e10vq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                  
COMMISSION FILE NUMBER 0-26123
ONLINE RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
     
Delaware   52-1623052
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
  (I.R.S. EMPLOYER
IDENTIFICATION NO.)
     
4795 Meadow Wood Lane
Chantilly, Virginia
  20151
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)  
(703) 653-3100
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
     Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
     As of July 31, 2010 there were 31,152,835 shares of the issuer’s common stock outstanding.
 
 

 


 

ONLINE RESOURCES CORPORATION
FORM 10-Q
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 EX-31.1
 EX-31.2
 EX-32

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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ONLINE RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
                 
    June 30,     December 31,  
    2010     2009  
    (Unaudited)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 21,177     $ 22,907  
Accounts receivable (net of allowance of $100 in each period)
    19,296       17,457  
Deferred tax asset, current portion
    7,476       7,477  
Deferred implementation costs, current portion
    2,476       1,941  
Prepaid expenses and other current assets
    3,214       2,102  
 
           
 
               
Total current assets
    53,639       51,884  
 
               
Property and equipment, net
    28,514       25,561  
Deferred tax asset, less current portion
    19,737       22,490  
Goodwill
    181,516       181,516  
Intangible assets
    16,789       19,972  
Deferred implementation costs, less current portion, and other assets
    8,546       7,067  
 
           
 
               
Total assets
  $ 308,741     $ 308,490  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 2,952     $ 2,008  
Accrued expenses
    5,106       3,739  
Notes payable, senior secured debt, current portion
    13,063       8,250  
Interest payable
    3       27  
Deferred revenues, current portion and other current liabilities
    7,172       6,793  
 
           
Total current liabilities
    28,296       20,817  
 
               
Notes payable, senior secured debt, less current portion
    27,687       40,500  
Deferred revenues, less current portion and other long-term liabilities
    6,887       6,888  
 
           
 
               
Total liabilities
    62,870       68,205  
 
               
Commitments and contingencies
               
Redeemable convertible preferred stock:
               
Series A-1 convertible preferred stock, $0.01 par value; 75 shares authorized and issued at June 30, 2010 and December 31, 2009 (redeemable on July 3, 2013 at $135,815)
    105,334       100,623  
Stockholders’ equity:
               
Series B junior participating preferred stock, $0.01 par value; 297.5 shares authorized; none issued
         
Common stock, $0.0001 par value; 70,000 shares authorized; 31,489 issued and 31,062 outstanding at June 30, 2010 and 30,439 and 30,112 outstanding at December 31, 2009
    3       3  
Additional paid-in capital
    215,928       213,096  
Accumulated deficit
    (72,471 )     (70,776 )
Treasury stock, 427 shares at June 30, 2010 and 327 shares at December 31, 2009
    (2,923 )     (2,661 )
 
           
 
               
Total stockholders’ equity
    140,537       139,662  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 308,741     $ 308,490  
 
           
See accompanying notes to condensed consolidated unaudited financial statements.

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ONLINE RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)  
Revenues:
                               
Account presentation services
  $ 2,058     $ 1,954     $ 4,439     $ 3,794  
Payment services
    28,145       30,027       57,877       61,155  
Relationship management services
    2,042       2,000       4,140       4,040  
Professional services and other
    4,114       3,802       8,485       8,034  
 
                       
 
                               
Total revenues
    36,359       37,783       74,941       77,023  
Costs and expenses:
                               
Service costs
    18,210       18,886       36,711       37,412  
Implementation and other costs
    1,176       1,130       2,301       2,268  
 
                       
 
                               
Costs of revenues
    19,386       20,016       39,012       39,680  
 
                               
Gross profit
    16,973       17,767       35,929       37,343  
General and administrative
    8,273       6,887       16,028       16,608  
Sales and marketing
    4,846       5,722       9,757       11,328  
Systems and development
    2,553       2,131       5,126       4,384  
 
                       
 
                               
Total expenses
    15,672       14,740       30,911       32,320  
 
                       
 
                               
Income from operations
    1,301       3,027       5,018       5,023  
Other income (expense):
                               
Interest income
    14       36       21       82  
Interest expense
    224       (1,862 )     164       (2,943 )
Other (expense) income
    (1 )     63       (99 )     77  
 
                       
 
                               
Total other income (expense)
    237       (1,763 )     86       (2,784 )
 
                       
 
                               
Income before income tax provision
    1,538       1,264       5,104       2,239  
Income tax provision
    469       688       1,855       1,032  
 
                       
 
                               
Net income
    1,069       576       3,249       1,207  
Preferred stock accretion
    2,374       2,287       4,711       4,536  
 
                       
 
                               
Net loss available to common stockholders
  $ (1,305 )   $ (1,711 )   $ (1,462 )   $ (3,329 )
 
                       
 
                               
Net loss available to common stockholders per share:
                               
Basic
  $ (0.04 )   $ (0.06 )   $ (0.05 )   $ (0.11 )
Diluted
  $ (0.04 )   $ (0.06 )   $ (0.05 )   $ (0.11 )
Shares used in calculation of net loss available to common stockholders per share:
                               
Basic
    30,911       29,908       30,699       29,821  
Diluted
    30,911       29,908       30,699       29,821  
See accompanying notes to condensed consolidated unaudited financial statements.

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ONLINE RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                 
    Six Months Ended June 30,  
    2010     2009  
    (Unaudited)  
Operating activities
               
Net income
  $ 3,249     $ 1,207  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Deferred tax benefit
    2,754       1,019  
Depreciation and amortization
    9,362       10,409  
Equity compensation expense
    1,579       2,238  
Write off and amortization of debt issuance costs
    185       170  
Loss on disposal of assets
    1       15  
Provision for losses on accounts receivable
    8       16  
Gain on investments
          (77 )
Change in fair value of theoretical swap derivative
    (1,027 )     702  
Changes in certain other assets and liabilities
    (1,193 )     822  
 
           
 
               
Net cash provided by operating activities
    14,918       16,521  
 
           
 
               
Investing activities
               
Purchases of property and equipment
    (9,070 )     (4,457 )
Sale of short-term investments
          770  
 
           
 
               
Net cash used in investing activities
    (9,070 )     (3,687 )
 
           
 
               
Financing activities
               
Net proceeds from issuance of common stock
    441       366  
Repayment of 2007 Notes
    (8,000 )     (7,438 )
Repayment of capital lease obligations
    (19 )     (16 )
 
           
 
               
Net cash used in financing activities
    (7,578 )     (7,088 )
 
           
 
               
Net (decrease) increase in cash and cash equivalents
    (1,730 )     5,746  
Cash and cash equivalents at beginning of year
    22,907       22,969  
 
           
 
               
Cash and cash equivalents at end of period
  $ 21,177     $ 28,715  
 
           
See accompanying notes to condensed consolidated unaudited financial statements.

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ONLINE RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
     Online Resources Corporation (the “Company”) provides outsourced, web- and phone-based financial technology services to financial institution, biller, card issuer and creditor clients and their millions of consumer end-users. End-users may access and view their accounts online and perform various self-service functions. They may also make electronic bill payments and funds transfers, utilizing the Company’s unique, real-time debit architecture, ACH and other payment methods. The Company’s value-added relationship management services reinforce a favorable user experience and drive a profitable and competitive online channel for its clients. Further, the Company provides professional services, including software solutions, which enable various deployment options, a broad range of customization and other value-added services. The Company currently operates in two business segments — Banking and eCommerce.
     INTERIM FINANCIAL INFORMATION
     The accompanying condensed consolidated unaudited financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of management, the condensed consolidated unaudited financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These condensed consolidated unaudited financial statements should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 2009, included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on March 10, 2010. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year. Certain amounts from prior periods have been reclassified to conform to current period presentation. The Company has evaluated all subsequent events through the date the financial statements were issued.
     NEW ACCOUNTING STANDARDS
     In February of 2010, the FASB amended its guidance for disclosing subsequent events. The revised guidance removes the requirement of disclosing the date through which subsequent events are evaluated and requires evaluation of subsequent events through the date that the financial statements are issued. Adoption of this guidance in the first quarter of 2010 did not impact the Company’s consolidated financial statements.
     In January of 2010, the FASB improved its disclosures for fair value measurements, requiring separate disclosures of transfers in and out of Level 1 and Level 2 fair value measurements along with the reason for the transfer. The new guidance also requires separately presenting the reconciliation for Level 3 fair value measurements purchases, sales, issuances and settlements and clarifies the disclosure regarding the level of disaggregation and input and valuation techniques. The guidance related to the Level 3 reconciliation will be effective January 1, 2011. The remaining guidance was adopted during the first quarter of 2010. Adoption of this guidance in the first quarter of 2010 did not materially impact the Company’s consolidated financial statements and financial disclosures.
     In October 2009, the FASB changed its guidance for the accounting of certain revenue arrangements that include software elements. This authoritative guidance amends the scope of pre-existing software revenue guidance by removing from the guidance non-software components of tangible products and certain software components of tangible products. The Company has adopted this authoritative guidance prospectively in the first quarter of 2010. The implementation currently has no impact on the Company’s consolidated financial statements. This guidance will be assessed on an ongoing basis to determine if any new contracts are subject to these new rules.
     In October 2009, the FASB changed its guidance for the accounting of multiple-deliverable revenue arrangements with customers. Current GAAP requires a vendor to use vendor-specific objective evidence or third-party evidence of selling price to separate deliverables in a multiple-deliverable arrangement. Multiple-deliverable arrangements will be separated in more circumstances with the updated guidance. The change in guidance establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. The best estimate to use in determining a selling price is the price as if the item were sold on a stand alone basis. Changes also include eliminating the residual method of allocation and requiring that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates discounts in the arrangement proportionally to each deliverable based on each selling price. These changes become effective, prospectively, for the Company on January 1, 2011 and early adoption is permitted. The Company has not determined the impact, if any, implementation of this guidance will have on the Company’s consolidated financial statements.

