large implementations and product enhancement
projects. Direct costs associated with professional services represented 69% of
professional services revenues in the three months ended June 30, 2000, compared
to 59% of professional services revenues in the three months ended June 30,
1999. Direct costs associated with professional services represented 72% of
professional services revenues in the six months ended June 30, 2000, compared
to 61% of professional services revenues in the six months ended June 30, 1999.
This decrease is
15
<PAGE> 16

primarily due to lower margin contracts inherited as part of the acquisitions
made in 1999. We anticipate that professional services margins could remain at
these levels for the next several quarters as the acquired companies
historically experienced lower professional services margins than we experienced
on a stand-alone basis and as a result of the competitive pricing pressures we
are facing in the domestic marketplace.

Data Center. Data Center revenues increased by $2.7 million to $4.7
million in the three months ended June 30, 2000 from $2.0 million in the three
months ended June 30, 1999, an increase of 132%. Data Center revenues increased
by $4.3 million to $7.9 million in the six months ended June 30, 2000 from $3.6
million in the six months ended June 30, 1999, an increase of 121%. Data Center
revenues represented 10% of total revenues in the three months ended June 30,
2000 compared to 13% of total revenues in the three months ended June 30, 1999.
Data Center revenues represented 9% of total revenues in the six months ended
June 30, 2000 compared to 13% of total revenues in the six months ended June 30,
1999. Approximately $533,000 of the increase in the three and six months ended
June 30, 2000 is related to the acquisitions during the second quarter of 2000.
The remaining increase in the three and six months ended June 30, 2000 is
attributable to growth in financial institutions and end-users using S1's
Internet financial applications, including our first financial institution in
our Asia Data Center. The decrease in Data Center revenue as a percentage of
total revenue is due to the increase in total revenue as a result of the
acquisitions during the second quarter of 2000 and fourth quarter of 1999. The
average quarterly revenue per billable end-user decreased to $11.04 in the
second quarter of 2000 from $18.34 in the second quarter of 1999. As expected,
the average quarterly revenue per billable end-user has decreased as financial
services entities have increased the number of their customers using the
products. Management anticipates that this trend will continue. In addition,
Data Center revenues could remain relatively flat in the third quarter of 2000
compared to the second quarter of 2000 as a result of minimum fee arrangements
in place with certain customers.

Revenues associated with the data center are directly influenced by the
number of financial services entities that are using the Company's products
through our data centers and the number of end-users of these financial services
entities. During the month of June 2000, the data centers processed in excess of
709,000 Internet accounts, representing approximately 552,000 end-users. This
represents an increase of 292% in the number of accounts processed from
approximately 181,000 and an increase of 382% in the number of end-users from
approximately 115,000 for the month of June 1999. A significant component of the
increase related to one customer who enabled approximately 100,000 of their
customers on S1's software near the end of March. The enablement was part of an
arrangement with the customer, which includes combined professional services and
data center fees. This arrangement is part of a strategic deployment and as a
result, the fee arrangement is not based on our standard end-user per month
charge. Accordingly, this arrangement did not impact revenue significantly in
the first or second quarter 2000.

Direct data center costs consist of personnel and computer equipment costs.
Direct costs associated with data center services increased by $2.3 million to
$4.3 million in the three months ended June 30, 2000 from $2.0 million in the
three months ended June 30, 1999, an increase of 114%. Direct costs associated
with data center services increased by $3.8 million to $7.5 million in the six
months ended June 30, 2000 from $3.7 million in the six months ended June 30,
1999, an increase of 102%. Approximately $292,000 of the increase in direct
costs associated with the data center for the three and six months ended June
30, 2000 relates to the acquisitions. The remaining increase is primarily
attributed to new equipment to support our new data center in Asia, financial
institutions and upgraded and new applications. Direct data center costs
represented 92% of data center revenues in the three months ended June 30, 2000,
compared to 99% of data center revenues in the three months ended June 30, 1999.
Direct data center costs represented 95% of data center revenues in the six
months ended June 30, 2000, compared to 103% of data center revenues in the six
months ended June 30, 1999.

