HNC SOFTWARE INC/DE, S-3, 1997-03-04

HNC SOFTWARE INC/DE
S-3, 1997-03-04
PREPACKAGED SOFTWARE

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<PAGE> 1

As filed with the Securities and Exchange Commission on March 4, 1997
REGISTRATION NO. 333-
===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________________

HNC SOFTWARE INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 33-0248788
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
______________________

5930 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121-3728
(619) 546-8877
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
____________________

RAYMOND V. THOMAS
CHIEF FINANCIAL OFFICER
HNC SOFTWARE INC.
5930 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121-3728
(619) 546-8877
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:
KENNETH A. LINHARES, ESQ.
MICHAEL J. MCADAM, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306

Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement, for a period of
two years commencing on the effective date of this Registration Statement, or
until the earlier sale of all shares registered hereunder.

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_____________

If delivery of the prospectus is
expected to be made pursuant to Rule 434, please check the following box. [ ]
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
TO BE REGISTERED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 1,367,196 $25.375 $34,692,598.50 $10,512.91
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act,
based on the average of the high and low prices of the Common Stock on
the Nasdaq National Market on February 27, 1997.

_______________________

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

============================================================================
<PAGE> 2

PROSPECTUS

Subject to Completion - __________, 1997

1,367,196 SHARES

HNC SOFTWARE INC.

COMMON STOCK

($0.001 PAR VALUE)

All of the 1,367,196 shares of Common Stock, $0.001 par value ("Common
Stock") of HNC Software Inc. (the "Company") offered hereby (the "Shares") are
being sold by the stockholders of the Company named herein under "Selling
Stockholders" and may be offered for sale from time to time by and for the
account of such stockholders (collectively, the "Selling Stockholders") as more
fully described herein. The Company will not receive any proceeds from the sale
of Shares offered hereby by the Selling Stockholders. See "Use of Proceeds,"
"Selling Stockholders" and "Plan of Distribution." The Shares are being offered
on a continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, during a period of time anticipated to be two years commencing on the
effective date of the Registration Statement of which this Prospectus forms a
part.

The Common Stock is listed on the Nasdaq National Market under the
symbol "HNCS." The shares of Common Stock offered hereby will be sold from
time to time at then prevailing market prices, at prices related to prevailing
market prices or at negotiated prices. On __________, 1997, the closing price
per share of the Common Stock on the Nasdaq National Market was $________.

The shares of Common Stock offered hereby were originally issued by
the Company in a share exchange occurring on November 29, 1996 (the "Exchange")
pursuant to which the Company acquired all of the outstanding shares and stock
options of Retek Distribution Corporation ("Retek"). The shares of Common
Stock offered hereby represent approximately 7.2% of the Company's currently
outstanding Common Stock. The Selling Stockholders, directly, through agents
designated from time to time, or through dealers or underwriters also to be
designated, may sell the Shares, jointly or severally, from time to time on
terms to be determined at the time of sale. To the extent required, the
specific Shares to be sold, public offering price, the names of any such agent,
dealer or underwriter and any applicable commission or discount will be set
forth in an accompanying supplement to this Prospectus (a "Prospectus
Supplement"). See "Selling Stockholders" and "Plan of Distribution." The
Selling Stockholders, jointly and severally, reserve the sole right to accept
or reject, in whole or in part, any proposed purchase of the Shares to be made
in the manner set forth above.

The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions in the over- the-counter
market, in the Nasdaq National Market or in privately negotiated transactions
directly with the purchasers, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
Any underwriters, dealers or agents that participate in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act of 1933, as amended (the "Securities Act"), and any
profit on the sale of the Shares by them and any discounts, concessions or
commissions received by any such underwriters, dealers or agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
See "Plan of Distribution" for indemnification arrangements between the Company
and the Selling Stockholders.

___________________

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.

___________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PROCEEDS TO
PRICE TO THE UNDERWRITING PROCEEDS TO SELLING
PUBLIC (1) DISCOUNT COMPANY STOCKHOLDERS(1)
---------- -------- ------- --------------
<S> <C> <C> <C> <C>
PER SHARE . . . . . . . . . . . . . . . . . see text above none none see text above
TOTAL . . . . . . . . . . . . . . . . . . . see text above none none see text above
- -----------
</TABLE>

(1) THE SHARES OF COMMON STOCK OFFERED HEREBY WILL BE SOLD FROM TIME TO TIME
AT THE THEN-PREVAILING MARKET PRICES, AT PRICES RELATING TO PREVAILING
MARKET PRICES OR AT NEGOTIATED PRICES. THE COMPANY WILL PAY EXPENSES OF
REGISTRATION ESTIMATED AT $_________.

<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site (located at
http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company.

The Company's Common Stock is quoted for trading on the Nasdaq
National Market, and reports, proxy statements and other information concerning
the Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.

The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and the exhibits filed therewith or incorporated therein by
reference. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or incorporated therein by
reference, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement (and exhibits thereto) may be
inspected, without charge, at the offices of the Commission in Washington, D.C.
and copies of all or any part of the Registration Statement may be obtained
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon the payment of the
fees prescribed by the Commission.

The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom this Prospectus is delivered,
upon written or oral request of such person, a copy of any and all of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests should be directed to Raymond V.
Thomas, Chief Financial Officer, HNC Software Inc., 5930 Cornerstone Court
West, San Diego, California 92121-3728; telephone number (619) 546-8877.

No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any Selling Stockholder. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Company since such date.

-2-

<PAGE> 4

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed with the Commission by the
Company are hereby incorporated herein by reference:

(a) The Company's annual report on Form 10-K filed with the Commission for
the fiscal year ended December 31, 1995.

(b) The Company's quarterly reports on Form 10-Q filed with the Commission
for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996.

(c) The Company's current reports on Form 8-K filed with the Commission on
September 12, 1996, December 12, 1996 and December 19, 1996 and Form
8-K/A-1 filed with the Commission on October 15, 1996.

(d) All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act following the fiscal year ended
December 31, 1995 and prior to the termination of the offering
contemplated hereby.

(e) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed with the Commission
on May 26, 1995.

All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering covered by this Prospectus shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

THE COMPANY

HNC Software Inc. develops, markets and supports intelligent
client-server software solutions for mission-critical decision applications in
real-time environments. HNC employs proprietary neural-network predictive
models to convert existing data and business experiences into meaningful
recommendations and actions. The Company has leveraged its client-server
software architecture across a wide range of markets. Current HNC software
products detect credit/debit card fraud (Falcon), manage merchant risk (Eagle),
manage credit card profitability (ProfitMax), detect fraud in credit card
applications (Falcon Sentry), credit card applications processing (Capstone),
analyze multiple credit card portfolios (Falcon Select), automate lending
decisions (Colleague), automate home valuation (AREAS), manage retail
inventories (SkuPLAN) and provide management solutions to retailers (the Retek
Merchandise Management System), extract information from customers' databases
(DataBase Mining Workstation) and estimate loss reserves for workers'
compensation insurance claims (MIRA). The Company also performs contract
research and development using neural networks and other computational
intelligence methods.

The Company was founded in 1986 under the laws of California and was
reincorporated in June 1995 under the laws of Delaware. The principal
executive offices of the Company are located at 5930 Cornerstone Court West,
San Diego, California 92121-3728, and its telephone number is (619) 546-8877.
In this Prospectus, the term "HNC" or the "Company" refers to HNC Software
Inc., a Delaware corporation, unless the context otherwise requires.

-3-

<PAGE> 5
RISK FACTORS

In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors," as well as those discussed
elsewhere in this Prospectus or in documents that are incorporated herein by
reference.

Potential Fluctuations in Quarterly Operating Results; Accumulated
Deficit. The Company's quarterly revenues and operating results have varied
significantly in the past and may do so in the future. Although to date a
significant portion of the Company's revenues has come from monthly usage fees
under long-term contracts, there can be no assurance that the Company will
continue to realize such recurring revenues or that customers under such
contracts would not seek to cancel such contracts if the Company's products
were not competitive or did not achieve effective results. A significant
portion of the Company's business has been derived from substantial orders
placed by large organizations, and the timing of such orders has caused
material fluctuations in the Company's operating results. The Company's expense
levels are based in part on its expectations regarding future revenues and in
the short term are fixed to a large extent. Therefore, the Company may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. As a result, if anticipated revenues in any quarter do not
occur or are delayed, the Company's operating results for that quarter would be
disproportionately affected. The Company's operating results are also affected
by seasonal trends. Such trends may include higher revenues in the third
quarter and lower revenues in the fourth quarter as a result of fewer
installations of the Falcon product scheduled during the fourth quarter when
credit card activity is at peak levels. In addition, revenues of the Company's
subsidiary, Risk Data Corporation, had historically been significantly higher
in the third and fourth fiscal quarters, and relatively low in the first two
fiscal quarters, due to the fact that a large number of Risk Data's existing
licenses for its MIRA product renew in the third and fourth fiscal quarters.
Operating results also may fluctuate due to factors such as the demand for the
Company's products, product life cycles, the introduction and acceptance of new
products and product enhancements by the Company or its competitors, changes in
the mix of distribution channels through which the Company's products are
offered, changes in the level of operating expenses, customer order deferrals
in anticipation of new products, competitive conditions in the industry and
economic conditions generally or in various industry segments.

The Company expects quarterly fluctuations to continue for the
foreseeable future. Accordingly, the Company believes that period-to- period
comparisons of its financial results should not be relied upon as an indication
of future performance. No assurance can be given that the Company will be able
to achieve or maintain profitability on a quarterly or annual basis in the
future. Due to all of the foregoing factors, it is possible that in some future
quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.

Volatility of Stock Price. The Company's Common Stock has experienced
very significant price volatility and such volatility may occur in the future.
Factors such as announcements of the introduction of new products by the
Company or its competitors, acquisitions of businesses or products by the
Company and quarter-to-quarter variations in the Company's operating results,
as well as market conditions in the technology and emerging growth company
sectors, may have a significant impact on the market price of the Company's
Common Stock. Further, the stock market has experienced extreme volatility that
has particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These market fluctuations may
adversely affect the price of the Common Stock.

Lengthy Sales Cycle. Due in part to the mission-critical nature of
certain of the Company's applications, potential customers perceive high risk
in connection with adoption of the Company's neural-network technology or other
intelligent decision products marketed by the Company. As a result, customers
have been cautious in making product acquisition decisions. In addition, the
purchase of the Company's products involves a significant commitment of
capital, with the attendant delays frequently associated with customers'
internal procedures to approve large capital expenditures and test and accept
new technologies that affect key operations. For these and other reasons, the
sales cycle associated with the purchase of the Company's products is typically
lengthy and subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews, over which the Company
has little or no control. Because of the lengthy sales cycle, if revenues
forecasted from a specific customer for a particular quarter are not realized
in that quarter, the Company likely would not be able to generate revenues from
alternate sources in

-4-
<PAGE> 6

time to compensate for the revenue shortfall. As a result, and due to the
typical size of customers' orders, a lost or delayed sale could have a material
adverse effect on the Company's quarterly operating results. In addition, the
Company has entered into certain contracts for the development of new products
for a fixed price. If the Company is not able to complete such developments for
the contracted fees, it would realize losses on these contracts, which could
have an adverse effect on quarterly results.

Dependence on Emerging Technologies and Markets. All of the Company's
software license and installation revenues in recent years have been
attributable to sales of intelligent decision software solutions and services,
and these products and services are currently expected to account for
substantially all of the Company's future software license and installation
revenues. The market for intelligent decision software solutions is still
emerging. The rate at which businesses have adopted the Company's products has
varied significantly by market and by product within each market, and the
Company expects to continue to experience such variations with respect to its
target markets and products in the future. The Company has announced or
introduced several products, including AREAS and Colleague in the financial
services market, Falcon Debit, Eagle, Falcon Select, ProfitMax, Capstone and
Sentry in the electronic payments market and SkuPLAN, the Retek Merchandise
Management System, the Retek Data Warehouse and ARI (Active Retail
Intelligence) in the retail market. To date, none of these products has
achieved any significant degree of market acceptance, and there can be no
assurance that such products will ever be widely accepted. The Company has also
recently taken actions to expand its product line into new markets and
industries not previously addressed by the Company. On August 30, 1996 the
Company acquired Risk Data Corporation, a company that develops intelligent
decision software products for the workers' compensation insurance industry,
including MIRA, a product for predicting loss reserves for workers'
compensation insurance claims, CompCompare, a product that enables insurers to
compare historical costs of workers' compensation insurance claims, and
ProviderCompare, which allows insurers to compare the relative costs of health
care providers with respect to treating workers' compensation injuries. On
November 29, 1996, the Company also acquired Retek Distribution Corporation, a
company that develops and markets merchandise management software products for
retailers and their vendors. During fiscal 1996, the Company established Aptex
Software Inc., a partially owned subsidiary that was formed to exploit certain
text analysis technology that is being used to develop products for the
Internet environment and other markets, such as the education market. The
Company has limited experience in developing and marketing products for these
new markets and industries and there can be no assurance that the Company will
be successful in doing so. Although businesses in the Company's target markets
have recognized the advantages of automation, many have developed automation
systems internally rather than licensing them from outside vendors. There can
be no assurance that the market for the Company's products will continue to
develop or that the Company's products will be widely accepted. If the markets
for the Company's new or existing products fail to develop, or develop more
slowly than anticipated, the Company's sales would be negatively impacted,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

Risks Associated with Technological Change and Delays in Developing
New Products. The market for intelligent decision software solutions and other
software products marketed by the Company is characterized by rapidly changing
technology and improvements in computer hardware, network operating systems,
programming tools, programming languages, operating systems and database
technology. The Company's success will depend upon its ability to maintain
competitive technologies, enhance its current products and develop new products
in a timely and cost-effective manner that meet changing market conditions,
including evolving customer needs, new competitive product offerings, emerging
industry standards and changing technology. For example, the rapid growth of
the Internet environment creates new opportunities, risks and uncertainties for
businesses, such as the Company, which develop software solutions that now may
have to be designed to operate in Internet, intranet and other on-line
environments. There can be no assurance that the Company will be able to
develop and market, on a timely basis, if at all, product enhancements or new
products that respond to changing market conditions or that will be accepted by
customers. The Company has previously experienced significant delays in the
development and introduction of new products and product enhancements,
primarily due to difficulties with model development, which has in the past
required multiple iterations, as well as difficulties with acquiring data and
adapting to particular operating environments. The length of these delays has
varied depending upon the size and scope of the project and the nature of the
problems encountered, although the Company believes that such delays have not
had a material adverse effect on its business. Any significant delay in the
completion of this or other new products, or the failure of such products, if
and when installed, to achieve any significant degree of market acceptance,
would have a material adverse effect upon the Company's business, financial
condition and results of operations. Any failure by the Company to anticipate
or to respond adequately to changing market conditions, or any significant
delays in product development or introduction, could cause customers to delay
or decide against purchases of the Company's products and would have a material
adverse effect on the Company's business, financial condition and results of
operations.

