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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K





FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2010

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number: 001-34779





Higher One
Holdings, Inc.

(Exact name of Registrant as Specified in Its Charter)







|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 26-3025501                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)

25 Science Park

New Haven, CT 06511

(Address of Principal Executive Offices, Including Zip Code)

203-776-7776

(Registrants Telephone Number, Including Area Code)

Securities
registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.001

Name of exchange on which
registered: New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

The
aggregate market value of the registrants common equity held by non-affiliates based upon the last sale price of the common equity reported on the New York Stock Exchange on June 30, 2010, was approximately $806,774,012.

There were 56,371,141 shares of the registrants common stock outstanding as of February 18, 2011.

DOCUMENTS INCORPORATED BY REFERENCE:

None.









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HIGHER ONE HOLDINGS, INC.

YEAR 2010

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



|                                  |  |                                                                                                              |     |  |    | 
|--------------------------------- |  | ------------------------------------------------------------------------------------------------------------ | --- |  | -- | 
|PART I                            |  |                                                                                                              | 1   | 
|                                  |  |                                                                                                             
|Item 1.                           |  | Business                                                                                                     |     |  | 1  | 
|                                  |  |                                                                                                             
|Item 1A.                          |  | Risk Factors                                                                                                 |     |  | 12 | 
|                                  |  |                                                                                                             
|Item 1B.                          |  | Unresolved Staff Comments                                                                                    |     |  | 30 | 
|                                  |  |                                                                                                             
|Item 2.                           |  | Properties                                                                                                   |     |  | 30 | 
|                                  |  |                                                                                                             
|Item 3.                           |  | Legal Proceedings                                                                                            |     |  | 30 | 
|                                  |  |                                                                                                             
|Item 4.                           |  | Submission of Matters to a Vote of Security Holders                                                          |     |  | 32 | 
|                                  | 
|PART II                           |  |                                                                                                              | 32  | 
|                                  |  |                                                                                                             
|Item 5.                           |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |     |  | 32 | 
|                                  |  |                                                                                                             
|Item 6.                           |  | Selected Financial Data                                                                                      |     |  | 33 | 
|                                  |  |                                                                                                             
|Item 7.                           |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                        |     |  | 35 | 
|                                  |  |                                                                                                             
|Item 7A.                          |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |     |  | 57 | 
|                                  |  |                                                                                                             
|Item 8.                           |  | Financial Statements and Supplementary Data                                                                  |     |  | 57 | 
|                                  |  |                                                                                                             
|Item 9.                           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |     |  | 57 | 
|                                  |  |                                                                                                             
|Item 9A(T).                       |  | Controls and Procedures                                                                                      |     |  | 57 | 
|                                  |  |                                                                                                             
|Item 9B.                          |  | Other Information                                                                                            |     |  | 58 | 
|                                  | 
|PART III                          |  |                                                                                                              | 58  | 
|                                  |  |                                                                                                             
|Item 10.                          |  | Directors, Executive Officers and Corporate Governance                                                       |     |  | 58 | 
|                                  |  |                                                                                                             
|Item 11.                          |  | Executive Compensation                                                                                       |     |  | 61 | 
|                                  |  |                                                                                                             
|Item 12.                          |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |     |  | 73 | 
|                                  |  |                                                                                                             
|Item 13.                          |  | Certain Relationships and Related Transactions                                                               |     |  | 76 | 
|                                  |  |                                                                                                             
|Item 14.                          |  | Principal Accountant Fees and Services                                                                       |     |  | 78 | 
|                                  | 
|PART IV                           |  |                                                                                                              | 79  | 
|                                  |  |                                                                                                             
|Item 15.                          |  | Exhibits and Financial Statement Schedules                                                                   |     |  | 79 | 
|                                  | 
|Consolidated Financial Statements |  |                                                                                                              | F-2 | 
|                                  | 
|Exhibit Index                     |  |                                                                                                              |     | 
|EX-2.6                            |  |                                                                                                              |     | 
|EX-2.7                            |  |                                                                                                              |     | 
|EX-2.8                            |  |                                                                                                              |     | 
|EX-10.14                          |  |                                                                                                              |     | 
|EX-10.15                          |  |                                                                                                              |     | 
|EX-10.16                          |  |                                                                                                              |     | 
|EX-10.17                          |  |                                                                                                              |     | 
|EX-10.18                          |  |                                                                                                              |     | 
|EX-10.19                          |  |                                                                                                              |     | 
|EX-10.20                          |  |                                                                                                              |     | 
|EX-21.1                           |  |                                                                                                              |     | 
|EX-23.1                           |  |                                                                                                              |     | 
|EX-23.2                           |  |                                                                                                              |     | 
|EX-31.1                           |  |                                                                                                              |     | 
|EX-31.2                           |  |                                                                                                              |     | 
|EX-32.1                           |  |                                                                                                              |     | 
|EX-32.2                           |  |                                                                                                              |     | 



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FORWARD-LOOKING INFORMATION

This annual report on Form 10-K contains forward-looking statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, should and similar expressions
are intended to identify forward-looking statements. The factors discussed under Item 1A. Risk Factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and
presented elsewhere by management from time to time. We expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

We use the terms the Company, we, us and our in this annual report to refer to Higher One
Holdings, Inc. and its subsidiaries, unless the context requires otherwise.





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PART I



|Item 1. | Business
|------- | --------

We are a
leading provider of technology and payment services to the higher education industry. We believe, based on our experience in the industry, that we provide the most comprehensive suite of disbursement and payment solutions specifically designed for
higher education institutions and their students. We also provide campus communities with convenient and student-oriented banking services, which include extensive user-friendly features.

The disbursement of financial aid and other refunds to students is a highly regulated, resource-consuming and recurrent obligation of
higher education institutions. The student disbursement process remains mainly paper-based, costly and inefficient at most higher education institutions. These institutions are facing increasing pressure to improve administrative efficiency and the
quality of service provided to students, to streamline regulatory compliance in respect of financial aid refunds, and to reduce expenses.

We believe our products provide significant benefits to both higher education institutions as well as their campus communities, including students. For our higher education institution customers, we offer
our OneDisburse® Refund Management® disbursement service. Our disbursement service facilitates financial aid and other refunds to students, while simultaneously enhancing the ability of our higher
education institutional clients to comply with the federal regulations applicable to financial aid transactions. By using our refund disbursement solutions, our clients save on the cost of handling disbursements, improve related business processes,
increase the speed with which students receive their refunds and ensure compliance with applicable regulations.

For students and other campus community members, we offer our OneAccount service that includes a Federal Deposit Insurance Corporation, or FDIC,-insured deposit account provided by our bank partner,
OneCard, which is a debit MasterCard® ATM card, and other retail banking services. OneAccount is cost
competitive and tailored to the campus communities that we serve, providing students with convenient and faster access to disbursement funds.

We also offer payment transaction services which are primarily software-as-a-service solutions that facilitate electronic payment transactions allowing higher education institutions to receive easy and
cost effective electronic payments from students, parents and others for essential education-related financial transactions. Features of our payment services include online bill presentment and online payment capabilities for tuition and other fees.

Higher One, Inc. was founded in 2000 in New Haven, Connecticut by Mark Volchek, Miles Lasater and Sean Glass. In July 2008,
Higher One, Inc. formed Higher One Holdings, Inc., which is now the holding company for all of our operations. Higher One Holdings, Inc. is incorporated in the state of Delaware.

Our Strategy

We believe that there is a significant opportunity to continue to achieve significant future growth. We intend to continue to increase revenue and profitability by strengthening our position as a leading
provider of technology and payment services to the higher education industry. Key elements of our growth strategy include:



| |  |  | Expanding the number of contracted higher education institutions;
| | - |  | -----------------------------------------------------------------



| |  |  | Increasing OneAccount usage;
| | - |  | ----------------------------



| |  |  | Cross-selling our existing products and services;
| | - |  | -------------------------------------------------



| |  |  | Enhancing and extending our products and services; and
| | - |  | ------------------------------------------------------



| |  |  | Pursuing strategic partnerships and opportunistic acquisitions.
| | - |  | ---------------------------------------------------------------



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Products and Services

We provide products and services to two distinct, but related target markets: higher education institutions and their students.

Products and Services for Higher Education Institutions

We provide our higher education institutional clients with an integrated suite of products and services. These include
our OneDisburse® service, our payment suite and other financial services.

OneDisburse®

Our OneDisburse® Refund Management® product is a turnkey solution that provides higher education institution clients with a comprehensive technology service for streamlining the student refund
disbursement process. Following the payment of their tuition and other school-related expenses, many students receive residual financial aid disbursements to cover non-academic school expenses, such as living expenses and books. Students also
receive disbursements, such as a refund following withdrawal from a course or other miscellaneous fees. Higher education institutions have typically processed these refund disbursements by preparing and distributing paper checks, which is both time
consuming and costly for institutions and slow and inconvenient for students. After a higher education institution purchases the OneDisburse® service, the institution sends the full amount of each students disbursement to us and we then forward the funds to the student in accordance with the
students instructions. For students with OneAccounts, disbursements are generally made by electronic transfers to their OneAccounts. By partnering with us to provide refund disbursements and related processes, including the student/customer
service function, our clients reduce their time and cost spent on handling disbursements, improve the related business processes and increase convenience for students. In addition to saving time and costs for our clients, OneDisburse® is designed to ensure that the refund disbursement process is fully compliant with all applicable federal
regulations, thereby providing our clients compliance monitoring services, which eases their administrative and regulatory burden. OneDisburse® also has a number of features that benefit students receiving refunds, including convenient and fast processing of refunds and notifications via email or text message
of incoming refund disbursements. As of December 31, 2010, over 430 campuses serving approximately 3.3 million students had contracted to use the OneDisburse® service.

Payment Suite

Our payment suite includes the following software-as-a-service products and services, which our higher education
institutional clients may purchase separately or together as a bundle. As of December 31, 2010, over 330 campuses serving approximately 2.5 million students had contracted to use one or more products and services in our payment suite.

ePayment. Our ePayment product enables higher education institutions to securely accept online payments for
tuition, charges and fees from students via credit card, pinless debit or without charge via ACH. Our ePayment product also allows students to set up and maintain recurring payments and authorize other users such as parents to pay student related
charges on their behalf. SmartPay, a feature of ePayment, enables higher education institutions to reduce the cost of accepting credit and debit cards by passing the convenience fee to the payers.

eBill. Our eBill product enables higher education institutions to automate payer billing and processing functions
performed on campus and to extend payment services. This product allows the student or authorized payer to view the bill online and enables them to make payments online. By automating the billing process and facilitating electronic payments, higher
education institutions can reduce administrative and labor costs, deliver bills quickly and securely and increase student and authorized payer convenience. eBill also expedites the processing, authorization and receipt of student payments.

MyPaymentPlan. Our MyPaymentPlan product enables higher education institutions to



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personalize students payment plans, in order to better meet the individual needs of each student. In particular, MyPaymentPlan offers campus administrators the ability to tailor payment
plan rules and fees; access the status and history of each students account; and calculate the due date and payment schedule for each student.

eMarket. Our eMarket product enables higher education institutions to provide their academic, athletic and other departments with Internet e-commerce storefronts that can be used for,
among other things, taking alumni donations, selling items such as event tickets, t-shirts and other merchandise, and accepting payments of event and conference registration fees. Higher education institutions can also use eMarket as an
administrative portal to maintain centralized control of policy setting and reporting while allowing individual departments and entities autonomy to manage their operations. This centralized approach enables the institution to update policies
related to campus commerce immediately and uniformly throughout all departmental campus storefronts.

Cashiering. Our Cashiering enables higher education institutions to operate and manage their cashiering functions, back
office payments and campus-wide departmental deposits. In particular, Cashiering allows: institutions to process walk-in and mail payments at any cashiers office on campus; departments to allocate deposits to specific general ledger accounts
in a paperless environment; and multiple locations to receive any information that is downloaded into the CASHNet database.

Other Products and Services



| |  |  | OneDisburse® ID. We offer our
higher education institutional clients the option to combine our debit card with the institutions ID cards. If an institution elects this option, we provide its students with our OneCard, which is a debit MasterCard ATM card and also serves as
their official campus identification.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | OneDisburse® Payroll. Our
OneDisburse® Payroll product can quickly and efficiently distribute payroll and other employee-related payments
through the OneDisburse® platform.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Financial Intelligence. In 2009, we launched a product to deliver financial literacy to the students at higher education institutions that
can be purchased by the institution and offered directly to students through their existing Higher One co-branded website. This product offers students an online class that uses game based learning to help teach financial literacy.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Products and Services for Students  The OneAccount

Through our bank partner, our OneAccount product provides students, as well as faculty, staff and alumni, with an FDIC-insured online
checking account with no monthly fee and no minimum balance. We also provide OneAccount holders with a OneCard, which is a debit MasterCard ATM card. Students can use their OneCard instead of cash or writing checks to make purchases wherever
MasterCard is accepted at millions of locations worldwide or online. Many students also use their OneCard to pay bills automatically, send money instantly to other OneAccount holders and access over 540 Higher One ATMs located on or near campuses,
with no fee to OneCard holders.

The OneAccount includes features designed to provide students with powerful, convenient,
user-friendly tools to manage their finances, such as free text to balance, mobile low balance alerts, a mobile website and a scan deposit feature. Other customized features of the OneAccount include: Campus Auto-Load, which allows
students to set up automatic funds transfers to campus flexible spending accounts, and the Request Money and Send Money features, which allow students to request money from parents and provides parents with a mechanism to
make person-to-person payments into students OneAccounts, respectively. As of December 31, 2010, there were approximately 1.6 million OneAccounts. In December 2010, we began to offer a new version of the OneAccount, that has a
different fee schedule compared to the original OneAccount. We may offer other versions of the OneAccount in the future as well. Different versions of the OneAccount either have or are expected to



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have different fee schedules, some with monthly fees that are waived if certain activity requirements are met.

Sales and Marketing

Our sales and marketing efforts separately target our
two key markets: higher education institutions and their students.

Higher Education Institutions

Our dedicated and experienced sales team actively markets our products and services to higher education institutions in the United States.
This team identifies potential new clients through a variety of channels, including higher education regional and national tradeshows, existing client showcase events and through word-of-mouth referrals. The sales process typically includes an
extended solicitation period, which can be lengthy, and that usually includes phone conversations, in-person presentations and formal proposals to various levels of administrators. Historically, our primary points of contact have been an
institutions chief financial officer and bursar; however, following our acquisitions of EduCard LLC, or EduCard, and Informed Decisions Corp., or IDC, our marketing team also started contacting chief technology officers.

An important part of our sales effort is educating our potential clients about the benefits of our products and services for both the
higher education institution and its students. Institutions generally are attracted to the idea of partnering with us to provide their payment functions because of the resulting operating efficiencies, compliance monitoring and the potential
benefits to students, such as receiving financial aid disbursements and paying bills more quickly and conveniently.

Students

Once we enter into a contract with a higher education institution, we begin focusing our marketing effort on the
institutions students. Our consumer-marketing department conducts student-directed marketing efforts with a primary goal of increasing awareness and usage of our services, including both our payment products and our OneAccount.

We work closely with our higher education institutional clients to communicate the benefits of our products and
services through school-branded communications and literature in an effort to increase both the number of new OneAccounts and usage of existing OneAccounts. Typically, we will send information to parents and incoming students soon after their
admission applications are accepted by the school and during student orientation. We generally contact returning students before the beginning of a new semester and place signs in strategic campus locations such as bookstores, student centers,
dining halls, athletic facilities and cash dispensers to increase awareness of our products and services. Before we introduce our OneDisburse® service to a new higher education institutional client, we frequently implement a word of mouth program through which selected students volunteer to use our service
and provide word of mouth marketing and education to other students on campus. In an effort to strengthen our relationships with students, we often sponsor and support on-campus events and create a co-branded website with the higher education
institutions. Our higher education institutional clients provide us with student email addresses that we commonly use to communicate with students about our products and services. Many times, we also use these email addresses, as well as on-campus
orientation events, to distribute our Money 101 lessons, which provide tips and other information to improve students financial literacy, such as explaining how a checking account works, how to protect against security breaches and
how to avoid excessive fees.

Customer and Client Service

We are dedicated to addressing the needs of both our higher education institutional clients and student customers. We believe that our
multi-pronged approach to providing cost-effective customer service helps make us an industry-leader in customer satisfaction.



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Higher Education Institutions

We believe we enhance our sales and marketing efforts by providing reliable after-sale service. Our dedicated client-service employees are
focused on servicing our higher education institutional clients.

We provide higher education institutional clients with a
variety of service touch points, such as a dedicated relationship manager, OneSupport, our client support for managers and administrative staff at our higher education institutions, and the Higher One User Group, or HUG, our regularly held client
conference. Our dedicated relationship managers are responsible for ensuring we maintain a strong relationship with each of our institutional clients and for assisting, supporting and providing updates on the quality and use of our services.
OneSupport is designed to address a range of client issues from client specific technical questions to client service matters that require managements attention. During our HUG conferences, clients can meet in-person with our management
and staff to learn about new features and products, updates to current offerings and build long lasting personal relationships.

Students

As of December 31, 2010, we had approximately 190 after-sales customer service representatives to assist students and
others in the campus community that use our products and services. Our website provides a searchable database of frequently asked questions that we regularly update as more questions are answered by our customer service team. This database helps us
assist our self-service oriented customers. We also provide students with the ability to contact us via telephone, email and text message.

We systematically evaluate our performance through our analysis based on our internal service levels established for customer service inquiries and response and issue resolution times. We also record and
analyze refund delivery cycles and seasonal variances to help identify and adapt to particularly high volume periods by, among other things, increasing ATM cash holdings for peak refund periods and increasing customer service staff during seasonally
busy periods, which is typically the beginning of each semester.

Key Relationships with Third Parties

We maintain relationships with a number of third parties that provide key services for us. By partnering with third-party providers, we
are able to streamline our own operations and infrastructure and provide a high level of specialized services. Our primary third-party provider relationships are with the following entities:

The Bancorp Bank

The Bancorp Bank provides FDIC-insured depository
services for all of our OneAccounts, as well as other banking functions such as supplying cash for our ATM machines. Under the terms of our agreement with The Bancorp Bank, we maintain responsibility for the technology-related aspects of the
OneAccounts.

The Bancorp Bank is a publicly traded, Delaware-chartered, FDIC-insured depository institution. We began our
relationship with The Bancorp Bank in May 2008 and our current agreement is scheduled to expire in May 2013. It will thereafter automatically renew on an annual basis unless either party cancels. We have a right, subject to a notice period, to
terminate this agreement. Upon termination of the agreement, The Bancorp Bank is obligated to transfer the OneAccount deposits to another institution that we designate. We do not pay The Bancorp Bank a fee for its services; rather its sole
compensation is to retain the investment returns earned on OneAccount deposits. The Bancorp Bank pays us a monthly processing fee based on amounts deposited in OneAccounts and prevailing interest rates.

The market for FDIC-insured retail banking services is very competitive and we continue to evaluate other bank partnership options. While
we are satisfied with our current bank partnership, we believe other options would exist if we changed partners. The Bancorp Bank is our third banking partner since our inception and, in the past, when we have changed banking partners, we have done
so in a



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limited amount of time and with no material disruption or inconvenience to any of our customers. While we have evaluated the relative costs and benefits of establishing or acquiring an
institution capable of offering FDIC-insured retail banking services, we have decided to operate our banking activity through a bank partnership at this time for strategic and operational purposes.

Fiserv Solutions, Inc.

Fiserv Solutions, Inc., or Fiserv, provides back-end account and transaction data processing for OneAccounts and OneCards, including: core
processing, ACH processing, issuance authorization and settlement, ATM driving and related services. We began our relationship with Fiserv in November 2001 and our current agreement is scheduled to expire in June 2014. Thereafter, unless either
party cancels, our agreement will automatically renew on an annual basis. We pay Fiserv a monthly fee for services rendered and related software licenses.

MasterCard International Incorporated

MasterCard International
Incorporated, or MasterCard, provides the payment network for our OneCard MasterCard debit and ATM card and certain other transactions, including for SmartPay. We have an exclusive relationship with MasterCard through 2013 for the issuance and
marketing of debit cards. As a registered member service provider with MasterCard, we arrange for the marketing of both embossed and unadorned MasterCard debit cards. Fiserv is a principal debit licensee of MasterCard and provides certain
processing, implementing and support services to facilitate our OneCard program. We receive various incentives, both directly from MasterCard and indirectly through Fiserv, for achieving growth targets in the issuance and promotion of our cards.

Comerica Incorporated and Global Payments Inc.

Comerica Incorporated and Global Payments Inc., or Comerica and Global Payments, provide transaction processing and banking services for payment processing related to the SmartPay feature of our ePayment
service. The primary function of Global Payments is to route credit card authorization requests and to settle credit card transactions. Comerica provides acquiring sponsorship in the card payment networks related to our SmartPay service.

Terremark North America, Inc. and Neospire, Inc.

Terremark North America, Inc. (formerly NAP of the Americas, Inc.), or Terremark, and Neospire, Inc., or Neospire, provide web and application hosting services in secure data centers. These vendors
provide various managed services including security, network, cooling, power, hardware and other services to host our proprietary applications. Both vendors have been certified as compliant with Payment Card Industrys, or PCI, standards and
have business continuity plans. Under our standing agreement, we occasionally purchase computer hardware and software from Terremark and Neospire. We also compensate Terremark and Neospire on a monthly basis for services rendered.

Technology

We have invested in establishing a secure technology platform to provide us with a flexible and scalable infrastructure. Our technology strategy is to focus our internal resources on proprietary
applications while leveraging third party partnerships or purchases for more routine applications. For example, the
OneDisburse® and OneAccount platforms include major components of internally developed software, while we
partner with third parties to provide banking core processing, transaction processing and web hosting.

The key modules of our
technology platform include:

HigherOneAccount.com

Our software engineering team has developed and maintains this web application, which allows students and parents to manage their OneAccount. It offers robust, self-service online banking for our



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OneAccount accountholders including: viewing statements, paying bills, making electronic deposits, making electronic transfers and filing service requests. It also integrates institution-specific
features, including management of payroll, financial aid refunds and automatic replenishment of campus accounts through Campus Auto-Load. This website also allows attractive opportunities for co-branding with our higher education institutional
clients.

