##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the Quarterly Period Ended June 30, 2007
 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: 000-24931
 S1 CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    58-2395199(I.R.S. Employer
Identification No.)705 Westech DriveNorcross, Georgia
    
    30092(Address of principal executive offices)
    
    (Zip Code)
 (404) 923-3500
 (Former name if changed since last report.)
 þ o
  o þ o
 o þ




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##### 



S1 CORPORATION
 QUARTERLY PERIOD ENDED JUNE 30, 2007
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2007 and 2006Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007
and 2006Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSignatureEX-31.1 CERTIFICATION OF THE CEOEX-31.2 CERTIFICATION OF THE CFOEX-32.1 CERTIFICATION OF THE CEOEX-32.2 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 S1 CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (IN THOUSANDS, EXCEPT SHARE DATA)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    87,766
    
    
    $
    69,612Short-term investments
    
    
    
    
    
    
    21,392Accounts receivable, net
    
    
    49,411
    
    
    
    53,371Prepaid expenses
    
    
    2,896
    
    
    
    4,036Other current assets
    
    
    5,640
    
    
    
    2,308Total current assets
    
    
    145,713
    
    
    
    150,719Property and equipment, net
    
    
    10,437
    
    
    
    12,137Intangible assets, net
    
    
    10,809
    
    
    
    12,903Goodwill, net
    
    
    125,033
    
    
    
    125,300Other assets
    
    
    6,541
    
    
    
    6,746Total assets
    
    $
    298,533
    
    
    $
    307,805LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,340
    
    
    $
    3,750Accrued compensation and benefits
    
    
    10,157
    
    
    
    9,642Accrued restructuring
    
    
    6,467
    
    
    
    9,092Accrued other expenses
    
    
    11,800
    
    
    
    12,801Deferred revenues
    
    
    28,339
    
    
    
    29,265Current portion of capital lease obligation
    
    
    2,595
    
    
    
    2,942Total current liabilities
    
    
    61,698
    
    
    
    67,492Capital lease obligation, excluding current portion
    
    
    2,586
    
    
    
    3,865Accrued restructuring, excluding current portion
    
    
    6,807
    
    
    
    10,386Other liabilities
    
    
    5,657
    
    
    
    1,833Total liabilities
    
    
    76,748
    
    
    
    83,576Stockholders equity:Preferred stock
    
    
    10,000
    
    
    
    10,000Common stock
    
    
    601
    
    
    
    613Additional paid-in capital
    
    
    1,835,868
    
    
    
    1,845,529Treasury stock
    
    
    (871
    )
    
    
    Accumulated deficit
    
    
    (1,621,386
    )
    
    
    (1,629,302
    )Accumulated other comprehensive loss:Net loss on derivative financial instruments
    
    
    (150
    )
    
    
    (168
    )Cumulative foreign currency translation adjustment
    
    
    (2,277
    )
    
    
    (2,443
    )Total stockholders equity
    
    
    221,785
    
    
    
    224,229Total liabilities and stockholders equity
    
    $
    298,533
    
    
    $
    307,805Preferred shares issued and outstanding
    
    
    749,064
    
    
    
    749,064Common shares issued and outstanding
    
    
    60,107,020
    
    
    
    61,290,973Common shares held in treasury
    
    
    109,100
    
    
    
    
  3




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S1 CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Software licenses
    
    $
    7,755
    
    
    $
    6,369
    
    
    $
    13,517
    
    
    $
    12,412Support and maintenance
    
    
    11,227
    
    
    
    11,197
    
    
    
    21,702
    
    
    
    21,854Professional services
    
    
    21,681
    
    
    
    16,950
    
    
    
    41,113
    
    
    
    31,571Data center
    
    
    11,730
    
    
    
    11,911
    
    
    
    23,430
    
    
    
    23,497Other
    
    
    205
    
    
    
    312
    
    
    
    402
    
    
    
    845Total revenues
    
    
    52,598
    
    
    
    46,739
    
    
    
    100,164
    
    
    
    90,179Operating expenses:Cost of software licenses
    
    
    940
    
    
    
    1,062
    
    
    
    1,832
    
    
    
    2,092Cost of professional services, support and maintenance
    
    
    15,830
    
    
    
    15,761
    
    
    
    30,942
    
    
    
    30,451Cost of data center
    
    
    6,390
    
    
    
    5,759
    
    
    
    12,189
    
    
    
    11,175Cost of other revenue
    
    
    130
    
    
    
    133
    
    
    