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     In April 2009, the FASB issued guidance for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value. This guidance became effective for the Company and was adopted on July 1, 2009. As the requirements under this guidance are consistent with our current practice, adoption did not have a material impact on the Company’s consolidated financial statements or financial disclosures.
2. SENIOR SECURED NOTES
     The Company has an agreement with Bank of America which finances its senior secured notes (“2007 Notes”). The agreement also provides a $15 million revolver (“Revolver”) under which the Company can secure up to $5 million in letters of credit. Currently, there are no amounts outstanding under the Revolver, but available credit under the Revolver has been reduced by approximately $1.6 million as a result of letters of credit the bank has issued. The Company has made payments of $8.0 million on the 2007 Notes in the six months ended June 30, 2010, reducing the outstanding principal from $48.8 million to $40.8 million. The Company will make periodic principal payments until the 2007 Notes are due in 2012 as noted in the table below.
     The interest rate on both the Revolver and the 2007 Notes is the one-month London Interbank Offered Rate (“LIBOR”) plus 225 to 275 basis points based upon the ratio of the Company’s funded indebtedness to its earnings before interest, taxes, depreciation and amortization (“EBITDA,” as defined in the 2007 Notes), and it is payable monthly. During the six months ended June 30, 2010 the margin decreased from 250 basis points to 225 basis points and the average interest rate was 2.65%. The 2007 Notes and the Revolver are secured by the assets of the Company.
     During the second quarter of 2010, the Company made a voluntary $4 million prepayment against the notes and amended future payments. The Company expensed less than $0.1 million of deferred credit facility costs related to this prepayment.
     Maturities of long-term debt for each of the next 20 months are as follows (in thousands):
         
    Maturing  
Year   Amounts  
2010 (July 1, 2010-December 31, 2010)
  $ 3,000  
2011
  $ 28,188  
2012
  $ 9,562  
3. DERIVATIVE INSTRUMENTS
     Theoretical Swap Derivative
     The Company bifurcated the fair market value of the embedded derivative associated with the Series A-1 Redeemable Convertible Preferred Stock (“Series A-1 Preferred Stock”) issued in conjunction with the Princeton eCom acquisition on July 3, 2006 as required by GAAP. The Company determined that the embedded derivative is defined as the right to receive a fixed rate of return on the accrued, but unpaid dividends and the variable negotiated rate, which creates a theoretical swap between the fixed rate of return on the accrued, but unpaid dividends and the variable rate actually accrued on the unpaid dividends. This embedded derivative is marked to market at the end of each reporting period through earnings and an adjustment to other assets as required by the Derivative and Hedging Topic. There is no active market quote available for the fair value of the embedded derivative. Thus, management measures fair value of the derivative by estimating future cash flows related to the asset using a forecasted iMoney Net First Tier rate based on the one-month LIBOR rate adjusted for the historical spread for the estimated period in which the Series A-1 Preferred Stock will be outstanding.
     The following table presents the fair value of the theoretical swap derivative instrument included within the condensed consolidated balance sheet at June 30, 2010 and December 31, 2009 (in thousands):
                         
                    Balance Sheet  
    June 30, 2010     December 31, 2009     Location  
Asset Derivatives:
                       
Theoretical swap (1)
  $ 5,695     $ 4,668     Other assets
 
(1)   See Note 12, Fair Value Measurements, for a description of how the derivatives shown above are valued.
     The following table presents the amounts affecting the condensed consolidated statement of operations for the three and six months ended June 30, 2010 and June 30, 2009 (in thousands):

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Derivative Not Designated as Hedging Instrument:   Theoretical Swap (1)  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
Amount of gain (loss) recognized in income on derivative, pre tax
  $ 629     $ (760 )   $ 1,027     $ (702 )
                                 
Derivative Cash Flow Hedging Relationships:   Interest Rate Swap (2)  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
Amount of loss recognized in OCI on derivative, after tax
  $     $ 245     $     $ 514  
Amount of loss reclassified from OCI into income, pre tax
  $     $ 449     $     $ 907  
 
(1)   See Note 12, Fair Value Measurements, for additional information. The gain (loss) recognized in income is included in interest expense.
 
(2)   See Note 11, Components of Comprehensive Loss for additional information. The loss reclassified from OCI to income is included in interest expense.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
     Series A-1 Redeemable Convertible Preferred Stock
     Pursuant to the restated certificate of incorporation, the Board of Directors has the authority, without further action by the stockholders, to issue up to 3,000,000 shares of preferred stock in one or more series. Of these 3,000,000 shares of preferred stock, 75,000 shares have been designated Series A-1. The Series A-1 Preferred Stock has a redemption value of 115% of the face value of the stock, on or after seven years from the date of issuance, or July 3, 2013. The Company recognized $0.4 million for the three months ended June 30, 2010 and 2009 and $0.8 million for the six months ended June 30, 2010 and 2009, to adjust for the redemption value at maturity.
     Additionally, the Series A-1 Preferred Stock has a feature that grants holders the right to receive interest-like returns on accrued, but unpaid, dividends that accumulate at 8% per annum. For the three months ended June 30, 2010 and 2009, $1.5 million of preferred stock accretion was recognized and for the six months ended June 30, 2010 and 2009, $3.0 million of preferred stock accretion was recognized in the condensed consolidated statements of operations, for the 8% per annum cumulative dividends. The right to receive the accrued, but unpaid dividends is based on a variable interest rate, and as such the difference between the fixed and variable rate of returns is a theoretical swap derivative. The Company bifurcates this feature and accretes it to the Series A-1 Preferred Stock over the life of the security. For the three months ended June 30, 2010 and 2009, $0.3 million and $0.2 million, of preferred stock accretion expense were recognized and for the six months ended June 30, 2010 and 2009, $0.6 million and $0.4 million of preferred stock accretion expense were recognized for the theoretical swap derivative in the condensed consolidated statement of operations.
     Finally, the cost to issue the Series A-1 Preferred Stock of $5.1 million is being accreted back to the redemption value of the Series A-1 Preferred Stock through July 2013, and generated an additional $0.2 million and $0.4 million of preferred stock accretion for each of the three months and six months ended June 30, 2010 and 2009 in the condensed consolidated statements of operations.
5. REPORTABLE SEGMENTS
     The Company manages its business through two reportable segments: Banking and eCommerce. The Banking segment’s market consists primarily of banks, credit unions and other depository financial institutions in the United States. The segment’s fully integrated suite of account presentation, bill payment, relationship management and professional services are delivered through the Internet. The eCommerce segment’s market consists of billers, card issuers, processors, and other creditors such as payment acquirers and very large online billers. The segment’s account presentation, payment, relationship management and professional services are distributed to these clients through the Internet.
     Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates both reporting segments in one geographical area, the United States. The Company’s management assesses the performance of its assets in the aggregate, and accordingly, they are not presented on a segment basis.