CashNet.com

This web application is used to administer and initiate transactions in our payment suite of products. Higher education institution administrators can change certain confirmation settings and run reports,
while students and parents can perform certain functions, such as viewing electronic bills, making payments and enrolling in payment plans.

HigherOneSupport.com

We
maintain this administrative website for use by our higher education institutional clients and our internal staff. It offers institutions useful functions, including real-time reports, research on cards and students, access control for
administrators to the website and an audit trail of all cash movement. Our internal staff performs customer service, transaction flow monitoring, access control for employees and site administration for this website.

HigherLink

HigherLink
is our batch file processing engine for integrating our technology with the systems of our higher education institutional clients and other external parties. It handles import and processing of cardholder demographic data, photos and disbursement
files, as well as export of card status files and other integration files.

Technology Audits

Our development team, consisting of both in-house and third party contractor team members, develops and tests our proprietary software
applications, including our regular software releases. Since 2006, we have conducted technology audits that are designed to identify weaknesses in our information technology infrastructure and to provide recommendations for how to improve it. We
incorporate the audit findings into our strategic planning process.

Our CASHNet® payment suite was most recently certified as PCI-compliant in January 2011 by 403 Labs. Each of our critical
systems, other than our customer service call center, has internal redundancy functions and often includes secondary sites. While our customer service representatives are geographically dispersed, the customer service related telephone system housed
in our New Haven, Connecticut office must be functioning to keep customer service phone lines open. In order to reduce the risk of our customer service representatives losing the ability to take live inbound calls, we are in the process of creating
a secondary site for our telephone system.

Intellectual Property

We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other agreements
and technical measures to protect our technology and intellectual property rights, including our proprietary software.

We have four registered patents and several patent applications in the United States relating to our products and services. In addition, we use a variety of unregistered trademarks and have seven
registered trademarks in the United States: Higher One®, OneDisburse®, Refund Management®, CASHNet®, CASHNet (service
mark)®, CASHNet any payment, anytime, anywhere® and CASHNet Business Office®.
Our domain names include HigherOne.com, HigherOneSupport.com, HigherOneAccount.com and CASHNet.com and our proprietary software includes both internal and customer facing applications. See Part
I, Item 1. BusinessTechnology of this report. Finally, we also license certain intellectual property from third parties.



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Our issued patents expire in 2023 and 2024. Our trademark registrations have various
expiration dates, but, subject to applicable law at the time, our trademark registrations generally can be renewed or otherwise extended on an ongoing basis based on proper use and formal renewals.

Although our business is not dependent on any single item of our intellectual property portfolio, and no item of our intellectual
property is material to the operation of our business, we believe that our intellectual property provides a competitive advantage, and from time to time we have taken steps to enforce our intellectual property rights. See Part I, Item 3.
Legal Proceedings of this report.

Competition

We do not believe there is a competitor that provides a suite of products and services to the higher education
industry that is as comprehensive, integrated and tailored as ours. However, the market for payment services in the higher education industry is competitive. Other companies, including SLM Corporation (Sallie Mae®), Nelnet, Inc., PNC Financial Services Group, Inc. and TouchNet Information Systems, Inc., provide payment software,
products and services that are competitive to those that we offer. For student banking and debit card services, we compete with banks active in the higher education industry, including U.S. Bancorp and Wells Fargo & Company.

While many of our competitors have substantially greater financial and other resources than we have, may in the
future offer a wider range of products and services and may use advertising and marketing strategies that achieve broader brand recognition, we believe that our products and services remain competitive in their respective markets. In particular, we
believe that the functionality and service provided by our OneDisburse® and payment suite of products provide us
with a competitive advantage, while the pricing of, and services provided for, our retail banking products are competitive with those of other providers.

Government Regulation

As a payments processor to higher education
institutions that takes payment instructions from institutions and their constituents, including students and employees, and gives them to our bank partner, we are directly or indirectly subject to a variety of federal and state laws and
regulations. The following discussion does not purport to be a complete description of all of the laws and regulations that may affect us or all aspects of those laws and regulations. To the extent statutory or regulatory provisions are described in
this discussion, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions.

Our contracts with most of our higher education institutional clients and our bank partner require us to comply with applicable laws and regulations, including, where applicable, regulations promulgated
by the United States Department of Education regarding the handling of student financial aid funds received by institutions on behalf of their students under Title IV of the Higher Education Act of 1965, or Title IV; the Family Educational Rights
and Privacy Act of 1975, or FERPA; the Electronic Fund Transfer Act and Regulation E promulgated thereunder, or Regulation E; the USA PATRIOT Act and related anti-money laundering requirements; and certain federal rules regarding safeguarding
personal information, including rules implementing the privacy provisions of the Gramm-Leach-Bliley Act of 1999, or GLBA.

Higher Education
Regulations

Because of the services we provide to some institutions with regard to the handling of Title IV funds, the
Department of Education may deem us to be a third-party servicer under the Title IV regulations. Those regulations require a third-party servicer annually to submit a compliance audit conducted by outside independent auditors that covers
the servicers Title IV activities. Although we do not believe that we should be deemed a third-party servicer, as a precaution in the event that we were in fact deemed to be a third-party servicer in the future, each year we submit
a Compliance Attestation Examination of the Title IV Student Financial Assistance Programs audit to the Department of Education, which includes a report by an independent audit firm. In addition, the yearly audit submission to the



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Department of Education provides comfort to certain of our higher education institutional clients that we would be in compliance with the third-party servicer regulations if they were deemed to
apply to us. We also provide this audit report to clients upon request to help them fulfill their compliance audit obligations as Title IV participating institutions.

If we were deemed to be a third-party servicer, certain other Title IV regulations would apply to our business. These include, for example, regulations making a third-party servicer jointly and severally
liable with its client institution for any liability to the Department of Education arising out of the servicers violation of Title IV or its implementing regulations, which could subject us to material fines related to acts or omissions of
entities beyond our control. The Department of Education is also empowered to limit, suspend or terminate the violating servicers eligibility to act as a third-party servicer and to impose significant civil penalties on the violating servicer.

Our higher education institutional clients are subject to FERPA, which prohibits educational institutions that receive any
federal funding from disclosing certain personally identifiable information of any student to third parties without the students consent, subject to certain exceptions. Our higher education institutional clients disclose to us certain
information concerning their students, including contact information, student identification numbers and the amount of students credit balances. We believe that our higher education institutional clients may disclose this information to us
pursuant to one or more exceptions to FERPA disclosure prohibition.

Additionally, as we are indirectly subject to FERPA, we
may not permit the transfer of any personally identifiable information to another party other than in a manner in which an educational institution may disclose it. While we believe that we have adequate policies and procedures in place to safeguard
against the risk of disclosure of this information to third parties, a breach of this prohibition could result in a five-year suspension of our access to the related clients records. We may also be subject to similar state laws and regulations
that restrict higher education institutions from disclosing certain personally identifiable information of students. For example, an Illinois law passed in 2009 prohibits certain public higher education institutions in Illinois from providing
personally identifiable information of students to businesses that issue credit or debit cards.

Banking Regulations

The Bancorp Bank, or the Bank, our bank partner, is an insured depository institution, and funds held in each deposit account at our bank
partner are insured by the FDIC up to applicable limits. As an insured depository institution, our bank partner is subject to comprehensive government regulation and, in the course of making its services available to our customers, we are required
to assist the bank in complying with certain of its regulatory obligations. Among other laws and regulations, the anti-money laundering provisions of the USA PATRIOT Act require that customer identifying information be obtained and verified whenever
a bank account is established. For example, because we facilitate the opening of deposit accounts at the Bank on behalf of our customers, we assist the Bank in collecting the basic customer identification information that is necessary to open an
account. In addition, both we and the Bank are subject to the laws and regulations enforced by the Office of Foreign Assets Control, or OFAC, which prohibit U.S. persons from engaging in transactions with certain prohibited persons. As a service
provider to an insured depository institution, we are required under federal law to agree to submit to examination by our bank partners primary federal regulator, which is currently the FDIC. We also are subject to audit by our bank partner to
ensure that we comply with our obligations to it appropriately. Failure to comply with our responsibilities properly could negatively affect our operations. Our bank partner is required under its agreement with us to, and we rely on our bank
partners ability to, comply with state and federal banking regulations.

The Bank provides demand deposit services for
OneAccounts through a private label relationship. We provide processing services for these OneAccounts for the Bank. These services are subject to, among other things, the requirements of the Electronic Fund Transfer Act and the Federal Reserve
Boards Regulation E, which govern automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of ATMs, debit cards and other electronic banking services. Regulation E, among other
things, requires initial disclosures of the terms and conditions of



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electronic fund transfers, dissemination of periodic statements to consumers for each monthly cycle in which an electronic fund transfer has occurred and prompt investigation and resolution of
reported errors in electronic funds transfers. Regulation E also provides for limits on customer liability for transactions made with lost or stolen debit cards based upon the timeliness of the customers notification of the loss or theft. In
conjunction with the Bank, we promptly investigate and seek to resolve any reported errors related to the electronic banking services provided to our customers.

The Federal Reserve Board amended Regulation E to limit the ability of financial institutions, effective July 1, 2010, to assess an overdraft fee for paying ATM and one-time debit card transactions
that overdraw a consumers account, unless the consumer affirmatively consents, or opts in, to the institutions payment of overdrafts for these services. We and our banking partner adopted these changes, but we do not currently offer the
opt in feature to our customer for ATM or one-time debit card transactions.

On July 21, 2010, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, or the Act, was signed into law. The Act will increase the already substantial regulation and oversight of the financial services industry and imposes restrictions on the ability of firms within the industry,
including us, to conduct business consistent with historical practices. For example, under the Act, a Consumer Financial Protection Bureau will be established to regulate any person engaged in a financial activity in connection with a
consumer financial product or service, including those, such as us, that process financial services products and services. The new agency will have regulatory authority for many of the laws to which we and the Bank, are subject and may have direct
supervisory authority over us. Additionally, the new agency will implement and oversee new regulations relating to consumer financial protection designed to prevent unfair, deceptive, and abusive practices in the offering of consumer financial
products.

The Act also requires changes to be made to the manner in which merchants accept and process certain debit- and
credit-card transactions. The Act, subject to certain exemptions, requires the Federal Reserve to impose limits on debit card interchange fees tied to the cost of processing the transaction, which may have the result of decreasing revenue to debit
card issuers and processors. In December 2010, the Federal Reserve proposed a new Regulation II that, among other things, would limit interchange fees on debit card transactions to a maximum of 12 cents per transaction. If included in the final
Regulation II, this maximum limit could significantly reduce interchange fees received by debit card issuers. Although these restrictions technically will apply only to debit card issuers with assets in excess of $10 billion, it is anticipated that
smaller issuers, such as the Bank, may also be affected. Some federal, state, and local government-administered payment programs that use debit cards are exempt from this interchange fee restriction.

Additionally, the Act permits merchants to offer a discount or other incentive to encourage use of one form of payment over another, and
it prohibits restrictions on merchants choice of payment processing networks. The Act allows merchants to set a minimum purchase threshold for credit card transactions provided such threshold does not exceed $10, and it permits institutions of
higher education and federal agencies  which constitute many of our clients  to impose maximum dollar amounts for credit-card purchases.

Individual state legislatures are also reviewing interchange fees, and legislators in a number of states have proposed bills that purport to limit interchange fees or merchant discount rates or to
prohibit their application to portions of a transaction.

Federal and state regulatory agencies also frequently propose and
adopt changes to their regulations or change the manner in which existing regulations are applied. We cannot predict the substance or impact of pending or future legislation or regulation, or the application thereof, although enactment of the
proposed legislation would affect how we and our bank partner operate and could significantly increase costs, impede the efficiency of internal business processes and limit our ability to pursue business opportunities in an efficient manner. See
Part I, Item 1A. Risk Factors of this report.



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Privacy and Data Regulation

We are subject to laws and regulations relating to the collection, use, retention, security and transfer of personally identifiable information and data regarding our customers and their financial
information. In addition, we are bound by our own privacy policies and practices concerning the collection, use and disclosure of user data, which are posted on certain of our websites.

In conjunction with the disbursement, payroll and tuition payment services we make available through our bank partner, it is necessary to
collect certain information from our customers (such as bank account and routing numbers) to transmit to the bank. The bank uses this information to execute the funds transfers requested by our customers. These funds transfers are accomplished
primarily by means of ACH networks and other wire transfer systems, such as FedWire. To the extent the data required by these electronic funds networks change, the information that we will be required to request from our clients may also change.

We are subject, either directly or by virtue of our contractual relationship with our bank partner, to the privacy and
security standards of the GLBA privacy regulations, as well as certain state data protection laws and regulations. The GLBA privacy regulations require that we develop, implement and maintain a written comprehensive information security program
prescribing safeguards that are appropriate to our size and complexity, the nature and scope of our activities and the sensitivity of any personally identifiable information we access for processing purposes or otherwise maintain. As a service
provider of the Bank, we also are limited in our use and disclosure of the personal information we receive from the bank, which we may use and disclose only for the purposes for which it was provided to us, and consistent with the banks own
data privacy and security obligations. We also are subject to the standards set forth in guidance on data security issued by the Federal Financial Institution Examination Council, as well as the data security standards imposed by the card
associations, including Visa, Inc., and MasterCard. In addition, we are subject to similar data security breach laws enacted by a number of states. Several other states are considering similar legislation.

New legislation and regulations in this area have been proposed, both at the federal and state level. Such measures, including pending
federal legislation, would potentially impose additional obligations on us, including requiring that we provide notifications to consumers and government authorities in the event of a data breach or unauthorized access or disclosure, beyond what
state law already requires. The interpretation of pending legislation and regulations, as well as some of the existing laws and regulations, is evolving and, therefore, these laws and regulations may be applied inconsistently. Under some
interpretations, it is possible that our current data protection policies and practices may be deemed inconsistent with legal requirements, and breaches in the security of our technology systems and infrastructure could result in a violation of
these laws and regulations.

Compliance

We monitor our compliance through an internal audit program. Our full-time internal auditor works with a third-party internal audit firm to conduct annual reviews to ensure compliance with the regulatory
requirements described above. The costs of these audits and the costs of complying with the applicable regulatory requirements are significant. Increased regulatory requirements on our products and services, such as in connection with the matters
described above, could materially increase our costs or reduce revenue.

Regulatory Inquiry

Because our technology services are provided in connection with the financial products of our bank partner, our activities are
occasionally reviewed by regulatory agencies to ensure that we do not impermissibly engage in activities that require licensing at the state or federal level or that otherwise may be deemed to be in violation of law. In the ordinary course of
business, we receive letters and inquiries concerning the nature of our business as it applies to state money transmitter licensing and regulations from different state regulatory agencies including but not limited to the State of Texas
Department of Banking, the State of Washington Department of Financial Institutions and the State of Oregon Department of Consumer and Business Services. To date, we have cooperated with such inquiries by



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explaining the nature of our business, which, to our knowledge, has satisfied the inquiring authorities. In 2007, the New York Attorney General launched an investigation into practices in the
higher education industry involving certain of our higher education institutional clients. Pursuant to a subpoena, we have provided certain information about our clients and our business practices to the New York Attorney General. We most
recently submitted information in November 2010. We cannot predict whether we will become subject to any formal investigation or other action by the New York Attorney General or any other state agencies.

Our operations and the operations of our bank partner are subject to the jurisdiction and examination of federal, state and local
regulatory authorities, including the FDIC, which is our bank partners primary federal regulator. Following a recently conducted compliance examination, the New York Regional Office of the FDIC notified us that it is prepared to recommend to
the Director of FDIC Supervision that an enforcement action be taken against us for alleged violations of certain applicable laws and regulations principally relating to our compliance management system and policies and practices for past overdraft
charging which we believe to have impacted persistently delinquent accounts, which is a small percentage of our total accounts, collections, and transaction error resolution. Any such enforcement action could result in an order to pay restitution
and civil money penalties. We are in the process of responding to the FDICs notification and we believe that we have voluntarily either remedied or taken steps to correct the alleged violations. For example, in connection with our review of
the Overdraft Payment Programs and Consumer Protection Final Overdraft Payment Supervisory Guidance which requires modifications, if necessary, to be put in place prior to July 1, 2011, we reviewed our item processing procedures in December
2010 to ensure that transactions were not processed in a manner designed to maximize the cost to consumers. Any ultimate liability resulting from such an action we believe will not have a material adverse effect on our results of operations,
financial position or cash flows, but there can be no assurances as to the outcome of this process. See Part 2, Item 1A. Risk FactorsReviews and enforcement actions by regulatory authorities under banking and consumer protection
laws and regulations may result in changes to our business practices or may expose us to the risk of fines, restitution and litigation of this report.

Employees

As of December 31, 2010, we had approximately 450
employees. In addition, during periods of peak activity, we add temporary staff to supplement our customer service department. None of our employees is a member of any labor union or subject to any collective bargaining agreement and we have never
experienced any business interruption as a result of any labor dispute.

Available Information

The Securities and Exchange Commission, or SEC, maintains a website that contains reports, proxy and information statements, and other
information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov. We file annual reports, quarterly reports, proxy statements and other documents
with the under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The public may read and copy any materials that we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We also
make available free of charge through our website (http://ir.higherone.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to
the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnishes it to, the SEC. Information on our website is not incorporated into this report or any of our SEC filings and is not a part of them.



|Item 1A. | Risk Factors
|-------- | ------------



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Our financial condition and results of operations are subject to various risks,
uncertainties and other factors. These risks and uncertainties include, but are not limited to, the risk factors set forth below. The risks and uncertainties described in this report are not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently believe are immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, they could have a material adverse effect on our business, financial
condition and results of operations.

Our operating results may suffer because of substantial and increasing competition in the
industries in which we do business.

The market for our products and services is competitive, continually evolving
and, in some cases, subject to rapid technological change. Our disbursement services compete against all forms of payment, including paper-based transactions (principally cash and checks), electronic transactions such as wire transfers and Automated
Clearing House, or ACH, payments and other electronic forms of payment, including card-based payment systems. Many competitors, including Sallie Mae, TouchNet Information Systems, Inc., PNC Financial Services Goup, Inc. and Nelnet, Inc., provide
payment software, products and services that compete with those we offer. In addition, our OneAccount and OneCard products and services, which we provide through our bank partner, also compete with banks active in the higher education market,
including U.S. Bancorp and Wells Fargo & Company. Future competitors may begin to focus on higher education institutions in a manner similar to us.

Many of our competitors have substantially greater financial and other resources than we have, may in the future offer a wider range of products and services and may use advertising and marketing
strategies that achieve broader brand recognition or acceptance. In addition, our competitors may develop new products, services or technologies that render our products, services or technologies obsolete or less marketable. If we cannot continue to
compete effectively against our competitors, our business, financial condition and results of operations will be materially and adversely affected.

Reviews and enforcement actions by regulatory authorities under banking and consumer protection laws and regulations may result in changes to our business practices or may expose us to the risk of
fines, restitution and litigation.

Our operations and the operations of our bank partner are subject to the
jurisdiction and examination of federal, state and local regulatory authorities, including the FDIC, which is our bank partners primary federal regulator. Our business practices, including the terms of our products, are approved by our banking
partner and subject to both periodic and special reviews by such regulatory authorities, which can range from investigations into specific consumer complaints or concerns to broader inquiries into our practices generally. We and our bank partner are
subject to ongoing and routine examination by the FDIC. If, as part of an examination or review, the regulatory authorities conclude that we are not complying with applicable laws or regulations, they could request or impose a wide range of
remedies, including, but not limited to, requiring changes to the terms of our products (such as decreases in fees), the imposition of fines or penalties or the institution of enforcement proceedings or other similar actions against us alleging that
our practices constitute unfair or deceptive acts or practices. As part of an enforcement action, the regulators can seek restitution for affected customers and impose civil money penalties. In addition, negative publicity relating to any specific
inquiry or investigation or any related fine could adversely affect our stock price; our relationships with various industry participants; or our ability to attract new and retain existing clients, which could have a material adverse effect on our
business, financial condition and results of operations.

Following a recently conducted compliance examination, the New York
Regional Office of the FDIC notified us that it is prepared to recommend to the Director of FDIC Supervision that an enforcement action be taken against us for alleged violations of certain applicable laws and regulations principally relating to our
compliance management system and policies and practices for past overdraft charging on persistently delinquent accounts, collections and transaction error resolution. Any such enforcement



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action could result in an order to pay restitution and civil money penalties. We are in the process of responding to the FDICs notification, but there can be no assurances as to the outcome
of this process. An action instituted against us that results in significant changes to our practices, the imposition on us of fines or penalties, or an obligation for us to pay restitution or civil money penalties could have a material adverse
effect on our business, financial condition and results of operations.

The fees that we generate through our relationships with higher
education institutions and their campus communities are subject to competitive pressures and are subject to change, which may materially and adversely affect our revenue and profitability.

We generate revenue from, among other sources, the banking services fees charged to our OneAccount holders, interchange fees related to
purchases made through our OneCard debit and ATM cards, which our bank partner charges and remits to us, convenience fees from processing tuition payments on behalf of students, fees charged to our higher education institution clients and service
fees that we receive from our bank partner based on amounts deposited in OneAccounts and prevailing interest rates.

In an
increasingly price-conscious and competitive market, it is possible that to maintain our competitive position with higher education institutions, we may have to decrease the fees we charge institutions for our services. Similarly, in order to
maintain our competitive position with our OneAccount holders, we may need to work with our bank partner to reduce banking services fees charged to our OneAccount holders.

MasterCard could reduce the interchange rates, which it unilaterally sets and adjusts from time to time, and upon which our interchange revenue is dependent. In addition, our OneAccount holders may modify
their spending habits and increase their use of ACH relative to their use of OneCards, as ACH payments are generally free, which could reduce the interchange fees remitted to us. Students may also become less willing to pay convenience fees when
using our payment transaction services. If our fees are reduced as described above, our business, results of operations and prospects for future growth could be materially and adversely affected.

Fees for financial services are subject to increasingly intense legislative and regulatory scrutiny, which could have a material adverse effect on
our business, financial condition, results of operations and prospects for future growth.