    272
    
    
    
    449Selling and marketing
    
    
    7,767
    
    
    
    6,683
    
    
    
    15,165
    
    
    
    12,558Product development
    
    
    6,798
    
    
    
    9,876
    
    
    
    13,692
    
    
    
    19,483General and administrative
    
    
    7,710
    
    
    
    6,479
    
    
    
    14,409
    
    
    
    12,195Restructuring costs
    
    
    
    
    
    
    549
    
    
    
    
    
    
    
    882Depreciation
    
    
    1,737
    
    
    
    1,971
    
    
    
    3,571
    
    
    
    3,723Amortization of other intangible assets
    
    
    283
    
    
    
    327
    
    
    
    610
    
    
    
    654Total operating expenses
    
    
    47,585
    
    
    
    48,600
    
    
    
    92,682
    
    
    
    93,662Operating income (loss)
    
    
    5,013
    
    
    
    (1,861
    )
    
    
    7,482
    
    
    
    (3,483
    )Interest and other income, net
    
    
    784
    
    
    
    1,040
    
    
    
    1,655
    
    
    
    2,249Income (loss) before income tax expense
    
    
    5,797
    
    
    
    (821
    )
    
    
    9,137
    
    
    
    (1,234
    )Income tax expense
    
    
    (848
    )
    
    
    (263
    )
    
    
    (1,221
    )
    
    
    (654
    )Income (loss) from continuing operations
    
    
    4,949
    
    
    
    (1,084
    )
    
    
    7,916
    
    
    
    (1,888
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (1,027
    )
    
    
    
    
    
    
    (667
    )Net income (loss)
    
    $
    4,949
    
    
    $
    (2,111
    )
    
    $
    7,916
    
    
    $
    (2,555
    )Basic earnings (loss) per share:Continuing operations
    
    $
    0.08
    
    
    $
    (0.02
    )
    
    $
    0.13
    
    
    $
    (0.03
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.03
    )
    
    $
    0.13
    
    
    $
    (0.04
    )Diluted earnings (loss) per share:Continuing operations
    
    $
    0.08
    
    
    $
    (0.02
    )
    
    $
    0.13
    
    
    $
    (0.03
    )Discontinued operations
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.01
    )Net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.03
    )
    
    $
    0.13
    
    
    $
    (0.04
    )Weighted average common shares outstanding  basic
    
    
    61,217,364
    
    
    
    70,958,696
    
    
    
    61,360,540
    
    
    
    70,692,207Weighted average common shares outstanding  fully diluted
    
    
    62,226,463
    
    
    
    n/a
    
    
    
    61,969,133
    
    
    
    n/a
  4




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S1 CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 (Unaudited)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    7,916
    
    
    $
    (2,555
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in)
operating activities:Depreciation and amortization
    
    
    5,665
    
    
    
    6,479Gain on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    (554
    )Provision for doubtful accounts receivable and billing adjustments
    
    
    994
    
    
    
    1,918Stock based compensation expense
    
    
    5,013
    
    
    
    2,803Changes in assets and liabilities:Decrease (increase) in accounts receivable
    
    
    2,947
    
    
    
    (13,752
    )Increase in prepaid expenses and other assets
    
    
    (1,969
    )
    
    
    (320
    )(Decrease) increase in accounts payable
    
    
    (1,429
    )
    
    
    900Decrease in accrued expenses and other liabilities
    
    
    (5,555
    )
    
    
    (9,725
    )(Decrease) increase in deferred revenues
    
    
    (666
    )
    
    
    11,086Net cash provided by (used in) operating activities
    
    
    12,916
    
    
    
    (3,720
    )Cash flows from investing activities:Cash paid in connection with acquisition
    
    
    
    
    
    
    (14,000
    )Proceeds from sale of subsidiaries
    
    
    
    
    
    
    554Maturities of short-term investment securities
    
    
    29,255
    
    
    
    26,900Purchases of short-term investment securities
    
    
    (7,863
    )
    
    
    (15,067
    )Purchases of property, equipment and technology
    
    
    (1,871
    )
    
    
    (4,610
    )Net cash provided by (used in) investing activities
    
    
    19,521
    
    
    
    (6,223
    )Cash flows from financing activities:Proceeds from exercise of employee stock options
    
    
    2,729
    
    
    
    2,281Payments on capital lease obligations
    
    
    (1,626
    )
    
    
    (765
    )Repurchase of common stock
    
    
    (15,590
    )
    
