##### 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, 2008
 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
    
    58-2395199(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 705 Westech DriveNorcross, Georgia
    
    30092(Address of principal executive 
offices)
    
    (Zip Code)
 (404) 923-3500
 (Former name if changed since last report.)
 x o
  Large accelerated filer o
    
    Accelerated filer x
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o x




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##### 



S1 CORPORATION
 QUARTERLY PERIOD ENDED JUNE 30, 2008
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
 PageItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    2Condensed Consolidated Statements of Operations for the Three Months and Six Months ended
June 30, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income for the Six
Months ended June 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    30Signature
    
    
    
    
    31EX-10.1 SEPARATION AND CONSULTING AGREEMENTEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE PAOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE PAO




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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 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    67,433
    
    
    $
    45,011Short-term investments
    
    
    13,258
    
    
    
    23,855Accounts receivable, net
    
    
    48,765
    
    
    
    39,969Prepaid expenses
    
    
    4,000
    
    
    
    3,354Other current assets
    
    
    1,945
    
    
    
    6,389Total current assets
    
    
    135,401
    
    
    
    118,578Property and equipment, net
    
    
    21,760
    
    
    
    20,906Intangible assets, net
    
    
    9,268
    
    
    
    11,240Goodwill, net
    
    
    125,073
    
    
    
    125,281Other assets
    
    
    6,055
    
    
    
    5,839Total assets
    
    $
    297,557
    
    
    $
    281,844LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,672
    
    
    $
    2,300Accrued compensation and benefits
    
    
    12,154
    
    
    
    10,649Accrued restructuring
    
    
    2,682
    
    
    
    3,043Accrued other expenses
    
    
    9,557
    
    
    
    8,198Deferred revenues
    
    
    30,926
    
    
    
    26,345Current portion of debt obligation
    
    
    3,559
    
    
    
    3,725Total current liabilities
    
    
    62,550
    
    
    
    54,260Debt obligation, excluding current portion
    
    
    7,103
    
    
    
    8,805Accrued restructuring, excluding current portion
    
    
    4,303
    
    
    
    6,181Other liabilities
    
    
    2,784
    
    
    
    2,693Total liabilities
    
    
    76,740
    
    
    
    71,939Stockholders equity:Preferred stock
    
    
    10,000
    
    
    
    10,000Common stock
    
    
    566
    
    
    
    567Additional paid in capital
    
    
    1,812,255
    
    
    
    1,810,783Accumulated deficit
    
    
    (1,599,481
    )
    
    
    (1,609,807
    )Accumulated other comprehensive loss:Net gain (loss) on derivative financial instruments
    
    
    10
    
    
    
    (97
    )Cumulative foreign currency translation adjustment
    
    
    (2,533
    )
    
    
    (1,541
    )Total stockholders equity
    
    
    220,817
    
    
    
    209,905Total liabilities and stockholders equity
    
    $
    297,557
    
    
    $
    281,844Preferred shares issued and outstanding
    
    
    749,064
    
    
    
    749,064Common shares issued and outstanding
    
    
    56,635,296
    
    
    
    56,748,906
  2




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##### Table of Contents



S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Software licenses
    
    $
    8,055
    
    
    $
    7,755
    
    
    $
    17,394
    
    
    $
    13,517Support and maintenance
    
    
    12,584
    
    
    
    11,227
    
    
    
    24,288
    
    
    
    21,702Professional services
    
    
    23,657
    
    
    
    21,681
    
    
    
    44,727
    
    
    
    41,113Data center
    
    
    11,921
    
    
    
    11,730
    
    
    
    24,188
    
    
    
    23,430Other
    
    
    271
    
    
    
    205
    
    
    
    564
    
    
    
    402Total revenues
    
    
    56,488
    
    
    
    52,598
    
    
    
    111,161
    
    
    
    100,164Operating expenses:Cost of software licenses (1)
    
    
    1,090
    
    
    
    940
    
    
    
    2,070
    
    
    
    1,832Cost of professional services, support and maintenance (1)
    
    
    18,008
    
    
    
    16,722
    
    
    
    35,483
    
    
    
    32,724Cost of data center (1)
    
    
    6,401
    
    
    
    6,390
    
    
    
    12,958
    
    
    
    12,189Cost of other revenue
    
    
    80
    
    
    
    130
    
    
    
    109
    
    
    
    272Selling and marketing
    
    
    9,343
    
    
    
    7,767
    
    
    
    17,559
    
    
    
    15,165Product development
    
    
    7,028
    
    
    
    5,906
    
    
    
    13,782
    
    
    
    11,910General and administrative
    
    
    6,382
    
    
    
    7,710
    
    
    
    12,818
    
    
    
    14,409Depreciation
    
    
    1,921
    
    
    
    1,737
    
    
    
    3,863
    
    
    
    3,571Amortization of other intangible assets
    
    
    282
    
    
    
    283
    
    
    
    565
    
    
    
    610Total operating expenses (2)
    
    
    50,535
    
    
    
    47,585
    
    
    
    99,207
    
    
    
    92,682Operating income
    
    
    5,953
    
    
    
    5,013
    
    
    
    11,954
    
    
    
    7,482Interest and other income, net
    
    
    124
    
    
    
    784
    
    
    
    418
    
    
    
    1,655Income before income tax expense
    
    
    6,077
    
    
    
    5,797
    
    
    
    12,372
    
    
    
    9,137Income tax expense
    
    
    (941
    )
    
    
    (848
    )
    
    
    (2,046
    )
    
    
    (1,221
    )Net income
    
    $
    5,136
    
    
    $
    4,949
    
    
    $
    10,326
    
    
    $
    7,916Earnings per share:Basic
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.13Diluted
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.13Weighted average common shares outstanding  basic
    