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     The results of operations from these reportable segments were as follows for the three and six months ended June 30, 2010 and 2009 (in thousands):
                                 
    Banking     eCommerce     Corporate(1)     Total  
Three months ended June 30, 2010:
                               
Revenues
  $ 22,169     $ 14,190     $     $ 36,359  
Costs of revenues
    11,428       7,958             19,386  
 
                       
Gross profit
    10,741       6,232             16,973  
Operating expenses
    6,218       4,679       4,775       15,672  
 
                       
 
                               
Income (loss) from operations
  $ 4,523     $ 1,553     $ (4,775 )   $ 1,301  
 
                       
 
                               
Three months ended June 30, 2009:
                               
Revenues
  $ 23,047     $ 14,736     $     $ 37,783  
Costs of revenues
    11,494       8,522             20,016  
 
                       
Gross profit
    11,553       6,214             17,767  
Operating expenses
    5,953       5,141       3,646       14,740  
 
                       
 
                               
Income (loss) from operations
  $ 5,600     $ 1,073     $ (3,646 )   $ 3,027  
 
                       
                                 
Six months ended June 30, 2010:
                               
Revenues
  $ 45,516     $ 29,425     $     $ 74,941  
Costs of revenues
    22,731       16,281             39,012  
 
                       
Gross profit
    22,785       13,144             35,929  
Operating expenses
    12,472       9,424       9,015       30,911  
 
                       
 
                               
Income (loss) from operations
  $ 10,313     $ 3,720     $ (9,015 )   $ 5,018  
 
                       
 
                               
Six months ended June 30, 2009:
                               
Revenues
  $ 45,929     $ 31,094     $     $ 77,023  
Costs of revenues
    22,482       17,198             39,680  
 
                       
Gross profit
    23,447       13,896             37,343  
Operating expenses
    12,416       10,429       9,475       32,320  
 
                       
 
                               
Income (loss) from operations
  $ 11,031     $ 3,467     $ (9,475 )   $ 5,023  
 
                       
 
(1)   Corporate expenses are primarily comprised of corporate general and administrative expenses that are not considered in the measure of segment profit or loss used to evaluate the segments.
6. INVESTMENTS
     The Company’s investment in the Columbia Strategic Cash Portfolio was liquidated in September 2009. During the six months ended June 30, 2009, the Company received $0.8 million in liquidation payments from the Fund administrator and realized a gain of $0.1 million for the six months ended June 30, 2009.
7. GOODWILL
     Goodwill is not amortized and is tested at the reporting unit level at least annually or whenever events or circumstances indicate that goodwill might be impaired. The fair value of the Company’s reporting units are measured under the income method by utilizing discounted cash flows. The estimates the Company uses in evaluating goodwill are consistent with the plans and estimates that the Company uses to manage its operations.
     The Company did not experience any impairment of goodwill or other intangible assets for the six months ended June 30, 2010 or 2009. The Company’s stock price declined from $5.26 as of December 31, 2009 to $4.15 as of June 30, 2010. The Company considered whether or not the decline in stock price indicated an impairment requiring reevaluation of the goodwill. Factors evaluated include consideration of the 2010

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financial performance as well as other Company specific matters. The Company’s financial performance exceeded the financial projections included in the annual impairment testing and there was no indication that other assumptions used in the annual impairment testing were no longer appropriate. As a result, the Company concluded that there was no indication of impairment. The Company will continue to monitor its financial performance, stock price and other factors in order to determine if there are any indicators of impairment prior to its annual impairment evaluation date.
8. STOCK BASED COMPENSATION
     At June 30, 2010, the Company had three stock-based employee compensation plans. The Company used the modified-prospective transition method, as required, to recognize compensation costs; which include (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the estimated grant date fair value, and (b) compensation cost for all share-based payments granted on or subsequent to January 1, 2006, based on the estimated grant-date fair value. The compensation expense for stock-based compensation was $0.6 million and $1.0 million for the three months and $1.6 million and $2.2 million for the six months ended June 30, 2010 and 2009, respectively. A portion of the stock based compensation cost has been capitalized as part of software development costs and deferred costs. For each of the three months ended June 30, 2010 and 2009, less than $0.1 million was capitalized as part of software development costs and deferred costs. For each of the six months ended June 30, 2010 and 2009, $0.1 million was capitalized as part of software development costs and deferred costs.
   Stock Options
     The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option-pricing formula that uses the assumptions noted in the table and discussion that follows:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2010   2009   2010   2009
Dividend yield
                       
Expected volatility
    62 %     63 %     62 %     62 %
Risk-free interest rate
    2.75 %     2.25 %     2.75 %     1.89 %
Expected life in years
    6.4       6.3       6.4       5.8  
     Dividend Yield. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
     Expected Volatility. Volatility is a measure of the amount by which a financial variable, such as a share price, has fluctuated (historical daily volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical average daily volatility over the average expected term of the options granted to estimate expected volatility.
     Risk-Free Interest Rate. The risk-free interest rate is the average U.S. Treasury rate for the week of each option grant during the period having a term that most closely resembles the expected term of the option.
     Expected Life of Option Term. Expected life of option term is the period of time that the options granted are expected to remain unexercised. Options granted during the period have a maximum term of seven to ten years. The Company uses historical expected terms, with further consideration given to the class of employees to whom the equity awards were granted, to estimate the expected life of the option term.
     Forfeiture Rate. Forfeiture rate is the estimated percentage of equity awards granted that are expected to be forfeited or canceled on an annual basis before becoming fully vested. The Company estimates forfeiture rate based on past turnover data ranging anywhere from one to five years with further consideration given to the class of employees to whom the equity awards were granted.
     A summary of stock option activity as of June 30, 2010, and changes in the period then ended is presented below (in thousands, except exercise price and remaining contract term data):
                                 
                    Weighted-        
            Weighted-     Average        
            Average     Remaining     Aggregate  
            Exercise     Contract     Intrinsic  
    Shares     Price     Term     Value  
Outstanding at January 1, 2010
    3,254     $ 5.52                  
Granted
    281     $ 4.64                  
Exercised
    (278 )   $ 3.11                  
Forfeited or expired
    (406 )   $ 7.35                  
 
                             
 
                               
Outstanding at June 30, 2010
    2,851     $ 5.40       3.30     $ 1,784  
 
                             
 
                               
Vested or expected to vest at June 30, 2010
    2,838     $ 5.41       3.29     $ 1,780  
Exercisable at June 30, 2010
    2,220     $ 5.61       2.52     $ 1,583  

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     At June 30, 2010, approximately 2,585,000 shares of stock options were outstanding under the 1989, 1999 or 2005 Plans. Additionally, approximately 266,000 stock options were granted outside the Company’s plans during the second quarter of 2010 to the Company’s CEO as an inducement to join the Company.
     The weighted-average grant-date fair value of options granted was $2.80 and $3.14 per share during the three months ended June 30, 2010 and 2009, respectively and $2.80 and $2.01 per share during the six months ended June 30, 2010 and 2009, respectively. In the table above, the total intrinsic value is calculated as the difference between the market price of the Company’s stock on the last trading day of the quarter and the exercise price of the options. For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the grant price. The intrinsic value of options exercised in the three months ended June 30, 2010 and 2009 was $0.4 million and $0.2 million, respectively and $0.4 million and $0.3 million, respectively, for the six months ended June 30, 2010 and 2009.
     As of June 30, 2010, there was $1.3 million of total unrecognized compensation cost related to stock options granted under the 1999 and 2005 Plans. This cost is expected to be recognized over a weighted average period of 3.0 years.
     Cash received from option exercises under all share-based payment arrangements for the three months ended June 30, 2010 and 2009 was $0.8 million and $0.3 million, respectively, and $0.9 million and $0.6 million for the six months ended June 30, 2010 and 2009, respectively, net of shares repurchased to cover the cost of certain exercises and taxes. The tax benefits related to the deductions from option exercises of the share-based payment arrangements will be recognized when those deductions, currently being carried forward as net operating losses, reduce taxes payable.
  Restricted Stock Units
     A summary of the Company’s non-vested restricted stock units as of the six months ended June 30, 2010, and changes for the period then ended, is presented below (in thousands, except grant-date fair value data):
                 
            Weighted-  
            Average  
            Grant-Date  
    Shares     Fair Value  
Non-vested at January 1, 2010
    1,523     $ 5.07  
Granted
    873     $ 4.77  
Vested
    (754 )   $ 4.52  
Forfeited
    (569 )   $ 5.51  
 
             
 