In 2010, 2009 and 2008,
approximately 78%, 88% and 85% of our revenue was generated from interchange fees, ATM fees, non-sufficient funds fees, other banking services fees and convenience fees. These fees, as well as the financial services industry in general, have
undergone or may undergo substantial changes in the near future. These changes could have a material adverse effect on our business, financial condition, results of operations and prospects for future growth.

Effective July 1, 2010, the Federal Reserve Board amended Regulation E to limit the ability of financial institutions to assess an
overdraft fee for paying ATM and one-time debit card transactions that overdraw a consumers account, unless the consumer affirmatively consents, or opts in, to the institutions payment of overdrafts for these services. In the absence of
such a consent, a financial institution may not assess an overdraft fee on a consumer for an ATM or one-time debit card transaction.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act, was signed into law. The Act will increase the already substantial regulation and oversight of the
financial services industry and imposes restrictions on the ability of firms within the industry, including us, to conduct business consistent with historical practices. For example, under the Act, a Consumer Financial Protection Bureau will be
established to regulate any person engaged in a financial activity in connection with a consumer financial product or service, including those, such as us, that process financial services products and services. The new agency will have
regulatory authority for many of the



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laws to which we and our partner bank, The Bancorp Bank, are subject and may have direct supervisory authority over us, and it will implement and oversee new regulations relating to consumer
financial protection designed to prevent unfair, deceptive, and abusive practices in the offering of consumer financial products.

The Act also requires changes to be made to the manner in which merchants accept and process certain debit- and credit-card transactions. The Act, subject to certain exemptions, requires the Federal
Reserve to impose limits on debit card interchange fees tied to the cost of processing the transaction, which may have the result of decreasing revenue to debit card issuers and processors. In December 2010, the Federal Reserve proposed a new
Regulation II that, among other things, would limit interchange fees on debit card transactions to a maximum of 12 cents per transaction. If included in the final Regulation II, this maximum limit could significantly reduce interchange fees received
by debit card issuers. Although these restrictions technically will apply only to debit card issuers with assets in excess of $10 billion, it is anticipated that smaller issuers, such as The Bancorp Bank, may also be impacted. Some federal, state,
and local government-administered payment programs that use debit cards are exempt from this interchange fee restriction. Additionally, the Act permits merchants to offer a discount or other incentive to encourage use of one form of payment over
another, and it prohibits restrictions on merchants choice of payment processing networks. The Act allows merchants to set minimum purchase thresholds for credit card transactions, provided such thresholds do not exceed $10, and it permits
institutions of higher education and federal agencies  which constitute many of our clients  to impose maximum dollar amounts for credit-card purchases. Individual state legislatures are also reviewing interchange fees, and legislators
in a number of states have proposed bills that purport to limit interchange fees or merchant discount rates or to prohibit their application to portions of a transaction.

Many of the provisions of the Act will not become effective until a year or more following its enactment and after the adoption and effectiveness of implementing regulations. The scope and impact of many
of the Acts provisions, moreover, will be determined through the rule making process. As a result, we cannot predict the ultimate impact of the Act on us or The Bancorp Bank at this time, nor can we predict the impact or substance of other
future legislation or regulation. However, we believe that the Act, other recent changes in regulation, including the Regulation E changes summarized above, and legislation under consideration by the states could affect how we and our bank partner
operate by significantly reducing the interchange fees, ATM fees, non-sufficient fund fees, other banking services fees and convenience fees charged in respect of our services and that drive our financial results. These regulatory and legislative
changes could also increase our costs, impede the efficiency of our internal business processes or limit our ability to pursue business opportunities in an efficient manner. The occurrence of any of these risks could materially and adversely affect
our business, financial condition and results of operations.

We rely on our bank partner for certain banking services, and a change in
relationship with our bank partner or its failure to comply with certain banking regulations could materially and adversely affect our business.

As the provider of FDIC-insured depository services for all of our OneAccounts, as well as other banking functions, such as supplying cash for our ATM machines, The Bancorp Bank, our bank partner,
provides third-party services that are critical to our student-oriented banking services. If any material adverse event were to affect The Bancorp Bank, including, but not limited to, a significant decline in its financial condition, a decline in
the quality of its service, loss of deposits, its inability to comply with applicable banking and financial service regulatory requirements, systems failure or its inability to pay us fees, our business, financial condition and results of operations
could be materially and adversely affected. If we were required to change banking partners, we could not accurately predict the success of such change or that the terms of our agreement with a new banking partner would be as favorable to us,
especially in light of the recent consolidation in the banking industry, which has rendered the market for FDIC-insured retail banking services less competitive.

The length and unpredictability of the sales cycle for signing potential higher education institution clients could delay new sales of our products and services, which could materially and adversely



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affect our business, financial condition and results of operations.

The sales cycle between our initial contact with a potential higher education institution client and the signing of a contract with that client can be lengthy. As a result of this lengthy sales cycle, our
ability to forecast accurately the timing of revenues associated with new sales is limited. Our sales cycle varies widely due to significant uncertainties, over which we have little or no control, including:



| |  |  | the individual decision-making processes of each higher education institution client, which typically include extensive and lengthy evaluations and
require us to spend substantial time, effort and money educating each client about the value of our products and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the budgetary constraints and priorities and budget cycle of each higher education institution client; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the reluctance of higher education staff to change or modify existing processes and procedures.
| | - |  | -----------------------------------------------------------------------------------------------

In addition, there is no guarantee that a potential client will sign a contract with us even after we spend substantial time, effort and
money on the potential client. A delay in our ability or a failure to enter into new contracts with potential higher education institution clients could materially and adversely affect our business, financial condition and results of operations.

We depend on our relationship with higher education institutions and, in turn, student usage of our products and services for future
growth of our business.

Our future growth depends, in part, on our ability to enter into agreements with higher
education institutions. While we have experienced significant growth since 2002 in the number of our higher education institution clients, our contracts with these clients can generally be terminated at will and, therefore, there can be no assurance
that we will be able to maintain these clients. We may also be unable to maintain our agreements with these clients on terms and conditions acceptable to us. In addition, we may not be able to continue to establish new relationships with higher
education institution clients at our historical growth rate or at all. The termination of our current client contracts or our inability to continue to attract new clients could have a material adverse effect on our business, financial condition and
results of operations.

Not only are establishing new client relationships and maintaining current ones critical to our
business, but they are also essential components of our strategy for maximizing student usage of our products and services and attracting new student customers. A reduction in enrollment, a failure to attract and maintain student customers, as well
as any future demographic trends that reduce the number of higher education students could materially and adversely affect our capability for both revenue and cash generation and, as a result, could have a material adverse effect on our business,
financial condition and results of operations.

Global economic and other conditions may adversely affect trends in consumer spending,
which could materially and adversely affect our business, financial condition and results of operations.

A decrease
in consumer confidence due to the weakening of the global economy may cause decreased spending among our student customers and may decrease the use of our OneAccount and OneCard products and services. Increases in college tuition alongside
stagnation or reduction in available financial aid may also restrict spending among college students and the size of disbursements, reducing the use of our OneAccount and OneCard products and services and demand for our disbursement services, which
could materially and adversely affect our business, financial condition and results of operations.

Failure to manage future growth
effectively could have a material adverse effect on our business, financial condition and results of operations.

The
continued rapid expansion and development of our business may place a significant strain



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upon our management and administrative, operational and financial infrastructure. As of December 31, 2010, we had approximately 1.6 million OneAccounts, representing growth of 61% from
December 31, 2009. In 2010, our total revenue, adjusted EBITDA, adjusted net income and net income were approximately $145.0 million, $59.5 million, $34.4 million and $25.1 million, respectively, which represents three-year compounded annual
growth rates over 2007 of approximately 73%, 121%, 142% and 122%, respectively. See Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of this report for definitions of
adjusted EBITDA and adjusted net income and reconciliations to net income. Our growth strategy contemplates further increasing the number of our higher education institution clients and student banking customers, however, the rate at which we have
been able to establish relationships with our customers in the past may not be indicative of the rate at which we will be able to establish additional customer relationships in the future.

Our success will depend in part upon the ability of our executive officers to manage growth effectively. Our ability to grow also depends
upon our ability to successfully hire, train, supervise, and manage new employees, obtain financing for our capital needs, expand our systems effectively, control increasing costs, allocate our human resources optimally, maintain clear lines of
communication between our operational functions and our finance and accounting functions, and manage the pressures on our management and administrative, operational and financial infrastructure. There can be no assurance that we will be able to
accurately anticipate and respond to the changing demands we will face as we continue to expand our operations or that we will be able to manage growth effectively or to achieve further growth at all. Similarly, there can be no assurance that we
will be able to effectively control the increasing costs and manage the additional demands placed on our finance and accounting staff and on our financial, accounting and information systems caused by our need to comply with public company
requirements, such as those relating to disclosure controls and procedures and internal control over financial reporting. If our business does not continue to grow or if we fail to effectively manage any future growth or the increased costs and
administrative burdens of being a public company, our business, financial condition and results of operations could be materially and adversely affected.

Our business and future success may suffer if we are unable to cross-sell our products and services.

A significant component of our growth strategy is dependent on our ability to cross-sell products and services to new and existing customers. In particular, our growth strategy depends on our ability to
successfully cross-sell our disbursement services to our payment services clients and our payment services to our disbursement services clients. We may not be successful in cross-selling our products and services because our customers may find our
additional products and services unnecessary or unattractive. Our failure to sell additional products and services to new and existing customers could have a material adverse effect on our prospects, business, financial condition and results of
operations.

We depend on our founders and other key members of executive management and the loss of their services could have a
material adverse effect on our business.

We substantially depend on the efforts, skill and reputations of our
founders and senior management team including: Dean Hatton (President and CEO), Mark Volchek (Founder and CFO), Miles Lasater (Founder and COO), Casey McGuane (Chief Service Officer) and Robert Reach (Chief Sales Officer). We do not currently
maintain key person life insurance policies with respect to our executive officers. None of our executive officers have entered into employment agreements with us, leaving them free to terminate their involvement with us at any time and/or to pursue
other opportunities. The loss of any of our executive officers or founders could have a material adverse effect on our ability to manage our company, growth prospects, business financial condition and results of operations.

We have no operating history in rehabilitation and development activities and these activities are inherently risky and could adversely impact our
business and strain management resources.

We are actively involved in a project to rehabilitate and develop two
existing commercial buildings



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located in New Haven, Connecticut, which we expect will become our new corporate headquarters at the completion of the project. We do not have any prior operating history in property
rehabilitation and development and therefore uncertainties and unknown future challenges that may arise in connection with these activities could divert managements attention from our core business and strain managements resources.

In addition, rehabilitation and development projects entail the following considerable risks:



| |  |  | cost overruns including construction costs that may exceed our original estimates;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | unforeseen quality or engineering problems;
| | - |  | -------------------------------------------



| |  |  | construction delays;
| | - |  | --------------------



| |  |  | unanticipated financing costs;
| | - |  | ------------------------------



| |  |  | work stoppages and higher-than-estimated labor costs;
| | - |  | -----------------------------------------------------



| |  |  | weather interference;
| | - |  | ---------------------



| |  |  | costs for the removal or remediation of hazardous or toxic substances present at, on, under or in or released from the project site; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and other governmental permits, and/or changes in
zoning and land use laws.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If any of these problems occur, our plans to move into the facility may be
delayed and the overall project costs may significantly exceed the costs that were estimated when the project was originally undertaken, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to meet all of the criteria to obtain and retain various subsidies, grants and credits we expect to receive in
connection with our rehabilitation and development project.

We expect to receive various subsidies, grants and
credits from different state and federal agencies and private entities that will offset our investment in the rehabilitation project. Many of these programs have criteria that we must meet in order to receive the subsidies, grants and credits and
also criteria that we must meet on an ongoing basis in order to prevent forfeiture of the subsidies, grants and credits, and in some cases the imposition of a penalty. If we are not able to meet either the initial or continuing criteria, we may
forfeit some or all of the incentives which we are eligible for.

We are subject to substantial federal and state governmental
regulation that could change and thus force us to make modifications to our business. Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business.
Additionally, increased regulatory requirements on our services may increase our costs, which could materially and adversely affect our business, financial condition and results of operations.

As a payments processor to higher education institutions that takes payment instructions from institutions and their constituents,
including students and employees, and gives them to our bank partner, we are directly or indirectly subject to a variety of federal and state laws and regulations. Our contracts with most of our higher education institution clients and our bank
partner require us to comply with applicable laws and regulations, including, where applicable:



| |  |  | Title IV;
| | - |  | ---------



| |  |  | FERPA;
| | - |  | ------



| |  |  | the Electronic Fund Transfer Act and Regulation E;
| | - |  | --------------------------------------------------



| |  |  | the USA PATRIOT Act and related anti-money laundering requirements; and
| | - |  | -----------------------------------------------------------------------



| |  |  | certain federal rules regarding safeguarding personal information, including rules implementing the privacy provisions of GLBA.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

Higher Education Regulations



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Third-Party Servicer. Because of the services we provide to some institutions
with regard to the handling of Title IV funds, the Department of Education may deem us to be a third-party servicer under the Title IV regulations. Those regulations require a third-party servicer annually to submit a compliance audit
conducted by outside independent auditors that covers the servicers Title IV activities. Although we do not believe we should be deemed a third-party servicer, each year we submit a Compliance Attestation Examination of the
Title IV Student Financial Assistance Programs audit to the Department of Education, which includes a report by an independent audit firm. We also provide this audit report to clients upon request to help them fulfill their compliance audit
obligations as Title IV participating institutions.

If we were deemed to be a third-party servicer, certain other Title IV
regulations would apply to our business. These include, for example, regulations making a third-party servicer jointly and severally liable with its client institution for any liability to the Department of Education arising out of the
servicers violation of Title IV or its implementing regulations, which could subject us to material fines related to acts or omissions of entities beyond our control. The Department of Education is also empowered to limit, suspend or terminate
the violating servicers eligibility to act as a third-party servicer and to impose significant civil penalties on the violating servicer. In the event the Department of Education concluded that we were a third-party servicer, had violated
Title IV or its implementing regulations and should be subject to one or more of these sanctions, our business and results of operations could be materially and adversely affected. There is limited enforcement and interpretive history of Title IV
regulations relevant to this risk factor.

FERPA. Our higher education institution clients are subject to FERPA,
which prohibits educational institutions that receive any federal funding from disclosing certain personally identifiable information of any student to third parties without the students consent, subject to certain exceptions. Our higher
education institution clients disclose to us certain information concerning their students, including contact information, student identification numbers and the amount of students credit balances. We believe that our higher education
institution clients may disclose this information to us pursuant to one or more exceptions to FERPA disclosure prohibition. However, if we do not fall into one of these exceptions or if future changes to legislation or regulations required student
consent before our higher education institution clients could disclose this information to us, a sizeable number of students may cease using our products and services, which could materially and adversely affect our business, financial condition and
results of operations.

Additionally, as we are indirectly subject to FERPA, we may not permit the transfer of any personally
identifiable information to another party other than in a manner in which a higher education institution may disclose it. In the event that we re-disclose student information in violation of this requirement, FERPA requires our clients to suspend
our access to any such information for a period of five years. Any such suspension could have a material adverse effect on our business, financial condition or results of operations.

State Laws. We may also be subject to similar state laws and regulations that restrict higher education institutions from
disclosing certain personally identifiable information of students. For example, an Illinois law passed in 2009 prohibits certain public higher education institutions in Illinois from providing personally identifiable information of students to
businesses that issue credit or debit cards. State attorneys generals and other enforcement agencies may monitor our compliance with state and federal laws and regulations pertaining to higher education and banking and conduct investigations of our
business that are time consuming and expensive and could result in fines and penalties that have a material adverse effect on our business, financial condition and results of operations.

Regulation of OneAccounts

Anti-Money Laundering; USA PATRIOT ACT;
OFAC. The Bancorp Bank, our bank partner, is an insured depository institution and funds held at our bank partner are insured by the FDIC up to applicable limits. As an insured depository institution, our bank partner is subject to
comprehensive government



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regulation and, in the course of making its services available to our customers, we are required to assist the Bank in complying with certain of its regulatory obligations. In particular, the
anti-money laundering provisions of the USA PATRIOT Act require that customer identifying information be obtained and verified whenever a bank account is established. For example, because we facilitate the opening of deposit accounts at the Bank on
behalf of our customers, we assist the bank in collecting the basic customer identification information that is necessary to open an account. In addition, both we and the Bank are subject to the laws and regulations enforced by the OFAC, which
prohibit U.S. persons from engaging in transactions with certain prohibited persons. Our failure to comply with any of these laws or rights could materially and adversely affect or business, financial credit and results of operations.

Compliance; Audit. As a service provider to an insured depository institution, we are required under federal law to agree
to submit to examination by our bank partners primary federal regulator, which is currently the FDIC. We also are subject to audit by our bank partner to ensure that we comply with our obligations to it appropriately. Failure to comply with
our responsibilities properly could negatively affect our operations. Our bank partner is required under its agreement with us to, and we rely on our bank partners ability to, comply with state and federal banking regulations. The failure of
our bank partner to maintain regulatory compliance could result in significant disruptions to our business and have a material adverse effect on our business, financial condition and results of operations.

Electronic Fund Transfer Act; Regulation E. The Bancorp Bank provides demand deposit services for OneAccounts through a
private label relationship. We provide processing services for these OneAccounts for the Bank. These services are subject to, among other things, the requirements of the Electronic Fund Transfer Act and the Federal Reserve Boards Regulation E,
which govern automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of ATMs, debit cards and other electronic banking services. We may assist our bank partner with fulfilling its
compliance obligations pursuant to these requirements. See Part I, Item 1A. Risk FactorsFees for financial services are subject to increasingly intense legislative and regulatory scrutiny, which could have a material adverse effect
on our business, financial condition, results of operations and prospects for future growth, of this report. Failure to comply with applicable regulations could materially and adversely affect our business, financial condition and results of
operations.

Money Transmitter Regulations. Because our technology services are provided in connection with the
financial products of our bank partner, our activities are occasionally reviewed by regulatory agencies to ensure that we do not impermissibly engage in activities that require licensing at the state or federal level. In the ordinary course of
business, we receive letters and inquiries concerning the nature of our business as it applies to state money transmitter licensing and regulations from different state regulatory agencies. If a state agency were to conclude that we are
required to be licensed as a money transmitter, we may need to undergo a costly licensing process in that state, and failure to comply could be a violation of state and potentially federal law.

Privacy and Data Regulation

We are subject to laws and regulations relating to the collection, use, retention, security and transfer of personally identifiable information and data regarding our customers and their financial
information. In addition, we are bound by our own privacy policies and practices concerning the collection, use and disclosure of user data, which are posted on certain of our websites.

In conjunction with the disbursement, payroll and tuition payment services we make available through our bank partner, it is necessary to
collect certain information from our customers (such as bank account and routing numbers) to transmit to the bank. The bank uses this information to execute the funds transfers requested by our customers, which are effected primarily by means of ACH
networks and other wire transfer systems, such as FedWire. To the extent the data required by these electronic funds networks change, the information that we will be required to request from our clients may also change.



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We are subject, either directly or by virtue of our contractual relationship with our bank
partner, to the privacy and security standards of the GLBA privacy regulations, as well as certain state data protection laws and regulations. The GLBA privacy regulations require that we develop, implement and maintain a written comprehensive
information security program prescribing safeguards that are appropriate to our size and complexity, the nature and scope of our activities and the sensitivity of any personally identifiable information we access for processing purposes or otherwise
maintain. As a service provider of the Bank, we also are limited in our use and disclosure of the personal information we receive from the Bank, which we may use and disclose only for the purposes for which it was provided to us and consistent with
the banks own data privacy and security obligations. We also are subject to the standards set forth in guidance on data security issued by the Federal Financial Institution Examination Council, as well as the data security standards imposed by
the card associations, including Visa, Inc., and MasterCard. In addition, we are subject to similar data security breach laws enacted by a number of states. Several other states are considering similar legislation.

Any failure or perceived failure by us to comply with any legal or regulatory requirements or orders or other federal or state privacy or
consumer protection-related laws and regulations, or with our own privacy policies, could result in fines, sanctions, litigation, negative publicity, limitation of our ability to conduct our business and injury to our reputation, any of which could
materially and adversely affect our business, financial condition and results of operations.

New legislation and regulations
in this area have been proposed, both at the federal and state level. Such measures, including pending Federal legislation, would potentially impose additional obligations on us, including requiring that we provide notifications to consumers and
government authorities in the event of a data breach or unauthorized access or disclosure, beyond what state law already requires. The interpretation of pending legislation and regulations, as well as some of the existing laws and regulations, is
evolving and, therefore, these laws and regulations may be applied inconsistently. Under some interpretations, it is possible that our current data protection policies and practices may be deemed inconsistent with legal requirements, and breaches in
the security of our technology systems and infrastructure could result in a violation of these laws and regulations. These laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner
materially adverse to our business.

Compliance

We monitor our compliance through an internal audit program. Our full-time internal auditor works with a third-party internal audit firm to conduct annual reviews to ensure compliance with the regulatory
requirements described above. The costs of these audits and the costs of complying with the applicable regulatory requirements are significant. Increased regulatory requirements on our products and services, such as in connection with the matters
described above, could materially increase our costs or reduce revenue.

It is impossible to determine the extent of the
impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. The imposition of any new laws or regulations could make compliance more difficult and expensive and affect the manner in which
we conduct business. In addition, many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions. If we were deemed to be in violation of any laws or regulations that are currently in place or that may be
promulgated in the future, including but not limited to those described above, we could be exposed to financial liability and adverse publicity or forced to change our business practices or stop offering some of our products and services. We also
could face significant legal fees, delays in extending our product and services offerings, and damage to our reputation that could harm our business and reduce demand for our products and services. Even if we are not required to change our business
practices, we could be required to obtain licenses or regulatory approvals that could cause us to incur substantial costs and delays.

The convenience fees that we charge in connection with payment transactions are subject to



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change.

Most credit and debit card associations and networks
permit us to charge convenience fees to students, parents or other payers who make online payments to our higher education institution clients through the SmartPay feature of our ePayment product using a credit or debit card. In 2010 and 2009, these
convenience fees accounted for substantially all of our payment transaction revenue, which is a trend we expect to continue going forward. While the majority of credit and debit card associations and networks routinely permit merchants and other
third parties to charge these fees, it is not a ubiquitous practice in the payment industry. If these credit and debit card associations and networks change their policies in permitting merchants and other third-parties to charge these fees or
otherwise restrict our ability to do so, our business, financial condition and results of operations could be materially and adversely affected.