    
    56,622,937
    
    
    
    61,217,364
    
    
    
    56,576,868
    
    
    
    61,360,540Weighted average common shares outstanding  fully diluted
    
    
    57,435,766
    
    
    
    62,226,463
    
    
    
    57,273,585
    
    
    
    61,969,133
 
 (1)
    
    Excludes charges for depreciation. Cost of software license includes amortization of
purchased technology.(2)
    
    Includes stock-based compensation expenses of $2.3 and $3.1 million for the three
months ended June 30, 2008 and 2007, respectively, and $4.2 and $5.0 million for the six
months ended June 30, 2008 and 2007, respectively. For further discussion, please refer to
Note 11 of the unaudited condensed consolidated financial statements.  3




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S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    10,326
    
    
    $
    7,916Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    5,835
    
    
    
    5,665Provision for doubtful accounts receivable and billing adjustments
    
    
    (385
    )
    
    
    994Stock-based compensation expense
    
    
    4,194
    
    
    
    5,013Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (8,627
    )
    
    
    2,947Increase in prepaid expenses and other assets
    
    
    (23
    )
    
    
    (1,969
    )Increase (decrease) in accounts payable
    
    
    1,157
    
    
    
    (1,429
    )Decrease in accrued expenses and other liabilities
    
    
    (612
    )
    
    
    (5,284
    )Increase (decrease) in deferred revenues
    
    
    4,473
    
    
    
    (666
    )Net cash provided by operating activities
    
    
    16,338
    
    
    
    13,187Cash flows from investing activities:Maturities of short-term investment securities
    
    
    11,450
    
    
    
    29,255Purchases of short-term investment securities
    
    
    (853
    )
    
    
    (7,863
    )Amounts held in escrow related to sale of business
    
    
    3,712
    
    
    
    Purchases of property, equipment and technology
    
    
    (4,717
    )
    
    
    (1,871
    )Net cash provided by investing activities
    
    
    9,592
    
    
    
    19,521Cash flows from financing activities:Proceeds from exercise of employee stock options
    
    
    828
    
    
    
    2,729Payments on stock appreciation rights
    
    
    (168
    )
    
    
    Payments on capital leases and debt obligations
    
    
    (1,868
    )
    
    
    (1,897
    )Repurchase of common stock
    
    
    (1,739
    )
    
    
    (15,590
    )Net cash used in financing activities
    
    
    (2,947
    )
    
    
    (14,758
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (561
    )
    
    
    204Net increase in cash and cash equivalents
    
    
    22,422
    
    
    
    18,154Cash and cash equivalents at beginning of period
    
    
    45,011
    
    
    
    69,612Cash and cash equivalents at end of period
    
    $
    67,433
    
    
    $
    87,766
  4




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##### Table of Contents



S1 CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred Stock
    
    
    Treasury Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders'
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    IncomeBalance at December 31, 2006
    
    
    749,064
    
    
    $
    10,000
    
    
    
    
    
    
    $
    
    
    
    
    61,290,973
    
    
    $
    613
    
    
    $
    1,845,529
    
    
    $
    (1,629,302
    )
    
    $
    (2,611
    )
    
    $
    224,229Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,916
    
    
    
    
    
    
    
    7,916
    
    
    
    7,916Net unrealized losses on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18
    
    
    
    18Change in cumulative foreign currency translation adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    166
    
    
    
    166Common stock issued upon the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    627,754
    
    
    
    6
    
    
    
    2,723
    
    
    
    
    
    
    
    
    
    
    
    2,729
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,317
    
    
    
    
    
    
    
    
    
    
    
    2,317
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,811,707
    )
    
    
    (18
    )
    
    
    (14,701
    )
    
    
    
    
    
    
    
    
    
    
    (14,719
    )
    
    
    Treasury Stock (at cost)
    
    
    
    
    
    
    
    
    
    
    (109,100
    )
    
    
    (871
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (871
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,100Balance at June 30, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    (109,100
    )
    
    $
    (871
    )
    
    
    60,107,020
    
    
    $
    601
    
    
    $
    1,835,868
    
    
    $
    (1,621,386
    )
    
    $
    (2,427
    )
    
    $
    221,785Balance at December 31, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    
    
    
    $
    
    
    
    
    56,748,906
    
    
    $
    567
    
    
    $
    1,810,783
    
    
    $
    (1,609,807
    )
    
    $
    (1,638
    )
    
    $
    209,905Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,326
    
    
    
    
    
    
    
    10,326
    
    
    
    10,326Net unrealized losses on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    107
    
    
    
    107Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (992
    )
    
    
    (992
    )
    
    
    (992
    )Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,590
    
    
    
    2
    
    
    
    826
    
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,382
    
    
    
    
    
    
    
    
    
    
    
    2,382
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318,200
    )
    
    
    (3
    )
    
    
    (1,736
    )
    
    
    
    
    
    
    
    
    
    
    (1,739
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,441Balance at June 30, 2008
    
    
    749,064
    
    
    $
    10,000
    
    
    
    
    
    
    $
    
    
    
    
    56,635,296
    
    
    $
    566
    
    
    $
    1,812,255
    
    
    $
    (1,599,481
    )
    
    $
    (2,523
    )
    
    $
    220,817
  5




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##### Table of Contents



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




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##### Table of Contents



3. INVESTMENTS
  June 30,
    
    
    December 31,2008
    
    
    2007Certificates of deposit
    
    $
    7,661
    
    
    $
    12,961Mutual fund trust
    
    
    5,597
    
    
    
    10,894Total
    
    $
    13,258
    
    
    $
    23,855
 4. FAIR VALUE MEASUREMENTS
   7




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##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableCarrying
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mutual fund trust
    