-5-
<PAGE> 7
Risks Associated with New Product Development. The Company's success
depends upon its ability to enter new markets by developing new products on a
timely and cost-effective basis. The Company's products often require customer
data for decision model development and system installation. As a result,
completion of new products may be delayed while the Company extracts sufficient
amounts of statistically relevant data and develops the models. During this
development process, the Company relies on its potential customers in the new
market to provide data and to help train Company personnel in the use and
meaning of the data in the specific industry. These relationships also assist
the Company in establishing presence and credibility in the new market. There
can be no assurance that these potential customers, most of which have
significantly greater financial and marketing resources than the Company, will
not compete with the Company in the future or will not otherwise discontinue
their relationships with or support of the Company, either during development
of the Company's products or thereafter. The failure by the Company to obtain
adequate third-party support for new product development would have a material
adverse effect on the Company's business, financial condition and results of
operations.

Software products as complex as those offered by the Company often
contain undetected errors or failures when first introduced or as new versions
are released. In addition, to the extent that new products of the Company may
have to be developed to operate in new environments, such as the Internet, the
possibility for program errors and failures may increase. There can be no
assurance that, despite pre-release testing by the Company and by current and
potential customers, errors will not be found in new products after
commencement of commercial shipments. The occurrence of such errors could
result in loss of or delay in market acceptance of the Company's products,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

Competition. The market for intelligent decision software solutions
and other software products marketed by the Company is intensely competitive
and subject to rapid change. Competitors vary in size and in the scope of the
products and services they offer. The Company encounters competition from a
number of sources, including (i) other application software companies, (ii)
management information systems departments of customers and potential
customers, (iii) third-party professional services organizations, including
without limitation consulting divisions of public accounting firms, (iv)
hardware suppliers that bundle or develop complementary software, (v) network
and service providers that seek to enhance their value-added services and (vi)
neural-network tool suppliers. In the electronic payments market, the Company
has experienced competition from Fair, Isaac & Co., Inc., Nestor, Inc.,
Neuralware Inc., NeuralTech Inc., International Business Machines Corporation
("IBM"), Visa International and others. In addition, Mastercard International
is developing a computer model utilizing neural network technology for
detecting credit card fraud that would compete with the Company's products. In
the financial services market, the Company has experienced competition from
Cogensys (a subsidiary of Policy Management Systems Corporation), Fannie Mae,
Freddie Mac, PMI Mortgage Services Co., CLM Technologies, Ltd., Norwest Bank
Minnesota, N.A., PSAR Systems, Inc. and others. In the retail market, the
Company has experienced competition from Manugistics Group, Inc., IBM, SAP, JDA
Software Group, Inc., PeopleSoft, Inc. and others. In the insurance market,
the Company experiences competition primarily from NCCI, Corporate Systems and
CSC Incorporated. Because there are relatively low barriers to entry, the
Company expects to experience additional competition from other established and
emerging companies. In addition, the Company's fraud detection product competes
against other methods of preventing credit card fraud, such as card activation
programs, credit cards that contain the cardholder's photograph, smart cards
and other card authorization techniques. For example, Eastman Kodak announced a
technology that digitally encodes the cardholder's photograph on the card for
access by the issuing bank or merchant for fraud prevention. The introduction
of these and other new technologies will result in increased competition for
the Company and its products. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market
share, any of which could materially adversely affect the Company's business,
financial condition and results of operations.

The Company believes that its products are currently priced at a
premium when compared to its competitors' products. The market for the
Company's products is highly competitive, and the Company expects that it will
face increasing pricing pressures from its current competitors and new market
entrants. In particular, increased competition could reduce or eliminate such
premiums and cause further price reductions. In addition, such competition
could adversely affect the Company's ability to obtain new long-term contracts
and renewals of existing long-term contracts on terms favorable to the Company.
Any reduction in the price of the Company's products could materially adversely
affect the Company's business, financial condition and results of operations.

Some of the Company's current, and many of the Company's potential,
competitors have significantly greater financial, technical, marketing and
other resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the

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<PAGE> 8

development, promotion and sale of their products than the Company. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly gain significant market share. Also, the
Company relies upon its customers to provide data and other support for the
ongoing updating of the Company's models. There can be no assurance that its
customers, most of which have significantly greater financial and marketing
resources than the Company, will not compete with the Company in the future or
will not otherwise discontinue their relationships with or support of the
Company. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, financial condition and results of operations.

Product Concentration; Dependence on Financial Institution Industry.
Licenses and installation of the Company's Falcon product for credit card fraud
detection have accounted for 52.4%, 59.9% and 35.7% of the Company's historical
software license and installation revenues in each of 1994, 1995 and 1996 and
are expected to continue to account for a substantial portion of the Company's
software license and installation revenues for the foreseeable future.
Continued market acceptance of Falcon will be affected by future product
enhancements and future competition. In addition, it is possible that patterns
of credit card fraud may change in a manner that the Company's Falcon product
would not detect. Furthermore, Falcon customers are banks and related financial
institutions. Accordingly, the Company's future success depends upon the
capital expenditure budgets of such customers and the continued demand by such
customers for Falcon products. The financial institution industry tends to be
cyclical in nature, which may result in variations in demand for the Company's
electronic payment products. In addition, there has been and continues to be
consolidation in the financial institution industry, which in some cases has
lengthened the sales cycle and may lead to reduced demand for the Company's
products. The Company's operating results may in the future be subject to
substantial period-to-period fluctuations as a consequence of such industry
patterns and other factors affecting capital spending. In addition, as Falcon's
share of the United States market for credit card fraud detection solutions has
grown, it has become more important for the Company to increase its
international sales of Falcon in order to increase Falcon revenues. Decline in
demand for, or use of, Falcon, whether as a result of competition,
technological change, change in fraud patterns, the cyclical nature of the
financial institution industry, saturation of market demand, fluctuations in
interest rates, industry consolidation or otherwise, would have a material
adverse effect on the Company's business, financial condition and results of
operations.

Dependence on Data. The development and support of the Company's
credit card fraud control and profitability management, loan underwriting, home
valuation and insurance products require periodic model updates. The Company
must develop or obtain a reliable source of sufficient amounts of current and
statistically relevant data to analyze transactions and update its models. For
example, in the electronic payments market, the data required by the Company
are collected privately and maintained in proprietary databases. As a result,
the Company and its Falcon and ProfitMax customers enter into agreements,
pursuant to which customers agree to provide the data the Company requires to
analyze transactions, report results and build new fraud detection and
profitability models. For its AREAS home valuation product, the Company obtains
data from commercial databases on available terms and conditions. Many of Risk
Data's products use historical workers' compensation claims data obtained from
its customers. In addition, the development of new and enhanced products also
depends to a significant extent on the availability of sufficient amounts of
statistically relevant data to enable the Company to develop models. For
example, to expand the coverage of its AREAS product, the Company would be
required to develop or obtain data on home sales in each county for which AREAS
is marketed. There can be no assurance that the Company will be able to
continue to obtain adequate amounts of statistically relevant data on a timely
basis, in the required formats or on reasonable terms and conditions, whether
from customers or commercial suppliers. Any such failure could have a
significant negative impact on existing product performance and new product
development, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Customer Concentration; Government Concentration Risks. Product
licenses to First Data Resources, Inc., the largest provider of credit card
charge receipt processing services to banks, accounted for 11.6%, 12.4% and
11.4% of the Company's total historical revenues during 1994, 1995 and 1996,
respectively. United States Government contracts accounted for 11.3%, 7.3% and
3.0% of the Company's total revenues during 1994, 1995 and 1996, respectively.
The loss of First Data Resources, Inc. as a customer for any reason could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, approximately one-third of Retek's sales
of its Merchandise Management System were referred to Retek by Andersen
Consulting LLP. The loss or deterioration of Retek's relationship with
Andersen Consulting LLP would have a material adverse effect on Retek's results
of

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<PAGE> 9

operations. Over the past two years, in excess of 90% of the Company's total
revenues from the United States Government were derived from research projects
performed for various government defense agencies and companies under contract
to such agencies. Any change in the pattern of government spending, reduced
demand from the defense industry or the loss of any of the Company's major
government contracts would have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, United
States Government contracts may subject the Company to risks that are not
typically present in commercial contracts, such as retroactive price
adjustments and potential penalties, and are terminable at the convenience of
the government. Although the Company has not experienced any material
cancellations in the past, there can be no assurance that such cancellations
will not occur in the future. Also, because many of the Company's government
contracts were awarded under programs available only to certain small
businesses, the Company may not be eligible for additional contracts under such
programs in the future.

Acquisitions. On August 30, 1996 the Company consummated its
acquisition of Risk Data Corporation, a company based in Irvine, California
that is engaged in the business of developing and marketing proprietary
software decision products for use in the insurance industry. In addition, on
November 29, 1996, the Company consummated its acquisition of Retek
Distribution Corporation, a company that develops and markets merchandise
management products for retailers and their vendors. The Company anticipates
that in the future it will continue to consider other acquisitions of
businesses in order to expand the markets served by the Company and to acquire
complementary technologies, products and personnel. The acquisitions of Risk
Data Corporation and Retek Distribution Corporation, as well as other potential
future acquisitions, will require the Company to successfully manage and
integrate such acquired businesses and their personnel, which may be located in
diverse geographic locations and will also require the Company to successfully
develop and market products to new industries and markets with which the
Company may not be familiar. Failure of the Company to successfully integrate
and manage acquired businesses and to retain their employees, and to
successfully address new industries and markets associated with such acquired
businesses, would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, although the
acquisitions of Risk Data Corporation and Retek Distribution Corporation have
been accounted for as a pooling of interests, there can be no assurance that
future acquisitions will not be accounted for as purchases, resulting in
potential charges that may adversely affect the Company's earnings. Additional
acquisitions may also involve the issuance of shares of the Company's stock to
owners of acquired businesses, resulting in dilution in the percentage of the
Company's stock owned by other stockholders.

Risks Associated with Managing Growth. In recent years, the Company
has experienced changes in its operations that have placed significant demands
on the Company's administrative, operational and financial resources. The
growth in the Company's customer base and expansion of its product
functionality have challenged, and are expected to continue to challenge, the
Company's management and operations, including its sales, marketing, customer
support, research and development and finance and administrative operations.
The Company's future performance will depend in part on its ability to manage
change, both in its domestic and international operations, and to adapt its
operational and financial control systems if necessary, to respond to changes
in its business. The failure of the Company's management to respond to and
manage changing business conditions effectively could have a material adverse
effect on the Company's business, financial condition and results of
operations.

Risks Associated with Recruiting and Retaining Qualified Personnel.
The Company's success depends to a significant degree upon the continued
service of members of the Company's senior management and other key research,
development, sales and marketing personnel. Accordingly, the loss of any of
the Company's senior management or key research, development, sales or
marketing personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. Only Michael
Thiemann, President of the Company's Aptex subsidiary, Mark Hammond, President
of Risk Data Corporation and John Buchanan, President of Retek Distribution
Corporation, are subject to employment agreements with the Company; however,
there can be no assurance that such agreements will result in the retention of
these employees for any significant period of time. In particular, as of
February 1, 1997, Neil Thall, former President of the Company's wholly-owned
subsidiary, Neil Thall Associates, Inc., terminated his employment with the
Company, though he is continuing to serve as a consultant to the Company on a
temporary basis. The Company believes that its future success will depend upon
its ability to attract and retain highly skilled managerial, research,
development, sales and marketing personnel, for whom competition is intense.
In particular, in the past, the Company has experienced difficulty in
recruiting a sufficient number of qualified sales and technical employees,
although the Company believes that such difficulties have not had a material
adverse effect on historical operating results. In addition, competitors may
attempt to recruit the Company's key employees. There can be no assurance that
the Company will be successful in attracting, assimilating and retaining such
personnel, and the failure to attract,

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<PAGE> 10

assimilate and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.