There are risks associated with charging convenience fees.

Through
our SmartPay service, which we acquired in connection with our acquisition of IDC, which we renamed Higher One Payments, Inc., in 2009, some of our higher education institution clients charge convenience fees to students, parents or other payers who
make online payments using a credit or debit card. In light of the ongoing legislative efforts at financial regulatory reform, we examined the laws and regulations related to convenience fees. We found that these laws and regulations vary from state
to state and certain states, including California, Florida, Massachusetts, New York and Texas, have laws that to varying degrees prohibit the imposition of a surcharge on a credit or debit cardholder who elects to use a credit or debit card in lieu
of payment by cash, check or other means. The penalties for violating these laws vary from state to state and include, in certain circumstances, fines that could be significant.

We are not aware of any enforcement or civil action against a higher education institution or a third party service provider for charging
convenience fees. We have nevertheless worked with our higher education institution clients to ensure that we can continue to provide the services they demand, while ensuring we are in compliance with these laws and regulations prospectively. The
affected revenues to us are not significant. However, if one or more states or other parties initiate an action against us, we could be subject to a claim for significant fines or damages. Moreover, the institution of any such action could disrupt
our operations or result in negative publicity, which could diminish our ability to attract new and retain existing clients, and could materially and adversely affect our prospects, business, financial condition and results of operations.

Our business depends on the current government financial aid regime that relies on the outsourcing of financial aid disbursements
through higher education institutions.

In general, the U.S. federal government distributes
financial aid to students through higher education institutions as intermediaries. Following the receipt of financial aid funds and the payment of tuition and other expenses, higher education institutions have typically processed refund
disbursements to students by preparing and distributing paper checks. Our OneDisburse® service provides our
higher education institution clients an electronic system for improving the administrative efficiency of this refund disbursement process. If the government, through legislation or regulatory action, restructures the existing financial aid regime in
such a way that reduces or eliminates the intermediary role played by financial institutions serving higher education institutions or limits or regulates the role played by service providers such as us, our business, results of operations and
prospects for future growth could be materially and adversely affected.

A change in the availability of financial aid, as well as
budget constraints, could materially and adversely affect our financial performance by reducing demand for our services.

The higher education industry depends heavily upon the ability of students to obtain financial aid. As part of our contracts with our higher education institution clients that use OneDisburse®, students



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financial aid and other refunds are sent to us for disbursement. The fees that we charge most of our OneDisburse® higher education institution clients are based on the number of financial aid disbursements that we make to students. In addition, our relationships with OneDisburse® higher education institution clients provide us with a market for OneAccounts, from which we derive a significant
proportion of our revenues. Consequently, a change in the availability of financial aid that restricted client use of our OneDisburse® product or otherwise limited our ability to attract new higher education institution clients could materially and adversely affect our financial performance. Future
legislative and executive branch efforts to reduce the U.S. federal budget deficit or worsening economic conditions may require the government to severely curtail its financial aid spending, which could materially and adversely affect our business,
financial condition and results of operations.

Termination of, or changes to, the MasterCard association registration could materially
and adversely affect our business, financial condition and results of operations.

We and our bank partner, which
issues our OneCards, are subject to MasterCard association rules that could subject us to a variety of fines or penalties that may be levied by MasterCard for acts or omissions by us or businesses that work with us. The termination of the card
association registration held by us or our bank partner or any changes in card association or other network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost of doing business or
limit our ability to provide our products and services could materially and adversely affect our business, financial condition and results of operations.

Intellectual property infringement claims against us could be costly and time-consuming to defend and if we are unsuccessful in our defense could have a material adverse effect on our business,
financial condition and results of operations.

Third parties may assert, including by means of counter-claims against
us as a result of the assertion of our intellectual property rights, that our products, services or technology, or the operation of our business, violate their intellectual property rights. As the number of competitors in our industry increases and
the functionality of technology offerings further overlap, such claims and counter-claims could become more common. We cannot be certain that we do not or will not infringe third parties intellectual property rights.

Any intellectual property claim against us, regardless of its merit, could result in significant liabilities to our business. Depending
on the nature of such claim, our business may be disrupted, our managements attention and other company resources may be diverted and we may be required to redesign our products and services or to enter into royalty or licensing agreements in
order to obtain the rights to use necessary technologies, which may not be available on terms acceptable to us, if at all. If we cannot redesign our products and services or license necessary technologies, we may be subject to the risk of injunctive
relief and/or significant damage awards, which are complex, subjective and hard to predict, and subsequently we may not be able to offer or sell a particular product or service, or a family of products or services.

Any intellectual property claim against us could be expensive and time consuming to defend. Insurance may not cover or be insufficient
for such claim, or may not be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby having a material adverse effect on our business, financial condition and
results of operations. Even if we have an indemnification arrangement with a third party to indemnify us against an intellectual property claim, such indemnifying party may be unable or fail to uphold its contractual obligations to us. If any
infringement or other intellectual property claim that is brought against us is successful, our business, operating results and financial condition could be materially and adversely affected.

Current and future litigation against us could be costly and time-consuming to defend.



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We are from time to time subject to legal proceedings and claims that arise in the ordinary
course of business. Litigation may result in substantial costs and may divert managements attention and resources, which may materially and adversely affect our business, financial condition and results of operations. In addition, legal claims
that have not yet been asserted against us may be asserted in the future. Insurance may not cover such claims, be sufficient for one or more such claims, or continue to be available on terms acceptable to us.

In particular, a third party may assert that our technology violates its intellectual property rights. As the number of products in our
industry increases and the functionality of these products further overlap, infringement claims could become more common. Any claims, regardless of their merit, could be expensive and time consuming to defend, require us to redesign our products,
divert managements attention and other company resources and require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies, which may not be available on terms acceptable to us, if at all.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance resulting in a
reduction in the trading price of our stock. See Part I, Item 3. Legal Proceedings, of this report.

General economic
conditions may adversely affect our ability to raise capital in the future.

We may need or seek additional financing
in the future to refinance our existing credit facility, fund our operations, fund acquisitions, develop additional products and services or implement other projects. As of December 31, 2010, Higher One, Inc. had no borrowings outstanding under
its senior secured revolving credit facility. Given the state of the current credit environment resulting from, among other things, the general weakening of the global economy, it may be difficult to refinance our credit facility or obtain any
additional financing on acceptable terms, which could have an adverse effect on our business, financial condition and results of operations. In addition, if, as a result of the current conditions in the credit markets, the lenders under our current
credit agreement or any other lender under any future credit agreement is unable to fund borrowings under that agreement, our liquidity could be adversely affected.

The terms of our credit agreement may restrict our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.

Our credit agreement contains, and any future indebtedness of ours would likely contain, a number of restrictive
covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:



| |  |  | create liens;
| | - |  | -------------



| |  |  | make investments and acquisitions;
| | - |  | ----------------------------------



| |  |  | incur additional debt;
| | - |  | ----------------------



| |  |  | transfer all or substantially all of our assets or enter into merger or consolidation transactions;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | dispose of assets;
| | - |  | ------------------



| |  |  | pay dividends or make any other distributions with respect to our stock;
| | - |  | ------------------------------------------------------------------------



| |  |  | issue stock, warrants, options or other rights to purchase stock or securities convertible into or exchangeable for shares of stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | engage in any material line of business substantially different from the lines of business we currently conduct or any business substantially related
or incidental thereto; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into transactions with affiliates.
| | - |  | ----------------------------------------

Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants or
alternative sources of funding. We cannot assure you that such waivers, amendments or alternative



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sources of funding could be obtained, or if obtained, would be on terms acceptable to us.

Our credit agreement also requires us to maintain certain liquidity levels and satisfy certain financial ratios, including a maximum total leverage ratio and a minimum interest coverage ratio. A failure
by us to comply with the covenants contained in our credit agreement could result in an event of default which could adversely affect our ability to respond to changes in our business and manage our operations. An event of default would also occur
under our credit agreement if we undergo a change of control or if we experience a material adverse change in our operations, condition or prospects. In the event of any default under our credit agreement, the lender could elect to declare all
amounts outstanding to be due and payable and require us to apply all of our available cash to repay these amounts. The acceleration of indebtedness under our credit agreement could have a material adverse effect on our business, financial condition
and results of operations.

We outsource critical operations, which exposes us to risks related to our third-party vendors.

We have entered into contracts with third-party vendors to provide critical services, technology and software in our
operations. These outsourcing partners include: Fiserv, which provides back-end account and transaction data processing for OneAccounts and OneCards; MasterCard, which provides the payment network for our OneCards, as well as for certain other
transactions; Comerica and Global Payments, which provide transaction processing and banking services for payment processing related to the SmartPay feature of our ePayment service; and Terremark and Neospire, which provide web and application
hosting services in secure data centers.

Accordingly, we depend, in part, on the services, technology and software of these
and other third-party service providers. In the event that these service providers fail to maintain adequate levels of support, do not provide high quality service, discontinue their lines of business, terminate our contractual arrangements or cease
or reduce operations, we may be required to pursue new third-party relationships, which could materially disrupt our operations and our ability to provide our products and services, and could divert managements time and resources. Replacement
technology or services provided by replacement third-party vendors could be more expensive than those we have currently, while the process of transitioning services and data from one provider to another can be complicated and time consuming. If we
are unable to complete a transition to a new provider on a timely basis, or at all, we could be forced to temporarily or permanently discontinue certain services, which could disrupt services to our customers and materially and adversely affect our
business, financial condition and results of operations. We may also be unable to establish comparable new third-party relationships on as favorable terms or at all, which could materially and adversely affect our business, financial condition and
results of operations.

Breaches of security measures, unauthorized access to or disclosure of data relating to our clients, fraudulent
activity, and infrastructure failures could materially and adversely affect our reputation or harm our business.

Our
higher education institution clients and student OneAccount holders disclose to us certain personally identifiable information, including student contact information, identification numbers and the amount of credit balances, which they
expect we will maintain in confidence. It is possible that hackers, customers or employees acting unlawfully or contrary to our policies, or other individuals, could improperly access our or our vendors systems and obtain or disclose data
about our customers. Further, because customer data may also be collected, stored, or processed by third party vendors, it is possible that these vendors could intentionally, negligently or otherwise disclose data about our clients or customers.

We rely to a large extent upon sophisticated information technology systems, databases, and infrastructure, and take
reasonable steps to protect them. However, due to their size, complexity, content and integration with or reliance on third party systems they are potentially vulnerable to breakdown, malicious intrusion, natural disaster and random attack, all of
which pose a risk that sensitive data may be



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exposed to unauthorized persons or to the public.

A breach of our
information systems could lead to fraudulent activity, including with respect to our OneCards, such as identity theft, losses on the part of our banking customers, additional security costs, negative publicity and damage to our reputation and brand.
In addition, our customers could be subject to scams that may result in the release of sufficient information concerning themselves or their accounts to allow others unauthorized access to their accounts or our systems (e.g., phishing
and smishing). Claims for compensatory or other damages may be brought against us as a result of a breach of our systems or fraudulent activity. If we are unsuccessful in defending against any resulting claims against us, we may be
forced to pay damages, which could materially and adversely affect our financial condition and results of operations.

In
addition, a significant incident of fraud or an increase in fraud levels generally involving our products, such as our OneCards, could result in reputational damage to us, which could reduce the use of our products and services. Such incidents of
fraud could also lead to regulatory intervention, which could increase our compliance costs. See Part I, Item 1A. Risk FactorsWe are subject to substantial federal and state governmental regulation that could change and thus force
us to make modifications to our business. Compliance with the various complex laws and regulations is costly and time consuming, and failure to comply could have a material adverse effect on our business. Additionally, increased regulatory
requirements on our services may increase our costs, which could materially and adversely affect our business, financial condition and results of operations of this report. Accordingly, account data breaches and related fraudulent activity
could have a material adverse effect on our future growth prospects, business, financial condition and results of operations.

A disruption to our systems or infrastructure could damage our reputation, expose us to legal liability, cause us to lose customers and
revenue, result in the unintentional disclosure of confidential information or require us to expend significant efforts and resources or incur significant expense to eliminate these problems and address related data and security concerns. The harm
to our business could be even greater if such an event occurs during a period of disproportionately heavy demand for our products or services or traffic on our systems or networks.

Providing disbursement services to higher education institutions is an emerging and uncertain business; if the market for our products does not continue to develop, we will not be able to grow this
portion of our business.

Our success will depend, in part, on our ability to generate revenues by providing financial
transaction services to higher education institutions and their students. The market for these services has only recently developed and the long-term viability and profitability of this market is unproven. Our business will be materially and
adversely affected if we do not develop and market products and services that achieve and maintain market acceptance. Outsourcing disbursement services may not become as widespread in the higher education industry as we anticipate, and our products
and services may not achieve continued commercial success. In addition, higher education institution clients could discontinue using our services and return to in-house disbursement and payment solutions. If outsourcing disbursement services do not
become widespread or if higher education institution clients return to their prior methods of disbursement, our growth prospects, business, financial condition and results of operations could be materially and adversely affected.

Our business depends on a strong brand and a failure to maintain and develop our brand in a cost-effective manner may hurt our ability to expand
our customer base.

Maintaining and developing the Higher One®, OneDisburse® and
CASHNet® brands is critical to expanding and maintaining our base of higher education institution
clients and student OneAccount holders. We believe the importance of brand recognition will increase as competition in our market further intensifies. Maintaining and developing our brands will depend largely on our ability to continue to provide
high-quality products and services at cost effective and competitive prices, as well as after-sale customer



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service. While we intend to continue investing in our brands, we cannot predict the success of these investments. If we fail to maintain and enhance our brands, if we incur excessive expenses in
this effort or if our reputation is otherwise tainted, including by association with the wider financial services industry, we may be unable to maintain loyalty among our existing customers or attract new customers, which could materially and
adversely affect our business, financial condition and results of operations.

Our ability to generate revenue could suffer if we do not
continue to update and improve our existing products and services and develop new ones.

The industry for electronic
financial transactions, including disbursement services, is generally subject to rapid and significant technological changes, including continuing developments of technologies in the areas of smart cards, radio frequency and proximity payment
devices (such as contactless cards), electronic commerce and mobile commerce, among others. While we cannot predict how these technological changes will affect our business, we believe that disbursement services to the higher education industry will
be subject to a similar degree of technological change and that new services and technologies for the industry will emerge in the medium-term. As a result, these new services and technologies may be superior to, or render obsolete, the technologies
we currently use in our products and services. In addition, the products and services we develop may not be able to compete with the alternatives available to our customers. Our future success will depend, in part, on our ability to adapt to
technological changes and evolving industry standards.

We make substantial investments in improving our products and
services, but we have no assurance that our investments will be successful. Our growth prospects, business, financial condition and results of operations will be materially and adversely affected if we do not develop products and services that
achieve broad market acceptance with our current and potential customers.

Our business will suffer if we fail to successfully integrate
acquired businesses and technologies or to appropriately assess the risks in particular transactions.

We have in the
past acquired, and may in the future acquire, businesses, technologies, services, product lines and other assets. The successful integration of any business, technology, service, product line or other asset that we acquire in the future, on a
cost-effective basis, may be critical to our future performance. If we do not successfully integrate a strategic acquisition, or if the benefits of the transaction do not meet the expectations of financial or industry analysts, the market price of
our common stock may decline. The amount and timing of the expected benefits of any acquisition, including potential synergies between our current business and the acquired business, are subject to significant risks and uncertainties. These risks
and uncertainties include, but are not limited to:



| |  |  | the diversion of managements time and resources from our core business;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to retain or replace key personnel of the acquired business, including management and key sales force members;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain relationships with the customers of the acquired business;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our ability to integrate common disclosure controls and procedures, internal controls over financial reporting and accounting policies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the assumption of disclosed and undisclosed liabilities, including tax liabilities;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the indemnification agreements with the sellers of the acquired business, under which we have made a claim against the former stockholders of IDC, may
be unenforceable or insufficient to cover tax or other liabilities, see Part I, Item 3. Legal Proceedings of this report;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to educate and train a combined sales force and cross-sell the combined products and services to our combined client base;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to integrate the combined products, services and technology;
| | - |  | ------------------------------------------------------------------------



| |  |  | flaws in the acquired business technology;
| | - |  | -------------------------------------------



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| |  |  | inaccuracies in the acquired business books and records and any weaknesses in its internal controls;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the existence of intellectual property infringement claims;
| | - |  | -----------------------------------------------------------



| |  |  | our ability to coordinate organizations that are geographically diverse and that have different business cultures;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to integrate common legal, compliance, operational, financial and informational processes and systems; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to comply with the regulatory requirements applicable to the acquired business.
| | - |  | -------------------------------------------------------------------------------------------

As a result of these risks, we may not be able to achieve the expected benefits of any acquisition. If we are unsuccessful in completing
an acquisition that we may pursue in the future, we would be required to reevaluate our growth strategy. Even if we successfully integrate other assets or businesses we may acquire, we may incur substantial expenses and devote significant management
time and resources in seeking to complete and integrate the acquisition, the acquired businesses may not perform as we expect or enhance the value of our business as a whole.

We may be liable to our customers or lose customers if we provide poor service or if our systems or products experience failures.

We must fulfill our contractual obligations with respect to our products and services and maintain high quality service to meet the
expectations of our customers. Failure to meet these expectations or fulfill our contractual obligations could cause us to lose customers and bear additional liability.

Because of the large amount of data we collect and manage, hardware failures and errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or
contain significant inaccuracies. For example, errors in our processing systems could delay disbursements or cause disbursements to be made in the wrong amounts or to the wrong person. Our systems may also experience service interruptions as a
result of undetected errors or defects in our software, fire, natural disasters, power loss, disruptions in long distance or local telecommunications access, fraud, terrorism, accident or other similar reason, in which case we may experience delays
in returning to full service, especially with regard to our data centers and customer service call centers. If problems such as these occur, our customers may seek compensation, withhold payments, seek full or partial refunds, terminate their
agreements with us or initiate litigation or other dispute resolution procedures. In addition, we may be subject to claims made by third parties also affected by any of these problems.

Our ability to limit our liabilities by contract or through insurance may be ineffective or insufficient to cover our future liabilities.

We attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches.
Contractual limitations on liability, however, may not be enforceable or may otherwise not provide sufficient protection to us from liability for damages. We maintain liability insurance coverage, including coverage for errors and omissions. It is
possible, however, that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability
to us, investigating and defending against them could be expensive and time consuming and could divert managements attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our
products and services, any of which could materially and adversely affect our reputation and our business.

If we are unable to protect
or enforce our intellectual property rights, we may lose a competitive advantage and incur significant expenses.



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Our business depends on certain registered and unregistered intellectual property rights and
proprietary information. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and technical measures (such as the password protection and encryption of our data and systems) to protect
our technology and intellectual property rights, including our proprietary software. Existing laws afford only limited protection for our intellectual property rights. Intellectual property rights or registrations granted to us may provide an
inadequate competitive advantage to us or be too narrow to protect our products and services. Similarly, there is no guarantee that our pending applications for intellectual property protection will result in registrations or issued patents or
sufficiently protect our rights. The protections outlined above may not be sufficient to prevent unauthorized use, misappropriation or disclosure of our intellectual property or technology and may not prevent our competitors from copying,
infringing, or misappropriating our products and services. We cannot be certain that others will not independently develop, design around or otherwise acquire equivalent or superior technology or intellectual property rights. If we are unable to
adequately protect our intellectual property rights, our business and growth prospects could be materially and adversely affected.

One or more of our issued patents or pending patent applications may be categorized as so-called business method patents. The general validity of software patents and business method patents
has been challenged in a number of jurisdictions, including the United States. On June 28, 2010, the United States Supreme Court determined that a certain business method amounting to abstract ideas was not patentable. However, the
Court stated that some business methods are patentable under the Patent Act, and reaffirmed that patent eligibility should be broad and open. Although the Courts decision provides little guidance on patentability of our business methods, our
patents could become less valuable or unenforceable if additional requirements are imposed that our patents do not meet.

From
time to time, we seek to enforce our intellectual property rights against third parties, such as through our current litigation against TouchNet Information Systems, Inc. See Part I, Item 3. Legal Proceedings of this report. The
fact that we have intellectual property rights, including registered intellectual property, may not guarantee success in our attempts to enforce these rights against third parties. Our ability and potential success in enforcing our rights is also
subject to general litigation risks, as well as uncertainty as to the enforceability of our intellectual property rights. When we seek to enforce our rights, we may be subject to claims that our intellectual property rights are invalid, otherwise
unenforceable, or are licensed to the party against whom we are asserting the claim. In addition, our assertions of intellectual property rights may result in the other party seeking to assert various claims against us, including its own alleged
intellectual property rights, claims of unfair competition, or other claims. Furthermore, enforcing our intellectual property and other proprietary rights can be expensive. Any increase in the unauthorized use of our intellectual property could make
it more expensive or less profitable to do business and consequently have a material adverse effect on our business, financial condition and results of operations.

As a holding company, our main source of cash is distributions from our operating subsidiaries.

We, Higher One Holdings, Inc., conduct all of our operations through our subsidiaries. Accordingly, our main cash source is dividends and other distributions from these subsidiaries. The ability of each
subsidiary to make distributions depends on the funds that a subsidiary has from its operations in excess of the funds necessary for its operations, obligations or other business plans. Since our subsidiaries are wholly owned by us, our claims will
generally rank junior to all other obligations of the subsidiaries. If our operating subsidiaries are unable to make distributions, we may not be able to implement our growth strategy, unless we are able to obtain additional debt or equity
financing. In the event of a subsidiarys liquidation, there may not be assets sufficient for us to recoup our investment in the subsidiary.

Failure to establish and maintain effective internal controls over financial reporting may lead investors to lose confidence in our financial data.

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial reports and is
important in helping to prevent financial fraud. We are in the process of



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evaluating how to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley and the related rules of the SEC which require, among other
things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on our internal control over financial reporting beginning with our
Annual Report on Form 10-K for the year ending December 31, 2011. During the course of this documentation and testing, we may identify deficiencies that we may be unable to remedy before the requisite deadline for those reports.