    
    Proceeds from sale-lease back transaction
    
    
    
    
    
    
    2,502Net cash (used in) provided by financing activities
    
    
    (14,487
    )
    
    
    4,018Effect of exchange rate changes on cash and cash equivalents
    
    
    204
    
    
    
    44Net increase (decrease) in cash and cash equivalents
    
    
    18,154
    
    
    
    (5,881
    )Cash and cash equivalents at beginning of period
    
    
    69,612
    
    
    
    85,108Cash and cash equivalents at end of period
    
    $
    87,766
    
    
    $
    79,227Noncash investing and financing activities:Property and equipment financed through capital leases
    
    $
    
    
    
    $
    4,372
  5




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S1 CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. BACKGROUND AND BASIS OF PRESENTATION
       6




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2. RECENT ACCOUNTING PRONOUNCEMENTS
     7




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3. DISCONTINUED OPERATIONS
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Risk and Compliance
    
    $
    
    
    
    $
    5,161
    
    
    $
    
    
    
    $
    10,258Pretax loss from discontinued operations:Risk and Compliance
    
    $
    
    
    
    $
    (1,019
    )
    
    $
    
    
    
    $
    (1,257
    )Gain on disposal of Edify
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    554Income tax (expense) benefit
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    36Loss from discontinued
operations
    
    $
    
    
    
    $
    (1,027
    )
    
    $
    
    
    
    $
    (667
    )
 8




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4. GOODWILL AND OTHER INTANGIBLE ASSETS
  Gross
    
    
    AccumulatedCarrying Value
    
    
    AmortizationPurchased and acquired technology
    
    $
    19,489
    
    
    $
    (15,037
    )Customer relationships
    
    
    12,000
    
    
    
    (5,643
    )Total
    
    $
    31,489
    
    
    $
    (20,680
    )
  2007
    
    2008
    
    2009
    
    2010
    
    2011Enterprise
    
    $
    662
    
    
    $
    85
    
    
    $
    
    
    
    $
    
    
    
    $
    Postilion
    
    $
    3,328
    
    
    $
    3,081
    
    
    $
    2,200
    
    
    $
    1,090
    
    
    $
    1,038
  Enterprise
    
    
    Postilion
    
    
    TotalBalance, January 1, 2007
    
    $
    37,769
    
    
    $
    87,531
    
    
    $
    125,300Utilization of acquisition related
income tax benefits
    
    
    (26
    )
    
    
    (241
    )
    
    
    (267
    )Balance, June 30, 2007
    
    $
    37,743
    
    
    $
    87,290
    
    
    $
    125,033
 5. STOCK OPTION PLANS
  9




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2007
    
    2006Expected dividend yield
    
    
    0%
    
    
    0%Expected volatility
    
    
    45%
    
    
    52%Risk-free interest rate
    
    
    4.9%
    
    
    4.7%Expected life
    
    
    4.0
    years
    
    
    4.0
    years
  2007
    
    2006Expected dividend yield
    
    
    0%
    
    
    0%Expected volatility
    
    
    49%
    
    
    59%Risk-free interest rate
    
    
    5.0%
    
    
    4.6%Expected life
    
    
    4.1
    years
    
    
    4.9
    years
  Six Months Ended June 30,2007
    
    
    2006Costs and expenses:Professional services, support and maintenance
    
    $
    278
    
    
    $
    287Data center
    
    
    35
    
    
    
    48Selling and marketing
    
    
    2,414
    
    
    
    756Product development
    
    
    1,007
    
    
    
    571General and administrative
    
    
    1,279
    
    
    
    985Discontinued operations
    
    
    
    
    
    
    155Total stock-based compensation expense
    
    $
    5,013
    
    
    $
    2,802
  10




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6. COMPREHENSIVE INCOME (LOSS)
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    4,949
    
    
    $
    (2,111
    )
    
    $
    7,916
    
    
    $
    (2,555
    )Foreign currency translation adjustment
    
    
    73
    
    
    
    (226
    )
    
    
    166
    
    
    
    (332
    )Unrealized loss on cash flow hedges
    
    
    (10
    )
    
    
    (158
    )
    
    
    (19
    )
    
    
    (223
    )Comprehensive income (loss)
    
    $
    5,012
    
    
    $
    (2,495
    )
    
    $
    8,063
    
    
    $
    (3,110
    )
 7. RESTRUCTURING CHARGES
 2003 and Prior Restructuring Plans
  Lease CostsBalance, December 31, 2006
    