    $
    5,597
    
    
    $
    
    
    
    $
    5,597
    
    
    $
    Derivative assets
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    Total
    
    $
    5,604
    
    
    $
    
    
    
    $
    5,604
    
    
    $
    
 5. OTHER CURRENT ASSETS
  June 30,
    
    
    December 31,2008
    
    
    2007Deferred tax assets
    
    $
    168
    
    
    $
    208Escrow deposits and restricted cash
    
    
    1,071
    
    
    
    4,943Other receivables (non-customer)
    
    
    706
    
    
    
    1,238Total
    
    $
    1,945
    
    
    $
    6,389
 6. GOODWILL AND INTANGIBLE ASSETS
  Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValuePurchased and acquired technology
    
    $
    21,938
    
    
    $
    (17,897
    )
    
    $
    4,041Customer relationships
    
    
    12,000
    
    
    
    (6,773
    )
    
    
    5,227Total
    
    $
    33,938
    
    
    $
    (24,670
    )
    
    $
    9,268
 8




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##### Table of Contents



2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Enterprise
    
    $
    329
    
    
    $
    245
    
    
    $
    245
    
    
    $
    245
    
    
    $
    184Postilion
    
    $
    3,326
    
    
    $
    2,445
    
    
    $
    1,335
    
    
    $
    1,282
    
    
    $
    706Total Company
    
    $
    3,655
    
    
    $
    2,690
    
    
    $
    1,580
    
    
    $
    1,527
    
    
    $
    890
  Enterprise
    
    
    Postilion
    
    
    TotalBalance, December 31, 2007
    
    $
    49,616
    
    
    $
    75,665
    
    
    $
    125,281Utilization of acquisition related
income tax benefits
    
    
    (90
    )
    
    
    (118
    )
    
    
    (208
    )Balance June 30, 2008
    
    $
    49,526
    
    
    $
    75,547
    
    
    $
    125,073
 7. RESTRUCTURING CHARGES
 2003 and Prior Restructuring Plans
 Lease CostsBalance, December 31, 2007
    
    $
    2,290Amounts utilized
    
    
    (395
    )Adjustments
    
    
    26Balance, June 30, 2008
    
    $
    1,921
 2005 Restructuring Plan
 Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2007
    
    $
    33
    
    
    $
    2,356
    
    
    $
    2,389Amounts utilized
    
    
    
    
    
    
    (788
    )
    
    
    (788
    )Adjustments
    
    
    
    
    
    
    117
    
    
    
    117Balance, June 30, 2008
    
    $
    33
    
    
    $
    1,685
    
    
    $
    1,718
 2006 Restructuring Plan
 9




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##### Table of Contents



Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2007
    
    $
    833
    
    
    $
    3,712
    
    
    $
    4,545Amounts utilized
    
    
    (178
    )
    
    
    (663
    )
    
    
    (841
    )Adjustments
    
    
    (443
    )
    
    
    85
    
    
    
    (358
    )Balance, June 30, 2008
    
    $
    212
    
    
    $
    3,134
    
    
    $
    3,346
  8. ACCRUED OTHER EXPENSES
  June 30,
    
    
    December 31,2008
    
    
    2007Accrued service fees payable
    
    $
    3,416
    
    
    $
    3,190Accrued third party products and royalties
    
    
    1,414
    
    
    
    1,359Sales and income taxes payable
    
    
    2,380
    
    
    
    1,035Accrued contract losses
    
    
    427
    
    
    
    720Other
    
    
    1,920
    
    
    
    1,894Total
    
    $
    9,557
    
    
    $
    8,198
 9. CONTINGENCIES AND DEBT
 Litigation
 Guarantees
 Long-term Debt
 June 30,
    
    
    December 31,2008
    
    
    2007Capital leases
    
    $
    5,242
    
    
    $
    7,030Note payable on property
    
    
    5,178
    
    
    
    5,214Other notes payable
    
    
    242
    
    
    
    286Total debt
    
    $
    10,662
    
    
    $
    12,530Less current portion
    
    
    (3,559
    )
    
    
    (3,725
    )Total long-term debt
    
    $
    7,103
    
    
    $
    8,805
 10




---



##### Table of Contents



10. INCOME TAXES
    11. STOCK OPTION PLANS
    Six months ended June 30,2008
    
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    44.4
    %
    
    
    45.0
    %Risk-free interest rate
    
    
    3.2
    %
    
    
    4.9
    %Expected life
    
    4.4 years
    
    4.0 years
 11




---



##### Table of Contents



As of June 30,2008
    
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    43.6
    %
    
    
    49.0
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    5.0
    %Expected life
    
    3.1 years
    
    4.1 years
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Direct and operating expenses:Cost of professional services,
support and maintenance
    
    $
    27
    
    
    $
    191
    
    
    $
    73
    
    
    $
    278Cost of data center
    
    
    22
    
    
    
    20
    
    
    
    47
    
    
    
    35Selling and marketing
    
    
    882
    
    
    
    1,495
    
    
    
    1,606
    
    
    
    2,414Product development
    
    
    262
    
    
    
    665
    
    
    
    584
    
    
    
    1,007General and administrative
    
    
    1,112
    
    
    
    737
    
    
    
    1,883
    
    
    
    1,279Total stock-based compensation expense
    
    $
    2,305
    
    
    $
    3,108
    
    
    $
    4,193
    
    
    $
    5,013
  Unrecognized
    
    
    WeightedExpense
    
    
    Average Period(in thousands)
    
    
    (in years)Stock Options
    
    $
    6,927
    
    
    
    1.4Restricted Stock
    
    
    1,503
    
    
    
    1.2Stock Appreciation Rights
    
    
    1,155
    
    
    