Risks Associated with International Sales. In 1994, 1995 and 1996,
international sales (including sales in Canada) represented approximately
11.4%, 17.9% and 23.5% of the Company's total revenues, respectively. The
Company intends to continue to expand its operations outside the United States
and to enter additional international markets, including the addition of sales
and support offices in Europe and Japan where the Company has recently
established an office, which will require significant management attention and
financial resources. For certain products, such as Falcon, the Company may need
to increase international sales in order to continue to expand the product's
customer base. The Company also expects that its Retek subsidiary may derive a
substantial amount of its revenue from foreign sales to customers in Europe and
Australia. The Company has committed and continues to commit significant time
and development resources to customizing its products for selected
international markets and to developing international sales and support
channels. There can be no assurance that the Company's efforts to develop
databases and models for targeted international markets or to develop
international sales and support channels will be successful. The failure of
such efforts could have a material adverse effect on the Company's business,
financial condition and results of operations. International sales are subject
to inherent risks, including longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burdens of
complying with a variety of foreign laws, greater difficulty or delay in
accounts receivable collection, potentially adverse tax consequences and
political and economic instability. The Company's export sales are currently
denominated predominately in United States dollars. An increase in the value of
the United States dollar relative to foreign currencies could make the
Company's products more expensive and, therefore, potentially less competitive
in foreign markets. In the future, if more of the Company's export sales are
denominated in local currencies, foreign currency translations may contribute
to significant fluctuations in the Company's business, financial condition and
results of operations. If for any reason exchange or price controls or other
restrictions on foreign currencies are imposed, the Company's business,
financial condition and results of operations could be materially adversely
affected. As the Company increases its international sales, its total revenues
may also be affected to a greater extent by seasonal fluctuations resulting
from lower sales that typically occur during the summer months in Europe and
other parts of the world.

Risks Associated With Changing Regulatory Environment. The Company's
customers are subject to a number of government regulations and certain other
industry standards with which the Company's products must comply. For example,
the Company's financial services products are affected by Regulation B
promulgated under the Equal Credit Opportunity Act, by regulations governing
the extension of credit to consumers and by Regulation E promulgated under the
Electronic Fund Transfers Act governing the transfer of funds from and to
consumer deposit accounts, as well as VISA and MasterCard electronic payment
standards. In the mortgage services market, the Company's products are affected
by regulations such as Fannie Mae and Freddie Mac regulations for conforming
loans, Uniform Standards of Professional Appraisal Practice and appraisal
standards for federally insured institutions under the Financial Institutions
Reform, Recovery and Enforcement Act. In addition, recent regulatory
initiatives have restricted the availability of bank and credit bureau data,
reflecting a consumer privacy trend that could limit the Company's ability to
obtain or use certain credit-related data. In addition, it is possible that
insurance-related regulations may in the future apply to Risk Data's products.
To the extent that the Company sells new products targeted to markets that
include regulated industries and businesses, the Company's products will need
to comply with these additional regulations. Any failure of the Company's
products to comply with existing or new regulations and standards could result
in legal action against the Company or its customers by regulatory authorities
or by third parties, including actions seeking civil or criminal penalties,
injunctions against the Company's use of data or civil damages, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company may also be liable to its
customers for failure of its products to comply with such regulatory
requirements. Furthermore, changes to these regulations and standards or the
adoption of new regulations or standards that affect the Company's products
could affect the performance of such products and have a material adverse
effect on the Company's business, financial condition and results of
operations.

Protection of Intellectual Property. The Company relies on a
combination of patent, copyright, trademark and trade secret laws and
confidentiality procedures to protect its proprietary rights. As of February 1,
1996, the Company and its subsidiaries owned six issued United States patents
and had four United States patent applications pending. The Company has
applied for additional patents for its Falcon technology in Canada, Europe and
Japan. There can be no assurance that patents will be issued with respect to
pending or future patent applications or that the Company's patents will be
upheld as valid or will prevent the development of competitive products. The
Company seeks to protect its

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<PAGE> 11

software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. As part of its
confidentiality procedures, the Company generally enters into invention
assignment and proprietary information agreements with its employees and
independent contractors and nondisclosure agreements with its distributors,
corporate partners and licensees, and limits access to and distribution of its
software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise to
obtain and use the Company's products or technology without authorization, or
to develop similar technology independently. In addition, to ensure that
customers will not be adversely affected by an interruption in the Company's
business, the Company places source code for certain of its products into
escrow, which may increase the likelihood of misappropriation or other misuse
of the Company's intellectual property. Moreover, effective protection of
intellectual property rights may be unavailable or limited in certain foreign
countries in which the Company has done and may do business. There can be no
assurance that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competitors will not develop similar technology
independently. The Company frequently develops technologies under research
projects conducted under agreements with various United States Government
agencies or subcontractors to such agencies. Although the Company often
acquires certain commercial rights to such technologies, the United States
Government typically retains ownership of certain intellectual property rights
and licenses in the technologies developed by the Company under such contracts,
and in some cases can terminate the Company's rights in such technologies if
the Company fails to commercialize them on a timely basis. In addition, under
certain United States Government contracts, the results of the Company's
research may be made public by the government, which could limit the Company's
competitive advantage with respect to future products based on such research.

Infringement of Proprietary Rights. In the past, the Company has
received communication from third parties asserting that Company trademarks
infringe other parties' trademarks, and given the Company's ongoing efforts to
develop and market new technologies and products, there can be no assurance
that in the future the Company will not receive communications from third
parties asserting that the Company's products infringe, or may infringe, third
parties' intellectual property rights, including but not limited to patents.
If as a result of such claims the Company were precluded from using certain
technologies or intellectual property rights, there can be no assurance that
licenses to such disputed third-party technology or intellectual property
rights would be available on reasonable commercial terms, if at all.
Furthermore, the Company may initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish
the validity of the Company's proprietary rights. Litigation, either as
plaintiff or defendant, could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation is resolved in favor of the
Company. In the event of an adverse ruling in any such litigation, the Company
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology, and the court might
invalidate the Company's patents, trademarks or other proprietary rights. In
the event of a successful claim against the Company and the failure of the
Company to develop or license a substitute technology, the Company's business,
financial condition and results of operations would be materially and adversely
affected. As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, can be time consuming and expensive to
defend and could materially and adversely affect the Company's business,
financial condition and results of operations.

Control by Principal Stockholders, Officers and Directors. On January
31, 1997, the Company's known 5% stockholders, officers and directors owned
approximately 26.3% of the Company's outstanding Common Stock. As a result,
such persons will likely have the ability to control the vote on matters
submitted to stockholders for approval (including the election of all
directors, and any merger, consolidation or sale of all or substantially all of
the Company's assets) and to control the management and affairs of the Company.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Selling
Stockholders."

Factors Inhibiting Takeover. The Board of Directors is authorized to
issue up to 4,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
In addition, Section 203 of the Delaware General Corporation Law restricts
certain business combinations with any

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<PAGE> 12

"interested stockholder" as defined by such statute. The statute may have the
effect of delaying, deferring or preventing a change in control of the Company.

-11-
<PAGE> 13
SELLING STOCKHOLDERS

The following table sets forth certain information known to the
Company with respect to the beneficial ownership of the Company's Common Stock
as of February 28, 1997 by each Selling Stockholder named below. Each of the
Selling Stockholders named below acquired the shares of the Company's Common
Stock offered hereby in a private transfer of such shares from a party who
originally acquired such Shares from the Company in the Exchange. Except as
described below, no Selling Stockholder has had any position, office or other
material relationship with the Company within the past three years. The
following table assumes that each Selling Stockholder sells all of the shares
held by such Selling Stockholder in this offering. However, the Company is
unable to determine the exact number of shares that will actually be sold or
when or if such sales will occur. The Company will not receive the proceeds of
any shares of Common Stock sold pursuant to this Prospectus.

Certain assignees of the Selling Stockholders, if any, who acquire
shares of Common Stock of the Company from a Selling Stockholder and satisfy
certain conditions are entitled to the same registration rights as the named
Selling Stockholders. If any such assignee wishes to sell shares hereunder,
this Prospectus will be amended or supplemented to name such assignee as a
Selling Stockholder.

The Selling Stockholders have advised the Company that each of them is
the beneficial owner (within the meaning of such term in Rule 13d-3 promulgated
under the Exchange Act) of their respective Shares being offered hereby.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering (4)
----------------------- ---------------------
Shares Being
Name Number Percent(3) Offered Number Percent
---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Miurkirk Investments Ltd. (1) 1,162,117 6.1% 1,162,117 -- --
4th Floor, 33 Reid Street
Hamilton, Bermuda
Oyster Pursuits Ltd. (2) 205,079 1.1% 205,079 -- --
4th Floor, 33 Reid Street
Hamilton, Bermuda

- -----------------
</TABLE>

(1) To the Company's knowledge, all the outstanding stock of Miurkirk
Investments Ltd. ("Miurkirk") is owned by the Mulberry Trust. The Mulberry
Trust (whose address is c/o St. George's Trust Company Limited, P. O. Box
HM 3051, Hamilton AMX Bermuda) was the original record owner of the shares
shown as being beneficially owned by Miurkirk in the above table. Such
shares were originally issued by the Company to the Mulberry Trust in the
Exchange and were subsequently transferred from the Mulberry Trust to
Miurkirk. To the Company's knowledge, the beneficiaries of the Mulberry
Trust are relatives of John Buchanan, the President of the Company's Retek
subsidiary.

(2) To the Company's knowledge, all the outstanding stock of Oyster Pursuits
Ltd. ("Oyster") is owned by the Kulmor Trust. The Kulmor Trust (whose
address is c/o St. George's Trust Company Limited, P. O. Box HM 3051,
Hamilton AMX Bermuda) was the original record owner of the shares shown as
being beneficially owned by Oyster in the above table. Such shares were
originally issued by the Company to the Kulmor Trust in the Exchange and
were subsequently transferred from the Kulmor Trust to Oyster. To the
Company's knowledge, the beneficiaries of the Kulmor Trust are relatives of
Christopher Coats, an employee of the Company's Retek subsidiary.

(3) Based on the 19,158,802 shares of the Company that were outstanding on
January 31, 1997.

(4) As noted above, the number of shares beneficially owned after the offering
shown in the above table assumes that each Selling Stockholder sells all of
the shares held by such Selling Stockholder in this offering; however, the
Company is unable to determine the number of shares, if any, that will
actually be sold by any Selling Stockholder or when or if such sales will
occur.

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<PAGE> 14
USE OF PROCEEDS

The proceeds from the sale of the Shares offered hereby are solely for
the account of the Selling Stockholders. Accordingly, the Company will not
receive any of the proceeds from the sale of Shares by the Selling
Stockholders.

PLAN OF DISTRIBUTION

In connection with the Exchange, each of the Selling Stockholders
entered into a Registration Rights Agreement (the "Agreement") with the
Company. The Registration Statement of which this Prospectus forms a part has
been filed pursuant to the Agreement. To the Company's knowledge, no Selling
Stockholder has entered into any agreement, arrangement or understanding with
any particular broker or market maker with respect to the shares offered
hereby, nor does the Company know the identity of the brokers or market makers
that will participate in the offering.

The shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Stockholders or by pledgees, donees, transferees and
other successors in interest. The Selling Stockholders will act independently
of the Company in making decisions with respect to the timing, manner and size
of each sale. Such sales may be made over the Nasdaq National Market or
otherwise, at then prevailing market prices, at prices related to prevailing
market prices or at negotiated prices. The shares may be sold by one or more of
the following: (a) a block trade in which the broker-dealer engaged by the
Selling Stockholder will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by the broker-dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. The
Company has been advised by the Selling Stockholders that they have not, as of
the date hereof, entered into any arrangement with a broker-dealer for the sale
of shares through a block trade, special offering, or secondary distribution of
a purchase by a broker-dealer. In effecting sales, broker-dealers engaged by
the Selling Stockholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated immediately prior to the sale.

In connection with distributions of the shares or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers.
In connection with such transactions, broker-dealers may engage in short sales
of the shares registered hereunder in the course of hedging the positions they
assume with Selling Stockholders. The Selling Stockholders may also sell
shares short and redeliver the shares to close out such short positions. The
Selling Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the shares
registered hereunder, which the broker-dealer may resell or otherwise transfer
pursuant to this Prospectus. The Selling Stockholder may also loan or pledge
the shares registered hereunder to a broker-dealer and the broker-dealer may
sell the shares so loaned or upon a default the broker-dealer may effect sales
of the pledged shares pursuant to this Prospectus.

Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders in amounts to
be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts
or commissions under the Securities Act. In addition, any securities covered
by this Prospectus which qualify for sale pursuant to Rule 144 or Rule 145 may
be sold under Rule 144 or Rule 145 rather than pursuant to this Prospectus.

All costs, expenses and fees in connection with the registration of
the shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the shares will be borne by the Selling
Stockholders. The Selling Stockholders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
shares against certain liabilities, including liabilities arising under the
Securities Act. Under the Agreement, the Company and the Selling Stockholders
have agreed to indemnify each other and certain other persons against certain
liabilities in connection with the offering of the shares, including
liabilities arising under the Securities Act.