    $
    5,161Amounts utilized
    
    
    (315
    )Balance, June 30, 2007
    
    $
    4,846
 2005 Restructuring Plan
  Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2006
    
    $
    660
    
    
    $
    3,645
    
    
    $
    4,305Amounts utilized
    
    
    (577
    )
    
    
    (575
    )
    
    
    (1,152
    )Balance, June 30, 2007
    
    $
    83
    
    
    $
    3,070
    
    
    $
    3,153
 11




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2006 Restructuring Plan
  Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2006
    
    $
    4,018
    
    
    $
    5,994
    
    
    $
    10,012Amounts utilized
    
    
    (2,985
    )
    
    
    (1,752
    )
    
    
    (4,737
    )Balance, June 30, 2007
    
    $
    1,033
    
    
    $
    4,242
    
    
    $
    5,275
  8. CONTINGENCIES AND DEBT
 Litigation
   Sale-Leaseback Transaction
  Guarantees
  9. INCOME TAXES
  12




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10. STOCKHOLDERS EQUITY
   11. SEGMENT REPORTING AND MAJOR CUSTOMERS
    Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalThree Months Ended June 30, 2007:Enterprise
    
    $
    1,287
    
    
    $
    3,972
    
    
    $
    17,303
    
    
    $
    6,089
    
    
    $
    158
    
    
    $
    28,809Postilion
    
    
    6,468
    
    
    
    7,255
    
    
    
    4,378
    
    
    
    5,641
    
    
    
    47
    
    
    
    23,789Total
    
    $
    7,755
    
    
    $
    11,227
    
    
    $
    21,681
    
    
    $
    11,730
    
    
    $
    205
    
    
    $
    52,598
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalThree Months Ended June 30, 2006:Enterprise
    
    $
    1,093
    
    
    $
    3,293
    
    
    $
    12,934
    
    
    $
    5,398
    
    
    $
    100
    
    
    $
    22,818Postilion
    
    
    5,276
    
    
    
    7,904
    
    
    
    4,016
    
    
    
    6,513
    
    
    
    212
    
    
    
    23,921Total
    
    $
    6,369
    
    
    $
    11,197
    
    
    $
    16,950
    
    
    $
    11,911
    
    
    $
    312
    
    
    $
    46,739
 13




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##### Table of Contents



Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalSix Months Ended June 30, 2007:Enterprise
    
    $
    2,342
    
    
    $
    7,388
    
    
    $
    32,776
    
    
    $
    11,794
    
    
    $
    313
    
    
    $
    54,613Postilion
    
    
    11,175
    
    
    
    14,314
    
    
    
    8,337
    
    
    
    11,636
    
    
    
    89
    
    
    
    45,551Total
    
    $
    13,517
    
    
    $
    21,702
    
    
    $
    41,113
    
    
    $
    23,430
    
    
    $
    402
    
    
    $
    100,164
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalSix Months Ended June 30, 2006:Enterprise
    
    $
    2,540
    
    
    $
    6,755
    
    
    $
    24,630
    
    
    $
    10,326
    
    
    $
    270
    
    
    $
    44,521Postilion
    
    
    9,872
    
    
    
    15,099
    
    
    
    6,941
    
    
    
    13,171
    
    
    
    575
    
    
    
    45,658Total
    
    $
    12,412
    
    
    $
    21,854
    
    
    $
    31,571
    
    
    $
    23,497
    
    
    $
    845
    
    
    $
    90,179
  Three Months Ended June 30, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    28,809
    
    
    $
    23,789
    
    
    $
    52,598Operating expenses:Direct costs
    
    
    14,763
    
    
    
    8,527
    
    
    
    23,290Selling and marketing
    
    
    3,545
    
    
    
    4,222
    
    
    
    7,767Product development
    
    
    2,965
    
    
    
    3,833
    
    
    
    6,798General and administrative
    
    
    3,948
    
    
    
    3,762
    
    
    
    7,710Depreciation
    
    
    1,142
    
    
    
    595
    
    
    
    1,737Amortization of other intangible assets
    
    
    
    
    
    
    283
    
    
    
    283Total operating expenses
    
    
    26,363
    
    
    
    21,222
    
    
    
    47,585Segment operating income
    
    $
    2,446
    
    
    $
    2,567
    
    
    $
    5,013
 Three Months Ended June 30, 2006Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    22,818
    
    
    $
    23,921
    
    
    $
    46,739Operating expenses:Direct costs
    
    
    13,684
    
    
    