For example, in connection with the preparation of our quarterly financial statements as of and for the three months ended
March 31, 2010, we concluded that we had a material weakness in our internal control over financial reporting that resulted in a misstatement of our earnings per share computation for the year ended December 31, 2008. Specifically, in our
computation of net income available to common stockholders per common share, we did not deduct from net income the difference between (i) the fair value of the consideration transferred to the preferred stockholders as part of our 2008 stock
tender offer and (ii) the carrying amount of the preferred stock repurchased (net of issuance costs) to arrive at income available to common stockholders in accordance with FASB ASC 260-10-S99. As a result, we determined that we did not
maintain effective controls over the accounting for, and calculation of, net income available to common stockholders per common share, indicating a material weakness with respect to our ability to properly monitor and account for non-routine
transactions, and to apply GAAP in transactions subject to complex accounting pronouncements.

During 2010, we remediated this
material weakness by, among other things, expanding our current finance and accounting staff, formalizing our accounting policies and internal controls documentation and strengthening supervisory reviews by our management. We cannot be certain that
we will not fail to identify a new material weakness or that we will otherwise maintain effective internal controls over financial reporting in the future. If we are unable to maintain effective internal controls over financial reporting, it could
result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis and which could cause investors to lose confidence in our financial information and/or cause the price of our common stock to
decline.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

We do not own
any real property. Our corporate headquarters is located in New Haven, Connecticut, where we lease approximately 60,665 square feet of general office space pursuant to a lease which is currently due to expire on July 31, 2011.

We also have operations in Oakland, California, where we lease approximately 11,760 square feet of general office space pursuant to a
lease which is currently due to expire on January 31, 2016.

We believe that our facilities are generally adequate for
our current use. We anticipate that we will require additional space in the future and that this additional space will be available as needed. We expect to be able to extend our lease in New Haven as needed until our new headquarters are ready for
occupancy. See Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesCash FlowsInvesting ActivitiesReal Estate Development
Project of this report.



|Item 3. | Legal Proceedings
|------- | -----------------

We,
and our subsidiaries, are involved in legal proceedings concerning matters arising in the ordinary course of our business, including the matters described below. Although the outcome of such proceedings, including the matters described below, cannot
be predicted with certainty, management



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does not believe that the ultimate resolution of these matters will have a material adverse effect on our business, financial condition or results of operations.

In February 2009 and September 2010, Higher One, Inc. filed two separate complaints against TouchNet Information Systems, Inc., or
TouchNet, in the United States District Court for the District of Connecticut alleging patent infringement related to TouchNets offering for sale and sales of its eRefund product in violation of two of our patents. In the
complaints, we sought judgments that TouchNet has infringed two of our patents, a judgment that TouchNet pay damages and interest on damages to compensate us for infringement, an award of our costs in connection with these actions and an injunction
barring TouchNet from further infringing our patents. TouchNet answered the complaint and asserted a number of defenses and counterclaims, including that it does not infringe our patent, that our patent is invalid or unenforceable and certain
allegations of unfair competition and state and federal antitrust violations. In addition, TouchNets counterclaims sought dismissal of our claims with prejudice, declaratory judgment that TouchNet does not infringe our patent and that our
patent is invalid or unenforceable, as well as an award of fees and costs related to the action, and an injunction permanently enjoining us from suing TouchNet regarding infringement of our patent. The parties are currently in the discovery stage of
the proceeding. We intend to pursue the matter vigorously. There can be no assurances of our success in these proceedings.

On
June 22, 2010, Higher One, Inc. provided notice and a certificate of claim for indemnity under the Stock Purchase Agreement by and among us and the former stockholders of IDC dated November 19, 2009, arising from certain misrepresentations
and breaches of warranty. At the same time, we deposited $8.25 million, equal to the remaining balance of the post-closing payments, with an escrow agent. The funds held in escrow are shown on the balance sheet included in the audited financial
statements included elsewhere in this report as restricted cash pending resolution of the outstanding claims.

Separately, the
former stockholders of IDC filed a complaint against Higher One, Inc. in the United States District Court for the Northern District of California on July 20, 2010 (which we refer to as the Complaint), disputing that misrepresentations were made
and that warranties were breached; alleging breach of contract and anticipatory breach; and seeking a declaratory judgment ordering that the post-closing payments be made in accordance with the schedule set forth in the Stock Purchase Agreement. On
October 27, 2010, we filed a motion to dismiss and, in the alternative, to move the action to the District of Delaware pursuant to a contractual forum selection clause and to strike certain allegations of the complaint. On December 21,
2010, the court denied the motion as to dismissal or transfer, but agreed to strike the former stockholders request for a jury trial. We answered the Complaint on January 14, 2011, and also alleged counterclaims for breach of contract,
negligent misrepresentation, and fraud. On February 7, 2011, the former stockholders moved to dismiss the counterclaims for fraud and misrepresentation only. That motion is currently being litigated. We intend to vigorously defend against the
Complaint brought against us and to vigorously pursue our counterclaims. There can be no assurances of our success in these matters. As of December 31, 2010, the acquisition payable of $8.25 million was recorded as a liability on the balance
sheet included in the audited financial statements included elsewhere in this report. We have not recorded any potential gain or loss in connection with this claim.

Following a recently conducted compliance examination, the New York Regional Office of the FDIC notified us that it is prepared to recommend to the Director of FDIC Supervision that an enforcement action
be taken against us for alleged violations of certain applicable laws and regulations principally relating to our compliance management system and policies and practices for past overdraft charging which we believe to have impacted persistently
delinquent accounts, which is a small percentage of our total accounts, collections and transaction error resolution. Any such enforcement action could result in an order to pay restitution and civil money penalties. We are in the process of
responding to the FDICs notification and we believe that we have voluntarily either remedied or taken steps to correct the alleged violations, but there can be no assurances as to the outcome of this process. An action instituted against us
that results in significant changes to practice, the imposition on us of fines or penalties, or an obligation for us to pay restitution and civil money penalties could have a material adverse effect on our business, financial



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condition and results of operations.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to security holders for a vote during the quarter ended December 31, 2010.

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Our common stock is quoted on New York Stock Exchange under the symbol ONE. Prior to June 17, 2010 our common stock was
privately held and did not trade on any exchange. The following table sets forth, for each of the periods indicated, the high and low reported sales price at close of our common stock on the NYSE.



|                                   |  |      |       |  |     |   |       | 
|---------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                   |  | High |       |  | Low |  
|Year ended December 31, 2010       |  |      |       |  |     |   |       | 
|                                   |  |     
|Fourth Quarter                     |  | $    | 21.87 |  |     | $ | 15.54 | 
|Third Quarter                      |  |      | 16.49 |  |     |   | 11.30 | 
|Second Quarter (Beginning June 17) |  |      | 15.15 |  |     |   | 14.27 | 
|First Quarter                      |  |      |      |  |     |   |      | 
|Year ended December 31, 2009       |  |      |       |  |     |   |       | 
|Fourth Quarter                     |  |      |      |  |     |   |      | 
|Third Quarter                      |  |      |      |  |     |   |      | 
|Second Quarter                     |  |      |      |  |     |   |      | 
|First Quarter                      |  |      |      |  |     |   |      | 

As of
February 18, 2011, we had 169 stockholders of record of our common stock. The closing sale price of our common stock on February 18, 2011 was $19.39 per share.

We have not paid any cash dividends on our common stock during the years ended December 31, 2010 or 2009. The payment of future cash dividends is within the discretion of our board of directors and
will depend upon our future earnings, if any, our capital requirements, financial condition and other relevant factors. See Note 10 of notes to our consolidated financial statements for a description of restrictions on our ability to pay dividends.

The outstanding options and restricted shares are not transferable for consideration and do not have dividend equivalent
rights attached.

Securities Authorized For Issuance Under Equity Compensation Plans

For information regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this report.

Stockholder
Return Performance Presentation

The following graph compares the change in the cumulative total stockholder return on
our common stock during the period from June 17, 2010 (the first day our stock began trading on the NYSE) through December 31, 2010, with the cumulative total return on the S&P 500 Index and the S&P 500 Financials Index. The
comparison assumes that $100 was invested on June 17, 2010 in our common



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stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.

LOGO

Use of Proceeds from Public Offering of Common Stock

On June 16, 2010, our registration statement (File No. 333-165673) was declared effective for our initial public offering,
pursuant to which we registered the offering and sale of 3,103,822 shares of common stock by Higher One Holdings, Inc. and the associated sale of 5,896,178 shares of common stock by selling shareholders and the additional sale pursuant to the
underwriters over-allotment option for an additional 465,573 shares of common stock by us and an additional 884,427 by selling shareholders at a public offering price of $12.00 per share. The offering closed on June 22, 2010. The managing
underwriter was Goldman, Sachs & Co.

The aggregate public offering price of the offering amount registered was
$124.2 million and the offering did not terminate before all of the shares registered in the registration statement were sold. Our proceeds of $37.2 million, net of issuance costs of $5.6 million were used to pay outstanding amounts on the credit
facility of $18 million, make an escrow payment of $8.3 million related to the acquisition payable and fund working capital. We did not receive any of the proceeds from the sale of shares by the selling stockholders. We anticipate that we will use
the remaining net proceeds from our initial public offering for working capital and other general corporate purposes, which may include the acquisition of other businesses, products or technologies. We do not, however, have agreements or commitments
for any specific acquisitions at this time. Pending such uses, we have and plan to continue to invest the net proceeds in short-term, interest-bearing, investment grade securities.



|Item 6. | Selected Financial Data
|------- | -----------------------

You should read the data set forth below in conjunction with Item 7.Managements Discussion and Analysis of Financial
Condition and Results of Operations, our consolidated financial statements and related notes and other financial information included elsewhere in this report. We derived the selected financial data as of December 31, 2009 and 2010 and
for each of the three years ended December 31, 2008, 2009 and 2010 from our audited consolidated financial statements and the related notes appearing elsewhere in this report. We have revised our consolidated statements of operations for
immaterial errors for the year ended December 31, 2009 and our quarterly results during the years ended December 31, 2009 and 2010 to increase account revenue and cost of revenue for certain interchange income that was previously reflected
as a reduction in cost of revenue, rather than as account revenue. This revision has no impact on the Companys gross margin, net income or cash flows. This error was inconsequential for



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the year ended December 31, 2008. Account revenue and cost of revenue were each increased by $2,089 for the year ended December 31, 2009. Account revenue and cost of revenue were each
increased by $3,452 for the nine months ended September 30, 2010. We derived the selected financial data as of and for the years ended December 31, 2006 and 2007 and as of December 31, 2008 from our audited financial statements and
the related notes not included in this report.

Consolidated Statement of Income Data



|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|------------------------------------------------------ |  | -------------------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                       |  | Year Ended December 31,                            |           
|                                                       |  | 2006                                               |            |   | 2007 |   |            | 2008 |  |   | 2009       |   |  | 2010 |           
|                                                       |  | (in thousands, except share and per share amounts) |           
|Revenue                                                |  | $                                                  | 16,006     |   |      | $ | 27,978     |      |  | $ | 44,006     |   |  | $    | 77,606     |   |  | $ | 144,969    |  
|Cost of revenue                                        |  |                                                    | 6,569      |   |      |   | 11,140     |      |  |   | 16,302     |   |  |      | 26,529     |   |  |   | 51,845     |  
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Gross margin                                           |  |                                                    | 9,437      |   |      |   | 16,838     |      |  |   | 27,704     |   |  |      | 51,077     |   |  |   | 93,124     |  
|Operating expenses                                     |  |                                                    | 9,268      |   |      |   | 12,625     |      |  |   | 17,753     |   |  |      | 28,396     |   |  |   | 51,877     |  
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Income from operations                                 |  |                                                    | 169        |   |      |   | 4,213      |      |  |   | 9,951      |   |  |      | 22,681     |   |  |   | 41,247     |  
|Other expense                                          |  |                                                    | (503       | ) |      |   | (569       | )    |  |   | (26        | ) |  |      | (537       | ) |  |   | (700       | )
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Income before income taxes                             |  |                                                    | (334       | ) |      |   | 3,644      |      |  |   | 9,925      |   |  |      | 22,144     |   |  |   | 40,547     |  
|Income tax (benefit) expense                           |  |                                                    | (3,689     | ) |      |   | 1,362      |      |  |   | 3,547      |   |  |      | 7,925      |   |  |   | 15,488     |  
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Net income                                             |  |                                                    | 3,355      |   |      |   | 2,282      |      |  |   | 6,378      |   |  |      | 14,219     |   |  |   | 25,059     |  
|Less: Effect of redemption of preferred stock          |  |                                                    |           |   |      |   |           |      |  |   | 80,744     |   |  |      |           |   |  |   |           |  
|Less: Net income allocable to participating securities |  |                                                    | 2,657      |   |      |   | 1,808      |      |  |   |           |   |  |      | 11,477     |   |  |   | 8,910      |  
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Net income (loss) available to common shareholders     |  | $                                                  | 698        |   |      | $ | 474        |      |  | $ | (74,366    | ) |  | $    | 2,742      |   |  | $ | 16,149     |  
|                                                       |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                       |  |                                                    |            |   |     
|Net income (loss) per common share:                    |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                  |  | $                                                  | 0.06       |   |      | $ | 0.04       |      |  | $ | (7.22      | ) |  | $    | 0.29       |   |  | $ | 0.48       |  
|Diluted                                                |  |                                                    | 0.06       |   |      |   | 0.04       |      |  |   | (7.22      | ) |  |      | 0.27       |   |  |   | 0.44       |  
|Weighted average common shares outstanding:            |  |                                                    |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                  |  |                                                    | 10,927,089 |   |      |   | 10,957,833 |      |  |   | 10,306,392 |   |  |      | 9,298,131  |   |  |   | 33,395,310 |  
|Diluted                                                |  |                                                    | 55,801,845 |   |      |   | 57,090,867 |      |  |   | 10,306,392 |   |  |      | 53,150,890 |   |  |   | 57,302,843 |  



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Consolidated Balance Sheet Data



|                                                                       |  |                    |        |   |      |   |        |      |  |   |         |   |  |      |        |  |  |   |         | 
|---------------------------------------------------------------------- |  | ------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------- | - |  | ---- | ------ |  |  | - | ------- | 
|                                                                       |  | As of December 31, |       
|                                                                       |  | 2006               |        |   | 2007 |   |        | 2008 |  |   | 2009    |   |  | 2010 |       
|                                                                       |  | (in thousands)     |       
|Cash and cash equivalents                                              |  | $                  | 5,770  |   |      | $ | 9,755  |      |  | $ | 1,488   |   |  | $    | 3,339  |  |  | $ | 34,484  | 
|                                                                       |  |                    |        |   |     
|Total assets                                                           |  |                    | 13,974 |   |      |   | 18,423 |      |  |   | 13,665  |   |  |      | 58,695 |  |  |   | 119,441 | 
|                                                                       |  |                    |        |   |     
|Total debt and capital lease obligations, including current maturities |  |                    | 950    |   |      |   | 1,172  |      |  |   | 18,934  |   |  |      | 27,647 |  |  |   | 8,250   | 
|Total liabilities                                                      |  |                    | 20,740 |   |      |   | 22,675 |      |  |   | 25,402  |   |  |      | 51,589 |  |  |   | 36,050  | 
|                                                                       |  |                    |        |   |     
|Total stockholders (deficit) equity                                   |  |                    | (6,766 | ) |      |   | (4,252 | )    |  |   | (11,737 | ) |  |      | 7,106  |  |  |   | 83,391  | 



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties, which may
cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties, discussed in the section entitled Risk Factors, in Part I, Item 1A
of this report, and the note regarding Forward-Looking Statements, included at the beginning of this report. The risks and uncertainties can cause actual results to differ significantly from those forecasted in forward-looking statements
or implied in historical results and trends.

The following discussion should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report.

Overview

We believe that based on market share and the number of campuses employing our products, we are a leading provider of technology and
payment services to the higher education industry. We believe that none of our competitors can match our ability to provide solutions for higher education institutions financial services needs, including compliance monitoring, and,
consequently, that we provide the most comprehensive suite of disbursement and payment solutions specifically designed for higher education institutions and their students. We also provide campus communities with convenient, cost-competitive and
student-oriented banking services, which include extensive user-friendly features.

Our products and
services for our higher education institutional clients include our OneDisburse® Refund Management® disbursement service and our suite of payment transaction products and services. Through our bank partner, we offer
our OneAccount service to the students of our higher education institutional clients, which includes an FDIC-insured deposit account, a OneCard, which is a debit MasterCard® ATM card, and other retail banking services.

As of December 31, 2010, over 430 campuses serving approximately 3.3 million students had purchased the OneDisburse® service and over 330 campuses serving approximately 2.5 million students had contracted to use one or more of our payment products and services. We also had
approximately 1.6 million OneAccounts.

For the year ended December 31, 2010:



| |  |  | total revenue was approximately $145.0 million, representing three-year compounded annual growth of approximately 73%;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | adjusted EBITDA was approximately $59.5 million, representing three-year compounded annual growth of approximately 121%;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | adjusted net income was approximately $34.4 million representing three-year compounded annual growth of approximately 142%;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | net income was approximately $25.1 million, representing three-year compounded annual growth of approximately 122%.
| | - |  | -------------------------------------------------------------------------------------------------------------------

See Supplemental Non-GAAP Financial and Operating Information below for definitions of



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EBITDA and adjusted EBITDA and adjusted net income (each non-GAAP measures) and reconciliations to net income.

In addition, as of December 31, 2010, the number of OneAccounts had increased by a compounded annual growth rate of 65% compared to December 31, 2007.

We expect our growth to continue in the future and that our strategy will continue to offer significant opportunity for expansion. Our
growth strategy includes the following elements:



| |  |  | Expanding the number of contracted higher education institutions;
| | - |  | -----------------------------------------------------------------



| |  |  | Increasing OneAccount adoption and usage rates;
| | - |  | -----------------------------------------------



| |  |  | Cross-selling our products to existing clients to increase the number of institutions using each product;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Enhancing our products and services to create new sources of revenue; and
| | - |  | -------------------------------------------------------------------------



| |  |  | Pursuing strategic partnerships and opportunistic acquisitions.
| | - |  | ---------------------------------------------------------------

In evaluating our results, we consider a variety of operating and financial measures. The key metrics that we use to determine how our
business is performing include: (i) total number of students enrolled at our higher education institutional clients; (ii) number of active OneAccounts; (iii) total revenue; (iv) adjusted EBITDA; (v) adjusted net income; and
(vi) net income. See Supplemental Non-GAAP Financial and Operating Information below for definitions of EBITDA and adjusted EBITDA and adjusted net income (each non-GAAP measures) and reconciliations to net income.

Our primary source of revenue is generated from the use of OneAccounts. The primary factor affecting our revenue is the number of active
OneAccounts, which, in turn, is significantly affected by the total number of students enrolled at a higher education institutional client.

Revenue

We derive revenue primarily from fees
charged for the transactions that we facilitate for our higher education institutional clients and our banking customers. Most of these fees are charged on a per transaction basis and, accordingly, transaction volumes significantly affect our
revenue growth. Transaction volumes are generally a function of the number of students enrolled at each of our higher education institutional clients, as larger student populations lead to greater numbers of active OneAccounts and related banking
transactions, as well as other transactions such as OneDisburse®-based disbursements and payment transactions.

Generally, we negotiate with our higher education institutional clients the fee rates we charge them.
Fees charged to our banking and payment transaction customers are generally set by a schedule and apply unilaterally to all customers. Fees charged for OneAccount services are collected by our bank partner as incurred and subsequently remitted to
us. Fees charged on payment transactions are charged as incurred and retained by us, while fees charged in respect of our OneDisburse® product are billed to our higher education institutional clients and subsequently collected from them.

We believe our revenue stream is relatively stable, recurring and predictable, as the majority of our revenue each year is generated
through existing relationships with higher education institutions and their campus communities. For example, in 2010, including revenue generated by customers acquired through our acquisition of IDC, which we renamed Higher One Payments, Inc., in
November 2009, we generated over 90% of our revenue from contracts signed in prior years. In addition, our experience is that OneAccount, disbursement and payment transaction volumes and patterns are generally similar from one period to another,
resulting in a large degree of predictability.

Our approximately 98% retention rate since 2003 among our higher education
institutional clients, including CASHNet clients, also helps to ensure a relatively stable, recurring and predictable revenue stream.

We divide our revenue into four categories: account revenue, payment transaction revenue, higher



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education institution revenue and other revenue.

Account Revenue

We generate revenue from active OneAccounts, which are opened and funded by students and other members of the campus
community. The OneAccount offered to our customers has no monthly fee or minimum balance requirement. We earn revenue based on both interchange fees and account service fees. Account service fees include, for example, foreign ATM fees and
non-sufficient fund fees. These fees are either charged by our bank partner and remitted to us or we charge them to our clients directly. In December 2010, we began to offer a new version of the OneAccount that has a different fee schedule compared
to the original OneAccount, including a monthly fee that is waived if certain activity requirements are met.

Our bank partner
charges merchants interchange fees for point-of-sale, or POS, purchases made with OneCards and remits these fees to us. The amount of the fee generally depends on the size of the transaction, the merchant where the purchase is made and the network
through which the transaction is processed.

We earn ATM fees from transactions conducted through our ATMs with cards other
than OneCards. We also earn fees from ATM transactions conducted by OneAccount holders using their OneCards at ATMs outside of our ATM network.

Our bank partner charges NSF fees and remits them to us when OneAccount holders attempt to withdraw or transfer money from their OneAccounts in excess of their deposited funds. These NSF fees are
primarily assessed on electronic transfers from, and checks drawn on, accounts in excess of available funds. Historically, our bank partner also assessed these fees on overdrafts on debit card transactions. However, the Federal Reserve Board amended
Regulation E to limit the ability of financial institutions, effective July 1, 2010, to assess an overdraft fee for paying ATM and one-time debit card transactions that overdraw a consumers account, unless the consumer affirmatively
consents, or opts in, to the institutions payment of overdrafts for these services. We do not currently offer the opt in feature to our customers for ATM or one-time debit card transactions. In the absence of debit card-related NSF fees, our
total NSF fees per OneAccount that our bank partner remits to us began to decrease during 2010 and is expected to continue to decrease on a comparative basis until August 2011. A portion of this decrease in total revenue has been offset by a
reduction in our provision for operational losses, which is recorded in cost of revenue. This is due to a reduction in our overdraft liability and the amount of our estimated uncollectible fees. See Notes 2 and 8 to our consolidated financial
statements included elsewhere in this report.