Other. Other revenues, primarily related to the sale of third party
hardware and software that are used in connection with our products, increased
by $0.8 million to $1.2 million in the three months ended June 30, 2000 from
$390,000 in the three months ended June 30, 1999, an increase of 209%. Other
revenues increased by $2.2 million to $3.0 million in the six months ended June
30, 2000 from $813,000 in the six months ended June 30, 1999, an increase of
265%. Other revenues represented 3% of total revenues in the three months ended
June 30, 2000 compared to 2% of total revenues in the three months ended June
30, 1999. Other
16
<PAGE> 17

revenues represented 3% of total revenues in the six months ended June 30, 2000
and June 30, 1999. The dollar increase in the three and six months ended March
31, 2000 is due to the sale of third party hardware and software primarily to
two customers.

Other direct costs consist primarily of the cost of third party software
and hardware sold for use with our products. Other direct costs increased by
$751,000 to $1.1 million in the three months ended June 30, 2000 from $333,000
in the three months ended June 30, 1999, an increase of 226%. Other direct costs
increased by $2.0 million to $2.7 million in the six months ended June 30, 2000
from $677,000 in the six months ended June 30, 1999, an increase of 296%. Other
direct costs represented 90% of other revenues in the three months ended June
30, 2000, compared to 85% of other revenue in the three months ended June 30,
1999. Other direct costs represented 90% of other revenues in the six months
ended June 30, 2000, compared to 83% of other revenue in the six months ended
June 30, 1999.

Operating Expenses

Operating expenses increased by $13.0 million to $18.7 million in the three
months ended June 30, 2000 from $5.6 million in the three months ended June 30,
1999. Operating expenses increased by $24.0 million to $35.0 million in the six
months ended June 30, 2000 from $11.0 million in the six months ended June 30,
1999.

Selling and Marketing. Selling and marketing expenses increased by $5.2
million to $6.3 million in three months ended June 30, 2000 from $1.2 million in
the three months ended June 30, 1999, an increase of 439%. Selling and marketing
expenses increased by $9.4 million to $11.6 million in six months ended June 30,
2000 from $2.3 million in the six months ended June 30, 1999, an increase of
417%. The acquisitions accounted for approximately $3.5 million and $6.5 million
of the increase in selling and marketing expense in the three and six months
ended June 30, 2000, respectively. The remainder of the dollar increase in
selling and marketing costs for the three and six months ended is primarily due
to an increase in personnel to manage the larger customer relationship. Selling
and marketing expenses were 14% and 13% of total revenues in the three and six
months ended June 30, 2000, respectively, compared to 7% and 8% of total
revenues in the three and six months ended June 30, 1999. The percentage
increase was due primarily to the acquisition of Edify and Q Up which have sales
models targeted at a larger number of smaller financial institutions, resulting
in higher sales expense as a result of having a larger sales force.

Product Development. Product development expenses increased by $7.9
million to $12.3 million in the three months ended June 30, 2000 from $4.4
million in the three months ended June 30, 1999, an increase of 178%. Product
development expenses increased by $14.5 million to $23.4 million in the six
months ended June 30, 2000 from $8.9 million in the six months ended June 30,
1999, an increase of 163%. Product development expenses were 26% and 27% of
total revenues in the three and six months ended June 30, 2000, respectively,
compared to 28% and 32% of total revenues in the three and six months ended June
30, 1999. Approximately $6.5 million and $11.3 million of the dollar increase in
the three and six months ended June 30, 2000 respectively, relates to the
acquisitions. The remainder of the dollar increase in product development costs
represents our commitment to enhancing the current products by migrating the
existing products to a more efficient software architecture and to developing
new applications. The decrease as a percentage of our total revenues resulted
from our ability to leverage product development expenses over a larger revenue
base.

INTERNET AGGREGATION SERVICES DIVISION

Revenues and Direct Costs

The Internet Aggregation Services Division was established following the
acquisition of VerticalOne in the fourth quarter 1999, therefore the entire
increase relates to the acquisition. Total revenues for the Internet Aggregation
Services Division were $584,000 in the three months ended June 30, 2000 and
$898,000 in the six months ended June 30, 2000. Total direct costs were $467,000
in the three months ended June 30, 2000 and $665,000 for the six months ended
June 30, 2000. Direct costs represented 80% and 74% of revenues for the three
and six months ended June 30, 2000, respectively. We have experienced domestic
competitive pricing

17
<PAGE> 18

pressures during the most recent quarter, which we expect to have an impact on
revenues and gross margins in the future.