The Selling Stockholders have advised the Company that, during such
time as they may be engaged in a distribution of the shares of Common Stock
included herein, they will comply with Rules 10b-6 and 10b-7 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
connection therewith, the Selling Stockholders have agreed not to engage in any
stabilization activity in connection with any securities of the Company,

-13-
<PAGE> 15

to furnish copies of this Prospectus to each broker-dealer through which the
shares of Common Stock included herein may be offered, and not to bid for or
purchase any securities of the Company or attempt to induce any person to
purchase any securities of the Company except as permitted under the Exchange
Act. The Selling Stockholders have also agreed to inform the Company and
broker-dealers through whom sales may be made hereunder when the distribution
of the shares is completed.

Rule 10b-6 under the Exchange Act prohibits participants in a
distribution from bidding for or purchasing for an account in which the
participant has a beneficial interest, any of the securities that are the
subject of the distribution. Rule 10b-7 under the Exchange Act governs bids
and purchases made to stabilize the price of a security in connection with a
distribution of the security.

The Agreement provides that the Registration Statement of which this
Prospectus forms a part will remain effective for a period of two years
commencing on the later of (i) the effective date of such Registration
Statement or (ii) the first date on which the Registrant publicly releases
financial information that include at least thirty (30) days of post-Exchange
combined operating results of the Company and Retek Distribution Corporation
(such two-year period being hereinafter called the "Effectiveness Period").
Notwithstanding the foregoing, upon the occurrence of certain events the
Company may suspend use of this Prospectus. Pursuant to the Agreement, no
Selling Stockholder may sell any of the shares of Common Stock offered hereby
without first submitting a written notice to the Company (the "Notice of
Resale"). The Company must notify the Selling Stockholder as soon as
practicable, but in no event more than seven (7) business days after receipt of
the Notice of Resale, whether it believes this Prospectus is current (with the
Company using the seven (7) business day period to supplement this Prospectus
or make an appropriate filing under the Exchange Act) or should be amended
prior to use in connection with such sale (with the Company amending the
Registration Statement of which this Prospectus forms a part as soon as
practicable). Once the Company has notified the Selling Stockholders that this
Prospectus is available for use, the Selling Stockholders who made the request
will have 30 days (a "Permitted Window") within which to sell shares of Common
Stock pursuant to this Prospectus. Pursuant to the Agreement, there will be a
maximum of three Permitted Windows for the Selling Stockholders in each of the
first 12 months and the second 12 months of the Effectiveness Period and there
will be at least a 60- day interval between any two Permitted Windows. Under
certain circumstances, no more than two times during each of the 1997 and 1998
calendar years (and not more than once for each six-month period that the
Effectiveness Period is extended as a result of a postponement as herein
described), the Company is permitted to postpone the commencement of a
Permitted Window for up to 60 days after receipt of a Notice of Resale;
provided, however, that if the Company so postpones a Permitted Window, the
Effectiveness Period shall be extended by a period of time equal to the period
of postponement. No Permitted Window will commence until after the publication
of financial statements of the Company that include at least 30 days of
post-Exchange combined operating results of the Company and Retek Distribution
Corporation. In addition, the Agreement provides that the Selling
Stockholders, collectively, may not sell pursuant to this Prospectus, during
any calendar quarter, an amount of Common Stock which, in the aggregate,
exceeds three percent (3%) of the outstanding shares of the Company's Common
Stock, as indicated in the Company's then most recent published report.

This offering will terminate as to each Selling Stockholder on the
earlier of (a) the period described in the previous paragraph during which the
Company is required to maintain the effectiveness of the Registration Statement
of which this Prospectus forms a part; or (b) the date on which all shares
offered hereby have been sold by the Selling Stockholders. There can be no
assurance that any of the Selling Stockholders will sell any or all of the
shares of Common Stock offered hereby.

Pursuant to an Escrow Agreement between the Company and the Selling
Stockholders, a total of 136,718 of the Shares will be held in an escrow until
November 29, 1997 in order to secure certain indemnification obligations of the
Selling Stockholders to the Company under the Exchange Agreement pursuant to
which the Shares were issued. Shares held in escrow may not be sold or
transferred without the Company's consent.

-14-
<PAGE> 16
The Company has agreed to pay its expenses of registering the Shares
under the Securities Act, including registration and filing fees, printing
expenses, administrative expenses and certain legal and accounting fees. Each
of the Selling Stockholders will bear their pro rata share of all discounts,
commissions or other amounts payable to underwriters, dealers or agents as well
as fees and disbursements for legal counsel retained by any such Selling
Stockholders.

The Company and the Selling Stockholders have agreed to indemnify each
other and certain other related parties for certain liabilities in connection
with the registration of the Shares offered hereby.

Upon the occurrence of any of the following events, this Prospectus
will be amended to include additional disclosure before offers and sales of the
securities in question are made: (a) to the extent the securities are sold at
a fixed price or at a price other than the prevailing market price, such price
would be set forth in the Prospectus, (b) if the securities are sold in block
transactions and the purchaser acting in the capacity of an underwriter wishes
to resell, such arrangements would be described in the Prospectus, (c) if a
Selling Stockholder sells to a broker-dealer acting in the capacity as an
underwriter, such broker-dealer will be identified in the Prospectus and (d) if
the compensation paid to broker-dealers is other than usual and customary
discounts, concessions or commissions, disclosure of the terms of the
transaction would be included in the Prospectus.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306. Members of the firm of Fenwick & West
LLP own an aggregate of 3,314 shares of Common Stock of the Company.

EXPERTS

The financial statements as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

-15-
<PAGE> 17

HNC SOFTWARE INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C>
Page
----

Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statement of Changes in Stockholders' Equity (Deficit) . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-7
</TABLE>

F-1
<PAGE> 18

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of HNC Software Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of HNC Software Inc. and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Diego, California
January 21, 1997

F-2
<PAGE> 19
HNC SOFTWARE INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $7,517 $20,583
Investments available for sale . . . . . . . . . . . . . . . . . . . 7,353 14,590
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . 19,468 6,996
Current portion of deferred income taxes . . . . . . . . . . . . . . 6,400 1,702
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,869 1,561
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 42,607 45,432
Investments available for sale . . . . . . . . . . . . . . . . . . . . . 19,375 8,336
Deferred income taxes, less current portion . . . . . . . . . . . . . . . 22,966 346
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 5,966 3,991
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,305 842
--------- ----------
$94,219 $58,947
========= ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,270 $ 1,434
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,058 2,818
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 3,377 2,101
Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . - 2,195
Other current liabilities . . . . . . . . . . . . . . . . . . . . . 418 827
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . 11,123 9,375
--------- ----------
Notes payable to stockholders . . . . . . . . . . . . . . . . . . . . . . - 1,000
--------- ----------
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . 683 659
--------- ----------

Commitments and contingencies (Notes 6 and 11)

Stockholders' equity:
Preferred stock, $0.001 par value - 4,000 shares authorized:
no shares issued or outstanding . . . . . . . . . . . . . . . . - -
Common stock, $0.001 par value - 50,000 and 40,000 shares authorized:
19,126 and 17,892 shares issued and outstanding, respectively . 19 18
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 83,554 55,334
--------- ----------

Unrealized (loss) gain on investments available for sale . . . . . . (59) 92
Foreign currency translation adjustment . . . . . . . . . . . . . . 54 -
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (1,155) (7,531)
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 82,413 47,913
--------- ----------
$94,219 $58,947
========== ==========

</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 20
HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Revenues:
Software license and installation . . . . . . . . . . . $42,705 $21,526 $13,023
Contracts and other . . . . . . . . . . . . . . . . . . 11,128 9,146 7,651
--------- --------- --------
Total revenues . . . . . . . . . . . . . . . . . . . 53,833 30,672 20,674
--------- --------- --------

Operating expenses:
Software license and installation . . . . . . . . . . . 11,411 5,934 4,847
Contracts and other . . . . . . . . . . . . . . . . . . 7,694 6,894 5,040
Research and development . . . . . . . . . . . . . . . . 13,271 6,581 4,344
Sales and marketing . . . . . . . . . . . . . . . . . . 10,705 6,422 3,603
General and administrative . . . . . . . . . . . . . . . 6,634 3,699 2,591
--------- --------- --------
Total operating expenses . . . . . . . . . . . . . . 49,715 29,530 20,425
--------- --------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . 4,118 1,142 249
Interest and other income . . . . . . . . . . . . . . . . . . 2,128 834 156
Interest expense . . . . . . . . . . . . . . . . . . . . . . (478) (428) (312)
--------- --------- --------
Income before income tax benefit . . . . . . . . 5,768 1,548 93
Income tax benefit . . . . . . . . . . . . . . . . . . . . . (608) (575) (455)
--------- --------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 6,376 $ 2,123 $ 548
========= ========= ========

Pro forma net income per share . . . . . . . . . . . . . . . $ .13 $ .04
========= ========

Shares used in computing pro forma net income per share . . . . 16,901 13,870
========= ========

Net income per share . . . . . . . . . . . . . . . . . . . . $ .31
=========

Shares used in computing net income per share . . . . . . . . 20,367

</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 21
HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,376 $ 2,123 $ 548
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 3,344 1,589 629
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . (10,100) (1,393) (1,754)
Other assets . . . . . . . . . . . . . . . . . . . . . . (1,178) (664) (1,348)
Deferred income taxes . . . . . . . . . . . . . . . . . (1,332) (1,548) -
Accounts payable . . . . . . . . . . . . . . . . . . . . 1,836 658 139
Accrued liabilities . . . . . . . . . . . . . . . . . . 625 1,756 390
Deferred revenue . . . . . . . . . . . . . . . . . . . . 1,472 1,337 (92)
Other liabilities . . . . . . . . . . . . . . . . . . . (402) - 280
---------- ---------- ----------
Net cash provided by (used in) operating activities 641 3,858 (1,208)
---------- ---------- ----------

Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . (26,113) (28,666) (7,134)
Maturities of investments . . . . . . . . . . . . . . . . . . . 18,125 4,182 6,000
Proceeds from sale of investments . . . . . . . . . . . . . . . 3,707 2,467 -
Acquisitions of property and equipment . . . . . . . . . . . . . (3,853) (1,947) (1,534)
---------- ---------- ----------
Net cash used in investing activities . . . . . . . (8,134) (23,964) (2,668)
---------- ---------- ----------

Cash flows from financing activities:
Net proceeds from issuances of common stock . . . . . . . . . . 1,935 33,726 10
Net proceeds from issuance of preferred stock . . . . . . . . . - - 4,949
Tax benefit from stock options . . . . . . . . . . . . . . . . . 896 800 -
Proceeds under bank line of credit . . . . . . . . . . . . . . . 309 1,085 3,255
Repayments under bank line of credit . . . . . . . . . . . . . . (2,504) (265) (2,890)
Proceeds from issuances of notes payable to stockholders . . . . - 1,000 -
Repayment of notes payable to stockholders . . . . . . . . . . . (1,000) - -
Repayment of debt from asset purchases . . . . . . . . . . . . . (4,710) - -
Capital lease payments . . . . . . . . . . . . . . . . . . . . . (553) (502) (304)
Proceeds from issuances of bank notes payable . . . . . . . . . 1,999 - 603
Repayments of bank notes payable . . . . . . . . . . . . . . . . (1,999) (687) (348)
---------- ---------- ----------
Net cash (used in) provided by financing activities (5,627). 35,157 5,275
---------- ---------- ----------

Effect of exchange rate changes on cash . . . . . . . . . . . . . . . 54 - - .
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents . . . . . . . . (13,066) 15,051 1,399
Cash and cash equivalents at beginning of period . . . . . . . . . . 20,583 5,532 4,133
---------- ---------- ----------

Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 7,517 $ 20,583 $ 5,532
========== ========== ==========

SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets purchased through issuance of debt . . . . . . . . . . . $ 4,710 $ - $ -
========== ========== ==========
Acquisitions of property and equipment under capital leases . . $ 344 $ 411 $ 1,128
========== ========== ==========
Conversion of preferred stock . . . . . . . . . . . . . . . . . $ - $ 13,518 $ -
========== ========== ==========
Accretion of dividends on mandatorily redeemable convertible
preferred stock . . . . . . . . . . . . . . . . . . . . . . $ - $ 348 $ 717
========== ========== ==========

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . $ 448 $ 390 $ 305
========== ========== ==========
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . $ 50 $ 144 $ 30
========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 22
HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

PREFERRED STOCK
-------------------------------------------------
SERIES A SERIES E COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 . . . . . . . . 380 $ - - $ - 3,730 $ 4 $ 6,302
Common stock options exercised . . . . . . . 40 10
Issuance of Series E preferred stock,
net of issuance costs . . . . . . . . . 1,282 1 4,948
Accretion of dividends . . . . . . . . . . . (717)
Net income . . . . . . . . . . . . . . . . .
------- ------- ------- ------- ------- ------- --------
BALANCE OF DECEMBER 31, 1994 . . . . . . . . 380 - 1,282 1 3,770 4 10,543
Common stock options exercised . . . . . . . 207 85