               
Non-vested at June 30, 2010
    1,073     $ 4.98  
 
             
     At June 30, 2010, there were approximately 752,000 shares of non-vested restricted stock units under the 1989, 1999 or 2005 Plans. Additionally, approximately 321,000 restricted stock units were granted outside the Company’s plans during the second quarter of 2010 to the Company’s CEO as an inducement to join the Company.
     The fair value of non-vested units is determined based on the opening trading price of the Company’s shares on the grant date. As of June 30, 2010, there was $4.2 million of total unrecognized compensation cost related to non-vested restricted stock units granted under the 2005 Plan. This cost is expected to be recognized over a weighted average period of 2.6 years.
9. INCOME TAXES
     The Company recorded income tax expense based on the estimated effective tax rate for the full year, adjusted for non-forecastable items recorded during the first half of 2010.
     The Company’s effective tax rate was 30.5% and 54.4% for the three months ended June 30, 2010 and 2009, respectively and 36.3% and 46.1% for the six months ended June 30, 2010 and 2009, respectively. The year over year change in the effective tax rate relates to permanent differences, state taxes, a $0.1 million increase to the New Jersey net operating loss carryforwards valuation allowance, and a stock based compensation adjustment of approximately $0.2 million relating to the difference between the expected deduction from stock based compensation which is based upon the fair value of the award at the date of issuance and the actual deduction taken which is based upon the fair value of the award at the time the award is exercised or vests.
     The Company has determined that there have been no material changes in tax positions taken in the prior periods, tax positions taken in the current period, settlements with taxing authorities resulting from lapses in the statute of limitations and unrecognized tax benefits that if recognized would affect the effective tax rate and amount of interest and penalties recognized in the condensed consolidated statement of operations and the condensed consolidated balance sheets.
     The tax return years since 2000 in the Company’s major tax jurisdictions, both federal and various states, have not been audited and are not currently under audit. The Company does not have reason to expect any changes in the next twelve months regarding uncertain tax positions.

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10. NET LOSS AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
     The following table sets forth the computation of basic and diluted net loss available to common stockholders per share (in thousands, except per share amounts):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Net income
  $ 1,069     $ 576     $ 3,249     $ 1,207  
Preferred stock accretion
    2,374       2,287       4,711       4,536  
 
                       
 
                               
Net loss available to common shareholders
  $ (1,305 )   $ (1,711 )   $ (1,462 )   $ (3,329 )
 
                       
 
                               
Weighted average shares outstanding used in calculation of net loss available to common stockholders per share:
                               
Basic
    30,911       29,908       30,699       29,821  
Dilutive stock options
                       
 
                       
 
                               
Diluted
    30,911       29,908       30,699       29,821  
 
                       
 
                               
Net loss available to common stockholders per share:
                               
Basic
  $ (0.04 )   $ (0.06 )   $ (0.05 )   $ (0.11 )
Diluted
  $ (0.04 )   $ (0.06 )   $ (0.05 )   $ (0.11 )
     Approximately 8,562,555 and 9,214,941 shares of common stock equivalents for the three months ended June 30, 2010 and 2009, respectively, and approximately 8,198,816 and 8,853,997 shares of common stock equivalents for the six months ended June 30, 2010 and 2009, respectively were excluded from the calculation of diluted earnings per share because of their anti-dilutive effect.
11. COMPONENTS OF COMPREHENSIVE LOSS
     Shown below are items defined as comprehensive loss that are separately classified in the financial statements. The following table reconciles the Company’s net loss available to common stockholders and its total comprehensive net loss for the three and six months ended June 30, 2010 and 2009 (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Net loss available to common stockholders
  $ (1,305 )   $ (1,711 )   $ (1,462 )   $ (3,329 )
Other comprehensive loss:
                               
Realized loss on hedging activity
          449             907  
Net unrealized loss on hedging activity
          (245 )           (514 )
 
                       
 
                               
Comprehensive net loss
  $ (1,305 )   $ (1,507 )   $ (1,462 )   $ (2,936 )
 
                       
12. FAIR VALUE MEASUREMENTS
     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the standard specifies that the fair value should be the exit price, or price received to sell the asset or liability as opposed to the entry price, or price paid to acquire an asset or assume a liability.
     The standard provides valuation techniques and a fair value hierarchy used to measure fair value. The hierarchy prioritizes inputs for valuation techniques used to measure fair value into three categories:
 
(1)   Level 1 inputs, which are considered the most reliable, are quoted prices in active markets for identical assets or liabilities.
 
(2)   Level 2 inputs are those that are observable in the market place, either directly or indirectly for the asset or liability.
 
(3)   Level 3 inputs are unobservable due to unavailability and as such the entity’s own assumptions are used.

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The tables below show how the Company categorizes certain financial assets and liabilities based on the types of inputs used in valuation techniques for measuring fair value:
                                 
    Fair Value Measurements at June 30, 2010  
    Quoted                    
    Prices in                    
    Active                    
    Markets     Significant              
    for     Other     Significant        
    Identical     Observable     Unobservable        
    Assets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
Financial assets (in thousands):
                               
Merrill Lynch Institutional Fund
  $ 12,635     $     $     $ 12,635  
Theoretical swap derivative(1)
                5,695       5,695  
 
                       
 
  $ 12,635     $     $ 5,695     $ 18,330  
 
                       
                                 
    Fair Value Measurements at December 31, 2009  
    Quoted                    
    Prices in                    
    Active     Significant              
    Markets for     Other     Significant        
    Identical     Observable     Unobservable        
    Assets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
Financial assets (in thousands):
                               
Merrill Lynch Institutional Fund
  $ 7,623     $     $     $ 7,623  
Theoretical swap derivative(1)
                4,668       4,668  
 
                       
 
                               
 
  $ 7,623     $     $ 4,668     $ 12,291  
 
                       
 
(1)   Represents the fair market value of the embedded derivative associated with the Series A-1 Redeemable Convertible Preferred Stock issued in conjunction with the Princeton eCom acquisition on July 3, 2006. Management measures fair value of the derivative by estimating future cash flows related to the asset using a forecasted iMoney Net First Tier rate based on the one-month LIBOR rate adjusted for the historical spread for the estimated period in which the Series A-1 Preferred Stock will be outstanding.
     The following tables are summaries of the Company’s financial assets that use Level 3 inputs to measure fair value (in thousands):
         
    Theoretical  
    Swap Derivative  
Balance as of January 1, 2010
  $ 4,668  
Realized and unrealized gain(1)
    1,027  
 
     
Balance as of June 30, 2010
  $ 5,695  
 
     
                 
    Strategic Cash     Theoretical  
    Fund Investment     Swap Derivative  
Balance as of January 1, 2009
  $ 2,009     $ 4,562  
Realized and unrealized gain(1)
    76       (702 )
Redemptions(2)
    (770 )      
 
           
Balance as of June 30, 2009
  $ 1,315     $ 3,860  
 
           
 
(1)   The realized and unrealized gains are included as interest expense in the condensed consolidated statements of operations for the six months ended June 30, 2010 and June 30, 2009.
 
(2)   Redemptions are payments received by the Company for partial liquidation of the Columbia Strategic Cash Fund. The Company’s investment in the Columbia Strategic Cash Fund was liquidated in September 2009.

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13. COMMITMENTS & CONTINGENCIES
     On April 16, 2010, Mr. Lawlor, former Chairman and Chief Executive Officer of the Company, commenced an action in the Circuit Court of Fairfax County, Virginia, captioned Lawlor v. Online Resources Corporation , Case No. 2010-5601. The action asserts employment claims for breach of contract under two stock option plans, breach of an implied employment agreement, unjust enrichment, wrongful termination and a declaratory judgment claim that a change in control occurred under the Company’s stock option plan, and requests damages of $14 million. The Company disputes all the claims raised by Mr. Lawlor and has determined the lawsuit is without merit; as a result, the Company has not recorded a provision for this legal action.
     On May 19, 2010, Mr. Lawlor filed a complaint with the U.S. Department of Labor alleging that the Company wrongfully terminated him in contravention of Section 806 of the Sarbanes-Oxley Act. Mr. Lawlor contends that he was terminated as CEO in retaliation for raising concerns of alleged insider trading violations to the Company. The Company denies the allegations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS CAUTIONARY NOTE
     The following management’s discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Unaudited Financial Statements and Notes thereto. This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to:
    Any statements that are not statements of historical fact;
 
    Statements regarding trends in our revenues, expense levels, and liquidity and capital resources;
 
    Statements about the sufficiency of the proceeds from the sale of securities and cash balances to meet currently planned working capital and capital expenditure requirements for at least the next twelve months; and
 