    0.2
 12. STOCKHOLDERS EQUITY
  12




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##### Table of Contents



13. SEGMENT REPORTING AND MAJOR CUSTOMERS
    Three Months Ended June 30, 2008
    
    
    Three Months Ended June 30, 2007Enterprise
    
    
    Postilion
    
    
    Total
    
    
    Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    2,419
    
    
    $
    5,636
    
    
    
    8,055
    
    
    $
    1,287
    
    
    $
    6,468
    
    
    $
    7,755Support and maintenance
    
    
    4,497
    
    
    
    8,087
    
    
    
    12,584
    
    
    
    3,972
    
    
    
    7,255
    
    
    
    11,227Professional services
    
    
    18,105
    
    
    
    5,552
    
    
    
    23,657
    
    
    
    17,303
    
    
    
    4,378
    
    
    
    21,681Data center
    
    
    6,913
    
    
    
    5,008
    
    
    
    11,921
    
    
    
    6,089
    
    
    
    5,641
    
    
    
    11,730Other revenue
    
    
    138
    
    
    
    133
    
    
    
    271
    
    
    
    158
    
    
    
    47
    
    
    
    205Total revenue
    
    $
    32,072
    
    
    $
    24,416
    
    
    $
    56,488
    
    
    $
    28,809
    
    
    $
    23,789
    
    
    $
    52,598Operating expenses:Direct costs
    
    
    15,152
    
    
    
    10,427
    
    
    
    25,579
    
    
    
    14,763
    
    
    
    9,419
    
    
    
    24,182Selling and marketing
    
    
    4,133
    
    
    
    5,210
    
    
    
    9,343
    
    
    
    3,545
    
    
    
    4,222
    
    
    
    7,767Product development
    
    
    4,472
    
    
    
    2,556
    
    
    
    7,028
    
    
    
    2,965
    
    
    
    2,941
    
    
    
    5,906General and administrative
    
    
    3,339
    
    
    
    3,043
    
    
    
    6,382
    
    
    
    3,948
    
    
    
    3,762
    
    
    
    7,710Depreciation
    
    
    1,110
    
    
    
    811
    
    
    
    1,921
    
    
    
    1,142
    
    
    
    595
    
    
    
    1,737Amortization of
other intangible assets
    
    
    
    
    
    
    282
    
    
    
    282
    
    
    
    
    
    
    
    283
    
    
    
    283Total operating expenses
    
    
    28,206
    
    
    
    22,329
    
    
    
    50,535
    
    
    
    26,363
    
    
    
    21,222
    
    
    
    47,585Operating income
    
    $
    3,866
    
    
    $
    2,087
    
    
    $
    5,953
    
    
    $
    2,446
    
    
    $
    2,567
    
    
    $
    5,013
 Six Months Ended June 30, 2008
    
    
    Six Months Ended June 30, 2007Enterprise
    
    
    Postilion
    
    
    Total
    
    
    Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    3,842
    
    
    $
    13,552
    
    
    
    17,394
    
    
    $
    2,342
    
    
    $
    11,175
    
    
    $
    13,517Support and maintenance
    
    
    8,220
    
    
    
    16,068
    
    
    
    24,288
    
    
    
    7,388
    
    
    
    14,314
    
    
    
    21,702Professional services
    
    
    35,195
    
    
    
    9,532
    
    
    
    44,727
    
    
    
    32,776
    
    
    
    8,337
    
    
    
    41,113Data center
    
    
    13,970
    
    
    
    10,218
    
    
    
    24,188
    
    
    
    11,794
    
    
    
    11,636
    
    
    
    23,430Other revenue
    
    
    333
    
    
    
    231
    
    
    
    564
    
    
    
    313
    
    
    
    89
    
    
    
    402Total revenue
    
    $
    61,560
    
    
    $
    49,601
    
    
    $
    111,161
    
    
    $
    54,613
    
    
    $
    45,551
    
    
    $
    100,164Operating expenses:Direct costs
    
    
    30,063
    
    
    
    20,557
    
    
    
    50,620
    
    
    
    28,310
    
    
    
    18,707
    
    
    
    47,017Selling and marketing
    
    
    7,971
    
    
    
    9,588
    
    
    
    17,559
    
    
    
    6,729
    
    
    
    8,436
    
    
    
    15,165Product development
    
    
    8,570
    
    
    
    5,212
    
    
    
    13,782
    
    
    
    5,980
    
    
    
    5,930
    
    
    
    11,910General and administrative
    
    
    6,939
    
    
    
    5,879
    
    
    
    12,818
    
    
    
    7,758
    
    
    
    6,651
    
    
    
    14,409Depreciation
    
    
    2,265
    
    
    
    1,598
    
    
    
    3,863
    
    
    
    2,361
    
    
    
    1,210
    
    
    
    3,571Amortization of
other intangible assets
    
    
    
    
    
    
    565
    
    
    
    565
    
    
    
    45
    
    
    
    565
    
    
    
    610Total operating expenses
    
    
    55,808
    
    
    
    43,399
    
    
    
    99,207
    
    
    
    51,183
    
    
    
    41,499
    
    
    
    92,682Operating income
    
    $
    5,752
    
    
    $
    6,202
    
    
    $
    11,954
    
    
    $
    3,430
    
    
    $
    4,052
    
    
    $
    7,482
 13




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##### Table of Contents



Geography
 Major Customer.
 14. NET INCOME PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per share data)Basic earnings per share:Net Income
    
    $
    5,136
    
    
    $
    4,949
    
    
    $
    10,326
    
    
    $
    7,916Amount allocated to participating preferred stockholders
    
    
    (95
    )
    
    
    (85
    )
    
    
    (192
    )
    