    9,031
    
    
    
    22,715Selling and marketing
    
    
    3,220
    
    
    
    3,463
    
    
    
    6,683Product development
    
    
    5,867
    
    
    
    4,009
    
    
    
    9,876General and administrative
    
    
    3,295
    
    
    
    3,184
    
    
    
    6,479Restructuring costs
    
    
    330
    
    
    
    219
    
    
    
    549Depreciation
    
    
    1,300
    
    
    
    671
    
    
    
    1,971Amortization of other intangible assets
    
    
    45
    
    
    
    282
    
    
    
    327Total operating expenses
    
    
    27,741
    
    
    
    20,859
    
    
    
    48,600Segment operating (loss) income
    
    $
    (4,923
    )
    
    $
    3,062
    
    
    $
    (1,861
    )
 Six Months Ended June 30, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    54,613
    
    
    $
    45,551
    
    
    $
    100,164Operating expenses:Direct costs
    
    
    28,310
    
    
    
    16,925
    
    
    
    45,235Selling and marketing
    
    
    6,729
    
    
    
    8,436
    
    
    
    15,165Product development
    
    
    5,980
    
    
    
    7,712
    
    
    
    13,692General and administrative
    
    
    7,758
    
    
    
    6,651
    
    
    
    14,409Depreciation
    
    
    2,361
    
    
    
    1,210
    
    
    
    3,571Amortization of other intangible assets
    
    
    45
    
    
    
    565
    
    
    
    610Total operating expenses
    
    
    51,183
    
    
    
    41,499
    
    
    
    92,682Segment operating income
    
    $
    3,430
    
    
    $
    4,052
    
    
    $
    7,482
 14




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##### Table of Contents



Six Months Ended June 30, 2006Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    44,521
    
    
    $
    45,658
    
    
    $
    90,179Operating expenses:Direct costs
    
    
    26,263
    
    
    
    17,904
    
    
    
    44,167Selling and marketing
    
    
    5,981
    
    
    
    6,577
    
    
    
    12,558Product development
    
    
    12,007
    
    
    
    7,476
    
    
    
    19,483General and administrative
    
    
    6,188
    
    
    
    6,007
    
    
    
    12,195Restructuring costs
    
    
    637
    
    
    
    245
    
    
    
    882Depreciation
    
    
    2,421
    
    
    
    1,302
    
    
    
    3,723Amortization of other intangible assets
    
    
    88
    
    
    
    566
    
    
    
    654Total operating expenses
    
    
    53,585
    
    
    
    40,077
    
    
    
    93,662Segment operating (loss) income
    
    $
    (9,064
    )
    
    $
    5,581
    
    
    $
    (3,483
    )
 Geography.
 Subscription.
 Major Customer.
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Total Revenues
    
    2007
    
    2006
    
    2007
    
    2006Enterprise Segment
    
    
    37
    %
    
    
    51
    %
    
    
    42
    %
    
    
    51
    %Total Company
    
    
    20
    %
    
    
    25
    %
    
    
    23
    %
    
    
    25
    %
 15




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##### Table of Contents



12. NET INCOME (LOSS) PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per share data)Basic earnings per share:Income (loss) from continuing operations
    
    $
    4,949
    
    
    $
    (1,084
    )
    
    $
    7,916
    
    
    $
    (1,888
    )Amount allocated to participating preferred stockholders
    
    
    (85
    )
    
    
    
    
    
    
    (136
    )
    
    
    Income (loss) from continuing operations
available to common stockholders  basic
    
    $
    4,864
    
    
    $
    (1,084
    )
    
    $
    7,780
    
    
    $
    (1,888
    )Weighted average common shares outstanding
    
    
    61,217
    
    
    
    70,959
    
    
    
    61,361
    
    
    
    70,692Basic income (loss) from continuing operations per share
    
    $
    0.08
    
    
    $
    (0.02
    )
    
    $
    0.13
    
    
    $
    (0.03
    )Diluted earnings per share:Income (loss) from continuing operations
    
    $
    4,949
    
    
    $
    (1,084
    )
    
    $
    7,916
    
    
    $
    (1,888
    )Amount allocated to participating preferred stockholders
    
    
    (85
    )
    
    
    
    
    
    
    (136
    )
    
    
    Income (loss) from continuing operations
available to common stockholders  diluted
    
    $
    4,864
    
    
    $
    (1,084
    )
    
    $
    7,780
    
    
    $
    (1,888
    )Weighted average common shares outstanding
    
    
    61,217
    
    
    