    Other statements identified or qualified by words such as “likely”, “will”, “suggest”, “may”, “would”, “could”, “should”, “expects”, “anticipates”, “estimates”, “plans”, “projects”, “believes”, “seeks”, “intends” and other similar words that signify forward-looking statements.
     These forward-looking statements represent our best judgment as of the date of the Quarterly Report on Form 10-Q, and we caution readers not to place undue reliance on such statements. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including but not limited to, the risks and uncertainties described or discussed in the section “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2010. These risks include, among others, the following:
    our history of prior losses and the lack of certainty of maintaining consistent profitability;
 
    our dependence on the marketing assistance of third parties to market our services;
 
    the possibility that we may not be able to expand to meet increased demand for our services and related products;
 
    the potential adverse impact that client departures may have on our financial results;
 
    our inability to attract and retain qualified management and technical personnel and our dependence on our executive officers and key employees;
 
    potential security breaches or system failures disrupting our business and the liability associated with these disruptions;
 
    the failure to properly develop, market or sell new products;
 
    the potential impact of the consolidation of the banking and financial services industry;
 
    the effect of adoption of government regulations on our business may be problematic;
 
    our need to maintain satisfactory ratings from federal depository institution regulators;
 
    exposure to increased compliance costs and risks associated with increasing and new regulation of corporate governance and disclosure standards;
 
    the liquidation preference rights and redemption rights associated with our outstanding shares of preferred stock;
 
    the voting rights of our preferred stock restricting our right to take certain actions;
 
    the potential losses we may incur from the impairment of the goodwill we have obtained from our acquisitions;

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    our inability to obtain additional financing to grow our business;
 
    the concentration of our clients in a small number of industries, including the financial services industry, and changes within those industries reducing demand for our products and services;
 
    the failure to retain existing end-users or changes in their continued use of our services adversely affecting our operating results;
 
    demand for low-cost or free online financial services and competition placing significant pressure on our pricing structure and revenues;
 
    exposure to greater than anticipated tax liabilities;
 
    our quarterly financial results being subject to fluctuations and having a material adverse effect on the price of our stock;
 
    our limited ability to protect our proprietary technology and other rights;
 
    the need to redesign our products, pay royalties or enter into license agreements with third parties as a result of our infringing the proprietary rights of third parties;
 
    the potential obsolescence of our technology or the offering of new, more efficient means of conducting account presentation and payments services negatively impacting our business;
 
    errors and bugs existing in our internally developed software and systems as well as third-party products;
 
    the disruption of our business and the diversion of management’s attention resulting from breach of contract or product liability suits;
 
    difficulties in integrating acquired businesses;
 
    our having limited knowledge of, or experience with, the industries served and products provided by our acquired businesses;
 
    the increase in the size of our operations and the risks described herein from acquisitions or otherwise;
 
    the liabilities or obligations that were not or will not be adequately disclosed from acquisitions we have made and may make;
 
    the claims that may arise from acquired companies giving us limited warranties and indemnities in connection with their businesses;
 
    the effect on the trading price of our stock from the sale of the substantial number of shares of common and convertible preferred stock outstanding, including shares issued in connection with certain acquisitions and shares that may be issued upon exercise of grants under our equity compensation plans;
 
    the significant amount of debt which will have to repay;
 
    the adverse effect to the market price of our common stock from future offerings of debt and preferred stock which would be senior to our common stock upon liquidation; and
 
    the acceleration of repayment of borrowed funds if a default under the terms of our credit agreement arises.
OVERVIEW
     We provide outsourced web- and phone- based financial technology services branded to financial institution, biller, card issuer and creditor clients and their millions of consumer end-users. We currently derive approximately 80% of our revenues from payments and 20% from other services including account presentation, relationship management, professional services, and custom software solutions. End-users may access and view their accounts online and perform various self-service functions. They may also make electronic bill payments and funds transfers utilizing our unique, real-time debit architecture, ACH and other payment methods. Our value-added relationship management services reinforce a favorable user experience and drive a profitable and competitive online channel for our clients. Further, we provide professional

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services, including software solutions, which enable various deployment options, a broad range of customization and other value-added services.
          We currently operate in two business segments — Banking and eCommerce. The operating results of these business segments exclude general corporate overhead expenses and intangible asset amortization. Within each business segment, we face differing opportunities, challenges and risks. In our Banking segment we have the opportunity to deploy the new and enhanced products we have developed to deepen the relationships we have with our existing clients. Our differentiated account presentation and payments products, as well as our ability to deliver a full suite of remote delivery financial services, provide the opportunity for us to increase market share particularly among mid-sized financial institutions. In the bank market, a very large percentage of financial institutions now offer internet banking and bill payment to their customers. We therefore face competition in our efforts to obtain new clients from other established providers of these services. The end-user base within these clients is not highly penetrated, however, so we benefit from continuing adoption increases.
     Additionally, financial service providers have recently been adversely affected by significant illiquidity and credit tightening trends in the financial markets in which they operate. Unfavorable economic conditions adversely impacting those types of business could have a material adverse effect on our business.
     In our eCommerce segment, there are still a significant number of potential clients who do not offer services such as those we are in a position to provide to their customer base. Further, the competition to provide these services is more fragmented than it is in the banking market. These factors provide us with the opportunity to expand our client base. We also offer an innovative debt collection product that is attractive to a number of large and mid-sized potential clients. For a portion of our eCommerce business, our revenue is tied to the value of the payment being made which exposes us to the impact of economic factors on these payments. We also continuously monitor the potential risks that we face due to the interfaces we have with, and our reliance on, various payments networks.
     Across our markets, we are exposed to interest rate risk as we earn float interest in clearing accounts that hold funds collected from end-users until they are disbursed to receiving merchants or financial institutions. We also closely monitor covenant and other compliance requirements under our debt and preferred stock agreements, as well as other potential risks associated with our capital structure.
     In the past we have experienced, and expect to return to, significant user and transaction growth. Growth places significant demands on our personnel, management and other resources. We may need to expand and adapt our infrastructure, services and related products to accommodate additional clients and their end-users, increased transaction volumes and changing end-user requirements.
     Registered end-users using account presentation, bill payment or both, and the payment transactions executed by those end-users are the major drivers of our revenues. At June 30, 2010 in comparison to December 31, 2009, the number of users of our account presentation services increased 3%, and the number of users of our payment services decreased 4%, for an overall 3% decrease in users.
     We have long-term service contracts with most of our clients. The majority of our revenues are recurring, though these contracts also provide for implementation, set-up and other non-recurring fees. Account presentation services revenues are based on either a monthly license fee, allowing our clients to register an unlimited number of customers, or a monthly fee for each registered customer. Payment services revenues are either based on a monthly fee for each customer enrolled, a fee per executed transaction, or a combination of both. Our clients pay nearly all of our fees and then determine if or how they want to pass these costs on to their users. They typically provide account presentation services to users free of charge, as they derive significant potential benefits including account retention, delivery and paper cost savings, account consolidation and cross-selling of other products.
     As a network-based service provider, we have made substantial up-front investments in infrastructure, particularly for our proprietary systems. We invested approximately $9.1 million for the six months ended June 30, 2010, and $6.2 million and $7.4 million for the years ended December 31, 2009 and 2008, respectively. These investments were made to create new products, enhance the functionality of existing products and improve our infrastructure. Product enhancements allow us to remain competitive, retain existing clients and attract new clients. New products allow us to increase revenue and attract new clients. Infrastructure investments allow us to leverage ongoing advances in technology to improve our operating efficiency and capture cost savings. Our investments increased significantly in the first half of 2010 due to investments made in periodic expansions of our data storage and processing capacity and the investment in client specific infrastructure.
     While we continue to incur ongoing development and maintenance costs, we believe the infrastructure we have built provides us with operating leverage. We continue to automate processes and develop applications that allow us to make smaller increases in labor and other operating costs relative to increases in customers and transactions. We believe our financial and operating performance will be based primarily on our ability to leverage additional end-users and transactions over this relatively fixed cost base.
     Registered end-users using account presentation, payment services or both, and the payment transactions executed by those end-users are the major drivers of our revenues. Since June 30, 2009, the number of account presentation services users increased by 25%, and the number of payment services users increased 15%, for an overall 15% increase in users. The increase in account presentation services users is due to new clients as well as increased users with existing clients.