Accretion of dividends . . . . . . . . . . . (348)
Issuance of common stock in initial public
offering, net of issuance costs . . . . 2,376 2 14,329
Conversion of convertible preferred
stock into common stock . . . . . . . . (380) (1,282) (1) 8,956 9 10,618
Issuance of common stock in secondary
public offering, net of issuance costs 1,116 2 19,184
Issuance of common stock at inception
of Retek (Note 2) . . . . . . . . . . . 1,367 1 (1)
Tax benefit from stock option transactions . 800
Unrealized gain on investments available
for sale . . . . . . . . . . . . . . .
Stock warrant exercised . . . . . . . . . . 100 124
Net income . . . . . . . . . . . . . . . . .
------- ------- ------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1995 . . . . . . . . - - - - 17,892 18 55,334
Common stock options exercised . . . . . . . 1,140 1 1,095
Common stock issued for Employee Stock
Purchase Plan . . . . . . . . . . . . . 94 839
Tax benefit from stock option transactions . 7,889
Tax benefit from Retek taxable pooling
(Note 9) . . . . . . . . . . . . . . . . 18,397
Unrealized loss on investments available
for sale . . . . . . . . . . . . . . .
Foreign currency translation adjustment . .
Net income . . . . . . . . . . . . . . . . .
------- ------- ------- ------- ------- ------- -------

BALANCE AT DECEMBER 31, 1996 . . . . . . . . - $ - - $ - 19,126 $19 $83,554
======= ======= ======= ======= ======= ======= =======
</TABLE>

UNREALIZED
(LOSS) GAIN ON FOREIGN TOTAL
INVESTMENTS CURRENCY STOCKHOLDERS'
AVAILABLE TRANSLATION ACCUMULATED EQUITY
FOR SALE ADJUSTMENT (DEFICIT) (DEFICIT)
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 . . . . . . . . $ - $ - $(13,094) $ (6,788)
Common stock options exercised . . . . . . . 10
Issuance of Series E preferred stock,
net of issuance costs . . . . . . . . . 4,949
Accretion of dividends . . . . . . . . . . . (717)
Net income . . . . . . . . . . . . . . . . . 548 548
-------- ---------- ------- -------
BALANCE OF DECEMBER 31, 1994 . . . . . . . . - - (12,546) (1,998)
Common stock options exercised . . . . . . . 85
Accretion of dividends . . . . . . . . . . . (348)
Issuance of common stock in initial public
offering, net of issuance costs . . . . 14,331
Conversion of convertible preferred
stock into common stock . . . . . . . . 2,892 13,518
Issuance of common stock in secondary
public offering, net of issuance costs 19,186
Issuance of common stock at inception
of Retek (Note 2) . . . . . . . . . . . -
Tax benefit from stock option transactions . 800
Unrealized gain on investments available
for sale . . . . . . . . . . . . . . . 92 92
Stock warrant exercised . . . . . . . . . . 124
Net income . . . . . . . . . . . . . . . . . 2,123 2,123
-------- ---------- ------- -------
BALANCE AT DECEMBER 31, 1995 . . . . . . . . 92 - (7,531) 47,913
Common stock options exercised . . . . . . . 1,096
Common stock issued for Employee Stock
Purchase Plan . . . . . . . . . . . . . 839
Tax benefit from stock option transactions . 7,889
Tax benefit from Retek taxable pooling
(Note 9) . . . . . . . . . . . . . . . . 18,397
Unrealized loss on investments available
for sale . . . . . . . . . . . . . . . (151) (151)
Foreign currency translation adjustment . . 54 54
Net income . . . . . . . . . . . . . . . . . 6,376 6,376
-------- ---------- ------- -------

BALANCE AT DECEMBER 31, 1996 . . . . . . . . $(59) $ 54 $(1,155) $82,413
======== ========== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 23

HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

The Company

HNC Software Inc. (the "Company") develops, markets and supports intelligent
client-server software solutions for mission-critical decision applications in
real-time environments. The Company also performs contract research and
development using neural networks and other computational intelligence methods.

Basis of Presentation

The consolidated financial statements and related notes give retroactive
effect to the mergers on August 30, 1996 with Risk Data Corporation ("RDC") and
on November 29, 1996 with Retek Distribution Corporation ("Retek"), for all
periods presented, accounted for as poolings of interests. RDC is an insurance
information technology services firm engaged in the business of developing and
marketing analytical benchmarking and risk management software products
primarily for insurance carriers, state insurance funds and third party
administrators. Retek develops, markets and installs inventory management
system software primarily for customers in the retail industry.

The consolidated balance sheet as of December 31, 1996 and 1995 includes the
accounts of RDC and Retek as of December 31, 1996 and 1995. The consolidated
statements of income, of cash flows and of changes in stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1996
include the results of RDC and Retek for the years then ended. The term
"Company" as used in these consolidated financial statements refers to HNC
Software Inc. and its subsidiaries, including RDC and Retek.

No adjustments to conform accounting methods were required. Certain amounts
have been reclassified with regard to presentation of the financial information
of the two companies. Revenues and net income (loss) for each of the
previously separate companies for the periods prior to their acquisitions are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED SIX MONTHS ENDED ----------------------
SEPTEMBER 30, 1996 JUNE 30, 1996 1995 1994
------------------ ---------------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
HNC . . . . . . . . $31,423 $16,478 $25,174 $16,473
RDC . . . . . . . . - 2,600 4,577 4,201
Retek . . . . . . . 5,635 3,377 921 -
--------- --------- --------- ---------
$37,058 $22,455 $30,672 $20,674
========= ========= ========= =========

Net income (loss):
HNC . . . . . . . . $ 975 $ 1,780 $ 4,457 $ 1,923
RDC . . . . . . . . - (2,184) (1,952) (1,375)
Retek . . . . . . . 93 43 (382) -
--------- --------- --------- ---------
$ 1,068 $ (361) $ 2,123 $ 548
========= ========= ========= =========
</TABLE>

Principles of Consolidation

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

F-7
<PAGE> 24

HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Financial Statement Preparation

The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents are highly liquid investments and consist of investments in
money market accounts and commercial paper purchased with maturities of three
months or less.

Investments

Management determines the appropriate classification of its investments in
marketable debt and equity securities at the time of purchase and re-evaluates
such designation as of each balance sheet date. As of and for the year ended
December 31, 1994 based upon the Company's intent and ability, the Company
classified such securities in the held-to-maturity category and recorded these
securities at amortized cost, which approximated market value. As of December
31, 1995, the Company reassessed its intent and ability with respect to these
securities. As a result of this reassessment, the Company reclassified all
securities as "available for sale" and accounts for them accordingly on a
prospective basis. Available for sale securities are carried at fair value
with unrealized gains or losses related to these securities included in
stockholders' equity in the Company's consolidated balance sheet.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets of three to seven years. Leasehold improvements are amortized over
the shorter of their estimated useful lives or the remaining terms of the
related leases. Repair and maintenance costs are charged to expense as
incurred.

Software Costs

Software costs are recorded at cost and amortized over their estimated useful
lives of 36 to 42 months. Software costs are comprised of purchased software
and other rights which are recorded at the lower of cost or net realizable
value. At December 31, 1996 and 1995, software costs of $2,561 and $0,
respectively, are included in other assets in the consolidated balance sheet
net of accumulated amortization of $642 and $0, respectively.

Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. Through December 31, 1996, no significant amounts were expended
subsequent to reaching technological feasibility.

Long-Lived Assets

The Company investigates potential impairments of long-lived assets, certain
identifiable intangibles and associated goodwill, on an exception basis, when
events or changes in circumstances have made recovery of an asset's carrying
value unlikely. An impairment loss is recognized when the sum of the expected
future net cash flows is less than the carrying amount of the asset. No such
impairments of long-lived assets existed through December 31, 1996.

F-8
<PAGE> 25
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Stock-Based Compensation

The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value-based
method had been applied in measuring compensation expense (Note 10).

Revenue Recognition

Revenue from long-term software license agreements is generally recognized
ratably over the respective license periods. Revenue from licenses of the
Company's software for which there are no significant continuing obligations
and collection of the related receivables is probable is recognized on delivery
of the software and acceptance by the customer.

Revenue from software installation and contract services is generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion. Amounts received in advance of performance under contracts are
recorded as deferred revenue and are generally recognized within one year from
receipt. Contract losses are recorded as a charge to income in the period such
losses are first identified. Unbilled receivables are stated at estimated
realizable value. Contract costs under government contracts, including indirect
costs, are subject to audit and adjustment by negotiations between the Company
and government representatives. Through 1990, indirect government contract
costs have been agreed upon with government representatives. Revenues from
government contracts have been recorded in amounts that are expected to be
realized upon final settlement.

Revenue from product sales, which is included in contracts and other revenue,
is recognized upon shipment to the customer.

Income Taxes

Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities as well as the expected
future tax benefit to be derived from tax loss and tax credit carryforwards.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount "more likely than not" to be realized in future tax
returns. Tax rate changes are reflected in income during the period such
changes are enacted.

Foreign Currency Translation

The financial statements of the Company's international operations are
translated into U.S. dollars using period-end exchange rates for assets and
liabilities and average exchange rates during the period for revenues and
expenses. Cumulative translation gains and losses are excluded from results of
operations and accumulated as a separate component of stockholders' equity.
Gains and losses resulting from foreign currency transactions (transactions
denominated in a currency other than the entity's local currency) are included
in the consolidated statement of income and are not material.

F-9
<PAGE> 26
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Diversification of Credit Risk

The Company's financial instruments that are subject to concentrations of
credit risk consist primarily of cash equivalents, investments and trade
accounts receivable which are generally not collateralized. The Company's
policy is to place its cash, cash equivalents and investments with high credit
quality financial institutions and commercial companies and government agencies
in order to limit the amount of its credit exposure. The Company's software
license and installation agreements and commercial development contracts are
primarily with customers in the financial services, insurance and retail
industries. The Company maintains reserves for potential credit losses.

During 1996, 1995 and 1994, sales under prime and subcontracts with the
federal government represented 3.0%, 7.3%, and 11.3%, respectively, of the
Company's total revenues. One domestic customer accounted for 11.4%, 12.4% and
11.6% of total revenues in 1996, 1995 and 1994, respectively. Revenues from
international customers, primarily in Western Europe and Canada, were
approximately 23.5%, 17.9%, and 11.4% of total revenues in 1996, 1995 and 1994,
respectively.

Disclosures about fair value of financial instruments

The carrying amounts of cash and cash equivalents, accrued liabilities, the
bank line of credit and notes payable to stockholders approximate fair value
because of the short term maturities of these financial instruments. The
carrying amounts of capital lease obligations approximate their fair values
based on interest rates currently available to the Company for borrowings with
similar terms and maturities.

Reincorporation and stock split

In May 1995, the stockholders approved an Agreement and Plan of Merger
whereby the Company merged with and into a newly incorporated Delaware
corporation ("HNC Delaware"), which is the surviving corporation. In
conjunction with the merger, each share of the Company's common stock,
preferred stock and options and warrants to purchase the Company's common stock
was exchanged for one-half share of HNC Delaware's common stock, preferred
stock and options and warrants to purchase HNC Delaware's common stock, at
twice the exercise price for options and warrants. All references to share and
per share amounts of common and preferred stock and other data in these
financial statements have been retroactively restated to reflect the
reincorporation.

In April 1996, the Company consummated a two-for-one stock split effected in
the form of a common stock dividend. All references in these consolidated
financial statements to share and per share amounts have been adjusted to give
retroactive effect to the stock split.

Pro forma net income per share

Pro forma net income per share is computed based on the weighted average
number of common shares and common stock equivalents, using the treasury stock
method, outstanding during the respective periods after giving retroactive
effect to the conversion, which occurred upon the closing of the Company's
initial public offering, of all outstanding shares of preferred stock into
8,957 shares of common stock. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, all stock options granted from May 5, 1994
through June 26, 1995 have been included as outstanding for all periods prior
to June 26, 1995 using the treasury stock method and the $7.00 initial public
offering price per share. For periods prior to 1996, historical earnings per
share are not presented because such amounts are not deemed meaningful due to
the significant change in the Company's capital structure that occurred in
connection with the initial public offering.

F-10
<PAGE> 27
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net income per share

Net income per share is computed based on the weighted average number of
common shares and common stock equivalents, using the treasury stock method,
outstanding during the period.

Reclassifications

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

NOTE 2 -- ACQUISITIONS

On August 30, 1996, the Company completed an acquisition of Risk Data
Corporation ("RDC"). Under the terms of the acquisition, accounted for as a
pooling of interests, the Company exchanged 1,891 common shares for all of the
then outstanding shares of RDC preferred and common stock. All periods
presented have been retroactively restated (Note 1).

On November 29, 1996, the Company completed an acquisition of all of the
outstanding shares of Retek Distribution Corporation. Under the terms of the
acquisition, accounted for as a pooling of interests, the Company exchanged
1,367 common shares for all of Retek's then outstanding shares. All periods
presented have been retroactively restated (Note 1).

Transaction costs of $563 and $515 were incurred to complete the mergers with
RDC and Retek, respectively. Transaction costs were charged to income as
incurred and consisted primarily of investment banker, legal and accounting
fees, and printing, mailing and registration expenses.

NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Accounts receivable, net:
Billed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,156 $ 4,048
Unbilled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,299 2,955
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636 496
---------- ----------
20,091 7,499
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . (623) (503)
---------- ----------
$ 19,468 $ 6,996
========== ==========
</TABLE>

Unbilled amounts represent revenue recorded in excess of amounts billable
pursuant to contract provisions and generally become billable at contractually
specified dates or upon the attainment of milestones. Unbilled amounts are
expected to be realized within one year.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Property and equipment, net:
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . $ 8,409 $ 4,934
---------- ----------
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . 1,884 1,268
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . 273 167.
---------- ----------
10,566 6,369
Less accumulated depreciation and amortization . . . . . . . . . . . . . (4,600) (2,378)
---------- ----------
$ 5,966 $ 3,991
========== ==========
</TABLE>

F-11
<PAGE> 28
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995
--------------------------------
<S> <C> <C>
Accrued liabilities:
Payroll and related benefits . . . . . . . . . . . . . . . . . . . $ 1,457 $ 1,126
Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673 435
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,928 1,257
---------- ----------
$ 4,058 $ 2,818
========== ==========
</TABLE>

NOTE 4 -- INVESTMENTS

At December 31, 1996 and 1995, the amortized cost and estimated fair value of
investments available for sale were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
U.S. government and federal agencies . . . . . . $ 1,999 $ - $ (2) $ 1,997
---------- ---------- ---------- ----------
U.S. corporate debt . . . . . . . . . . . . . . . 3,149 - (6) 3,143
Foreign corporate debt . . . . . . . . . . . . . 2,216 - (3) 2,213
---------- ---------- ---------- ----------
7,364 - (11) 7,353
---------- ---------- ---------- ----------
Non-current:
U.S. government and federal agencies . . . . . . $16,213 $ - $(36) $16,177
Foreign government debt . . . . . . . . . . . . . 1,006 - (2) 1,004
U.S. corporate debt . . . . . . . . . . . . . . . 1,702 - (8) 1,694
Foreign corporate debt . . . . . . . . . . . . . 502 - (2) 500
---------- ---------- ---------- ----------
19,423 - (48) 19,375
---------- ---------- ---------- ----------
$26,787 $ - $(59) $26,728
========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
U.S. government and federal agencies . . . . . . $ 1,481 $ 9 $ - $ 1,490
Foreign government debt . . . . . . . . . . . . . 1,017 2 - 1,019
U.S. corporate debt . . . . . . . . . . . . . . . 8,870 45 - 8,915
Foreign corporate debt . . . . . . . . . . . . . 3,164 2 - 3,166
---------- ---------- ---------- ----------
14,532 58 - 14,590
---------- ---------- ---------- ----------
Non-current:
Foreign government debt . . . . . . . . . . . . . $ 1,019 2 - 1,021
U.S. corporate debt . . . . . . . . . . . . . . . 7,077 32 - 7,109
Foreign corporate debt . . . . . . . . . . . . . 206 - - 206
---------- ---------- ---------- ----------
8,302 34 - 8,336
---------- ---------- ---------- ----------
$22,834 $92 $ - $22,926
========== ========== ========== ==========
</TABLE>

Maturities for non-current investments in securities range from one to two
years. Included in the Company's 1995 income statement is a realized gain in
the amount of $3 related to the sale of held-to-maturity securities with an
aggregate amortized cost in the amount of $2,464. No significant gains or
losses were recognized during the year ended December 31, 1996. The cost of
securities sold is determined by the specific identification method.

F-12
<PAGE> 29
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5 -- NOTES PAYABLE

The Company has a Loan and Security Agreement with a bank which provides for
a $5,000 revolving line of credit through July 10, 1997. The agreement requires
that the Company maintain certain financial ratios and levels of tangible net
worth and also restricts the Company's ability to pay cash dividends and
repurchase stock without the bank's consent. At December 31, 1996 and 1995,
the Company had $0 outstanding under the revolving line of credit. Any
borrowings under the agreement will be collateralized by substantially all of
the Company's assets. Interest is payable monthly at the bank's prime rate,
which was 8.25% at December 31, 1996.

The RDC credit facility was comprised of a revolving line of credit secured
by eligible accounts receivable as well as a bridge loan which was secured by
the guarantees of certain stockholders. The revolving line of credit matured
on January 5, 1997. The bridge loan matured on September 5, 1996. All
outstanding amounts were repaid during 1996 and neither credit facility was
renewed.

During 1995, the preferred stockholders of RDC loaned the Company $1,000
under subordinated note agreements (secured by the assets of RDC but
subordinated to borrowings under the RDC line of credit) bearing interest at
9%. All outstanding amounts were repaid during 1996.

NOTE 6 -- LEASES

At December 31, 1996, the Company is obligated under noncancelable operating
leases for its facilities and certain equipment through 2003 as follows:

<TABLE>
<CAPTION>
NET FUTURE
FUTURE MINIMUM LESS SUBLEASE MINIMUM LEASE
LEASE PAYMENTS INCOME PAYMENTS
------------------ ----------------- --------------------
<S> <C> <C> <C>
1997 $1,943 $212 $1,731
1998 1,539 192 1,347
1999 1,189 149 1,040
2000 1,211 - 1,211
2001 1,249 - 1,249
thereafter 1,787 - 1,787
</TABLE>

The lease for the Company's corporate headquarters provides for scheduled
rent increases and an option to extend the lease for five years with certain
changes to the terms of the lease agreement and a refurbishment allowance. Rent
expense under operating leases for the years ended December 31, 1996, 1995, and
1994 was approximately $1,340, $1,192, and $898, respectively, net of sublease
income of $125, $83 and $40, respectively.

RDC maintains a lease line of credit with a leasing company for the
acquisition of equipment under capital lease arrangements. Future minimum
payments are as follows:

<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . $ 475
1998 . . . . . . . . . . . . . . . . . . . . . . 232
1999 . . . . . . . . . . . . . . . . . . . . . . 66
-------
773
Less amounts representing interest . . . . . . (110)
-------
Capital lease obligations . . . . . . . . . . . 663
Less current portion . . . . . . . . . . . . . (399)
-------
$ 264
=======
</TABLE>

F-13
<PAGE> 30
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The gross value of assets under capital leases at December 31, 1996 and 1995
was $1,481 and $2,186 and accumulated amortization was $599 and $572,
respectively. Amortization expense for assets acquired under capital leases is
included in depreciation expense.

NOTE 7 -- LICENSE OF CHARACTER RECOGNITION TECHNOLOGY

In November 1992, the Company entered into an agreement that granted Mitek a
license to use certain character recognition technology developed by the
Company. The agreement provided for the Company to receive an initial license
and support fee payment of $1,350 and an additional license and support fee
based on a percentage of Mitek's revenue from the sale of character recognition
products through November 1995. The agreement also required that the Company
sell certain proprietary computer boards to Mitek at a substantial discount
from normal sales prices, but in excess of cost, and provide ongoing
engineering and technical support over the agreement period, which ended during
November 1995. As the Company had a significant continuing obligation under
this agreement, the initial license and support fee received thereunder was
deferred on receipt and recognized as revenue over the performance period based
on estimated sales of proprietary computer boards. The additional license and
support fees were recognized as a percentage of actual Mitek revenues pursuant
to the agreement.

Revenue recognized pursuant to this agreement, which is included in
"contracts and other" in the consolidated statement of income, is summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
-------- --------
<S> <C> <C>
Initial license fee . . . . . . . . . . . . . . . . . . . . . $ 47 $ 295
Additional license and support fee . . . . . . . . . . . . . . 314 476
Computer board sales . . . . . . . . . . . . . . . . . . . . . 527 657
-------- --------
$ 888 $ 1,428
======== ========
</TABLE>

NOTE 8 -- CAPITAL STOCK

During June 1995, the Company completed its initial public offering for sale
of 5,175 shares of common stock (of which 2,375 shares were sold by the Company
and 2,800 shares were sold by certain selling stockholders) at a price to the
public of $7.00 per share, which resulted in net proceeds to the Company of
$15,461 after the payment of underwriters' commissions but before the deduction
of offering expenses. Upon the closing of the Company's initial public
offering, all outstanding shares of Series A, B, C, D, and E convertible
preferred stock were automatically converted into shares of common stock at
their then effective conversion prices. Upon conversion, the preferred
stockholders were no longer entitled to any undeclared cumulative dividends and
all class voting rights terminated.

During December 1995, the Company completed a secondary public offering for
sale of 3,000 shares of common stock (of which 1,116 shares were sold by the
Company and 1,884 shares were sold by certain selling stockholders) at a price
to the public of $18.50 per share, which resulted in net proceeds to the
Company of $19,606 after the payment of underwriters' commissions but before
the deduction of offering expenses.

F-14
<PAGE> 31
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Board of Directors is authorized to issue up to 4,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will
be subject to the rights of the holders of any Preferred Stock that may be
issued in the future.

NOTE 9 -- INCOME TAXES

Income (loss) before income tax benefit was taxed under the following
jurisdictions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,008 $ 1,746 $ 93
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760 (198) -
--------- -------- ---------
$ 5,768 $ 1,548 $ 93
========= ======== =========
</TABLE>

The income tax provision (benefit) is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------- --------- ---------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,132 $ 97 $ 17
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 76 28
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 51 - -
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . (1,569) (521) (425)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) (183) (75)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . (296) (44) -
--------- -------- ---------
$ (608) $ (575) $ (455)
========= ======== =========
</TABLE>
Deferred tax assets are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Taxable pooling basis difference . . . . . . . . . . . . . . . . $ 18,397 $ -
Net operating loss carryforwards . . . . . . . . . . . . . . . . 8,587 2,902
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . 1,878 1,370
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 493
--------- --------
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . 29,366 4,765
Deferred tax asset valuation allowance . . . . . . . . . . . . . - (2,717)
--------- --------
Net deferred tax asset . . . . . . . . . . . . . . . . . . $ 29,366 $ 2,048
========= ========
</TABLE>

At December 31, 1994, the Company provided a deferred tax asset valuation
allowance for deferred tax assets which management determined were "more likely
than not" unrealizable based on trends in operating results after eliminating
the effects of non-recurring revenue (Note 7). During 1995, the Company
released the valuation allowance related to HNC's deferred tax assets based on
management's assessment that it was more likely than not that the Company would
realize a portion of those assets in future periods due to improvements in
HNC's operating results. During 1996, the Company released the valuation
allowances related to RDC and Retek deferred tax assets based on management's
assessment that it was more likely than not that the Company would realize
those assets in future periods due to improvements in the operating results of
those subsidiaries.

F-15
<PAGE> 32
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

During 1996 and 1995, the Company realized certain tax benefits related to
stock option plans in the amount of $7,889 and $800, respectively. The benefit
from the stock option tax deduction is credited directly to paid-in capital.

In connection with the acquisition of Retek, the Company made an Internal
Revenue Code Section 338 election for federal and state tax purposes, resulting
in the treatment of the acquisition as a taxable transaction, whereby the tax
bases of the acquired assets and liabilities were adjusted to their fair values
as of the date of the acquisition. As the purchase price exceeded the carrying
value of the net assets acquired by approximately $46,000, the Company recorded
a deferred tax asset in the amount of $18,397.

A reconciliation of the income tax benefit to the amount computed by applying
the statutory federal income tax rate to income before income tax provision is
summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Amounts computed at statutory federal rate . . . . . . . . . . . . $ 1,961 $ 526 $ 32
Release of valuation allowance . . . . . . . . . . . . . . . . . . (2,717) (2,223) (1,008)
Tax credit carryforwards generated . . . . . . . . . . . . . . . . (334) (68) (51)
Losses without tax benefit . . . . . . . . . . . . . . . . . . . . - 794 468
Separate return impact of acquired businesses . . . . . . . . . . (154) - -
Acquisition expenses not tax deductible . . . . . . . . . . . . . 367 - -
State income tax expense . . . . . . . . . . . . . . . . . . . . . 480 401 28
Foreign net operating loss carryforwards generated . . . . . . . . (296) (44) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 39 76
--------- -------- --------
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . $ (608) $ (575) $ (455)
========= ======== ========
</TABLE>

At December 31, 1996, the Company had federal, state and foreign net
operating loss carryforwards of approximately $22,300, $10,800 and $800,
respectively. The federal and state net operating loss carryforwards expire
from 1997 to 2011. The foreign net operating loss carryforwards expire from
2002 to 2003. The Company also has approximately $1,400 of federal research
and development credit carryforwards, which expire from 2000 to 2011, $400 of
state research and development credit carryforwards, which have no expiration
date, and $100 of foreign tax credit carryforwards, which expire from 1999 to
2000. Certain of these net operating loss and research and development credit
carryforwards generated by RDC and Retek prior to their acquisitions by HNC are
subject to annual limitations on their utilization and also are limited to
utilization solely by the Company which generated them. Should a substantial
change in HNC's ownership occur, as defined by the Tax Reform Act of 1986,
there will be an annual limitation on the utilization of net operating loss and
research and development credit carryforwards.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

During 1987, the Company adopted the 1987 Stock Option Plan whereby 2,500
shares of the Company's common stock were reserved for issuance pursuant to
nonqualified and incentive stock options to its officers, directors, key
employees and consultants. The plan, as amended, is administered by the Board
of Directors or its designees and provides generally that, for incentive stock
options and nonqualified stock options, the exercise price must not be less
than the fair market value of the shares as determined by the Board of
Directors at the date of grant. The options expire no later than ten years
from the date of grant and may be exercised in installments based upon
stipulated timetables (not in excess of seven years). At December 31, 1996,
options to purchase 545 shares were exercisable.

F-16
<PAGE> 33
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

During 1995, the Company adopted the 1995 Directors Stock Option Plan (the
"Directors Plan"), the 1995 Equity Incentive Plan (the "Incentive Plan") and
the 1995 Employee Stock Purchase Plan (the "Purchase Plan"). For purposes of
the discussion contained in the three paragraphs below, "fair market value"
means the closing price of the Company's Common Stock on the Nasdaq National
Market on the grant date.