    
    (136
    )Net income available to common stockholders
    
    $
    5,041
    
    
    $
    4,864
    
    
    $
    10,134
    
    
    $
    7,780Weighted average common shares outstanding
    
    
    56,623
    
    
    
    61,217
    
    
    
    56,577
    
    
    
    61,361Basic earnings per share
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.13Diluted earnings per share:Net income
    
    $
    5,136
    
    
    $
    4,949
    
    
    $
    10,326
    
    
    $
    7,916Amount allocated to participating preferred stockholders
    
    
    (95
    )
    
    
    (85
    )
    
    
    (192
    )
    
    
    (136
    )Net income available to common stockholders
    
    $
    5,041
    
    
    $
    4,864
    
    
    $
    10,134
    
    
    $
    7,780Weighted average common shares outstanding
    
    
    56,623
    
    
    
    61,217
    
    
    
    56,577
    
    
    
    61,361Weighted average effect of common stock equivalent
stock options and restricted stock
    
    
    813
    
    
    
    1,009
    
    
    
    697
    
    
    
    609Weighted average diluted shares outstanding
    
    
    57,436
    
    
    
    62,226
    
    
    
    57,274
    
    
    
    61,970Diluted earnings per share
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.13
 14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Executive Overview
  Enterprise
    
    PostilionBrands
    
    S1 Enterprise
    
    Postilion
    
    FSBRetail OnlinePersonal Banking
    
    Global
    
    US
    
    Business Banking
    
    Global
    
    US
    
    Mobile Banking and Payments
    
    Global
    
    Global
    
    Voice Banking
    
    Global
    
    US
    
    Treasury OnlineCorporate Banking
    
    Global
    
    
    
    Trade Finance
    
    Global
    
    
    
    Insurance
    
    US
    
    
    
    Payments
    
    
    
    Global
    
    Branch BankingTeller
    
    Global
    
    
    
    USSales and Service
    
    Global
    
    
    
    USCall Center
    
    Global
    
    
    
    USLending
    
    
    
    
    
    USBill pay services
    
    US
    
    US
    
    
  15




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##### Table of Contents



Geography and Significant Customers
  Recent Accounting Pronouncements and Critical Accounting Policies and Estimates
  16




---



##### Table of Contents



Stock-based Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Direct and operating expenses:Cost of professional services,
support and maintenance
    
    $
    27
    
    
    $
    191
    
    
    $
    73
    
    
    $
    278Cost of data center
    
    
    22
    
    
    
    20
    
    
    
    47
    
    
    
    35Selling and marketing
    
    
    882
    
    
    
    1,495
    
    
    
    1,606
    
    
    
    2,414Product development
    
    
    262
    
    
    
    665
    
    
    
    584
    
    
    
    1,007General and administrative
    
    
    1,112
    
    
    
    737
    
    
    
    1,883
    
    
    
    1,279Total stock-based compensation expense
    
    $
    2,305
    
    
    $
    3,108
    
    
    $
    4,193
    
    
    $
    5,013
 Comparison of the Three Months Ended June 30, 2008 and 2007
 Revenue
 Enterprise
    
    
    Postilion
    
    
    TotalThree Months Ended June 30,
    
    
    Three Months Ended June 30,
    
    
    Three Months Ended June 30,2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    ChgRevenue:Software licenses
    
    $
    2,419
    
    
    $
    1,287
    
    
    
    88
    %
    
    $
    5,636
    
    
    $
    6,468
    
    
    
    -13
    %
    
    $
    8,055
    
    
    $
    7,755
    
    
    
    4
    %Support and maintenance
    
    
    4,497
    
    
    
    3,972
    
    
    
    13
    %
    
    
    8,087
    
    
    
    7,255
    
    
    
    11
    %
    
    
    12,584
    
    
    
    11,227
    
    
    
    12
    %Professional services
    
    
    18,105
    
    
    
    17,303
    
    
    
    5
    %
    
    
    5,552
    
    
    
    4,378
    
    
    
    27
    %
    
    
    23,657
    
    
    
    21,681
    
    
    
    9
    %Data center
    
    
    6,913
    
    
    
    6,089
    
    
    
    14
    %
    
    
    5,008
    
    
    
    5,641
    
    
    
    -11
    %
    
    
    11,921
    
    
    
    11,730
    
    
    
    2
    %Other
    
    
    138
    
    
    
    158
    
    
    
    n/m
    
    
    
    133
    
    
    
    47
    
    
    
    n/m
    
    
    
    271
    
    
    
    205
    
    
    
    n/mTotal revenues
    
    $
    32,072
    
    
    $
    28,809
    
    
    
    11
    %
    
    $
    24,416
    
    
    $
    23,789
    
    
    
    3
    %
    
    $
    56,488
    
    
    $
    52,598
    
    
    
    7
    %
   Three Months Ended June 30,2008
    
    
    2007Subscription revenue:Enterprise
    
    $
    682
    
    
    $
    359Postilion
    
    
    2,129
    
    
    
    1,518Total Company
    
    $
    2,811
    
    
    $
    1,877
  17




---



##### Table of Contents



18




---



##### Table of Contents



Direct costs
 Enterprise
    
    
    Postilion
    
    
    TotalThree Months Ended June 30,
    
    
    Three Months Ended June 30,
    
    
    Three Months Ended June 30,2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Direct costs:Cost of software licenses
    
    $
    419
    
    
    
    17
    %
    
    $
    361
    
    
    
    28
    %
    
    $
    671
    
    
    
    12
    %
    
    $
    579
    
    
    
    9
    %
    
    $
    1,090
    
    
    
    14
    %
    
    $
    940
    
    
    
    12
    %Cost of professional services,
support and maintenance
    
    
    10,974
    
    
    