We earn other fees for banking services provided to OneAccount holders,
including fees for conducting wire transfers, replacing lost OneCards, processing international transactions, processing stop payment requests, over-the-counter cash withdrawals using OneCards, issuing official checks and electronic bill pay
features.

While our historical experience has been that account revenue generated per OneAccount has been
generally stable year over year, with total account revenue generally increasing proportionally with increases in the number of OneAccounts, the implementation of Regulation E in the third quarter of 2010 along with other changes that we made to our
account fee schedule, decreased the revenue per OneAccount in that period compared to the same period in the prior year. This continued into the fourth quarter of 2010, and we expect account revenue per OneAccount to continue to be lower in 2011
compared to previous periods as the result of non-sufficient funds fee changes made in response to regulations and other changes we made through the third quarter of 2011. Notwithstanding the decrease in non-sufficient fund fees, the primary
influence on account revenue growth is expected to continue to be the number of active OneAccounts. Growth in the number of accounts is tied to growth in the number of students enrolled at our OneDisburse® higher education institutional clients, which expands as new clients contract to use this product. The average
percentage of students that maintain OneAccounts at a higher education institution generally increases over the first several years after the higher education institution becomes a OneDisburse® client. We believe the rate of OneAccount adoption varies, however, based on factors including, but not limited to, the average tenure of a student at a higher
education institution,



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whether the higher education institution is a 2-year or a 4-year school or a public or private school and the mix of undergraduate and graduate students.

The number of OneAccounts has risen in each of the last three years, which has led to a compounded annual growth rate of 72% in account
revenue over this period. While we expect the number of OneAccounts to continue to grow in the near-term, there is a possibility that further legislative and regulatory changes will be enacted in the near-term that may reduce account revenue. See
Part I, Item 1A. Risk FactorsFees for financial services are subject to increasingly intense legislative and regulatory scrutiny, which could have a material adverse effect on our business, financial condition, results of operations
and prospects for future growth of this report.

Payment Transaction Revenue

We generate payment transaction revenue through convenience fees charged to students, parents or other payers who make online payments to
our higher education institutional clients through the SmartPay feature of our ePayment product using a credit or debit card. As this fee is assessed on a per transaction basis, growth in payment transaction revenue is primarily influenced by
transaction volumes. We acquired ePayment when we purchased IDC in November 2009.

Higher Education Institution Revenue

Our higher education institutional clients pay fees for the products and services they purchase from
us. We charge our clients: (i) an annual subscription fee based on the size of their student population; (ii) a per-transaction fee; or (iii) a combination of both. For certain payment transaction products, we also charge an
implementation fee, which is deferred and recognized over the estimated client relationship period, which we estimate to be five years. Historically, revenue from higher education institutions has been primarily comprised of carding and transaction
fees related to our OneDisburse® product. However, with our acquisition of IDC in November 2009, the composition
of our higher education institution revenue changed substantially, with a large proportion of this revenue stream to being derived from our payment products-related revenue.

The number of students enrolled at client institutions and the number of campuses under contract are significant drivers of our higher education institution revenue. As we have expanded the number of our
institutional clients over the last three years, our higher education institution revenue has grown by a compounded annual rate of 87%. We expect that assuming our institutional client base grows, our higher education institution revenue will also
increase.

Other Revenue

Other revenue consists of two main components: a marketing incentive fee paid by MasterCard International Incorporated based on transaction volumes and new OneCard issuances and processing fees paid by
our bank partner based on the total amount of deposits held in our OneAccounts and prevailing interest rates. Because the amount of the processing fee is in part a function of prevailing interest rates, this revenue stream has historically
fluctuated in accordance with interest rate movements. Since 2008, fees paid by our bank partner have been relatively small due to low interest rates. If prevailing interest rates rise our processing fee will also increase. Currently, this revenue
stream is immaterial to our overall results of operations.

Cost and Expenses

Employee compensation and related expenses represent our largest single expense. We allocate compensation and other related expenses,
including stock-based compensation, to cost of revenue, product development, sales and marketing and general and administrative expenses. While we expect the number of our employees to increase over time, we believe the economies of scale in our
business model will allow us to grow our compensation and related expenses at a lower rate than revenue.

Other costs and
expenses include outsourced managed hosting, data processing, ATM-related expenses, professional services, office lease payments, travel and amortization.

The following summarizes our cost of revenue and certain significant operating expenses:



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Cost of Revenue

Cost of revenue consists primarily of data processing expenses, interchange expenses related to SmartPay and ATM transactions,
uncollectible fees and write-offs and customer service expenses. These expenses are shared across our different revenue categories and we are not able to meaningfully allocate such costs between separate categories of revenue. Consequently, all
costs and expenses applicable to our revenue are included in the cost of revenue category in our statements of operations. These expenses generally move in line with the number of active OneAccounts and transaction volumes for our banking and
payment transactions services.

General and Administrative

General and administrative expenses include finance, legal, compliance, facility and administration costs, as well as components of
operational costs such as ATM cash services and maintenance, data center costs and costs associated with our information technology. These costs include employee compensation and related expenses, as well as fees for professional services. As a
newly public company, we have started to incur additional general and administrative expenses as a result of our obligations to comply with the ongoing obligations of a public company, including the SECs ongoing reporting obligations, director
and officer liability insurance and other expenses.

Product Development

Product development expenses include costs associated with defining and specifying new features and ongoing enhancements for our
proprietary technology platform and other aspects of our service offerings. Product development costs primarily relate to employee compensation.

Sales and Marketing

Sales and marketing expenses include costs of
acquiring new institutional clients and educating their students about our services in order to improve the adoption and usage rates of our OneAccount and our other student-oriented products and services. The majority of our sales and marketing
expenses are comprised of employee compensation. Each of our sales representatives earns: (i) a base salary; (ii) sales commissions, which are earned upon the signing of a contract with a higher education institutional client; and
(iii) generally, certain trailing commissions, which are based on account performance. Having nearly doubled the number of our sales and marketing personnel with our acquisition of IDC, our sales and marketing expense increased significantly
during 2010.

We record stock-based customer acquisition expense in connection with the EduCard acquisition from 2008 and
pursuant to a related intellectual property purchase agreement. The amount of stock-based customer acquisition expense depends on the number of shares released from escrow to Kevin Jones and the value of the shares at that time. We also record
cash-based customer acquisition expense in connection with our acquisition of IDC in November of 2009.

IDC Acquisition

In November of 2009, we acquired IDC, a leader in providing cashiering and payment solutions in
higher education, which we renamed Higher One Payments, Inc. This transaction provided us with our suite of payment transaction products and services, the capability to offer our higher education institutional clients a full complement of services
and nearly doubled the number of campuses with which we have relationships. At the time of the acquisition there was only a 6% overlap of students enrolled at institutions that were clients using both Higher One® and IDC products and services. Our overlap has increased to approximately 9% as of December 31, 2010 and we
expect our overlap to continue to increase in the future as a result of future cross-sales.

We purchased IDC for $27.5
million, which was financed by cash and debt. At closing, we paid an initial payment of $17.6 million that was funded with $9.9 million of available cash and $7.7 million of borrowings under our existing credit line. The remaining non-interest
bearing post-closing payment of $10 million was due to the former shareholders in quarterly payments through December 31, 2010. During 2010, we made one payment of $1.75 million to the former shareholders and deposited the remaining $8.25
million in an escrow account, which amount remains the subject of an ongoing dispute. See also



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Part I, Item 3. Legal Proceedings of this report.

In
acquiring IDC, we purchased its payment transaction suite of products and services, such as ePayment, eBill, MyPaymentPlan, eMarket and Cashiering, which we did not previously offer. See also Part I, Item 1. BusinessProducts and
ServicesPayment Suite of this report.

Critical Accounting Policies

A number of our accounting policies require the application of significant judgment by our management, and such judgments are reflected
in the amounts reported in our consolidated financial statements. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our
historical experience, terms of existing contracts, managements observation of trends in the industry and information available from other outside sources, as appropriate. On an ongoing basis, we evaluate our estimates and judgments. Actual
results may differ significantly from the estimates contained in our consolidated financial statements. We believe that the following are our critical accounting policies.

Provision for Operational Losses

We have entered into an agreement with
The Bancorp Bank to hold all deposit accounts opened by OneAccount holders. Although those deposit funds are held by The Bancorp Bank, we are liable to the bank for any uncollectible accountholder overdrafts and any other losses due to fraud or
theft. We provide reserves for our estimated overdraft liability and our estimated uncollectible fees to The Bancorp Bank. The provision for these reserves is included within the costs of revenue on the consolidated financial statements included in
this report. Such reserve is based upon an analysis of outstanding overdrafts and historical repayment rates. For the years ended December 31, 2008, 2009 and 2010, we provided for additional reserves for operational losses related to
uncollectible accountholder overdrafts of $4.6 million, $5.5 million and $7.2 million, respectively. If the financial condition of the accountholders were to deteriorate, thereby reducing their ability to make payments, additional reserves would be
required.

Goodwill and Intangible Assets

Goodwill represents costs in excess of the fair value of consideration transferred over the fair values assigned to the underlying net identifiable assets of acquired businesses. Annual impairment testing
of goodwill is assessed in accordance with FASB ASC 350, IntangiblesGoodwill and Other, or ASC 350, which compares carrying values of the reporting units to fair values and, when appropriate, the carrying value of these assets is
reduced to fair value.

Our goodwill balance is entirely attributable to our acquisition of IDC on November 19, 2009. We
perform our annual goodwill impairment analysis as of October 31, or whenever events or changes in circumstances indicate that an impairment may have occurred.

We determined our reporting units in accordance with FASB ASC 280 Segment Reporting, or ASC 280, and ASC 350. We evaluate reporting units by first identifying their operating segments under
ASC 280. We then evaluate each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, we evaluate those components
to determine if they must be aggregated into one or more reporting units. When determining if it is appropriate to aggregate a newly acquired operating segment with our existing operating segment, we evaluate the sellers historical results for
the newly acquired company and its future prospects. This evaluation generally includes the newly acquired operating segments budget and the actions that our management expects to take with respect to the recently acquired operating segment,
as well as an evaluation of the likelihood that such actions will be implemented. If, after evaluating the future prospects, we determine that the two segments are economically similar within a reasonable period of time, the two operating segments
are aggregated. We have one operating segment and reporting unit.

Impairment may result from, among other things,
deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including



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changes that restrict the activities of the acquired business, and a variety of other circumstances. Actual cash flows arising from a particular reporting unit could vary from projected cash
flows, which could imply different carrying values from those established at the date of acquisition, and which could result in impairment of such assets. If it is determined that an impairment has occurred, we would record a write-down of the
carrying value and charge the impairment as an operating expense in the period the determination is made. During 2009 and 2010, we were not required to record any impairment on goodwill or intangible assets. As of the completion of our impairment
test on October 31, 2010, our reporting unit was not at risk of failing step one of the goodwill impairment test.

We
assess the impairment of identifiable intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include
the following:



| |  |  | significant underperformance relative to historical or projected future operating results;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends.
| | - |  | -------------------------------------------------

When we determine that the carrying value of intangible assets may not be recoverable based upon the existence of one or more of the above indicators of potential impairment, we assess whether an
impairment has occurred based on whether net book value of the assets exceeds related projected undiscounted cash flows from these assets. We consider a number of factors, including past operating results, budgets, economic projections, market
trends and product development cycles in estimating future cash flows. Differing estimates and assumptions as to any of the factors described above could result in a materially different impairment charge and thus materially different results of
operations.

Stock-Based Compensation

We account for stock-based compensation expense in accordance with FASB ASC 718, CompensationStock Compensation, or ASC 718, which requires the measurement and recognition of
compensation expense for share-based awards based on the estimated fair value on the date of grant. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following range of assumptions
for stock options granted during the years ended December 31, 2008, 2009 and 2010:



|                       |  |                 |  |                 |  |                
|---------------------- |  | --------------- |  | --------------- |  | ---------------
|                       |  | 2008            |  | 2009            |  | 2010           
|Expected term(1)       |  | 6.3 - 6.5 years |  | 5.8 - 6.3 years |  | 6.2 - 6.3 years
|Expected volatility(2) |  | 40.2%           |  | 50.7%           |  | 51.0 - 51.9%   
|Risk-free rate(3)      |  | 2.4% - 3.4%     |  | 2.2% - 3.2%     |  | 1.5% - 3.0%    
|Expected dividends(4)  |  | None            |  | None            |  | None           



|(1) | Expected term is the period of time that the equity grants are expected to remain outstanding. We calculate the expected life of the options as prescribed under the
provisions of ASC 718. We generally use the midpoint between the end of the vesting period and the contractual life of the grant to estimate option exercise timing.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Expected volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate
(expected volatility) during a period. We based our estimated volatility on the historical volatility of a peer group of publicly traded companies, which includes companies that are in the same industry or are our competitors.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Risk-free rate is the average U.S. Treasury rate at the time of grant having a term that most closely approximates the expected term of the option.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We have never declared or paid dividends on our common stock and do not anticipate paying
|--- | -----------------------------------------------------------------------------------------



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| | dividends in the foreseeable future.
| | ------------------------------------

These options
expire ten years from the date of grant. Options for our employees vest over periods ranging from one month to five years, with the majority vesting as follows: one-fifth of the granted options vest one year from the date of grant; the remaining
four-fifths vest at a rate of 1/48 per month over the remaining four years of the vesting period. The board grants primarily incentive stock options, but occasionally grants nonqualified stock options to key members of management.

The amount of stock based compensation expense we recognize during a period is based on the portion of the awards that are ultimately
expected to vest. We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

Restricted stock is a stock award that entitles the holder to receive shares of our common stock as the award vests over time. The board has not granted restricted stock awards prior to 2009 when it
granted a total of 43,344 shares to its executive officers. These awards vest over four years which start on the first anniversary of the grant. The fair value of each restricted stock award is estimated using the intrinsic value method that is
based on the fair value of our common stock on the date of grant. Compensation expense for restricted stock awards is recognized ratably over the vesting period on a straight-line basis.

Generally, employees have received stock option grants when joining the company and then may have received periodic awards thereafter in
the discretion of the board, although the timing of additional awards has previously not been made according to any established policy. The board intended all options to be granted with an exercise price equal to or greater than the per share fair
value of our common stock underlying those options on the date of grant. On each of the grant dates during 2008, 2009 and up until our common stock offering in June 2010, the fair value of common stock underlying stock options granted was either
estimated by the board on a contemporaneous basis with input from management and an independent valuation firm or was determined not to have changed since a prior valuation. Given the absence of a public trading market in our common stock through
June 2010, our board considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each meeting at which stock option grants were approved. These factors included, but were not limited
to, the following:



| |  |  | developments in our business;
| | - |  | -----------------------------



| |  |  | issuances of our preferred stock;
| | - |  | ---------------------------------



| |  |  | the rights and preferences of our convertible preferred stock relative to our common stock;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | independent valuations of our common stock;
| | - |  | -------------------------------------------



| |  |  | the lack of marketability of our common stock;
| | - |  | ----------------------------------------------



| |  |  | the likelihood of achieving a liquidity event, given prevailing market conditions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the per share value of any recent preferred stock financing and the amount of convertible preferred stock liquidation preferences;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current and historical operating performance and current financial condition;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | our operating and financial projections;
| | - |  | ----------------------------------------



| |  |  | the stock price performance of a peer group comprised of selected publicly-traded companies identified as being comparable to us; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | economic conditions and trends in the broad market for stocks.
| | - |  | --------------------------------------------------------------

If we had made different assumptions and estimates, the amount of our recognized and to be recognized stock-based compensation expense
could have been materially different. We believe that the board used reasonable methodologies, approaches and assumptions in determining the fair value of our common stock.



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We requested periodic valuation reports from an independent valuation firm, prepared
consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation in 2008, 2009 and up until our common stock offering in
June 2010. Each valuation recommended a fair value of our common stock on a minority, non-marketable basis as of the date of the report.

In valuing our common stock, our independent valuation firm determined our business enterprise value using two valuation approaches, an income approach and a market approach.



| |  |  | The income approach estimates the present value of future estimated debt-free cash flows, based upon forecasted revenue and costs. These discounted
cash flows are added to the present value of our estimated enterprise terminal value, the multiple of which is derived from comparable company market data. These future cash flows are discounted to their present values using a rate corresponding to
our estimated weighted average cost of capital. The discount rate is derived from an analysis of the weighted average cost of capital of our publicly-traded peer group as well as cost of capital studies for similar stage companies as of the
valuation date and is adjusted to reflect the risk inherent in our cash flows.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The market approach estimates the fair value of a company by applying to that company the market multiples of comparable publicly-traded companies. A
multiple of key metrics implied by the enterprise values or acquisition values of our publicly-traded peers is calculated. Based on the range of these observed multiples, size of the company, company specific factors such as growth and margins, and
professional judgment a appropriate adjustment to the publicly-traded companies median multiple is applied our metrics in order to derive an indication of value.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

After determining a business enterprise value indication under each approach, the enterprise value was allocated to debt holders and then
to each of our classes of stock using a liquidation analysis that took into consideration each class of shareholders rights and preferences to proceeds. Under each of the value indications based on the shareholder agreements, the preferred
shareholders would automatically convert to common shareholders. The two per share value indications were weighted to determine the concluded fair value of a share of common stock on a minority, non-marketable basis.

Upon our common stock offering in June 2010, we have relied upon on the trading price of our common stock to determine fair value of our
common stock.

Grants in 2008, 2009 and 2010

With respect to equity grants made in 2008, 2009 and up until our common stock issuance in June 2010, the key assumptions in the common stock valuations recommended by an independent valuation firm were
as follows:



|                  |  |                                                             |  |                                  |    |   |                                 |  |    |                   |  |   |       | 
|----------------- |  | ----------------------------------------------------------- |  | -------------------------------- | -- | - | ------------------------------- |  | -- | ----------------- |  | - | ----- | 
|Date of Valuation |  | DiscountedCash FlowsMethod /GuidelinePublicCompanyWeighting |  | Discount forLack ofMarketability |    |   | DiscountedCash FlowDiscountRate |  |    | CommonStock Value | 
|December 31, 2008 |  | 75% / 25%                                                   |  |                                  | 30 | % |                                 |  | 20 | %                 |  | $ | 3.43  | 
|June 30, 2009     |  | 75% / 25%                                                   |  |                                  | 30 | % |                                 |  | 20 | %                 |  |   | 5.56  | 
|November 19, 2009 |  | 75% / 25%                                                   |  |                                  | 20 | % |                                 |  | 25 | %                 |  |   | 10.80 | 
|March 15, 2010    |  | 75% / 25%                                                   |  |                                  | 15 | % |                                 |  | 23 | %                 |  |   | 13.94 | 

For purposes of the
December 2008 and June 2009 valuations, the comparable publicly-traded companies utilized in the market approach consisted of Alliance Data Systems Corporation, CyberSource Corp., MasterCard Incorporated, TNS Inc. and Total Systems Services, Inc.
The list was expanded to include Visa, Inc. in the November 2009 valuation report and to include Financial Engines, Inc. in the March 2010 valuation report.



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We have set forth in the table below information regarding stock options granted during 2009
and through May 2010. Following the table, we have described the significant factors contributing to our determinations of fair market value and setting of option exercise prices throughout this period.



|                   |  |                          |         |  |               |   |       |                 |  |   |      | 
|------------------ |  | ------------------------ | ------- |  | ------------- | - | ----- | --------------- |  | - | ---- | 
|Date of Grant      |  | Number ofOptions Granted |         |  | ExercisePrice |   |       | OptionFairValue | 
|January 27, 2009   |  |                          | 301,500 |  |               | $ | 4.59  |                 |  | $ | 2.34 | 
|March 19, 2009     |  |                          | 34,500  |  |               |   | 4.59  |                 |  |   | 2.34 | 
|May 21, 2009       |  |                          | 57,750  |  |               |   | 4.59  |                 |  |   | 2.39 | 
|July 23, 2009      |  |                          | 65,250  |  |               |   | 5.67  |                 |  |   | 2.99 | 
|September 24, 2009 |  |                          | 60,750  |  |               |   | 5.67  |                 |  |   | 2.97 | 
|November 6, 2009   |  |                          | 81,750  |  |               |   | 5.67  |                 |  |   | 2.97 | 
|December 4, 2009   |  |                          | 639,750 |  |               |   | 10.80 |                 |  |   | 5.59 | 
|March 26, 2010     |  |                          | 378,000 |  |               |   | 13.94 |                 |  |   | 7.42 | 
|May 6, 2010        |  |                          | 30,000  |  |               |   | 13.94 |                 |  |   | 7.33 | 

January, March and
May 2009. On January 27, 2009, the board granted options with a strike price of $4.59 per share. We had received a valuation recommendation from the independent valuation firm of $3.43 as of December 30, 2008. However, the board had
previously granted options in the second half of 2008 with a strike price of $4.59 per share. This price had been set based upon the per share sale price of Series E Convertible Preferred Shares to Lightyear Capital in August 2008. The board decided
to grant options in January at the same strike price despite the lower third party stock valuation. The board continued to grant options on March 19 and May 21 utilizing the $4.59 strike price based upon the companys determination
that the fair market value of the common stock had not increased above such price as a result of intervening events or changed financial conditions.

July through November 2009. On July 23, 2009, our board determined a fair market value of our common stock of $5.67 for purposes of setting exercise prices for options granted on that day.
This determination was based on the factors described above, as well as the independent valuation firms valuation recommendation of $5.56 in its June 30, 2009 report. The higher price in the report was a result of an increase in our
enterprise value as determined under both the discounted cash flow method and the guideline public company method described above. In addition the terminal exit multiple increased based on the guideline public company multiple increase. The increase
in value under the guideline public company method resulted primarily from an increase in the relevant multiple. The increase in value is reflected in the increase in revenue and adjusted EBITDA, which exceeded our 2009 plan. The board continued to
grant options on September 24 and November 6 using the $5.67 strike price based on our determination that the fair market value of our common stock had not increased above such price as a result of intervening events or changed financial
conditions.