The Directors Plan provides for the issuance of up to 300 nonqualified stock
options to the Company's outside directors. Under the provisions of the
Directors Plan, options to purchase 25 shares of the Company's common stock are
granted to outside directors upon their respective dates of becoming members of
the Board of Directors and 10 additional options will be granted on each
anniversary of such dates. Options under the Directors Plan are granted at the
fair market value of the stock at the grant date and vest at specific times
over a four-year period. At December 31, 1996, options to purchase 40 shares
were exercisable.

The Incentive Plan provides for the issuance of up to 2,800 shares of the
Company's common stock in the form of nonqualified or incentive stock options,
restricted stock or stock bonuses. In addition, any shares remaining unissued
under the 1987 Stock Option Plan on the effective date of the Incentive Plan,
and any shares issuable upon exercise of options granted pursuant to the 1987
Stock Option Plan that expire or become unexercisable for any reason without
having been exercised in full, will no longer be available for issuance under
the 1987 Stock Option Plan but will be available for issuance under the
Incentive Plan. Nonqualified stock options and restricted stock may be awarded
at a price not less than 85% of the fair market value of the stock at the date
of the award. Incentive stock options must be awarded at a price not less than
100% of the fair market value of the stock at the date of the award, or 110% of
fair market value for awards to more than 10% stockholders. Options granted
under the Incentive Plan may have a term of up to 10 years. The Company has
the discretion to provide for restrictions and the lapse thereof in respect of
restricted stock awards, and options typically vest at the rate of 25% of the
total grant per year over a four-year period. However, the Company may, at its
discretion, implement a different vesting schedule with respect to any new
stock option grant. At December 31, 1996, 58 shares were exercisable under the
Incentive Plan.

The Purchase Plan provides for the issuance of a maximum of 400 shares of
common stock. Each purchase period, eligible employees may designate between
2% and 10% of their cash compensation, subject to certain limitations, to be
deducted from their pay for the purchase of common stock under the Purchase
Plan. The purchase price of the shares under the Purchase Plan is equal to 85%
of the lesser of the fair market value per share, as defined by the Purchase
Plan, on the first day of the twelve-month offering period or the last day of
each six-month purchase period. Approximately 65% of eligible employees have
participated in the Plan in the last two years. Under the Purchase Plan, the
Company sold 94 shares to employees in 1996.

RDC's stock option plan is administered by HNC's Board of Directors. All
outstanding RDC options were converted into options to purchase HNC common
stock and adjusted to give effect to the exchange ratio (Note 2). No changes
were made to the terms of the RDC options in connection with the exchange.
Options granted under the RDC stock option plan generally vest at the rate of
25% of the total grant per year over a four-year period and expire 10 years
after the date of grant. At December 31, 1996, 63 shares were exercisable
under the RDC plan.

Retek's stock options are administered by HNC's Board of Directors. All
outstanding Retek options were converted into options to purchase the Company's
common stock and adjusted to give effect to the exchange ratio (Note 2). No
changes were made to the terms of the Retek options in connection with the
exchange. Options granted vest ratably over periods from one to four years and
have a term of up to 10 years. At December 31, 1996, options to purchase 28
shares were exercisable.

Transactions under the Company's stock option and purchase plans during the
years ended December 31, 1996 and 1995, including options under the RDC stock
option plan and options under the Retek stock option plan but excluding options
to purchase stock of a subsidiary of the Company, Aptex Software Inc.
("Aptex"), are summarized as follows:

F-17
<PAGE> 34
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------------------- -----------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year . . . . . . . . 2,722 $ 2.87 2,081 $ 0.49
Options granted . . . . . . . . . . . . . 1,591 28.84 1,101 6.67
Options exercised . . . . . . . . . . . . (1,140) .96 (207) 0.41
Options canceled . . . . . . . . . . . . . (150) 17.77 (253) 1.75
-------- --------
Outstanding at end of year . . . . . . . . . . . 3,023 16.53 2,722 2.87
========= ========
Options exercisable at end of year . . . . . . . 734 1,427
Weighted average fair value of options granted
during the year . . . . . . . . . . . . . $16.94 $ 4.64
</TABLE>

The following table summarizes information about employee stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
- ---------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.02 to $ 0.92 554 4.66 years $ 0.35 475 $ 0.30
1.00 to 3.00 607 8.10 2.67 157 2.67
4.50 to 21.38 505 8.73 13.06 92 10.91
21.50 to 30.25 510 9.38 26.64 1 22.55
30.50 to 30.75 568 9.73 30.68 9 30.75
30.81 to 49.50 279 9.47 37.81 - -
------ ------
$ 0.02 to $49.50 3,023 8.23 16.53 734 2.55
====== ======
</TABLE>

During 1996, Aptex adopted the 1996 Equity Incentive Plan (the "Equity Plan")
whereby 2,000 shares of Aptex common stock were reserved for issuance pursuant
to nonqualified and incentive stock options and restricted stock awards. The
plan is administered by the Board of Directors of Aptex or its designees and
provides generally that nonqualified stock options and restricted stock may be
awarded at a price not less than 85% of the fair market value of the stock at
the date of the award. Incentive stock options must be awarded at a price not
less than 100% of the fair market value of the stock at the date of the award,
or 110% of fair market value for awards to more than 10% stockholders. Options
granted under the Incentive Plan may have a term of up to 10 years. The Company
has the discretion to provide for restrictions and the lapse thereof in respect
of restricted stock awards, and options typically vest at the rate of 25% of the
total grant per year over a four-year period. However, the Company may, at its
discretion, implement a different vesting schedule with respect to any new stock
option grant. No options granted under the Equity Plan were exercisable at
December 31, 1996.

The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation. No
compensation expense has been recognized for its employee stock option grants,
which are fixed in nature, as the options have been granted at fair market
value. No compensation expense has been recognized for the Purchase Plan. Had
compensation cost for the Company's stock-based compensation awards issued
during 1996 and 1995 been determined based on the fair value at the grant dates
of awards consistent with the method of Financial Accounting Standards Board
Statement No. 123, the Company's net income and pro forma net income per share
would have been reduced to the pro forma amounts indicated below:

F-18
<PAGE> 35
HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Net income:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,376 $2,123
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . 2,137 1,549
Net income per share:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . $ .31 $ .13
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . .11 .09
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 1996 and 1995,
respectively: dividend yield of 0.0% for both years, risk-free interest rates
of 6.03% and 6.29%, expected volatility of 70% and 75%, and expected lives of
3.5 years for both years. The fair value of the employees' purchase rights
pursuant to the Purchase Plan is estimated using the Black-Scholes model with
the following assumptions: dividend yield of 0.0% for both years, risk-free
interest rates of 5.36% and 5.66%, expected volatility of 70% and 75%; and an
expected life of 6 months for both years. The weighted-average fair value of
those purchase rights granted in 1996 and 1995 was $9.61 and $2.75,
respectively.

The fair value of each option granted under the Equity Plan is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants during the year ended
December 31, 1996: dividend yield of 0.0%, risk-free interest rate of 6.42%,
expected volatility of 90%, and an expected life of 9.25 years. Options to
purchase 704 shares were granted during 1996 at a weighted average exercise
price of $0.03 per share. The weighted average fair value of options granted
during the year was $0.03 per share. At December 31, 1996, there were 704
options outstanding under the Equity Plan with a weighted average exercise price
of $0.03 per share and a weighted average remaining contractual life of 9.74
years.

NOTE 11 -- CONTINGENCIES

Various claims arising in the course of business, seeking monetary damages
and other relief, are pending. The amount of the liability, if any, from such
claims, cannot be determined with certainty; however, in the opinion of
management, the ultimate liability for such claims will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

F-19
<PAGE> 36

No dealer, salesperson or any other person has been authorized to give
any information or to make any representation not contained in this Prospectus
in connection with the offer made in this Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Selling Stockholders or any underwriter, dealer or agent.
This Prospectus does not constitute an offer of any securities other than the
registered securities to which it relates or an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction where such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof.

--------------------------------
TABLE OF CONTENTS
--------------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . F-1

</TABLE>

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

1,367,196 SHARES

HNC SOFTWARE INC.

COMMON STOCK

______________

PROSPECTUS
______________

____________, 1997

<PAGE> 37
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be paid by the Registrant in connection with
this offering are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . . . . $10,513
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,013
=========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by Section 145 of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the Delaware General Corporation Law; or (iv) for
any transaction from which the director derived an improper personal benefit.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Bylaws of the Registrant provide that: (i) the Registrant is required
to indemnify its directors and executive officers to the fullest extent
permitted by the Delaware General Corporation Law; (ii) the Registrant may, in
its discretion, indemnify other officers, employees and agents as set forth in
the Delaware General Corporation Law; (iii) upon receipt of an undertaking to
repay such advances if indemnification is determined to be unavailable, the
Registrant is required to advance expenses, as incurred, to its directors and
executive officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except that it is not required
to advance expenses to a person against whom the Registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit);
(iv) the rights conferred in the Bylaws are not exclusive and the Registrant is
authorized to enter into indemnification agreements with its directors,
officers and employees and agents; (v) the Registrant may not retroactively
amend the Bylaw provisions in a way that adversely affects the indemnification
provided thereunder.

The Registrant's policy is to enter into indemnity agreements
with each of its directors and executive officers The indemnity agreements
provide that directors and executive officers will be indemnified and held
harmless to the fullest possible extent permitted by law including against all
expenses (including attorneys' fees), judgments, fines and settlement amounts
paid or reasonably incurred by them in any action, suit or proceeding,
including any derivative action by or in the right of the Registrant, on
account of their services as directors, officers, employees or agents of the
Registrant or as directors, officers, employees or agents of any other company
or enterprise when they are serving in such capacities at the request of the
Registrant. The Registrant will not be obligated pursuant to the agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims (i) initiated by the indemnified party and not by way of
defense, except with respect to a proceeding authorized by the Board of
Directors and successful proceedings brought to enforce a right to
indemnification under the indemnity agreements; (ii) for any amounts paid in
settlement of a proceeding unless the Registrant consents to such settlement;
(iii) on account of any suit in which judgment is rendered against the
indemnified party for an accounting of profits made from the purchase or sale
by the indemnified party of securities of the Registrant pursuant to the
provisions of 16(b) of the Exchange Act and related laws and regulations; (iv)
on account of conduct by an indemnified party that is finally adjudged to have
been in bad faith or conduct that the indemnified party did not reasonably
believe to be in, or not opposed to, the best interests of the Registrant; (v)
on account of any criminal action or proceeding arising out of conduct that the
indemnified party had reasonable cause to believe was unlawful; or (vi) if a
final decision by a court having jurisdiction in the matter shall determine
that such indemnification is not lawful.

II-1
<PAGE> 38

The indemnity agreement requires a director or executive officer
to reimburse the Registrant for expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, his or her indemnity agreement or otherwise to
be indemnified for such expenses. The indemnity agreement provides that it is
not exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any
majority-in-interest vote of the stockholders or vote of disinterested
directors, Delaware law, or otherwise.

The indemnification provision in the Bylaws, and the indemnity
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.

The indemnity agreements require the Registrant to maintain
director and official liability insurance to the extent readily available. The
Registrant currently carries a director and officer insurance policy.

ITEM 16. EXHIBITS.

The following exhibits are filed herewith or incorporated by reference
herein:

EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------

2.01 -- Exchange Agreement dated October 25, 1996 by and among the
Registrant, Retek Distribution Corporation, the Mulberry
Trust and the Kulmor Trust.(1)

4.01 -- Third Amended Registration Rights Agreement dated March 10,
1993, as amended.(2)

4.02 -- Registration Rights Agreement dated as of August 30, 1996
by and among the Registrant and the former shareholders of
Risk Data Corporation.(3)

4.03 -- Registration Rights Agreement dated as of October 25, 1996
by and among the Registrant, the Mulberry Trust and the
Kulmor Trust, as amended.(1)

4.04 -- Amendment No. 1 to Registration Rights Agreement dated
February 24, 1997 among the Registrant, the Mulberry Trust,
the Kulmor Trust, Miurkirk Investments Ltd. and Oyster
Pursuits Ltd.

4.05 -- Registrant's Restated Certificate of Incorporation.(4)

4.06 -- Registrant's Bylaws, as amended.(4)

4.07 -- Specimen Certificate for shares of Common Stock of the
Registrant.(2)

5.01 -- Opinion of Fenwick & West LLP regarding the legality of the
securities being issued.

23.01 -- Consent of Price Waterhouse LLP, Independent Accountants.

23.02 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).

24.01 -- Power of Attorney (see page II-4).

________________

(1) Incorporated by reference to the Company's report on Form 8-K filed
December 12, 1996.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91932) filed on May 5, 1995 and as subsequently amended.

(3) Incorporated by reference to the Company's report on Form 8-K filed
September 12, 1996.

(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 as originally filed on August 13,
1996.

II-2
<PAGE> 39

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement: (i)
to include any prospectus required by Section 10(a)(3) of the Securities Act of
1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement (notwithstanding the foregoing, any increase or decrease
in volume or securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement); and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement; provided, however, that clauses
(i) and (ii) do not apply if the information required to be included in a
post-effective amendment by sections (i) and (ii) is contained in periodic
reports filed with or furnished to the Securities and Exchange Commission by
the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in
the Registration Statement.