Operating Expenses

Selling and marketing expenses were $1.2 million and $2.2 million in the
three and six months ended June 30, 2000, respectively. Selling and marketing
expenses were 203% and 243% of total revenues in the three and six months ended
June 30, 2000, respectively. We will continue to make investments in our selling
and marketing activities to establish market share and promote our aggregation
services both domestically and internationally. Product development expenses
were $1.5 million and $3.7 million in the three and six months ended June 30,
2000, respectively. Product development expenses were 265% and 413% of total
revenues in the three and six months ended June 30, 2000, respectively.

CALL CENTER TECHNOLOGY DIVISION

Revenues and Direct Costs

The Call Center Technology Division was established following the
acquisition of Edify in the fourth quarter 1999, therefore the entire increase
relates to the acquisition. Total revenues were $11.7 million in the three
months ended June 30, 2000 and $22.2 million in the six months ended June 30,
2000. License revenue was $7.7 million and $14.7 million in the three and six
months ended June 30, 2000, respectively. Professional services revenue was $4.0
million and $7.4 million in the three and six months ended June 30, 2000,
respectively.

Total direct costs were $3.8 million in the three months ended June 30,
2000 and $7.9 million for the six months ended June 30, 2000. Total direct costs
represented 33% and 36% of revenues for the three and six months ended June 30,
2000, respectively. Direct costs of license revenue were $1.0 million and $2.5
million in the three and six months ended June 30, 2000. Direct costs of license
revenue represented 13% and 17% of license revenues for the three and six months
ended June 30, 2000, respectively. Direct costs of license revenue primarily
represents the cost of third party software used in our call center technology
products. Direct cost associated with license revenue will vary from quarter to
quarter based on the percentage of sales, which include third party software.
Direct costs of professional services revenues were $2.9 million and $5.4
million in the three and six months ended June 30, 2000. Direct costs of
services revenue represented 72% and 73% of professional services revenues for
the three and six months ended June 30, 2000, respectively.

Operating Expenses

Selling and marketing expenses were $4.0 million and $7.7 million in the
three and six months ended June 30, 2000, respectively. Selling and marketing
expenses as a percentage of revenues were 34% and 35% in the three and six
months ended June 30, 2000, respectively. Selling and marketing expenses as a
percentage of revenues in the Call Center Technology Division are greater than
the other divisions within the company as the result of having a larger sales
force to focus on the larger number of prospective customers. Product
development expenses were $2.0 million and $3.7 million in the three and six
months ended June 30, 2000, respectively. Product development expenses were 17%
of total revenues in the three and six months ended June 30, 2000. We are
currently in the process of developing integrated call center products to expand
our existing offering. These efforts could include partnerships, outside
investors or other equity participation and as a result could cause us to
reassess the estimated useful life of the remaining goodwill.

OTHER EXPENSES

General and Administrative. General and administrative expenses increased
by $9.3 million to $11.5 million in the three months ended June 30, 2000 from
$2.1 million in the three months ended June 30, 1999, an increase of 437%.
General and administrative expenses increased by $17.1 million to $20.8 million
in the six months ended June 30, 2000 from $3.7 million in the six months ended
June 30, 1999, an increase of 459%. General and administrative expenses were 19%
of total revenues in the three and six months ended June 30, 2000, compared to
14% and 13% of total revenues in the three and six months ended June 30, 1999,

18
<PAGE> 19

respectively. Approximately $4.9 million and $10.1 million of the increase in
the three and six months ended June 30, 2000 relates to the acquired companies.
The remaining increase relates to the expanded personnel infrastructure to
manage our growth and global operations.

Depreciation and Amortization. Depreciation and amortization expenses
increased by $4.9 million to $6.1 million in the three months ended June 30,
2000 from $1.3 million in the three months ended June 30, 1999, an increase of
384%. Depreciation and amortization expenses increased by $7.1 million to $9.5
million in the six months ended June 30, 2000 from $2.5 million in the six
months ended June 30, 1999, an increase of 287%. Depreciation and amortization
expenses were 10% and 9% of total revenues for the three and six months ended
June 30, 2000, respectively, compared to 8% and 9% of total revenues in the
three and six months ended June 30, 1999. Approximately $1.9 million and $3.1
million of the increase in depreciation and amortization for the three and six
months ended June 30, 2000, respectively, related to the acquisitions. The
remainder of the increase is due to the acquisition of additional equipment for
data center customers.