    49
    %
    
    
    10,645
    
    
    
    50
    %
    
    
    7,034
    
    
    
    52
    %
    
    
    6,077
    
    
    
    52
    %
    
    
    18,008
    
    
    
    50
    %
    
    
    16,722
    
    
    
    51
    %Cost of data center
    
    
    3,735
    
    
    
    54
    %
    
    
    3,733
    
    
    
    61
    %
    
    
    2,666
    
    
    
    53
    %
    
    
    2,657
    
    
    
    47
    %
    
    
    6,401
    
    
    
    54
    %
    
    
    6,390
    
    
    
    54
    %Cost of other revenue
    
    
    24
    
    
    
    n/m
    
    
    
    24
    
    
    
    n/m
    
    
    
    56
    
    
    
    n/m
    
    
    
    106
    
    
    
    n/m
    
    
    
    80
    
    
    
    n/m
    
    
    
    130
    
    
    
    n/mTotal direct costs
    
    $
    15,152
    
    
    
    47
    %
    
    $
    14,763
    
    
    
    51
    %
    
    $
    10,427
    
    
    
    43
    %
    
    $
    9,419
    
    
    
    40
    %
    
    $
    25,579
    
    
    
    45
    %
    
    $
    24,182
    
    
    
    46
    %
     Operating expenses.
 Enterprise
    
    
    Postilion
    
    
    TotalThree Months Ended June 30,
    
    
    Three Months Ended June 30,
    
    
    Three Months Ended June 30,2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Operating expenses:Selling and marketing
    
    $
    4,133
    
    
    
    13
    %
    
    $
    3,545
    
    
    
    12
    %
    
    $
    5,210
    
    
    
    21
    %
    
    $
    4,222
    
    
    
    18
    %
    
    $
    9,343
    
    
    
    17
    %
    
    $
    7,767
    
    
    
    15
    %Product development
    
    
    4,472
    
    
    
    14
    %
    
    
    2,965
    
    
    
    10
    %
    
    
    2,556
    
    
    
    10
    %
    
    
    2,941
    
    
    
    12
    %
    
    
    7,028
    
    
    
    12
    %
    
    
    5,906
    
    
    
    11
    %General and administrative
    
    
    3,339
    
    
    
    10
    %
    
    
    3,948
    
    
    
    14
    %
    
    
    3,043
    
    
    
    12
    %
    
    
    3,762
    
    
    
    16
    %
    
    
    6,382
    
    
    
    11
    %
    
    
    7,710
    
    
    
    15
    %Depreciation
    
    
    1,110
    
    
    
    3
    %
    
    
    1,142
    
    
    
    4
    %
    
    
    811
    
    
    
    3
    %
    
    
    595
    
    
    
    3
    %
    
    
    1,921
    
    
    
    3
    %
    
    
    1,737
    
    
    
    3
    %Amortization of other
intangible assets
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    282
    
    
    
    1
    %
    
    
    283
    
    
    
    1
    %
    
    
    282
    
    
    
    0
    %
    
    
    283
    
    
    
    1
    %Total operating expenses
    
    $
    13,054
    
    
    
    41
    %
    
    $
    11,600
    
    
    
    40
    %
    
    $
    11,902
    
    
    
    49
    %
    
    $
    11,803
    
    
    
    50
    %
    
    $
    24,956
    
    
    
    44
    %
    
    $
    23,403
    
    
    
    44
    %Operating income
    
    $
    3,866
    
    
    
    12
    %
    
    $
    2,446
    
    
    
    8
    %
    
    $
    2,087
    
    
    
    9
    %
    
    $
    2,567
    
    
    
    11
    %
    
    $
    5,953
    
    
    
    11
    %
    
    $
    5,013
    
    
    
    10
    %
 19




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Selling and marketing expenses
 Product development expenses
  General and administrative expenses
 Depreciation
 Amortization of other intangible assets
 Interest and other income, net
 Income tax expense
   20




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##### Table of Contents




    
    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; or
    
    if there are NOLs that were acquired as part of a business combination, upon which
we placed a valuation allowance at acquisition date. This results in non-cash income
tax expense as goodwill is reduced and the valuation allowance is released.
 Comparison of the Six Months Ended June 30, 2008 and 2007
 Revenue
 Enterprise
    
    
    Postilion
    
    
    TotalSix Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    ChgRevenue:Software licenses
    
    $
    3,842
    
    
    $
    2,342
    
    
    
    64
    %
    
    $
    13,552
    
    
    $
    11,175
    
    
    
    21
    %
    
    $
    17,394
    
    
    $
    13,517
    
    
    
    29
    %Support and maintenance
    
    
    8,220
    
    
    
    7,388
    
    
    
    11
    %
    
    
    16,068
    
    
    
    14,314
    
    
    
    12
    %
    
    
    24,288
    
    
    
    21,702
    
    
    
    12
    %Professional services
    
    
    35,195
    
    
    
    32,776
    
    
    
    7
    %
    
    
    9,532
    
    
    
    8,337
    
    
    
    14
    %
    
    
    44,727
    
    
    
    41,113
    
    
    
    9
    %Data center
    
    
    13,970
    
    
    
    11,794
    
    
    
    18
    %
    
    
    10,218
    
    
    
    11,636
    
    
    
    -12
    %
    
    
    24,188
    
    
    
    23,430
    
    
    
    3
    %Other
    
    
    333
    
    
    
    313
    
    
    
    n/m
    
    
    
    231
    
    
    
    89
    
    
    
    n/m
    
    
    
    564
    
    
    
    402
    
    
    
    n/mTotal revenues
    
    $
    61,560
    
    
    $
    54,613
    
    
    