    70,959
    
    
    
    61,360
    
    
    
    70,692Weighted average effect of common stock equivalent
Stock options and restricted stock
    
    
    1,009
    
    
    
    
    
    
    
    609
    
    
    
    Weighted average diluted shares outstanding
    
    
    62,226
    
    
    
    70,959
    
    
    
    61,969
    
    
    
    70,692Diluted income (loss) from continuing operations per share
    
    $
    0.08
    
    
    $
    (0.02
    )
    
    $
    0.13
    
    
    $
    (0.03
    )
 13. SUBSEQUENT EVENTS
  16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
     17




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##### Table of Contents



Recent Accounting Pronouncements and Critical Accounting Estimates
  Quarterly and Year-to-Date financial highlights
  
    
    Revenues increased $5.9 million to $52.6 million as compared to the same period last year;
    
    Professional services revenues increased nearly $4.7 million, due to growth in
the Enterprise banking and Postilion payment business;
    
    Product development costs are down $3.1 million due to lower costs following our
restructuring activities in the fourth quarter of 2006;
    
    Selling and marketing, Product development, and General and administrative costs
increased due to higher stock based compensation expense which increased from prior
year by $1.9 million to $3.1 million;
    
    Stock repurchases of $15.6 million; and
    
    Restructuring payments of $3.1 million.
  
    
    Revenues increased $10.0 million to $100.2 million as compared to the same period last year;
    
    Professional services revenues increased $9.5 million, due to growth in the
Enterprise banking and Postilion payment business;
    
    Product development costs are down over $5.8 million due to lower costs following
our restructuring activities in the fourth quarter of 2006;
    
    Selling and marketing, Product development, and General and administrative costs
increased due to higher stock based compensation expense which increased from prior
year by $2.2 million to $5.0 million;
    
    Stock repurchases of $15.6 million; and
    
    Restructuring payments of $6.2 million.
 18




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##### Table of Contents



Comparison of the Three Months Ended June 30, 2007 and 2006
 Revenues.
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalThree Months Ended June 30, 2007:Enterprise
    
    $
    1,287
    
    
    $
    3,972
    
    
    $
    17,303
    
    
    $
    6,089
    
    
    $
    158
    
    
    $
    28,809Postilion
    
    
    6,468
    
    
    
    7,255
    
    
    
    4,378
    
    
    
    5,641
    
    
    
    47
    
    
    
    23,789Total
    
    $
    7,755
    
    
    $
    11,227
    
    
    $
    21,681
    
    
    $
    11,730
    
    
    $
    205
    
    
    $
    52,598
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalThree Months Ended June 30, 2006:Enterprise
    
    $
    1,093
    
    
    $
    3,293
    
    
    $
    12,934
    
    
    $
    5,398
    
    
    $
    100
    
    
    $
    22,818Postilion
    
    
    5,276
    
    
    
    7,904
    
    
    
    4,016
    
    
    
    6,513
    
    
    
    212
    
    
    
    23,921Total
    
    $
    6,369
    
    
    $
    11,197
    
    
    $
    16,950
    
    
    $
    11,911
    
    
    $
    312
    
    
    $
    46,739
    19




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##### Table of Contents



Direct costs.
    20




---



##### Table of Contents



Selling and marketing expenses.
 Product development expenses.
  General and administrative expenses.
 Restructuring costs.
 Depreciation.
 Amortization of other intangible assets.
 Interest and other income, Net.
 Income tax expense.
 
    
    for tax expense in certain subsidiaries or jurisdictions for which we do not have NOLs
to utilize;
    
    in the United States due to limitations on the use of our federal NOLs for alternative
minimum tax purposes which will be paid in cash;
    
    if there are no NOLs that were acquired as part of a business combination, upon which we
placed a valuation allowance at the acquisition date. This results in non-cash income tax
expense as goodwill is reduced and the valuation allowance is released; or
 21




---



##### Table of Contents




    
    if it is more likely than not a tax benefit cannot be sustained, tax expense is recorded
for the contingent tax liability.
  Gain from discontinued operations.
 Comparison of the Six Months Ended June 30, 2007 and 2006
 Revenues.
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalSix Months Ended September 30, 2007:Enterprise
    
    $
    2,342
    
    
    $
    7,388
    
    
    $
    32,776
    
    
    $
    11,794
    
    
    $
    313
    
    
    $
    54,613Postilion
    
    
    11,175
    
    
    
    14,314
    
    
    