December 2009. On December 4, 2009, the board determined a fair market value of our common stock of
$10.80 for purposes of setting exercise prices for options granted on that day. This determination was based on the factors described above as well as the independent valuation firms valuation recommendation of $10.80 in its November 19,
2009 report. Several factors contributed to the significant increase in value from the prior valuation in June 2009 including an increase in public comparables (42%), the value built by the company in the intervening six months as reflected in the
increase in its revenue and adjusted EBITDA in excess of its 2009 business plan, the increased potential for an IPO based upon the stabilization of the financial markets and feedback from the companys investment bank and the increase in
revenue and adjusted EBITDA as well as market and long-term growth potential resulting from its acquisition of IDC.

March
2010. On March 26, 2010, the board determined a fair market value of our common stock of $13.94 for purposes of setting exercise prices for options granted on that day. This determination was based on the factors described above as well as
the independent valuation firms valuation recommendation of $13.94 in its March 15, 2010 report. Several factors contributed to the increase in value from the prior valuation in November 2009. The company built value in the intervening
period as



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reflected in its exceeding the first two months of 2010s operating plan in both revenue and adjusted EBITDA, in the significant growth in the trailing twelve month financials as of the
valuation date compared to those as of October 2009 (32% revenue growth and 35% adjusted EBITDA growth) and significant new sales through the valuation date (49% of entire 2010 operating plan). In addition, the IPO liquidity potential continued to
increase based upon feedback from the companys investment bank. Lastly, the acquisition of IDC continued to contribute to higher than projected results compared to the operating plan by adding new revenue and adjusted EBITDA to the combined
financial projections, increasing the companys addressable market with university payments and the companys long-term growth potential and allowing for better than anticipated synergies and cross-selling.

May 2010.On May 6, 2010, consistent with its ordinary granting practices, the compensation committee granted an aggregate of
30,000 options to six new employees (none of whom are officers of the company) who were hired since the last meeting of our board of directors. The compensation committee set the exercise price for the options at $13.94, the same price used for
options granted at its meeting six weeks earlier (as explained above). Consistent with its past practice and in light of the immaterial amount of options being granted, the compensation committee did not commission an independent valuation. In
determining not to raise the exercise price, the compensation committee was influenced by the extreme volatility of the stock market on the date of grant and the effect it could have on other companies stock prices and on the timing of the
offering, both of which play a role in the valuation of our stock.

After May 2010, the board set the exercise price for
options granted based on the average of the high and low price of our common stock the day prior to the grant date.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases
and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carry-forwards. These deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when
such amounts are expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely
than not to be ultimately realized.

Income tax provision or benefit includes U.S. federal, and state and local income taxes
and is based on pre-tax income or loss. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the
impact of state and local taxes and our ability to use tax credits and net operating loss carry-forwards.

Business Combinations

We follow the provisions of FASB ASC 805, Business Combinations, or ASC 805, which requires the acquiring
entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a
business combination.



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Results of Operations for the Years Ended December 31, 2008, 2009 and 2010

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and
as a percentage of total revenue:



|                |                |                         |        |                          |                          |   |              |  |  |      |         |  |      |   |        |      |  |   |        |  |  |  |      |   |  |  |      |  
|--------------- | -------------- | ----------------------- | ------ | ------------------------ | ------------------------ | - | ------------ |  |  | ---- | ------- |  | ---- | - | ------ | ---- |  | - | ------ |  |  |  | ---- | - |  |  | ---- | -
|                |                | Year Ended December 31, |        |                          | Change from prior period |  
|                | 2008           |                         |        | 2009                     |                          |   | 2010         |  |  | 2009 |         |  | 2010 |   |        | 2009 |  |   | 2010   | 
|                | (in thousands) |                         |        | (in thousands ofdollars) |                          |   | (percentage) | 
|Account revenue |                | $                       | 37,570 |                          |                          | $ | 68,529       |  |  | $    | 113,516 |  |      | $ | 30,959 |      |  | $ | 44,987 |  |  |  | 82.4 | % |  |  | 65.6 | %



|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|------------------------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------ | - |  |  | ------- | -- |  |  | ----- | -
|Payment transaction revenue          |  |   | 29     |   |  |   | 1,688  |   |  |   | 15,742  |   |  |   | 1,659  |   |  |   | 14,054 |   |  |  | 5,720.7 | %  |  |  | 832.6 | %
|Higher education institution revenue |  |   | 3,220  |   |  |   | 5,135  |   |  |   | 12,543  |   |  |   | 1,915  |   |  |   | 7,408  |   |  |  | 59.5    | %  |  |  | 144.3 | %
|Other revenue                        |  |   | 3,187  |   |  |   | 2,254  |   |  |   | 3,168   |   |  |   | (933   | ) |  |   | 914    |   |  |  | (29.3   | %) |  |  | 40.6  | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|Total revenue                        |  |   | 44,006 |   |  |   | 77,606 |   |  |   | 144,969 |   |  |   | 33,600 |   |  |   | 67,363 |   |  |  | 76.4    | %  |  |  | 86.8  | %
|Cost of revenue                      |  |   | 16,302 |   |  |   | 26,529 |   |  |   | 51,845  |   |  |   | 10,227 |   |  |   | 25,316 |   |  |  | 62.7    | %  |  |  | 95.4  | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|Gross margin                         |  |   | 27,704 |   |  |   | 51,077 |   |  |   | 93,124  |   |  |   | 23,373 |   |  |   | 42,047 |   |  |  | 84.4    | %  |  |  | 82.3  | %
|General and administrative expense   |  |   | 11,725 |   |  |   | 18,143 |   |  |   | 32,381  |   |  |   | 6,418  |   |  |   | 14,238 |   |  |  | 54.7    | %  |  |  | 78.5  | %
|Product development expense          |  |   | 1,629  |   |  |   | 2,287  |   |  |   | 3,311   |   |  |   | 658    |   |  |   | 1,024  |   |  |  | 40.4    | %  |  |  | 44.8  | %
|Sales and marketing expense          |  |   | 4,399  |   |  |   | 7,966  |   |  |   | 16,185  |   |  |   | 3,567  |   |  |   | 8,219  |   |  |  | 81.1    | %  |  |  | 103.2 | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|Income from operations               |  |   | 9,951  |   |  |   | 22,681 |   |  |   | 41,247  |   |  |   | 12,730 |   |  |   | 18,566 |   |  |  | 127.9   | %  |  |  | 81.9  | %
|Interest and other expense, net      |  |   | 412    |   |  |   | 558    |   |  |   | 729     |   |  |   | 146    |   |  |   | 171    |   |  |  | 35.4    | %  |  |  | 30.6  | %
|Interest and other income, net       |  |   | (386   | ) |  |   | (21    | ) |  |   | (29     | ) |  |   | 365    |   |  |   | (8     | ) |  |  | (94.6   | %) |  |  | 38.1  | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|Income before income taxes           |  |   | 9,925  |   |  |   | 22,144 |   |  |   | 40,547  |   |  |   | 12,219 |   |  |   | 18,403 |   |  |  | 123.1   | %  |  |  | 83.1  | %
|Income tax expense                   |  |   | 3,547  |   |  |   | 7,925  |   |  |   | 15,488  |   |  |   | 4,378  |   |  |   | 7,563  |   |  |  | 123.4   | %  |  |  | 95.4  | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  
|Net income                           |  | $ | 6,378  |   |  | $ | 14,219 |   |  | $ | 25,059  |   |  | $ | 7,841  |   |  | $ | 10,840 |   |  |  | 122.9   | %  |  |  | 76.2  | %
|                                     |  |   |        |   |  |   |        |   |  |   |         |   |  |   |        |   |  |   |        |   |  |  |         |    |  |  |       |  



|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -
|                                     |  | Year Ended December 31, |      
|                                     |  | 2008                    |       |    | 2009 |  |       | 2010 | 
|                                     |  | (% of total revenue)    |      
|Account revenue                      |  |                         | 85.4  | %  |      |  | 88.3  | %    |  |  | 78.3  | %
|Payment transaction revenue          |  |                         | 0.1   | %  |      |  | 2.2   | %    |  |  | 10.9  | %
|Higher education institution revenue |  |                         | 7.3   | %  |      |  | 6.6   | %    |  |  | 8.7   | %
|Other revenue                        |  |                         | 7.2   | %  |      |  | 2.9   | %    |  |  | 2.2   | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|Total revenue                        |  |                         | 100.0 | %  |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of revenue                      |  |                         | 37.0  | %  |      |  | 34.2  | %    |  |  | 35.8  | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|Gross margin                         |  |                         | 63.0  | %  |      |  | 65.8  | %    |  |  | 64.2  | %
|General and administrative expense   |  |                         | 26.7  | %  |      |  | 23.4  | %    |  |  | 22.3  | %
|Product development expense          |  |                         | 3.7   | %  |      |  | 2.9   | %    |  |  | 2.3   | %
|Sales and marketing expense          |  |                         | 10.0  | %  |      |  | 10.3  | %    |  |  | 11.2  | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|Income from operations               |  |                         | 22.6  | %  |      |  | 29.2  | %    |  |  | 28.5  | %
|Interest and other expense, net      |  |                         | 0.9   | %  |      |  | 0.7   | %    |  |  | 0.5   | %
|Interest and other income, net       |  |                         | (0.9  | %) |      |  | 0.0   | %    |  |  | 0.0   | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|Income before income taxes           |  |                         | 22.6  | %  |      |  | 28.5  | %    |  |  | 28.0  | %
|Income tax expense                   |  |                         | 8.1   | %  |      |  | 10.2  | %    |  |  | 10.7  | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  
|Net income                           |  |                         | 14.5  | %  |      |  | 18.3  | %    |  |  | 17.3  | %
|                                     |  |                         |       |    |      |  |       |      |  |  |       |  

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009



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Account revenue

The increase in account revenue was primarily due to an increase of 61.2%, or 0.6 million, in the number of OneAccounts from
December 31, 2009 to December 31, 2010. Greater adoption of the OneAccount at existing higher education institution clients accounted for 47% of the increase in OneAccounts, while 53% of the increase was due to new higher education
institution clients. The increase in the number of OneAccounts resulted in increases in interchange fees relating to point of sale purchases made with our OneCards, ATM fees, and other fees that our bank partner remitted to us. While our historical
experience has been that account revenue generated per OneAccount has been generally stable year over year, with total account revenue generally increasing proportionally with increases in the number of OneAccounts, the implementation of Regulation
E in the third quarter of 2010 as well as other changes we made to our fee schedule decreased the revenue per OneAccount compared to the same period in the prior year. This continued into the fourth quarter of 2010 and we expect the account revenue
per OneAccount to continue to be lower than in previous periods as the result of non-sufficient funds fee changes made in response to regulations and other changes we made through the third quarter of 2011.

Payment Transaction Revenue

The increase in payment transaction revenue was primarily generated from our
CASHNet® payment transaction products, which were added to our product offering with the acquisition of IDC in
November 2009 and, accordingly, were only included in our payment transaction revenues for approximately one and one half months during the twelve months ended December 31, 2009.

Higher Education Institution Revenue

The increase in higher education institution revenue was primarily due to the inclusion of a full year of subscription and deployment revenue from our CASHNet® suite of products compared to only approximately 42 days of revenue in 2009.

Other Revenue

The increase in other revenue was primarily due to an increase of 26.6% in the marketing incentive fees payable to us from MasterCard due to higher MasterCard issuance incentives. An increase of 80.3% in
processing fees that our bank partner paid to us, which resulted primarily from an increase in OneAccount deposits, also contributed to the growth in other revenue.

Cost of Revenue

The inclusion of processing
fees related to our CASHNet® payment transaction revenue for the whole year in 2010, compared to only 42 days in
2009, accounted for $9.8 million, or 38.6% of the total growth in cost of revenue. Increases in data processing expenses of $4.6 million, or 67.8%, network fees and expenses of $2.7 million or 61.5% and customer service expenses of $2.0 million, or
61.1%, also contributed to the increase. The growth in these expenses was primarily due to a 61.2% increase in the number of active OneAccounts. An increase in amortization expense, primarily related to deferred implementation costs, of $2.0
million, or 132.1%, was driven by both new client implementations and the inclusion of costs resulting from our
CASHNet® deployments. Write-offs and the provision for uncollectible fees increased $2.6 million, or 42.4%,
driven by the increase in the number of active OneAccounts, which was partially offset by higher fee collection rates and lower aggregate overdrawn balances resulting from the implementation of amendments to Regulation E. The lower margin generally
attained on the CASHNet® payment transaction revenue contributed to the 1.6% overall decrease in gross margin
percentage.

General and Administrative Expense

The increase in general and administrative expense was driven primarily by increases of $6.8 million, or 69.2%, in employee compensation
allocated to general and administrative expenses; $2.3 million, or 159.8%, in depreciation and amortization; and $1.5 million, or 107.9%, in information technology expenses. These expenses were the result of both the acquisition of IDC in November
2009



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and of growth in our existing lines of business. Additionally, professional fees increased $1.3 million, or 106.3%, driven by growth in the size and complexity of our business and the additional
costs of operating as a publicly traded company.

Product Development Expense

The increase in product development expense was primarily due to an increase in employee and outsourced costs primarily related to the
addition of product development employees from CASHNet.

Sales and Marketing Expense

The increase in sales and marketing expense was primarily due to an increase of $4.9 million in the non-cash, stock-based sales
acquisition expense related to the vesting of certain shares issued in connection with the acquisition of EduCard due to a higher average share price at the date of vesting. Increases in costs related to employee compensation of $2.1 million,
primarily related to the addition of employees from Higher One Payments, Inc., and cash-based sales acquisition expense related to the acquisition of IDC of $0.7 million also contributed to the overall increase.

Interest Expense

The increase in interest expense was primarily due to the accretion of interest related to the acquisition payable incurred as a result of the IDC acquisition in November 2009 and amortization of
financing costs associated with amending the credit facility in July and December of 2009.

Income Tax Expense

The increase in income tax expense was primarily due to an increase of $18.4 million, or 83.1%, in net income before
taxes and also a higher effective state tax rate. The effective tax rates for the years ended December 31, 2009 and 2010 were 35.8% and 38.2%, respectively.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Account revenue

The increase in account revenue was primarily due to an
increase of 81.2% in the number of OneAccounts compared to the previous year, which resulted in increases in interchange fees that our bank partner remitted to us and relating to POS purchases made with our OneCards, ATM fees and NSF fees that our
bank partner remitted to us.

Payment Transaction Revenue

Payment transaction revenue was $1.7 million for the year ended December 31, 2009, which was primarily generated by the inclusion of
42 days of revenue generated by our CASHNet payment transaction products from the consummation of the acquisition in November 2009 to year end. See Part II, Item 7. Managements Discussion and Analysis of Financial Condition
and Results of OperationsIDC Acquisition, above.

Higher Education Institution Revenue

The increase in higher education institution revenue was primarily due to an increase of 33.1% in card fees and an
increase of 55.3% in transaction fees related to our OneDisburse® product due primarily to an increase in the
number of higher education institutional clients using this product compared to the previous year. The inclusion of 42 days of revenue generated by the payment transaction products and services that we acquired when we purchased IDC in
November 2009 also accounted for 33.7% of the total increase in higher education institution revenue.

Other Revenue



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The decrease in other revenue was primarily due to a decrease of 83.5% in the processing
fees that our bank partner pays to us caused by a decline in prevailing interest rates during the year ended December 31, 2009. This decrease was partially offset by an increase of 64.4% in the marketing incentive fees that MasterCard paid to
us.

Cost of Revenue

The increase in cost of revenue was comprised of an increase of $2.8 million, or 184.4%, in interchange expenses, an increase of $1.7 million, or 32.5%, in data processing expenses, an increase of $1.2
million, or 24.3%, in uncollectible fees and write-offs, an increase of $1.8 million, or 84.6%, in customer service expenses and an increase of $0.6 million, or 33.3%, in card issuance expenses. The growth in these expenses was primarily due to an
increase of 81.2% in the number of active OneAccounts and the related increase in transaction volume for our banking services. The inclusion of 42 days of costs related to our recently acquired payment transaction products and services
accounted for $1.4 million, or 17.1%, of the total increase in cost of revenue.

General and Administrative Expense

The increase in general and administrative expense was primarily due to an increase of $1.7 million, or 28.8%, in
employee compensation and an increase of $0.8 million, or 210.7%, in fees for professional services during the year ended December 31, 2009, which increased in part as a result of the inclusion of 42 days of expenses related to our
recently acquired payment transaction products and services, as well as an increase of $0.9 million, or 178.5%, in stock-based compensation.

Product Development Expense

The increase in product development
expense was primarily due to an increase of $0.7 million, or 40.4%, in costs related to employee compensation allocated to product development expense during the year ended December 31, 2009.

Sales and Marketing Expense

The increase in sales and marketing expense was primarily due to an increase of $1.9 million, or 82.5%, in costs related to employee compensation allocated to sales and marketing expense and an increase
of $1.1 million, or 92.4%, in the non-cash expense related to the vesting of certain shares held by Kevin Jones during the year ended December 31, 2009.

Income Tax Expense

The increase in income tax expense was primarily
due to an increase of $12.2 million, or 123.1%, in net income before taxes. The effective tax rates for the years ended December 31, 2008 and 2009 were 35.7% and 35.8%, respectively.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity are cash flows from
operations and borrowings under our Credit Facility. As of December 31, 2010, we had $34.5 million in cash and cash equivalents, $14.7 million in available-for-sale securities and $50 million available under our Credit Facility. Our primary
liquidity requirements are for working capital, capital expenditures, including our planned real estate development project, product development expenses and general corporate needs. As of December 31, 2010, we had working capital of $39.7
million.

During 2010, we issued common stock for net proceeds of $37.2 million. We used $10.0 million of the net proceeds to
repay amounts then outstanding under our prior credit facility and deposited $8.25 million into escrow to satisfy our post-closing obligations under the IDC stock purchase agreement. The remaining amount of net proceeds remains available for our
strategic objectives and for general corporate



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purposes.

Senior Secured Revolving Credit Facility

Higher One, Inc. entered into a senior secured revolving credit facility dated as of August 26, 2008 that was
subsequently amended as of July 15, 2009 and November 19, 2009. We refer to the credit facility, as amended, as the Prior Credit Facility. The Prior Credit Facility matured on December 31, 2010 and there were no amounts outstanding at
maturity.

On December 31, 2010, we entered into a new senior secured revolving credit facility, or our Credit Facility.
Among other things, the Credit Facility increased the maximum amount available to be drawn to $50 million and allows us to request an increase in this limit to $100 million. Any amounts drawn under the amended and restated credit facility are
payable in a single maturity on December 31, 2013. Each of Higher One Holdings, Inc., Higher One Machines, Inc., Higher One Payments, Inc., Higher One Real Estate, Inc. and Higher One Real Estate SP, LLC, which we refer to collectively,
together with Higher One Inc., as the Credit Facility Loan Obligors, is a guarantor of Higher One, Inc.s obligations under the Credit Facility.

The Credit Facility is secured by a perfected first priority security interest in all of the capital stock of Higher One, Inc. and its subsidiaries, and substantially all of each Credit Facility Loan
Obligors tangible and intangible assets, other than intellectual property. Each of the Credit Facility Loan Obligors has also granted to the administrative agent under the Credit Facility a negative pledge of the intellectual property of
Higher One, Inc. and its subsidiaries, including patents and trademarks that are pending and acquired in the future.

At our
option, each advance under the Credit Facility accrues interest on the basis of a base rate or on the basis of a one-month, two-month or three-month Eurodollar rate, plus in either case, the applicable margin based on our funded debt to EBITDA
ratio, at the time each loan is made. We also pay commitment fees for the unused portion of the revolving loan on a quarterly basis equal to the product obtained by multiplying the applicable margin for commitment fees by the average daily unused
commitment for that calendar quarter. The applicable margin for base rate advances is between (1.25%) and 0%, subject to a minimum rate of 2%, and the applicable margin for Eurodollar rate advances is between 2.0% and 3.25%. The applicable
margin for commitment fees is between 0.25% and 0.375%. The base rate is the higher of Bank of Americas announced prime rate, the federal funds rate plus 0.50% or the Eurodollar rate plus 1.00%. Interest on Eurodollar loans is payable at the
end of each applicable interest period. Interest on base rate advances is payable quarterly in arrears.

The Credit Facility
contains certain affirmative covenants including, among other things, covenants to furnish the lenders with financial statements and other financial information and to provide the lenders notice of material events and information regarding
collateral. The Credit Facility also contains certain negative covenants that, among other things, restrict Higher One, Inc.s ability, subject to certain exceptions, to incur additional indebtedness, grant liens on its assets, undergo
fundamental changes, make investments, sell assets, make restricted payments, change the nature of its business and engage in transactions with its affiliates.

In addition, the Credit Facility contains certain financial covenants that require we maintain a minimum EBITDA level measured on the prior four fiscal quarters of $50 million, a funded debt to EBITDA
ratio not to exceed 2.00 to 1.00 and a fixed charge coverage ratio of at least 1.25 to 1.00. We are in compliance with all of the relevant covenants as of December 31, 2010.

Cash Flows

The following table presents information regarding our cash
flows, cash and cash equivalents for the years ended December 31, 2008, 2009 and 2010:



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|                                                 |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                 |  | Year
EndedDecember 31, |        
|                                                 |  | 2008                   |         |   | 2009 |   |         | 2010 | 
|                                                 |  | (in thousands)         |        
|Net cash provided by (used for)                  |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating activities                             |  | $                      | 9,962   |   |      | $ | 20,656  |      |  | $ | 40,056  |  
|Investing activities                             |  |                        | (3,340  | ) |      |   | (18,731 | )    |  |   | (31,756 | )
|Financing activities                             |  |                        | (14,889 | ) |      |   | (74     | )    |  |   | 22,845  |  
|                                                 |  |                        |         |   |      |   |         |      |  |   |         |  
|Increase (decrease) in cash and cash equivalents |  | $                      | (8,267  | ) |      | $ | 1,851   |      |  | $ | 31,145  |  
|                                                 |  |                        |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, end of period         |  | $                      | 1,488   |   |      | $ | 3,339   |      |  | $ | 34,484  |  
|                                                 |  |                        |         |   |      |   |         |      |  |   |         |  

Operating Activities

The $19.4 million increase in net cash provided by operating activities for the year ended December 31, 2010 was primarily comprised of an increase of $10.8 million in net income and an $8.6 million
increase in adjustments to reconcile net income to net cash, including a $4.9 million increase in stock-based sales acquisition expense and $4.3 million in depreciation and amortization. The increase in stock-based sales acquisition expense is due
primarily to higher average share price at the date of vesting.