Stock Option Compensation Expense. Stock option compensation expense
increased by $1.5 million to $1.6 million for the three months ended June 30,
2000 compared to $107,000 for the three months ended June 30, 1999, an increase
of 1394%. Stock option compensation expense increased by $2.5 million to $2.7
million for the six months ended June 30, 2000 compared to $214,000 for the six
months ended June 30, 1999, an increase of 1173%. The increase is primarily the
result of the acquisition of VerticalOne in the fourth quarter of 1999.

Marketing Cost for Warrants Issued. The Company recorded $362,000 of
marketing costs in the three months ended June 30, 2000 related to the vesting
of a warrant granted to Andersen Consulting in February 1999. The Company
recorded $5.0 million of marketing costs in the six months ended June 30, 2000
which includes a charge for a warrant issued in connection with a pilot project
and distribution agreement between a third-party and one of our subsidiaries.
The fair values of the warrants were determined based on the Black-Scholes
option-pricing model.

Merger Related Costs. Merger related costs for the three and six months
ended June 30, 2000 were $6.3 million and $13.2 million, respectively, related
to the acquisitions in 1999 and 2000. Approximately $1.3 million and $3.1
million of merger related costs incurred in the three and six months ended June
30, 2000, respectively, consist of the cost of product development personnel
working on the integration of all the products and platforms of the acquired
companies. Also included in merger related costs incurred in the three months
and six months ended June 30, 2000 are approximately $1.0 million and $1.8
million, respectively, of personnel costs related to professional service
employees who are being cross trained on the products and services of the
acquired companies. After the integration efforts are complete, these costs will
be captured in the product development and professional services expense
categories in the statement of operations. The remaining merger related costs
incurred in the three and six months ended June 30, 2000 consist primarily of
expenditures related to building and consolidating infrastructure and other
operations of the companies we acquired in the fourth quarter of 1999 and the
second quarter of 2000.

Amortization of Goodwill and Acquisition Charges. Amortization of goodwill
and acquisition charges increased $112.3 million to $112.4 million in the three
months ended June 30, 2000 from $103,000 in the three months ended June 30,
1999. Amortization of goodwill and acquisition charges increased $189.3 million
to $189.5 million in the six months ended June 30, 2000 from $206,000 in the six
months ended June 30, 1999. The increase related to the amortization of goodwill
and other identifiable intangible assets resulting from the acquisitions of in
the fourth quarter of 1999 and second quarter of 2000.

LIQUIDITY AND CAPITAL RESOURCES

Total stockholders' equity increased to $1,438.3 million as of June 30,
2000 from $990.8 million at December 31, 1999. The increase in stockholders'
equity is attributable to $440.6 million of common stock and stock options
issued in connection with the acquisitions completed during the second quarter
of 2000, $232.0 million of proceeds, net of issuance costs, from the issuance of
Series D Preferred Stock, $14.0 million of proceeds from the sale of common
stock under the Employee Stock Purchase and Options Plans, offset by

19
<PAGE> 20

the net loss of $228.2 million for the six months ended June 30, 2000 and the
realized gain on the sale of investment securities available for sale.

As of June 30, 2000, we had cash and cash equivalents of $245.5 million
compared to $67.9 million at December 31, 1999 and investment securities
available for sale, which consisted entirely of equity securities, of $43.2
million at June 30, 2000 compared to $62.8 million at December 31, 1999.

In the six months ended June 30, 2000, cash used in operations was $83.4
million compared to cash used in operations of $2.6 million in the six months
ended June 30, 1999. The increase in cash used in operations between 2000 and
1999 is primarily the result of the net loss for the period, the reduction of
accounts payable and accrued expenses of $30.1 million and an increase in
accounts receivable of $12.5 million

Cash provided by investing activities was $17.8 million for the six months
ended June 30, 2000 compared to net cash used in investing activities of $10.0
million in the comparable period of 1999. The increase in cash provided by
investing activities for the six months ended June 30, 2000 was the result of
the proceeds from the sale of investment securities available for sale of $36.5
million and $6.0 million of cash acquired through acquisitions, which was offset
by purchases of property and equipment of $18.4 million. Capital expenditures in
2000 relate to the expansion of our facilities infrastructure to accommodate our
growth and the establishment of our new Data Center facilities in Asia and
Europe. During the six months ended June 30, 2000, investments were made in
companies that are considered to have technology or products that compliment our
product and services offerings. We expect to continue to make strategic
investments in companies that have applications or platforms that are
synergistic to our product offerings.