    8,337
    
    
    
    11,636
    
    
    
    89
    
    
    
    45,551Total
    
    $
    13,517
    
    
    $
    21,702
    
    
    $
    41,113
    
    
    $
    23,430
    
    
    $
    402
    
    
    $
    100,164
 Software
    
    
    Support and
    
    
    Professional
    
    
    DataLicenses
    
    
    Maintenance
    
    
    Services
    
    
    Center
    
    
    Other
    
    
    TotalSix Months Ended September 30, 2006:Enterprise
    
    $
    2,540
    
    
    $
    6,755
    
    
    $
    24,630
    
    
    $
    10,326
    
    
    $
    270
    
    
    $
    44,521Postilion
    
    
    9,872
    
    
    
    15,099
    
    
    
    6,941
    
    
    
    13,171
    
    
    
    575
    
    
    
    45,658Total
    
    $
    12,412
    
    
    $
    21,854
    
    
    $
    31,571
    
    
    $
    23,497
    
    
    $
    845
    
    
    $
    90,179
   22




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Direct costs.
  23




---



##### Table of Contents



Selling and marketing expenses.
 Product development expenses .
  General and administrative expenses.
 Restructuring costs.
 Depreciation.
 Amortization of other intangible assets.
 Interest and other income, Net.
 24




---



##### Table of Contents



Income tax expense.
 
    
    for tax expense in certain subsidiaries or jurisdictions for which we do not have NOLs
to utilize;
    
    in the United States due to limitations on the use of our federal NOLs for alternative
minimum tax purposes which will be paid in cash;
    
    if there are no NOLs that were acquired as part of a business combination, upon which we
placed a valuation allowance at the acquisition date. This results in non-cash income tax
expense as goodwill is reduced and the valuation allowance is released; or
    
    if it is more likely than not a tax benefit cannot be sustained, tax expense is recorded
for the contingent tax liability.
  Gain from discontinued operations.
 Liquidity and Capital Resources
  Six Months Ended June 30,2007
    
    
    2006Net cash provided by operating activities before
changes in operating assets and liabilities
    
    $
    19,588
    
    
    $
    8,091Change in operating assets and liabilities
    
    
    (6,672
    )
    
    
    (11,811
    )Net cash provided by (used in) operating activities
    
    
    12,916
    
    
    
    (3,720
    )Net cash provided by (used in) investing activities
    
    
    19,521
    
    
    
    (6,223
    )Net cash (used in) provided by financing activities
    
    
    (14,487
    )
    
    
    4,018Effect of exchange rates on cash and cash equivalents
    
    
    204
    
    
    
    44Net increase (decrease) in cash and cash equivalents
    
    $
    18,154
    
    
    $
    (5,881
    )
 25




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##### Table of Contents



As ofJune 30, 2007
    
    December 31, 2006Cash and cash equivalents
    
    $
    87,766
    
    
    $
    69,612Short term investments
    
    
    
    
    
    
    21,392Working capital
    
    
    84,015
    
    
    
    83,227Total assets
    
    
    298,533
    
    
    
    307,805Total stockholders equity
    
    
    221,785
    
    
    
    224,229
 Operating Activities.
  
    
    our net income of $7.9 million;
    
    depreciation and amortization expense of $5.7 million;
    
    provision of doubtful accounts receivable and billing adjustments of $1.0 million;
    
    stock based compensation expense of $5.0 million;
    
    an increase of $2.0 million in prepaid expenses for maintenance and support agreements;
    
    a decrease in accrued expenses and other liabilities of $5.6 million primarily due
to payments made from the restructuring reserve;
    
    a decrease of $2.9 million in accounts receivable due to the improvement of days
sales outstanding (DSO) to 85 days from 95 days;
    
    a $0.7 million decrease of deferred revenues for work completed for one of our major
customers partially offset by an increase in the annual billing of maintenance fees for
our Postilion payment business; and
    
    a decrease in accounts payable of $1.4 million.
  
    
    our net loss of $2.6 million;
    
    depreciation and amortization expense of $6.5 million;
    
    gain on the disposal of Edify of $0.6 million;
    
    provision of doubtful accounts receivable and billing adjustments of $1.9 million;
    
    stock based compensation expense of $2.8 million;
    
    a decrease in accrued expenses and other liabilities of $9.7 million mainly due
payments made from our restructuring reserve;
    
    an increase of $13.8 million in accounts receivable due to the timing of revenue
recognized and billing terms on fixed price implementation projects during the quarter;
    
    a $11.1 million increase in deferred revenues resulting from annual billing of
maintenance and subscription fees; and
    
    changes in other operating assets and liabilities of $0.6 million.
 Investing Activities.
 26