    13
    %
    
    $
    49,601
    
    
    $
    45,551
    
    
    
    9
    %
    
    $
    111,161
    
    
    $
    100,164
    
    
    
    11
    %
   Six Months Ended June 30,2008
    
    
    2007Subscription revenue:Enterprise
    
    $
    1,229
    
    
    $
    910Postilion
    
    
    4,160
    
    
    
    2,829Total Company
    
    $
    5,389
    
    
    $
    3,739
  21




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22




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##### Table of Contents



Direct costs
 Enterprise
    
    
    Postilion
    
    
    TotalSix Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Direct costs:Cost of software licenses
    
    $
    741
    
    
    
    19
    %
    
    $
    659
    
    
    
    28
    %
    
    $
    1,329
    
    
    
    10
    %
    
    $
    1,173
    
    
    
    10
    %
    
    $
    2,070
    
    
    
    12
    %
    
    $
    1,832
    
    
    
    14
    %Cost of professional services,
support and maintenance
    
    
    21,589
    
    
    
    50
    %
    
    
    20,571
    
    
    
    51
    %
    
    
    13,894
    
    
    
    54
    %
    
    
    12,153
    
    
    
    54
    %
    
    
    35,483
    
    
    
    51
    %
    
    
    32,724
    
    
    
    52
    %Cost of data center
    
    
    7,680
    
    
    
    55
    %
    
    
    7,014
    
    
    
    59
    %
    
    
    5,278
    
    
    
    52
    %
    
    
    5,175
    
    
    
    44
    %
    
    
    12,958
    
    
    
    54
    %
    
    
    12,189
    
    
    
    52
    %Cost of other revenue
    
    
    53
    
    
    
    n/m
    
    
    
    66
    
    
    
    n/m
    
    
    
    56
    
    
    
    n/m
    
    
    
    206
    
    
    
    n/m
    
    
    
    109
    
    
    
    n/m
    
    
    
    272
    
    
    
    n/mTotal direct costs
    
    $
    30,063
    
    
    
    49
    %
    
    $
    28,310
    
    
    
    52
    %
    
    $
    20,557
    
    
    
    41
    %
    
    $
    18,707
    
    
    
    41
    %
    
    $
    50,620
    
    
    
    46
    %
    
    $
    47,017
    
    
    
    47
    %
     23




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##### Table of Contents



Operating expenses.
 Enterprise
    
    
    Postilion
    
    
    TotalSix Months Ended June 30,
    
    
    Six Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Operating expenses:Selling and marketing
    
    $
    7,971
    
    
    
    13
    %
    
    $
    6,729
    
    
    
    12
    %
    
    $
    9,588
    
    
    
    19
    %
    
    $
    8,436
    
    
    
    19
    %
    
    $
    17,559
    
    
    
    16
    %
    
    $
    15,165
    
    
    
    15
    %Product development
    
    
    8,570
    
    
    
    14
    %
    
    
    5,980
    
    
    
    11
    %
    
    
    5,212
    
    
    
    11
    %
    
    
    5,930
    
    
    
    13
    %
    
    
    13,782
    
    
    
    12
    %
    
    
    11,910
    
    
    
    12
    %General and administrative
    
    
    6,939
    
    
    
    11
    %
    
    
    7,758
    
    
    
    14
    %
    
    
    5,879
    
    
    
    12
    %
    
    
    6,651
    
    
    
    15
    %
    
    
    12,818
    
    
    
    12
    %
    
    
    14,409
    
    
    
    14
    %Depreciation
    
    
    2,265
    
    
    
    4
    %
    
    
    2,361
    
    
    
    4
    %
    
    
    1,598
    
    
    
    3
    %
    
    
    1,210
    
    
    
    3
    %
    
    
    3,863
    
    
    
    3
    %
    
    
    3,571
    
    
    
    4
    %Amortization of other
intangible assets
    
    
    
    
    
    
    0
    %
    
    
    45
    
    
    
    0
    %
    
    
    565
    
    
    
    1
    %
    
    
    565
    
    
    
    1
    %
    
    
    565
    
    
    
    1
    %
    
    
    610
    
    
    
    1
    %Total operating expenses
    
    $
    25,745
    
    
    
    42
    %
    
    $
    22,873
    
    
    
    42
    %
    
    $
    22,842
    
    
    
    46
    %
    
    $
    22,792
    
    
    
    50
    %
    
    $
    48,587
    
    
    
    44
    %
    
    $
    45,665
    
    
    
    46
    %Operating income
    
    $
    5,752
    
    
    
    9
    %
    
    $
    3,430
    
    
    
    6
    %
    
    $
    6,202
    
    
    
    13
    %
    
    $
    4,052
    
    
    
    9
    %
    
    $
    11,954
    
    
    
    11
    %
    
    $
    7,482
    
    
    
    7
    %
 Selling and marketing expenses
 Product development expenses
  General and administrative expenses
 Depreciation
 Amortization of other intangible assets
 Interest and other income, net
 Income tax expense
 24




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##### Table of Contents




    
    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; or
    
    if there are NOLs that were acquired as part of a business combination, upon which
we placed a valuation allowance at acquisition date. This results in non-cash income
tax expense as goodwill is reduced and the valuation allowance is released.
 Liquidity and Capital Resources
  Six Months ended June 30,2008
    
    
    2007Net cash provided by operating activities before
changes in operating assets and liabilities
    
    $
    19,970
    
    
    $
    19,588Change in operating assets and liabilities
    
    
    (3,632
    )
    
    
    (6,401
    )Net cash provided by operating activities
    
    
    16,338
    
    
    
    13,187Net cash provided by investing activities
    
    
    9,592
    
    
    
    19,521Net cash used in financing activities
    
    
    (2,947
    )
    