Cash provided by financing activities was $243.3 million for the six months
ended June 30, 2000 compared to $68.9 million in the comparable period of 1999.
The increase relates to proceeds of $232.0 million, net of issuance costs, from
the sale of preferred stock and $14.0 million in proceeds from common stock sold
under the Employee Stock Purchase and Option Plans in the six months ended June
30, 2000. During the six months ended June 30, 1999, the Company received
proceeds of $64.0 million, net of expenses, for the sale of common stock.

Basic loss per share is calculated as income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated to reflect the
potential dilution that would occur if stock options or other contracts to issue
common stock were exercised and resulted in additional common stock that would
share in the earnings of the Company. Because of the Company's net losses, the
issuance of additional shares of common stock under stock options and warrants
or upon the conversion of preferred stock would be antidilutive. The total
number of common shares that would have been used in the Company's computation
of diluted earnings per share for the three month period ended June 30, 2000 and
1999 was 68,775,964 and 36,965,151 respectively. The total number of common
shares that would have been used in the Company's computation of diluted
earnings per share for the six month period ended June 30, 2000 and 1999 was
71,863,973 and 36,292,086, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB101"). In June 2000, the SEC
released SAB101B, which defers reporting on the effects of the adoption of SAB
101 until December 31, 2000. Although we do not currently expect the adoption of
SAB No. 101 to have a material impact on our consolidated financial position or
results of operations, we are still assessing the possible implications of SAB
No. 101.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting of Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation poses
and answers 20 questions dealing with APB 25 implementation practice issues. The
Interpretation will be applied prospectively to new awards, modification to
outstanding awards and changes in employee status on or after July 1, 2000. In
certain circumstances, the Interpretation must be applied commencing December
15, 1998 and January 12, 2000. Financial statements for periods prior to July 1,
2000

20
<PAGE> 21

will not be affected. Management does not expect the adoption of Interpretation
No. 44 to have a material effect on our consolidated financial position or
results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk were included in
Item 7A of the Company's 1999 Annual Report on Form 10-K. There have been no
significant changes in the Company's market risk from December 31, 1999.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Commencing May 8, 2000, several substantially similar complaints were filed
in the United States District Court in Atlanta, Georgia against S1, Michel
Akkermans, James Mahan and Robert Stockwell alleging violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and
Section 20 of the Securities Exchange Act of 1934. The named plaintiffs seek to
represent a class of all persons who purchased S1 shares between November 2,
1999 and May 2, 2000. Their complaints assert generally that S1 and the
individual defendants made or authorized the issuance of false and misleading
statements concerning the performance of S1, which they claim led to artificial
inflation of the price at which S1's shares were traded. S1 expects that several
cases will be consolidated into one proceeding. S1 believes that the allegations
in these complaints are wholly devoid of merit, and it and the individual
defendants intend to defend themselves vigorously against these claims.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

(a) Not applicable.

(b) Not applicable.

(c) On April 7, 2000, S1 issued 2,453,345 shares of S1's common stock and
1.4 million options to purchase S1 common stock in its acquisition of
Q-Up Systems, Inc. pursuant to an Agreement and Plan of Merger, dated
as of March 6, 2000, by and among S1, Austin Acquisition Corporation,
Q-Up Systems, Inc. and for the limited purposes set forth therein
certain of the Q-Up shareholders, as amended by Amendment No. 1 to
Agreement and Plan of Merger, dated as of March 15, 2000. 237,069
shares of the S1 common stock issued in connection with the acquisition
will be held in escrow until April 5, 2001. The offer and sale of the
stock satisfied the requirements of Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act") (transactions by an issuer
not involving any public offering).

On April 12, 2000, S1 issued an aggregate of 250,150 shares of S1's
common stock and 17,615 options to purchase S1 common stock in its
acquisition of Davidge Data Systems Corp. pursuant to an Agreement and
Plan of Merger, dated as of January 18, 2000, by and among S1, Delta
Acquisition Corporation, Davidge Data Systems Corp. and the Davidge
stockholders who are signatories thereto. The offer and sale of the
stock satisfied the requirements of Section 4(2) of the Securities Act
(transactions by an issuer not involving any public offering).