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Results of Operations The following table presents the summarized results of operations for our two reportable segments, Banking and eCommerce (dollars in thousands):
                                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
    Dollars     %     Dollars     %     Dollars     %     Dollars     %  
Revenues:
                                                               
Banking
  $ 22,169       61 %   $ 23,047       61 %   $ 45,516       61 %   $ 45,929       60 %
eCommerce
    14,190       39 %     14,736       39 %     29,425       39 %     31,094       40 %
 
                                               
 
                                                               
Total
  $ 36,359       100 %   $ 37,783       100 %   $ 74,941       100 %   $ 77,023       100 %
 
                                               
                                                                 
    Dollars     Margin     Dollars     Dollars     Margin     Margin     Dollars     Margin  
Gross profit:
                                                               
Banking
  $ 10,741       48 %   $ 11,553       50 %   $ 22,785       50 %   $ 23,447       51 %
eCommerce
    6,232       44 %     6,214       42 %     13,144       45 %     13,896       45 %
 
                                               
 
                                                               
Total
  $ 16,973       47 %   $ 17,767       47 %   $ 35,929       48 %   $ 37,343       48 %
 
                                               
                                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
    Dollars     %     Dollars     %     Dollars     %     Dollars     %  
Operating expenses:
                                                               
Banking
  $ 6,218       40 %   $ 5,953       40 %   $ 12,472       40 %   $ 12,416       39 %
eCommerce
    4,679       30 %     5,141       35 %     9,424       31 %     10,429       32 %
Corporate(1)
    4,775       30 %     3,646       25 %     9,015       29 %     9,475       29 %
 
                                               
 
                                                               
Total
  $ 15,672       100 %   $ 14,740       100 %   $ 30,911       100 %   $ 32,320       100 %
 
                                               
                                                                 
    Dollars     Margin     Dollars     Margin     Dollars     Margin     Dollars     Margin  
Income from operations:
                                                               
Banking
  $ 4,523       20 %   $ 5,600       24 %   $ 10,313       23 %   $ 11,031       24 %
eCommerce
    1,553       11 %     1,073       7 %     3,720       13 %     3,467       11 %
Corporate(1)
    (4,775 )             (3,646 )             (9,015 )             (9,475 )        
 
                                               
 
                                                               
Total
  $ 1,301       4 %   $ 3,027       8 %   $ 5,018       7 %   $ 5,023       7 %
 
                                               
 
(1)   Corporate expenses are primarily comprised of corporate general and administrative expenses that are not considered in the measure of segment profit or loss used to evaluate the segments.

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THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2009
Revenues
     We generate revenues from account presentation, payment, relationship management and professional services and other revenues.
                                 
    Three Months Ended        
    June 30,     Change  
    2010(1)     2009(1)     Difference(1)     %  
Revenues:
                               
Account presentation services
  $ 2,058     $ 1,954     $ 104       5 %
Payment services
    28,145       30,027       (1,882 )     (6 )%
Relationship management services
    2,042       2,000       42       2 %
Professional services and other
    4,114       3,802       312       8 %
 
                         
 
                               
Total revenues
  $ 36,359     $ 37,783     $ (1,424 )     (4 )%
 
                         
 
                               
Payment metrics:
                               
Banking payment transactions
    36,596       37,304       (708 )     ( 2 )%
Biller payment transactions
    17,185       15,112       2,073       14 %
 
(1)   In thousands
     Account Presentation Services. Both the Banking and eCommerce segments contribute to account presentation services revenues, which increased 5%, or $0.1 million, to $2.1 million. The increase is primarily due to a $0.2 million increase in user fees, a $0.1 million increase in account maintenance fees offset by a $0.3 million decrease in card usage fees.
     Payment Services. Both the Banking and eCommerce segments contribute to payment services revenues, which decreased to $28.1 million for the three months ended June 30, 2010 from $30.0 million in the prior year quarter. The decrease is primarily due to declines of $1.0 million in user fees and $0.8 million in electronic transaction fees related to client losses and reduced fees per transaction for three large clients, partially offset by increased transactions.
     Relationship Management Services. Primarily composed of revenues from the Banking segment, relationship management services revenues remained constant compared to the same period in 2009.
     Professional Services and Other. Both the Banking and eCommerce segments contribute to professional services and other revenues, which increased $0.3 million, or 8%. The increase is primarily due to a $0.3 million increase in implementation fees and a $0.3 million increase in ancillary service fees offset by a $0.4 million decrease in cancellation fees.

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Costs and Expenses
                                 
    Three Months Ended        
    June 30,     Change  
    2010(1)     2009(1)     Difference(1)     %  
Revenues
  $ 36,359     $ 37,783     $ (1,424 )     (4 )%
Costs of revenues
    19,386       20,016       (630 )     (3 )%
 
                         
 
                               
Gross profit
    16,973       17,767       (794 )     (4 )%
Gross margin
    47 %     47 %                
Operating expenses
                               
General and administrative
    8,273       6,887       1,386       20 %
Sales and marketing
    4,846       5,722       (876 )     (15 )%
Systems and development
    2,553       2,131       422       20 %
 
                         
 
                               
Total operating expenses
    15,672       14,740       932       6 %
 
                         
 
                               
Income from operations
    1,301       3,027       (1,726 )     (57 )%
Other income (expense)
                               
Interest income
    14       36       (22 )     (61 )%
Interest and other expense
    223       (1,799 )     2,022       (112 )%
 
                         
 
                               
Total other income (expense)
    237       (1,763 )     2,000       (113 )%
 
                         
 
                               
Income before tax provision
    1,538       1,264       274       22 %
Income tax provision
    469       688       (219 )     (32 )%
 
                         
 
                               
Net income
    1,069       576       493       86 %
Preferred stock accretion
    2,374       2,287       87       4 %
 
                         
 
                               
Net loss available to common stockholders
  $ (1,305 )   $ (1,711 )   $ 406       (24 )%
 
                         
 
                               
Net loss available to common stockholders per share:
                               
Basic
  $ (0.04 )   $ (0.06 )   $ 0.02       33 %
Diluted
  $ (0.04 )   $ (0.06 )   $ 0.02       33 %
Shares used in calculation of net loss available to common stockholders per share:
                               
Basic
    30,911       29,908       1,003       3 %
Diluted
    30,911       29,908       1,003       3 %
 
(1)   In thousands except for per share amounts.
     Costs of Revenues. Costs of revenues encompass the direct expenses associated with providing our services. These expenses include telecommunications, payment processing, systems operations, customer service, implementation and professional services work. Costs of revenues remained proportionately constant for the three months ended June 30, 2010, compared to the same period in 2009.
     Gross Profit. Gross profit decreased $0.8 million for the three months ended June 30, 2010 and gross margin as a percentage of revenues remained constant at 47%. The gross profit decrease is due to reduced revenues.
     General and Administrative. General and administrative expenses primarily consist of salaries for executive, administrative and financial personnel, consulting expenses and facilities costs such as office leases, insurance and depreciation. General and administrative expenses increased $1.4 million, or 20%, to $8.3 million for the three months ended June 30, 2010 due to approximately $0.5 million of severance costs and an increase in professional fees of approximately $0.9 million.
     Sales and Marketing. Sales and marketing expenses include salaries and commissions paid to sales and client services personnel and other costs incurred in selling our services and products. Sales and marketing expenses decreased $0.9 million, or 15%, to $4.8 million for the three months ended June 30, 2010. The primary reason for the decrease is reduced amortization expense of approximately $0.4 million related to our

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customer lists, reduced employee compensation costs of approximately $0.2 million, and reduced partnership commission of approximately $0.3 million.
     Systems and Development. Systems and development expenses include salaries, consulting fees and all other expenses incurred in supporting the development of new services and products and new technology to enhance existing products. Systems and development expenses increased by $0.4 million, or 20%, to $2.6 million for the three months ended June 30, 2010 primarily due to severance costs.
     Income from Operations. Income from operations decreased $1.7 million, or 57%, to $1.3 million for the three months ended June 30, 2010. The decrease is due to lower gross profit and increased operating expenses.
     Interest Income. Interest income remained constant for the three months ended June 30, 2010 compared to the same period in the prior year.
     Interest and Other Expense. Interest and other expense decreased by $2.0 million for the three months ended June 30, 2010 due to reduced interest payments on the 2007 Notes of approximately $0.7 million and an increase in the fair value of the theoretical swap derivative which reduced other expense by approximately $1.4 million.
     Income Tax Provision. We recognized tax expense for the three months ended June 30, 2010, as a result of $1.5 million of income before income taxes generated during the second quarter of 2010. Our effective tax rate for the period was 30.5%. The difference between our effective tax rate and the federal statutory rate is primarily due to permanent differences, state taxes, a $0.1 million increase to the New Jersey net operating loss carryforwards valuation allowance, and a stock based compensation adjustment of approximately $0.2 million relating to the difference between the expected deduction from stock based compensation which is based upon the fair value of the award at the date of issuance and the actual deduction taken which is based upon the fair value of the award at the time the award is exercised or vests.
     Preferred Stock Accretion. The accretion related to the Series A-1 Preferred Stock issued on July 3, 2006 increased 4% due to compounding of dividends.
     Net Loss Available to Common Stockholders. Net loss available to common stockholders decreased $0.4 million to a net loss of $1.3 million for the three months ended June 30, 2010, compared to net loss of $1.7 million for the three months ended June 30, 2009. Basic and diluted net loss available to common stockholders per share was $0.04 for the three months ended June 30, 2010, compared to a net loss available to common stockholders of $0.06 for the three months ended June 30, 2009. Basic and diluted shares outstanding increased by 3% primarily as a result of shares issued in connection with the exercise of stock options, issuance of restricted stock units and our employees’ participation in the employee stock purchase plan.
SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2009
Revenues
     Revenues decreased $2.1 million, or 3%, to $74.9 million for the six months ended June 30, 2010.
                                 