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##### Table of Contents




    
    converted $21.4 million, net, from short-term investments to cash and cash equivalents; and
    
    purchased $1.9 million of property and equipment.
  
    
    paid $14.0 million to the shareholders of Mosaic in settlement of an earn-out in
connection with the acquisition of that business in 2004;
    
    converted $11.8 million, net, from short-term investments to cash and cash equivalents;
    
    received $0.6 million working capital adjustment from the sale of Edify; and
    
    purchased $4.6 million of property and equipment.
 Financing Activities.
  
    
    paid $15.6 million for the repurchase of common stock from the tender offer and the
authorized stock repurchase program;
    
    received $2.7 million from the sale of common stock under our employee stock option plans; and
    
    paid $1.6 million for capital lease obligations.
  
    
    received $2.3 million from the sale of common stock under our employee stock option plans;
    
    received $2.5 million from a sale lease back transaction; and
    
    paid $0.8 million for capital lease obligations.
  Stock Repurchase Program.
 Restructuring
 Potential Purchase of Property
 27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls.
 Changes in Internal Control over Financial Reporting.
 28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  You should consider carefully the risk factors in our Annual
Report on Form 10-K for the year ended December 31, 2006
and the additional risk factors noted below. If any of these risks
actually occur, our business, financial condition or results of
operations would likely suffer. In that case, the trading price of
our common stock could decline, and you may lose all or a part of the
money you paid to buy our common stock.
 We depend on one customer, State Farm Mutual Automobile Insurance Company (State Farm), for a
significant portion of our revenue and if that customer terminates its contract with us, or reduces
the amount of software or services they buy from us, our revenues and financial performance would
decline
  Security breaches or computer viruses could harm our business by disrupting our delivery of
services and damaging our reputation and business
  29




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##### Table of Contents



A significant portion of our customers are in a consolidating financial services industry, which is
subject to economic changes that could reduce demand for our products and services
  30




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c)
    
    The following table provides information with respect to any purchase made by or on
behalf of the Company or any affiliated purchaser, as defined in Section 240.10b-18(a)(3)
of the Securities Exchange Act of 1934, of shares of our common stock.
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Maximum number (orTotal number of
    
    
    approximate dollarshares purchased
    
    
    value) of shares thatTotal number
    
    
    
    
    
    
    as part of a publicly
    
    
    may yet be purchasedof shares
    
    
    Average price
    
    
    announced plan or
    
    
    under the plan orPeriod
    
    purchased
    
    
    paid per share
    
    
    program
    
    
    programApril 1, 2007 - April 30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    May 1, 2007 - May 31, 2007
    
    
    516,400
    
    
    $
    7.58
    
    
    
    516,400
    
    
    $
    26,086,182June 1, 2007 - June 30, 2007
    
    
    1,388,252
    
    
    $
    7.98
    
    
    
    1,388,252
    
    
    $
    15,002,934Total
    
    
    1,904,652
    
    
    $
    7.87
    
    
    
    1,904,652
   
 Item 4. Submission of Matters to a Vote of Security Holders
  
    
    The results of the voting by shareholders at the Annual Meeting were as follows:
 Director Nominee
    
    For
    
    WithheldJohann J. Dreyer
    
    
    53,132,159
    
    
    
    366,441M. Douglas Ivester
    
    
    52,589,716
    
    
    
    908,884Edward Terino
    
    
    53,131,668
    
    
    
    366,932
 There were no abstentions or broker non-votes for any of the nominees.
    
    Shareholders also ratified the appointment of PricewaterhouseCoopers LLP as our
independent auditors for 2007:
 For
    
    Against
    
    Abstentions
    
    Broker Non-Votes53,332,926
    
    
    126,191
    
    
    
    39,482
    
    
    
    
 31




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##### Table of Contents



Item 5. Other Information
  Retirement Policy th
 Resignation Policy for Employee Directors
 
 Item 6. Exhibits
 ExhibitNo.
    
    Exhibit Description31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002
 32




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##### Table of Contents



SIGNATURE
  S1 CORPORATIONBy:
    /s/ JOHN A. STONEJohn A. StoneChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer) 33




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##### Table of Contents



Exhibit Index
 ExhibitNo.
    
    Exhibit Description31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002
 34