On May 24, 2000, S1 issued 8,563 shares of common stock to Jeffrey
Rubin and 437 additional shares that will be held in escrow for Mr.
Rubin until November 10, 2000 for $4,500 pursuant to a Warrant to
Purchase Shares of Common Stock, dated July 15, 1999, issued by
VerticalOne Corporation to Mr. Rubin. The sale of the stock to Mr.
Rubin satisfied the requirements of Section 4(2) of the Securities Act
(transactions by an issuer not involving any public offering).

On May 26, 2000, S1 issued shares of S1 Series D Convertible Preferred
Stock as follows for the prices indicated: (i) State Farm Mutual
Automobile Insurance Company, 100,000 shares for $100,000,000; (ii) ZG
Investments, Ltd., 75,000 shares for $75,000,000; (iii) Allianz Capital

21
<PAGE> 22

Partners GmbH, 37,500 shares for $37,500,000; (iv) Fleet Private Equity Co.,
Inc., 25,000 shares for $25,000,000; and (v) J.P. Morgan Ventures Corporation,
6,500 shares for $6,500,000. The stock was issued pursuant to a Stock Purchase
Agreement, dated as of May 25, 2000, by and among S1 and the purchasers
identified above. The offer and sale of the stock satisfied the
requirements of Section 4(2) of the Securities Act (transactions by an
issuer not involving any public offering).

On June 27, 2000, S1 issued 316,232 shares of common stock to RBC
Holdings (Delaware) Inc. in exchange for consideration of $2.5 million
in a private placement upon the exercise of the last of four options
granted pursuant to the Common Stock Purchase and Option Agreement,
dated as of March 9, 1998, by and between Security First Network Bank,
RBC Holdings and S1, as amended. The sale of the stock to RBC Holdings
satisfied the requirements of Section 4(2) of the Securities Act
(transactions by an issuer not involving any public offering).

(d) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

(a) S1's 2000 annual meeting of shareholders was held on June 6, 2000.

(b) James S. Mahan, III and Howard J. Runnion, Jr. were re-elected as
directors at the annual meeting. Continuing directors include Michel
Akkermans, Robert W. Copelan, Gregg S. Freishtat, David C. Hodgson,
Joseph S. McCall and Jackson L. Wilson.

(c) The following matters were voted on and approved by S1's shareholders
at the 2000 annual meeting of shareholders held on June 6, 2000: (i)
election of two directors for a three-year term (Proposal 1); and (ii)
two amendments that are a part of S1's second amended and restated
employee stock purchase plan (Proposal 2). As to Proposal 1, James S.
Mahan, III received 31,453,246 votes for election, 2,644,092 votes to
withhold authority to vote and no broker non-votes; and Howard J.
Runnion, Jr. received 33,883,027 votes for election, 214,311 votes to
withhold authority to vote and no broker non-votes. As to Proposal 2,
shareholders cast 14,410,936 votes for, 5,346,764 votes against,
158,391 abstentions and 14,181,247 broker non-votes. The record date
for the annual meeting was May 12, 2000.

(d) Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10 Letter Agreement, dated May 12, 2000, between S1 and Gregg
S. Freishtat.
27 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K.

S1 filed the following Current Reports on Form 8-K with the Securities and
Exchange Commission (the "SEC") during the quarter ended June 30, 2000:

Current Report on Form 8-K filed with the SEC on May 2, 2000 (date of
report April 21, 2000) (announcing date of 2000 annual meeting of
shareholders).

22
<PAGE> 23

Current Report on Form 8-K filed with the SEC on May 8, 2000 (date of
report May 2, 2000) (regarding first quarter 2000 results of operations and
a related analyst conference call).

Current Report on Form 8-K filed with the SEC on May 26, 2000 (date of
report May 25, 2000) (announcing sale of Series D Convertible Preferred
Stock).

Current Report on Form 8-K filed with the SEC on June 7, 2000 (date of
report May 26, 2000) (announcing completion of sale of Series D Convertible
Preferred Stock).

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<PAGE> 24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, as of August 14, 2000.

S1 CORPORATION

By: /s/ ROBERT F. STOCKWELL
------------------------------------
Robert F. Stockwell
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

24
<PAGE> 25

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10 Letter Agreement, dated May 12, 2000, between S1 and Gregg
S. Freishtat.
27 Financial Data Schedule.
</TABLE>