    Six Months Ended        
    June 30,     Change  
    2010(1)     2009(1)     Difference(1)     %  
Revenues:
                               
Account presentation services
  $ 4,439     $ 3,794     $ 645       17 %
Payment services
    57,877       61,155       (3,278 )     (5 )%
Relationship management services
    4,140       4,040       100       2 %
Professional services and other
    8,485       8,034       451       6 %
 
                         
 
                               
Total revenues
  $ 74,941     $ 77,023     $ (2,082 )     (3 )%
 
                         
 
                               
Payment metrics:
                               
Banking transactions
    72,451       76,346       (3,895 )     (5 )%
Biller payment transactions
    33,997       29,557       4,440       15 %
 
Notes:    
 
(1)   In thousands
     Account Presentation Services. Both the Banking and eCommerce segments contribute to account presentation services revenues, which increased 17%, or $0.6 million, to $4.4 million. The increase is primarily due to approximately $0.5 million increase in user fees, $0.2 million increase in account maintenance fees offset by a decrease of approximately $0.3 million in card usage fees.
     Payment Services. Both the Banking and eCommerce segments contribute to payment services revenues, which decreased to $57.9 million for the six months ended June 30, 2010 from $61.2 million in the same period of the prior year. The decrease is due to declines of $1.6 million

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in user fees, a decrease of $0.5 million in float interest revenue and a $1.5 million decrease in electronic transaction fees related to client losses and reduced fees per transaction for three large clients, partially offset by increased transactions.
     Relationship Management Services. Primarily composed of revenues from the Banking segment, relationship management services revenues increased by $0.1 million as a result of an increase in license fees.
     Professional Services and Other. Both the Banking and eCommerce segments contribute to professional services and other revenues, which increased $0.5 million, or 6%. The increase is due to a $0.5 million increase in professional service fees, a $0.7 million increase in ancillary service fees, and a $0.1 million increase in telecommunication charges, offset by a $0.4 million decrease in implementation fees and a $0.4 million decrease in cancellation fees.
Costs and Expenses
                                 
    Six Months Ended        
    June 30,     Change  
    2010(1)     2009(1)     Difference(1)     %  
Revenues
  $ 74,941     $ 77,023     $ (2,082 )     (3 )%
Costs of revenues
    39,012       39,680       (668 )     (2 )%
 
                         
 
                               
Gross profit
    35,929       37,343       (1,414 )     (4 )%
Gross margin
    48 %     48 %                
Operating expenses
                               
General and administrative
    16,028       16,608       (580 )     (3 )%
Sales and marketing
    9,757       11,328       (1,571 )     (14 )%
Systems and development
    5,126       4,384       742       17 %
 
                         
 
                               
Total operating expenses
    30,911       32,320       (1,409 )     (4 )%
 
                         
 
Income from operations
    5,018       5,023       (5 )     0 %
Other income (expense)
                               
Interest income
    21       82       (61 )     (74 )%
Interest and other expense
    65       (2,866 )     2,931       (102 )%
 
                         
 
                               
Total other income (expense)
    86       (2,784 )     2,870       (103 )%
 
                         
 
                               
Income before tax provision
    5,104       2,239       2,865       128 %
Income tax provision
    1,855       1,032       823       80 %
 
                         
 
                               
Net income
    3,249       1,207       2,042       169 %
Preferred stock accretion
    4,711       4,536       175       4 %
 
                         
 
                               
Net loss available to common stockholders
  $ (1,462 )   $ (3,329 )   $ 1,867       (56 )%
 
                         
 
                               
Net loss available to common stockholders per share:
                               
Basic
  $ (0.05 )   $ (0.11 )   $ 0.06       (55 )%
Diluted
  $ (0.05 )   $ (0.11 )   $ 0.06       (55 )%
Shares used in calculation of net loss available to common stockholders per share:
                               
Basic
    30,699       29,821       878       3 %
Diluted
    30,699       29,821       878       3 %
 
Notes:    
 
(1)   In thousands except for per share amounts.
     Costs of Revenues. Costs of revenues encompass the direct expenses associated with providing our services. These expenses include telecommunications, payment processing, systems operations, customer service, implementation and professional services work. Costs of revenues remained proportionately constant for the six months ended June 30, 2010, compared to the same period in 2009.
     Gross Profit. Gross profit decreased $1.4 million for the six months ended June 30, 2010 and gross margin as a percentage of revenues remained proportionately constant. The gross profit decrease is due to reduced revenues.
     General and Administrative. General and administrative expenses primarily consist of salaries for executive, administrative and financial personnel, consulting expenses and facilities costs such as office leases, insurance and depreciation. General and administrative expenses decreased $0.6 million, or 3%, to $16.0 million for the six months ended June 30, 2010 due to proxy costs of $0.8 million recorded in the prior period and a reduction of trade show costs of approximately $0.2 million, offset by severance costs of approximately $0.5 million.