(2) That, for the purpose of determining any liability
under the Securities Act, each post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.

(4) That, for purposes of determining any liability under
the Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-3
<PAGE> 40
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all for the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 3rd day of
March, 1997.

HNC SOFTWARE INC.

By: /s/ Raymond V. Thomas
----------------------------------
Raymond V. Thomas
Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Robert L. North and Raymond V. Thomas,
and each of them, his attorneys-in-fact and agents, each with the power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

SIGNATURE TITLE DATE
- --------- ----- -------------
PRINCIPAL EXECUTIVE OFFICER:

/s/ Robert L. North President, Chief Executive March 3, 1997
- ---------------------------- Officer and Director
Robert L. North

PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:

/s/ Raymond V. Thomas Vice President, Finance and March 3, 1997
- ---------------------------- Administration, Chief Financial
Raymond V. Thomas Officer and Secretary

ADDITIONAL DIRECTORS:

/s/ Edward K. Chandler Director March 3, 1997
- ----------------------------
Edward K. Chandler

/s/ Oliver D. Curme Director March 3, 1997
- ----------------------------
Oliver D. Curme

/s/ Roger L. Evans Director March 3, 1997
- ----------------------------
Roger L. Evans

II-4
<PAGE> 41

/s/ Thomas F. Farb Director March 3, 1997
- ----------------------------
Thomas F. Farb

/s/ Charles H. Gaylord, Jr. Director March 3, 1997
- ----------------------------
Charles H. Gaylord, Jr.

II-5
<PAGE> 42
EXHIBIT INDEX

EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------

2.01 -- Exchange Agreement dated October 25, 1996 by and among the
Registrant, Retek Distribution Corporation, the Mulberry
Trust and the Kulmor Trust.(1)

4.01 -- Third Amended Registration Rights Agreement dated March 10,
1993, as amended.(2)

4.02 -- Registration Rights Agreement dated as of August 30, 1996
by and among the Registrant and the former shareholders of
Risk Data Corporation.(3)

4.03 -- Registration Rights Agreement dated as of October 25, 1996
by and among the Registrant, the Mulberry Trust and the
Kulmor Trust, as amended.(1)

4.04 -- Amendment No. 1 to Registration Rights Agreement dated
February 24, 1997 among the Registrant, the Mulberry Trust,
the Kulmor Trust, Miurkirk Investments Ltd. and Oyster
Pursuits Ltd.

4.05 -- Registrant's Restated Certificate of Incorporation.(4)

4.06 -- Registrant's Bylaws, as amended.(4)

4.07 -- Specimen Certificate for shares of Common Stock of the
Registrant.(2)

5.01 -- Opinion of Fenwick & West LLP regarding the legality of the
securities being issued.

23.01 -- Consent of Price Waterhouse LLP, Independent Accountants.

23.02 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).

24.01 -- Power of Attorney (see page II-4).

27.01 -- Financial Data Schedule.

________________

(1) Incorporated by reference to the Company's Form 8-K filed December 12,
1996.

(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91932) filed on May 5, 1995 and as subsequently amended.

(3) Incorporated by reference to the Company's Form 8-K filed September 12,
1996.

(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 as originally filed on August 13,
1996.

<PAGE> 1

EXHIBIT 4.04

AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT

This Amendment No. 1 to Registration Rights Agreement (this "AMENDMENT") is
made and entered into as of February 24, 1997, by and between HNC Software
Inc., a Delaware corporation ("HNC"), St. George's Trust Company Limited, as
Trustee of The Mulberry Trust ("MULBERRY"), St. George's Trust Company Limited,
as Trustee of The Kulmor Trust ("KULMOR"), Miurkirk Investments Ltd., a company
incorporated under the laws of the Commonwealth of the Bahamas ("MIURKIRK") and
Oyster Pursuits Ltd., a company incorporated under the laws of the Commonwealth
of the Bahamas ("OYSTER")

R E C I T A L S

A. HNC, Mulberry and Kulmor previously entered into a certain
Registration Rights Agreement dated as of October 25, 1996 (the "REGISTRATION
RIGHTS AGREEMENT") in connection with the issuance of shares of HNC's Common
Stock to Mulberry and Kulmor pursuant to an Exchange Agreement dated as of
October 25, 1996 (the "EXCHANGE AGREEMENT").

B. Mulberry has privately transferred to Miurkirk One Million One
Hundred Sixty-Two Thousand One Hundred Seventeen (1,162,117) shares of HNC's
Common Stock (the "MULBERRY SHARES") that Mulberry acquired pursuant to the
Exchange Agreement.

C. Kulmor has privately transferred to Oyster Two Hundred Five
Thousand Seventy-Nine (205,079) shares of HNC's Common Stock (the "KULMOR
SHARES") that Kulmor acquired pursuant to the Exchange Agreement.

D. Mulberry desires to assign its rights under the Registration
Rights Agreement with respect to the Mulberry Shares to Miurkirk, which is
wholly-owned by Mulberry, and Kulmor desires to assign its rights under the
Registration Rights Agreement with respect to the Kulmor Shares to Oyster,
which is wholly-owned by Kulmor, and HNC desires to permit such assignment.

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. ACKNOWLEDGMENT; CERTAIN TERMS. Each party to this Amendment
acknowledges that it has reviewed and understood the terms and conditions of
the Registration Rights Agreement. Unless otherwise expressly defined in this
Amendment, all capitalized terms used in this Amendment will have the same
meanings given to such terms in the Registration Rights Agreement.

2. ASSIGNMENT AND ASSUMPTION AND CONSENT.

(a) Mulberry and Miurkirk. Mulberry hereby assigns and
transfers to Miurkirk all of Mulberry's rights, duties, obligations and
responsibilities under the Registration Rights Agreement, and, in consideration
of such assignment and transfer and the consents and agreements of HNC herein,
Miurkirk hereby agrees with HNC to assume all Mulberry's duties, obligations
and responsibilities under the Registration Rights Agreement (including without
limitation all such duties, obligations and responsibilities that arose prior
to the date of this Amendment) and to be bound by all of the terms and
conditions of the Registration Rights Agreement as a party thereto (including
but not limited to the indemnification provisions of Section 1.9 of the
Registration Rights Agreement).
<PAGE> 2

(b) Kulmor and Oyster. Kulmor hereby assigns and
transfers to Oyster all of Kulmor's rights, duties, obligations and
responsibilities under the Registration Rights Agreement, and, in consideration
of such assignment and transfer and the consents and agreements of HNC herein,
Oyster hereby agrees with HNC to assume all Kulmor's duties, obligations and
responsibilities under the Registration Rights Agreement (including without
limitation all such duties, obligations and responsibilities that arose prior
to the date of this Amendment) and to be bound by all of the terms and
conditions of the Registration Rights Agreement as a party thereto (including
but not limited to the indemnification provisions of Section 1.9 of the
Registration Rights Agreement).

(c) Consent. In consideration of the agreements of
Miurkirk and Oyster herein, HNC hereby consents to: (i) the assignment and
transfer to Miurkirk of Mulberry's rights, duties, obligations and
responsibilities under the Registration Rights Agreement with respect to the
Mulberry Shares; and (ii) the assignment and transfer to Oyster of Kulmor's
rights, duties, obligations and responsibilities under the Registration Rights
Agreement with respect to the Kulmor Shares.

3. AMENDMENTS. The Registration Rights Agreement is hereby
amended as follows (and by signing this Amendment, Miurkirk and Oyster each
agree to be bound by all of the following provisions of this Section 3):

(a) Shareholders. Miurkirk and Oyster shall each become
parties to the Registration Rights Agreement as "Shareholders" thereunder (and
Mulberry and Kulmor shall cease to be parties to the Registration Rights
Agreement). Miurkirk and Oyster agree that they shall each be bound by all of
the rights, duties, and obligations applicable to Shareholders under the
Registration Rights Agreement and by all of the terms and conditions of the
Registration Rights Agreement. The term "Shareholders" as used in the
Registration Rights Agreement, shall mean Miurkirk and Oyster, collectively and
the term "Shareholder" as used in the Registration Rights Agreement, shall mean
either Miurkirk or Oyster, individually.

(b) Registrable Securities. The parties acknowledge and
agree that the shares of HNC Common Stock referred to in Section 1.1(d)(i) of
the Registration Rights Agreement are the Mulberry Shares and the Kulmor
Shares, as defined in the recitals to this Amendment.

(c) Exhibit A. Exhibit A to the Registration Rights
Agreement will be amended and restated in its entirety as set forth in Exhibit
A to this Amendment.

4. MISCELLANEOUS.

(a) Material Inducements. Miurkirk and Oyster understand
that their agreements under this Amendment are material inducements to HNC to
enter into this Amendment.

(b) Counterparts. This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered will be
deemed to be an original and all of which taken together will constitute one
and the same instrument.

(c) Effect of Amendment. Except as amended hereby, the
Registration Rights Agreement remains in full force and effect. In the event
of any conflict between this Amendment and the Registration Rights Agreement,
this Amendment will control and govern.

-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned parties have executed this
Amendment effective as of the date and year first above written.

HNC SOFTWARE INC. MIURKIRK INVESTMENTS LTD.

By: _____________________________ By: ____________________________

Name: ___________________________ Name: __________________________

Title: __________________________ Title: _________________________

THE MULBERRY TRUST OYSTER PURSUITS LTD.

By: St. George's Trust Company
Limited, as Trustee

By: ______________________________ By: ____________________________

Name: ____________________________ Name: __________________________

Title: ___________________________ Title: _________________________

THE KULMOR TRUST

By: St. George's Trust Company Limited,
as Trustee

By: ______________________________

Name: ____________________________

Title: ___________________________

ATTACHMENTS:

Exhibit A List of Shareholders

[SIGNATURE PAGE TO AMENDMENT TO REGISTRATION RIGHTS AGREEMENT]

-3-
<PAGE> 4
EXHIBIT A

LIST OF SHAREHOLDERS

Number of Shares of HNC

Name and Address Common Stock Held

Miurkirk Investments Ltd. 1,162,117

4th Floor, 33 Reid Street

Hamilton, Bermuda

Oyster Pursuits Ltd. 205,079

4th Floor, 33 Reid Street

Hamilton, Bermuda

-4-

<PAGE> 1
EXHIBIT 5.01

March 3, 1997

HNC Software Inc.
5930 Cornerstone Court West
San Diego, California 92121

Ladies & Gentlemen:

At your request, we have examined the Registration Statement on Form
S-3 to be filed by you with the Securities and Exchange Commission on or about
March 4, 1997 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of 1,367,196 shares
of the Common Stock (the "Stock") of HNC Software Inc., a Delaware corporation
("HNC"), all of which are presently issued and outstanding and will be sold by
certain selling HNC stockholders (the "Selling Stockholders"). The Stock is to
be sold to the public in the manner described in the Registration Statement.

In rendering this opinion, we have examined the following:

(1) the Registration Statement, together with the Exhibits filed
as a part thereof;

(2) the Prospectus prepared in connection with the Registration
Statement;

(3) the minutes of meetings and actions by written consent of
HNC's Board of Directors that are contained in your minute books that are in
our possession under which the issuance of the Stock was approved by HNC;

(4) that certain Exchange Agreement dated October 25, 1996 (the
"Exchange Agreement") that was entered into by and among HNC, the Mulberry Trust
and the Kulmor Trust in connection with HNC's acquisition of Retek Distribution
Corporation, and under which the Stock was issued by HNC to the Selling
Stockholders;

(5) the Certificate of Incorporation of HNC, as amended and
restated through June 13, 1996 and the Bylaws of HNC, both as filed by HNC with
its Report on Form 10-Q for the quarter ended June 30, 1996.

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any documents reviewed by us and the due execution and delivery
of all documents where due execution and delivery are prerequisites to the
effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of the information obtained from public
officials and records included in the documents referred to above. We have
made no independent investigations or other attempts to verify the accuracy of
any of such information or to determine the existence or non-existence of

<PAGE> 2

HNC Software Inc.
March 3, 1997
Page 2

any other factual matters; however, we are not aware of any facts that would
lead us to believe that the opinion expressed herein is not accurate.

Based upon the foregoing, it is our opinion that the 1,367,196 shares
of Stock that may be sold by the Selling Stockholders are legally issued, fully
paid and nonassessable.

We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us, if any, in
the Registration Statement and any amendments thereto.

This opinion speaks only as of its date and is intended solely for the
your use as an exhibit to the Registration Statement for the purpose of the
above sale of the Stock and is not to be relied upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

<PAGE> 1
EXHIBIT 23.01

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 21, 1997,
relating to the financial statements of HNC Software Inc., which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.

PRICE WATERHOUSE LLP

San Diego, California
March 3, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,517
<SECURITIES> 7,353
<RECEIVABLES> 20,091
<ALLOWANCES> (623)
<INVENTORY> 611
<CURRENT-ASSETS> 42,607
<PP&E> 10,556
<DEPRECIATION> (4,600)
<TOTAL-ASSETS> 94,219
<CURRENT-LIABILITIES> 11,123
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 82,394
<TOTAL-LIABILITY-AND-EQUITY> 94,219
<SALES> 53,833
<TOTAL-REVENUES> 53,833
<CGS> 19,105
<TOTAL-COSTS> 19,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> 5,768
<INCOME-TAX> (608)
<INCOME-CONTINUING> 6,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,376
<EPS-PRIMARY> .31
<EPS-DILUTED> .31

</TABLE>