    
    (14,758
    )Effect of exchange rates on cash and cash equivalents
    
    
    (561
    )
    
    
    204Net increase in cash and cash equivalents
    
    $
    22,422
    
    
    $
    18,154
 As ofJune 30,
    
    
    December 31,2008
    
    
    2007Cash and cash equivalents
    
    $
    67,433
    
    
    $
    45,011Short term investments
    
    
    13,258
    
    
    
    23,855Working capital
    
    
    72,851
    
    
    
    64,318Total assets
    
    
    297,557
    
    
    
    281,844Total stockholders equity
    
    
    220,817
    
    
    
    209,905
 25




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##### Table of Contents



Operating Activities
  
    
    net income of $10.3 million;
    
    depreciation and amortization expense of $5.8 million;
    
    stock based compensation expense of $4.2 million; and
    
    an increase of $8.6 million in accounts receivable and an increase of $4.5
million in deferred revenue primarily due to annual maintenance renewals and sales
growth.
  
    
    net income of $7.9 million;
    
    depreciation and amortization expense of $5.7 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 $5.3 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; and
    
    a decrease in accounts payable of $1.4 million.
 Investing Activities
  
    
    converted $10.6 million, net, from short-term investments to cash and cash
equivalents;
    
    received $3.7 million from the release of escrow related to the sale of our Risk
and Compliance segment; and
    
    purchased $4.7 million of property and equipment for hardware, software and
building improvements.
  
    
    converted $21.4 million, net, from short-term investments to cash and cash
equivalents; and
    
    purchased $1.9 million of property and equipment.
 Financing Activities
  
    
    paid $1.7 million for the repurchase of our common stock pursuant to an
authorized stock repurchase program;
    
    received $0.7 million from the sale of common stock under our employee stock
option plans offset by payments for the exercise of stock appreciation rights; and
    
    paid $1.9 million for capital lease and debt obligations.
  
    
    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 $1.9 million for capital lease and debt obligations.
 26




---



##### Table of Contents



Investments
 Stock Repurchase Program
 Restructuring
 Stock Appreciation Rights Awards
 Capital Requirements
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    27




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls
 Changes in Internal Control over Financial Reporting.
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  You should consider carefully the Risk Factors. 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 expect that the revenue we generate from our largest customer, State Farm, will decrease
over the next three years as our work efforts for them conclude by the end of 2011 which may cause
our financial performance to suffer
  28




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    Election of directors to the Board. There were no abstentions or broker
non-votes for any of the nominees;
 Director Nominee
    
    For
    
    
    AgainstRam Gupta
    
    
    50,189,147
    
    
    
    673,767Gregory J. Owens
    
    
    50,041,620
    
    
    
    821,294Jeffrey C. Smith
    
    
    50,189,977
    
    
    
    672,937
 (2)
    
    Shareholders ratified the appointment of PricewaterhouseCoopers LLP as
our independent auditors for 2008; and
 For
    
    Against
    
    Abstentions
    
    Broker Non-Votes49,259,520
    
    1,583,351
    
    20,042
    
    
 (3)
    
    Shareholders also approved the 2003 Stock Incentive Plan, as Amended and
Restated effective February 26, 2008.
 For
    
    Against
    
    Abstentions
    
    Broker Non-Votes38,604,258
    
    6,018,609
    
    706,029
    
    5,534,019
 
 Item 5. Other Information
  (i)
    
    pay Mr. Stone (1) the unpaid portion of his fiscal year 2008 bonus pro rated
for the portion of the year during which he was employed by S1, and (2) his accrued but
unused vacation;(ii)
    
    Reimburse Mr. Stones COBRA premiums under S1s major medical group health plan
on a monthly basis for the next twelve (12) months; and
 29




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##### Table of Contents



(iii)
    
    Accelerate the vesting of the next tranche of the stock options that are
scheduled to vest on November 8, 2008 granted to Mr. Stone pursuant to the Option
Agreement dated November 8, 2005, representing an option to purchase 31,250 shares of
the common stock of S1.
   
 Item 6. Exhibits
 ExhibitNo.
    
    
    Exhibit Description3.1
    
    
    Amended and Restated Certificate of Incorporation of S1 Corporation (S1) (filed as Exhibit
1 to S1s Registration Statement on Form 8-A filed with the Securities and Exchange Commission
(the SEC) on September 30, 1998 and incorporated herein by reference).3.2
    
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
June 3, 1999 (filed as Exhibit 4.2 to S1s Registration Statement on Form S-8 (File No.
333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).3.3
    
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
November 10, 1999 (filed as Exhibit 3.3 to S1s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 and incorporated herein by reference).3.4
    
    
    Certificate of Designation for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 2 to S1s Registration Statement on Form 8-A filed with the SEC on September 30, 1998
and incorporated herein by reference).3.5
    
    
    Amended and Restated Bylaws of S1, as amended (filed as Exhibit 3.6 to S1s Quarterly Report
on Form 10-Q filed with the SEC on May 8, 2006 and incorporated herein by reference).4.1
    
    
    Specimen certificate for S1s common stock (filed as Exhibit 4 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference).4.2
    
    
    Specimen certificate for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 4.3 to S1s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).10.1
    
    
    Separation and Consulting Agreement between S1 and John Arthur Stone dated August 5, 2008.31.1
    
    
    Certification of Chief Executive Officer31.2
    
    
    Certification of Principal Accounting Officer32.1
    
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certificate of Principal Accounting Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002
 30




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##### Table of Contents

5

SIGNATURE
  S1 CORPORATIONBy:
    /s/ STEVE DEXTERSteve DexterVice President and Corporate Controller
(Principal Accounting Officer) 31