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          Sales and Marketing. Sales and marketing expenses include salaries and commissions paid to sales and client services personnel and other costs incurred in selling our services and products. Sales and marketing expenses decreased $1.6 million, or 14%, to $9.8 million for the six months ended June 30, 2010. The primary reason for the decrease is reduced amortization expense of approximately $0.8 million related to our customer lists and reduced employee compensation of approximately $0.7 million.
     Systems and Development. Systems and development expenses include salaries, consulting fees and all other expenses incurred in supporting the research and development of new services and products and new technology to enhance existing products. Systems and development expenses increased by $0.7 million, or 17%, to $5.1 million for the six months ended June 30, 2010. The increase is due to higher employee compensation and severance costs of approximately $0.6 million, an increase in consultant costs of $0.6 million, offset by an increase of capitalized software costs of $0.4 million.
     Income from Operations. Income from operations remained constant for the six months ended June 30, 2010 compared to the same period in the prior year.
     Interest Income. Interest income remained constant for the six months ended June 30, 2010 compared to the same period in the prior year.
     Interest and Other Expense. Interest and other expense decreased by $2.9 million for the six months ended June 30, 2010 due to reduced interest payments on the 2007 Notes of approximately $1.4 million and an increase in the fair value of the theoretical swap derivative which reduced other expense by approximately $1.7 million, offset by a decrease in unrealized gains of approximately $0.2 million.
     Income Tax Provision. We recognized tax expense for the six months ended June 30, 2010, as a result of $5.1 million of income before income taxes generated during the first half of 2010. Our effective tax rate for the period was 36.3%. The difference between our effective tax rate and the federal statutory rate is primarily due to permanent differences, state taxes, a $0.1 million increase to the New Jersey net operating loss carryforwards valuation allowance, and a stock based compensation adjustment of approximately $0.2 million relating to the difference between the expected deduction from stock based compensation which is based upon the fair value of the award at the date of issuance and the actual deduction taken which is based upon the fair value of the award at the time the award is exercised or vests.
     Preferred Stock Accretion. The accretion related to the Series A-1 Preferred Stock issued on July 3, 2006 increased 4% due to compounding of dividends.
     Net Loss Available to Common Stockholders. Net loss available to common stockholders decreased $1.9 million to net loss of $1.5 million for the six months ended June 30, 2010, compared to net loss of $3.3 million for the six months ended June 30, 2009. Basic and diluted net loss available to common stockholders per share was $0.05 for the six months ended June 30, 2010, compared to a net loss available to common stockholders of $0.11 for the six months ended June 30, 2009. Basic and diluted shares outstanding increased by 3% primarily as a result of shares issued in connection with the exercise of stock options, issuance of restricted stock units and our employees’ participation in the employee stock purchase plan.
LIQUIDITY AND CAPITAL RESOURCES
     Net cash provided by operating activities was $14.9 million for the six months ended June 30, 2010. This represented a $1.6 million decrease in cash provided by operating activities compared to the same period in the prior year, which was primarily the result of an increase in net income of $2.0 million and an increase to deferred tax benefits of $1.7 million offset by a decrease in depreciation and amortization of $1.0 million, a decrease in equity compensation expense of $0.7 million, a change in the fair value of the theoretical swap derivative of $1.7 million, and changes in certain other assets and liabilities of $2.1 million.
     Net cash used by investing activities for the six months ended June 30, 2010 was $9.1 million, which was the result of capital expenditures.
     Net cash used by financing activities was $7.6 million for the six months ended June 30, 2010, which was primarily the result of $8.0 million of payments on our 2007 Notes of $8.0 million offset by $0.4 million in net proceeds from the issuance of common stock.
     Given continuing economic uncertainty and interest rate volatility, we could experience unforeseeable impacts on our results of operations, cash flows, ability to meet debt and other contractual requirements, and other items in future periods. While there can be no guarantees as to outcome, we have developed a contingent plan to address the negative effects of these uncertainties, if they occur.
     Future capital requirements will depend upon many factors, including our need to finance any future acquisitions, the timing of research and product development efforts and the expansion of our marketing effort. We expect to continue to expend significant amounts on expansion of facility infrastructure, ongoing research and development, computer and related equipment, and personnel.
     We currently believe that cash on hand, investments and the cash we expect to generate from operations will be sufficient to meet our current anticipated cash requirements for at least the next twelve months and to service our existing debt. There can be no assurance that additional capital beyond the amounts currently forecasted by us will not be required or that any such required additional capital will be available on reasonable terms, if at all, at such time as required.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     We invest primarily in short-term, investment grade, marketable government, corporate, and mortgage-backed debt securities. Our interest income is most sensitive to changes in the general level of U.S. interest rates and given the short-term nature of our investments, our exposure to interest rate risk is not material. We do not have operations subject to risks of foreign currency fluctuations, nor do we use derivative financial instruments in our investment portfolio.
     We are exposed to the impact of interest rate changes as they affect our outstanding senior secured notes, or 2007 Notes. The interest rate on our 2007 Notes varies based on LIBOR and, consequently, our interest expense could fluctuate with changes in the LIBOR rate through the maturity date of the senior secured note.
     We earn float interest in clearing accounts that hold funds collected from end-users until they are disbursed to receiving merchants or financial institutions. The float interest we earn on these clearing accounts is considered in our determination of the fee structure for clients and represents a portion of the payment for our services. As such, the float interest earned is classified as payment services revenue in our condensed consolidated statements of operations. This float interest revenue is exposed to changes in the general level of U.S. interest rates as it relates to the balances of these clearing accounts. The float interest totaled $0.1 million and $0.2 million for the three months ended June 30, 2010 and 2009, respectively and $0.1 million and $0.6 million for the six months ended, respectively. If there was a change in interest rates of one percent as of June 30, 2010, revenues associated with float interest would have increased by approximately $1.0 million for the six months ended June 30, 2010.
ITEM 4. CONTROLS AND PROCEDURES
     Our management is responsible for establishing and maintaining disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, and for internal controls over financial reporting.
     (a) As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including the President and Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective as of June 30, 2010 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management including our CEO and CFO as appropriate to allow timely decisions regarding disclosures.
     (b) There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter (as required by Exchange Act Rules 13a-15(d) and 15d-15(d)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     We are not a party to any pending litigation, nor are we aware of any threatened litigation, that would have a material adverse effect on us, our business or results of operation.
ITEM 1A. RISK FACTORS
     There have been no material changes to risk factors as previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2010 except for the following:
     Our risk factor entitled “The failure to attract or retain our officers and skilled employees could have a material adverse effect on our business” has been modified to reflect recent developments. The modified risk factor reads as follows:
The failure to attract or retain our officers and skilled employees could have a material adverse effect on our business.
     If we fail to attract, assimilate or retain highly qualified managerial and technical personnel, our business could be materially adversely affected. Our performance is substantially dependent on the performance of our executive officers and key employees who must be knowledgeable and experienced in both financial services and technology. We are also dependent on our ability to retain and motivate high quality personnel, especially management and highly skilled technical teams. The loss of the services of any executive officers or key employees could have a material adverse effect on our business. Our future success also depends on the continuing ability to identify, hire, train and retain other highly qualified managerial and technical personnel. If our managerial and key personnel fail to effectively manage our business, our results of operations and reputation could be harmed.
     In June, 2010, our board of directors appointed Joseph L. Cowan as President and Chief Executive Officer. The transition to Mr. Cowan’s leadership of the Company could distract our existing management team and may ultimately lead to changes in corporate strategy. These changes may negatively impact our ability to meet key corporate and financial objectives, which could adversely affect our business, results of operations and financial condition. Our Chief Executive Officer is in the process of an evaluation and may propose changes to the Company’s operations.
     Our risk factor entitled “Our recent change of chief executive officer may be viewed negatively and have an adverse impact on our business” was modified in our Quarterly Report on Form 10-Q flied with the Securities and Exchange Commission on May 6, 2010, and has been further modified to reflect recent developments. The modified risk factor reads as follows:
Our recent changes of chief executive officer may be viewed negatively and have an adverse impact on our business.
     Our board of directors recently appointed Joseph L. Cowan as President, Chief Executive Officer and a member of the Board of Directors. Mr. Cowan replaces John C. Dorman, who previously served as interim chief executive officer, and who now serves as Chairman of the Board of Directors. Investors, employees, customers, suppliers, and others could react negatively to the appointment of Mr. Cowan as our President and Chief Executive Officer or the appointment of Mr. Dorman as our Chairman. Matthew P. Lawlor, who had served as chief executive officer for the preceding twenty years, retired on December 14, 2009. Our relationship with Mr. Lawlor is currently adversarial and Mr. Lawlor has initiated litigation against the company related to the financial arrangements associated with his retirement. In addition, Mr. Lawlor owns a significant number of shares of our common stock and could pursue a proxy fight or otherwise attempt to influence the affairs of the company. The potential negative reactions related to the changes in our chief executive officer position and any litigation or proxy fight initiated by Mr. Lawlor could adversely impact our revenue, capital needs, ability to retain employees, relations with customers, suppliers, investors, and others, and business in general.
Certain payment funding methods expose us to the credit and/or operating risk of our clients.
     When we process an automated clearing house or automated teller machine network payment transaction for a client, we initiate a transaction to withdraw funds from the designated source account and deposit them into our off-balance sheet settlement account, which is a trust account maintained for the benefit of our clients. We then initiate a simultaneous transaction to transfer funds from our settlement account to the intended destination account.  These “back to back” transactions are designed to settle at the same time, usually overnight, such that we receive the funds from the source at the same time as we send the funds to their destination.  It is possible, however, that the source account may not have sufficient funds for the transaction, the institution controlling the account may commit an operational error causing insufficient funds to be sent or the account may be subject to legal or other constraints that prevent the withdrawal of the funds.  The vast majority of these occurrences are resolved quickly though normal processes.  However, if they are not resolved and we are then unable to reverse the transaction that sent funds to the intended destination, a shortfall in our settlement account will be created.  We have legal and contractual recourse against our clients for the amount of the shortfall, but timing of recovery may be delayed by litigation or other legal processes. Additionally, the amount of recovery may be diminished if our clients’ creditworthiness is not then sufficient to cover the shortfall. If we are unable to recover the funds through any of these methods, we may have to fund the shortfall in our settlement account from our corporate funds.
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
     Information regarding unregistered sales of securities and use of proceeds are contained in a Form 8-K filed with the Securities and Exchange Commission on June 21, 2010.
     The following summarizes repurchases of shares that were used to pay option exercise prices during the second quarter of 2010.

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    Total Number of Shares        
    Acquired During the     Average Price Paid Per  
Period   Period     Share  
April 1-April 30
    0     $  
May 1- May 31
    141,848     $ 4.77  
June 1-June 30
    0     $  
 
             
Total
    141,848     $ 4.77  
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
     Information regarding submission of matters to a vote of security holders is contained in a Form 8-K filed with the Securities and Exchange Commission on July 7, 2010.
ITEM 5. OTHER INFORMATION
     None
ITEM 6. EXHIBITS
     
Exhibit 31.1
  — Rule 13a-14a Certification of Chief Executive Officer
 
   
Exhibit 31.2
  — Rule 13a-14a Certification of Chief Financial Officer
 
   
Exhibit 32
  — Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections(a) and(b) of Section 1350, Chapter 63 of Title 18, United States Code)

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
ONLINE RESOURCES CORPORATION
 
Date: August 5, 2010
By:   /s/ Joseph L. Cowan    
    Joseph L. Cowan   
    President and Chief Executive Officer
(Principal Executive Officer) 
 
 
  ONLINE RESOURCES CORPORATION
 
 
Date: August 5, 2010
By:   /s/ Catherine A. Graham    
    Catherine A. Graham   
    Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) 
 
 

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