The $10.7 million increase in net cash provided by operating
activities from 2008 to 2009 was primarily comprised of an increase of $7.8 million in net income, an increase of $1.5 million in depreciation and amortization, a decrease of $1.6 million in income receivable, an increase of $1.1 million in
stock-based customer acquisition expense and an increase of $0.9 million in stock-based compensation, which were partially offset by a deferred income tax benefit of $0.8 million in 2009 compared to a deferred income tax expense of $1.8 million in
2008. The increase in depreciation and amortization was primarily attributable to increased tangible and intangible asset purchases and increased deferred implementation costs; the decrease in income receivable was attributable to an increase in our
receipt of cash owed to us; the increase in stock-based customer acquisition expense was primarily attributable to increased vesting of certain shares acquired by Kevin Jones in connection with our acquisition of EduCard in 2008; and the increase in
stock-based compensation was primarily attributable to an increase in the fair value of options granted and additional grants of options. The income tax benefit in 2009 was primarily the result of the increased vesting of certain shares acquired by
Kevin Jones described above.

Investing Activities

Net cash used for investing activities for 2010 primarily related to our investment in available for sale securities, the payment and deposit into escrow related to our acquisition of IDC and our
purchases of fixed assets. Net cash used for investing activities for 2009 primarily related to our acquisition of CASHNet in November 2009, as well as our purchase of fixed assets, including computers, software and ATM equipment. Net cash used for
investing activities for 2008 primarily related to our acquisition of EduCard in June 2008, as well as our purchase of fixed assets, net of disposals, including computers, software and ATM equipment.

We believe that our cash flow from operations together with our existing liquidity sources will be sufficient to fund our operations and
anticipated capital expenditures over at least the next 12 months.

Real Estate Development Project

As of December 31, 2010, we have incurred approximately $2.5 million on a project to develop two existing commercial buildings
located in New Haven, Connecticut into which we expect to move at the completion of the project in 2012. We anticipate making additional payments in 2011 and 2012 as progress continues on the project. The project has a total estimated cost of
approximately $47 million. Our net cost will be reduced by federal and state subsidies and tax credits from various programs and entities described below. In connection with the project, we formed two new subsidiaries, Higher One Real Estate, Inc.,
or Real Estate Inc., and Higher One Real Estate SP, LLC, or Real Estate LLC.

On November 9, 2010, Real Estate LLC
entered into an agreement with Winchester Arms NH, LLC to develop the buildings.



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Real Estate LLC signed a construction contract with John Moriarty & Associates, or
Moriarty, effective January 28, 2011, whereby Moriarty will be the general contractor for the project.

On February 18,
2011, Real Estate LLC signed a land lease with Science Park Development Corporation, or SPDC, which owns the property on which the two buildings reside, concerning the leasing, expansion and buyout of the land. The agreement provides for a long term
lease of the land at a nominal cost per year and includes a buyout option for a nominal amount after seven years.

We intend
to fund this development project using existing cash and additional cash generated from operations.

A summary of the
subsidies, grants and credits we expect to receive are as follows:



|                                                                                                                                   |  |                               |      |  |                       |                                                                                                                                                                                                                                          |        |                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---- |  | --------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------------------------------------------------------
|Name of program                                                                                                                    |  | Estimatedamount 
(inmillions) |      |  | Nature of the program |                                                                                                                                                                                                                                          | Status
|State of Connecticut Department of Economic and Community Development, or DECD, Urban and Industrial Site Reinvestment Tax Credits |  | $                             | 18.5 |  |                       | State tax credits beginning in 2013 and continuing through 2019                                                                                                                                                                          |        | All necessary approvals have been obtained.                                                                                   
|Federal Historic Preservation Tax Incentives Program                                                                               |  | $                             | 6.0  |  |                       | Federal tax credit equal to 20% of qualified rehabilitation expenditures related to the project.                                                                                                                                         |        | All necessary approvals have been obtained, we will be eligible to receive the credits when the building is placed in service.
|DECD Urban Act Grant                                                                                                               |  | $                             | 3.5  |  |                       | Grant that will reduce our real estate development costs                                                                                                                                                                                 |        | Grant will be voted on at a future meeting of the State of Connecticut Bond Commission                                        
|DECD Environmental Remediation Grant                                                                                               |  | $                             | 2.0  |  |                       | Grant that will reduce our net environmental remediation costs                                                                                                                                                                           |        | Bond commission approval has been obtained.                                                                                   
|Connecticut Development Authority Sales and Use Tax Relief Program                                                                 |  | $                             | 1.0  |  |                       | Provides relief of our obligation to pay Connecticut sales and use tax on tangible property acquired in connection with the project up to $1.0 million                                                                                   |        | All necessary approvals have been obtained.                                                                                   
|Other contributions                                                                                                                |  | $                             | 4.3  |  |                       | Cash contributions from (i) SPDC upon our completion of the project; (ii) prior building owner to offset a portion our environmental remediation costs; and (iii) SPDC based on the
value of state historic tax credits awarded to SPDC. |        | All necessary approvals have been obtained.                                                                                   
|New Market Tax Credit                                                                                                              |  | $                             | 2.0  |  |                       | Federal credit program that permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated Community Development Entities,
or CDE.                                             |        | We are in the process of identifying a CDE that we will partner with to obtain financing for the project.                     

Many of these programs have criteria that we must meet in order to receive the subsidies, grants and credits and also criteria that we
must meet on an ongoing basis, such as a minimum employment threshold, in order to prevent forfeiture of the subsidies, grants and credits, and in some cases the imposition of a penalty. Higher One Holdings, Inc. has provided a limited guaranty of
Higher One, Inc.s obligations with respect to the Urban and Industrial Site Reinvestment Tax Credits described in the table above.

Financing Activities

The net cash provided by financing activities in 2010 was primarily related to proceeds received from our initial public offering, net of
issuance costs, of $37.2 million, a tax benefit related to options of $2.8 million and proceeds received from the exercise of stock options of $1.0 million. These were partially offset by net payments of $18.0 million of debt under our Prior Credit
Facility. Net cash used in financing activities for 2009 primarily related to repayments under our Prior Credit Facility, partially offset by proceeds from the issuance of debt and from notes payable relating to borrowings under the Prior Credit



52



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Facility. Net cash used in financing activities for 2008 primarily related to the completion of our tender offer to purchase certain outstanding capital stock in August 2008, which was partially
offset by the proceeds from our sale of preferred stock in August 2008 and borrowings under our Prior Credit Facility.

Supplemental
Non-GAAP Financial and Operating Information



|                                                                                                         |  |                        |        |  |      |   |        |      |  |   |        | 
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                                         |  | Year
EndedDecember 31, |       
|                                                                                                         |  | 2008                   |        |  | 2009 |   |        | 2010 | 
|                                                                                                         |  | (in thousands)         |       
|Adjusted EBITDA(1)                                                                                       |  | $                      | 13,140 |  |      | $ | 30,516 |      |  | $ | 59,465 | 
|Adjusted net income(2)                                                                                   |  | $                      | 7,725  |  |      | $ | 18,085 |      |  | $ | 34,418 | 
|                                                                                                         |  |                        |       
|Number of students enrolled at OneDisburse® client higher education institutions at end of period        |  |                        | 1,605  |  |      |   | 2,331  |      |  |   | 3,281  | 
|                                                                                                         |  |                        |       
|Number of students enrolled at payment transaction client higher education institutions at end of period |  |                        | 29     |  |      |   | 1,949  |      |  |   | 2,460  | 
|                                                                                                         |  |                        |       
|Number of OneAccounts at end of period                                                                   |  |                        | 554    |  |      |   | 1,004  |      |  |   | 1,618  | 

We define adjusted EBITDA as net
income before interest, taxes and depreciation and amortization, or EBITDA, further adjusted to remove the effects of stock-based customer acquisition expense related to our grants of common stock in connection with our acquisition of EduCard in
2008 and cash-based customer acquisition expense related to the acquisition of IDC, stock-based compensation expense and a non-recurring milestone bonus paid to non-executive employees in 2009 upon our reaching a particular long-term operational
target. Neither EBITDA nor adjusted EBITDA should be considered as an alternative to net income, operating income or any other measure of financial performance calculated and presented in accordance with GAAP. Our EBITDA and adjusted EBITDA may not
be comparable to similarly titled measures of other organizations because other organizations may not calculate EBITDA and adjusted EBITDA in the same manner as we do. We prepare and present adjusted EBITDA to eliminate the effect of items that we
do not consider indicative of our core operating performance. You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.

We believe adjusted EBITDA is useful to our board of directors, management and investors in evaluating our operating performance for the following reasons:



| |  |  | adjusted EBITDA is widely used by investors to measure a companys operating performance without regard to certain items, such as interest
expense, income tax expense, depreciation and amortization, stock-based expenses and certain non-recurring items, that can vary substantially from company to company and from period to period depending upon their financing and accounting methods,
the book value of their assets, their capital structures and the method by which their assets were acquired;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | securities analysts use adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular
time, stock-based customer acquisition expense and stock-based compensation expense are not key measures of our core operating performance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | because cash-based customer acquisition expense is a non-recurring item related to the acquisition of IDC and does not reflect how our business is
performing at any particular time, cash-based customer acquisition expense is therefore not key measure of our core operating performance; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | because the milestone bonus was a non-recurring expense that we recorded upon reaching a particular long-term operational target that we do not expect
to incur again in the near-term, the milestone bonus does not necessarily reflect how our business is
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | performing at any particular time and is therefore not a key measure of our core operating performance.
| | -------------------------------------------------------------------------------------------------------



|(1) | The following table presents a reconciliation of net income, the most comparable GAAP measure, to EBITDA and adjusted EBITDA for each of the periods indicated:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                   |  |                        |        |   |                |   |        |      |  |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------ | - | -------------- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | Year
EndedDecember 31, |       
|                                                   |  | 2008                   |        |   | 2009           |   |        | 2010 | 
|                                                   |  |                        |        |   | (in thousands) |  
|Net income                                         |  | $                      | 6,378  |   |                | $ | 14,219 |      |  | $ | 25,059 |  
|Interest income                                    |  |                        | (152   | ) |                |   | (4     | )    |  |   | (29    | )
|Interest expense                                   |  |                        | 357    |   |                |   | 558    |      |  |   | 729    |  
|Income tax expense                                 |  |                        | 3,547  |   |                |   | 7,925  |      |  |   | 15,488 |  
|Depreciation and amortization                      |  |                        | 1,452  |   |                |   | 2,969  |      |  |   | 7,292  |  
|                                                   |  |                        |        |   |                |   |        |      |  |   |        |  
|EBITDA                                             |  |                        | 11,582 |   |                |   | 25,667 |      |  |   | 48,539 |  
|Other income                                       |  |                        | (234   | ) |                |   | (17    | )    |  |   |       |  
|Warrant fair value adjustment                      |  |                        | 55     |   |                |   |       |      |  |   |       |  
|Stock-based and other customer acquisition expense |  |                        | 1,239  |   |                |   | 2,385  |      |  |   | 8,013  |  
|Stock-based compensation expense                   |  |                        | 498    |   |                |   | 1,387  |      |  |   | 2,913  |  
|Milestone bonus                                    |  |                        |       |   |                |   | 1,094  |      |  |   |       |  
|                                                   |  |                        |        |   |                |   |        |      |  |   |        |  
|Adjusted EBITDA                                    |  | $                      | 13,140 |   |                | $ | 30,516 |      |  | $ | 59,465 |  
|                                                   |  |                        |        |   |                |   |        |      |  |   |        |  

We define adjusted net income as net income, adjusted to eliminate (a) stock-based compensation expense related to
incentive stock option grants and (b) after giving effect to tax adjustments, stock-based compensation expense related to non-qualified stock option grants, stock-based customer acquisition expense related to our grant of common stock in
connection with our acquisition of EduCard in 2008, cash-based customer acquisition expense related to the acquisition of IDC, a non-recurring milestone bonus paid to non-executive employees in 2009 upon our reaching a particular long-term
operational target and amortization expenses related to intangible assets and financing costs. Adjusted net income should not be considered as an alternative to net income, operating income or any other measure of financial performance calculated
and presented in accordance with GAAP. Our adjusted net income may not be comparable to similarly titled measures of other organizations because other organizations may not calculate adjusted net income in the same manner as we do. We prepare
adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.

We believe adjusted net income is useful to our board of directors, management and investors in evaluating our operating performance for the following
reasons:



| |  |  | because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular
time, stock-based customer acquisition expense and stock-based compensation expense are not key measures of our core operating performance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | because cash-based customer acquisition expense is a non-recurring item related to the acquisition of IDC and does not reflect how our business is
performing at any particular time, cash-based customer acquisition expense is therefore not key measure of our core operating performance;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | because the milestone bonus was a non-recurring expense that we recorded upon reaching a particular long-term operational target that we do not expect
to incur again in the near-term, the milestone bonus does not necessarily reflect how our business is performing at any particular
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | time and is therefore not a key measure of our core operating performance; and
| | ------------------------------------------------------------------------------



| |  |  | amortization expenses can vary substantially from company to company and from period to period depending upon their financing and accounting methods,
the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The following table presents a reconciliation of net income, the most comparable GAAP measure, to adjusted net income for each of the periods indicated:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                   |  |                        |       |   |      |   |        |      |  |   |        |  
|-------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | Year
EndedDecember 31, |      
|                                                   |  | 2008                   |       |   | 2009 |   |        | 2010 | 
|                                                   |  | (in thousands)         |      
|Net income                                         |  | $                      | 6,378 |   |      | $ | 14,219 |      |  | $ | 25,059 |  
|                                                   |  |                        |      
|Stock-based and other customer acquisition expense |  |                        | 1,239 |   |      |   | 2,385  |      |  |   | 8,013  |  
|Stock-based compensation expense - ISO             |  |                        | 312   |   |      |   | 610    |      |  |   | 1,526  |  
|Stock-based compensation expense - NQO             |  |                        | 186   |   |      |   | 777    |      |  |   | 1,387  |  
|                                                   |  |                        |      
|Milestone bonus expense                            |  |                        |      |   |      |   | 1,094  |      |  |   |       |  
|                                                   |  |                        |      
|Amortization of intangibles                        |  |                        | 153   |   |      |   | 710    |      |  |   | 3,070  |  
|                                                   |  |                        |      
|Amortization of finance costs                      |  |                        | 31    |   |      |   | 113    |      |  |   | 204    |  
|                                                   |  |                        |       |   |      |   |        |      |  |   |        |  
|Total pre-tax adjustments                          |  |                        | 1,921 |   |      |   | 5,689  |      |  |   | 14,200 |  
|Tax rate                                           |  |                        | 35.7  | % |      |   | 35.9   | %    |  |   | 38.2   | %
|                                                   |  |                        |      
|Tax adjustment(1)                                  |  |                        | 574   |   |      |   | 1,823  |      |  |   | 4,841  |  
|                                                   |  |                        |       |   |      |   |        |      |  |   |        |  
|Adjusted net income                                |  | $                      | 7,725 |   |      | $ | 18,085 |      |  | $ | 34,418 |  
|                                                   |  |                        |       |   |      |   |        |      |  |   |        |  



|(1) | We have tax effected all the pre-tax adjustments except for stock-based compensation expense for incentive stock options, which are generally not tax deductible.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

The adjusted EBITDA and adjusted net income measures presented in this annual report on Form 10-K may not be comparable to
similarly titled measures presented by other companies, and may not be identical to corresponding measures used in our various agreements, in particular our credit facility agreement.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2010 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.



|                                                |  |                        |        |  |                 |   |       |             |  |   |             |  |  |         |       |  |          |   |    |  |  |   |     | 
|----------------------------------------------- |  | ---------------------- | ------ |  | --------------- | - | ----- | ----------- |  | - | ----------- |  |  | ------- | ----- |  | -------- | - | -- |  |  | - | --- | 
|                                                |  | Payments Due by Period |        |  |                 |  
|                                                |  |                        |        | 
|                                                |  | Total                  |        |  | Less Than1
Year |   |       | 1 to 3Years |  |   | 3 to 5Years |  |  | 5+Years |       |  | AllOther |  
|                                                |  | (in thousands)         |        |  |                 |  
|                                                |  |                        |        |  |                 |  
|Operating lease obligations(1)                  |  | $                      | 1,600  |  |                 | $ | 843   |             |  | $ | 366         |  |  | $       | 375   |  |          | $ | 16 |  |  | $ |    | 
|                                                |  |                        |        |  |                 |  
|Purchase obligations(2)                         |  |                        | 14,320 |  |                 |   | 3,780 |             |  |   | 8,432       |  |  |         | 2,108 |  |          |   |   |  |  |   |    | 
|                                                |  |                        |        |  |                 |  
|Uncertain tax positions and related interest(3) |  |                        | 684    |  |                 |   |      |             |  |   |            |  |  |         |      |  |          |   |   |  |  |   | 684 | 
|                                                |  |                        |        |  |                 |   |       |             |  |   |             |  |  |         |       |  |          |   |    |  |  |   |     | 
|Total contractual obligations                   |  | $                      | 16,604 |  |                 | $ | 4,623 |             |  | $ | 8,798       |  |  | $       | 2,483 |  |          | $ | 16 |  |  | $ | 684 | 
|                                                |  |                        |        |  |                 |   |       |             |  |   |             |  |  |         |       |  |          |   |    |  |  |   |     | 



|(1) | We lease certain property in New Haven, Connecticut and Oakland, California under non-cancelable
|--- | ------------------------------------------------------------------------------------------------



55



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| | operating leases. The lease in New Haven is currently due to expire on July 31, 2011 and the lease in Oakland is due to expire on January 31, 2016.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Purchase obligations include minimum amounts committed under contracts for services.
|--- | ------------------------------------------------------------------------------------

|(3) | We are unable to reasonably estimate the timing of such liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the
effective settlement of tax positions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements.

Recent Accounting Pronouncements

We review new accounting standards to
determine the expected financial impact, if any, that the adoption of each such standard will have. As of the filing of this report, there were no new accounting standards issued that we expect to have a material impact on our consolidated financial
position, results of operations or liquidity.

In October 2009, the FASB issued Accounting Standards Update, or ASU,
No. 2009-13 Multiple-Deliverable Revenue Arrangements. This ASU establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This ASU provides amendments to the criteria
for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this ASU also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly
enhanced disclosures are also required to provide information about a vendors multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables and its performance within arrangements. The
amendments also required providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments
in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. We will adopt this standard on January 1, 2011 and do not expect the standard to
have a material impact on our results of operations, cash flows or financial position.

In October 2009, the FASB issued ASU
No. 2009-14, Certain Revenue Arrangements That Include Software Elements. This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are essential to
the functionality, and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered essential to the functionality. The
amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for
revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. We will adopt this standard on January 1, 2011 and do not expect the standard to have a material impact on our results of
operations, cash flows or financial position.

In April 2010, the FASB issued ASU No. 2010-17, Milestone Method
of Revenue Recognition, which indicates the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Companies can recognize consideration that is contingent upon achievement of a
milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This ASU is effective for fiscal years beginning after June 15, 2010. We will adopt
this standard on January 1, 2011 and do not expect the standard to have a material impact on our results of operations, cash flows or financial position.



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|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets. Our Credit Facility accrues interest at a
rate equal to a base rate or Eurodollar rate plus an applicable margin (depending on Higher One, Inc.s funded debt to EBITDA ratio). Based upon a sensitivity analysis at January 1, 2011, assuming average outstanding borrowings during the
year ended December 31, 2011 of $10.0 million, a hypothetical 50 basis point increase in interest rates would result in an increase in interest expense of $0.05 million.

In addition, we receive processing fees paid from our bank partner, based on prevailing interest rates and the total deposits held in our OneAccounts. Since 2008, fees paid by our bank partner have been
relatively small because of depressed interest rates. A change in interest rates would affect the amount of processing fees that we earn and therefore would have an effect on our revenue, cash flows and results of operations.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Information required by this item is contained in our consolidated financial statements, related footnotes and the report of PricewaterhouseCoopers LLP, which information follows the signature page to
this annual report and is incorporated herein by reference.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.



|            |  |                        
|----------- |  | -----------------------
|Item 9A(T). |  | Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including
its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as
of December 31, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management Report on Internal Control Over Financial Reporting

This annual report does not include a report of managements assessment regarding internal control over financial reporting or an
attestation report of the companys registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control Over Financial Reporting



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During the quarter ended December 31, 2010, we remediated our previously identified
material weakness by, among other things, expanding our current finance and accounting staff, formalizing our accounting policies and internal controls documentation and strengthening supervisory reviews by our management. These changes have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).



|Item 9B. | Other Information
|-------- | -----------------

None.

PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

Executive Officers and Directors

The following table sets forth
information about individuals who currently serve as our executive officers and/or directors.



|                 |  |     |    |  |       |                                                               
|---------------- |  | --- | -- |  | ----- | --------------------------------------------------------------
|Name             |  | Age |    |  | Title
|Dean Hatton      |  |     | 50 |  |       | President, Chief Executive Officer and Director               
|Mark Volchek     |  |     | 33 |  |       | Chairman of the Board of Directors and Chief Financial Officer
|Miles Lasater    |  |     | 33 |  |       | Chief Operations Officer and Director                         
|Casey McGuane    |  |     | 36 |  |       | Chief Service Officer                                         
|Robert Reach     |  |     | 54 |  |       | Chief Sales Officer                                           
|Paul Biddelman   |  |     | 65 |  |       | Director                                                      
|David Cromwell   |  |     | 66 |  |       | Director                                                      
|Stewart Gross    |  |     | 51 |  |       | Director                                                      
|Shamez Kanji     |  |     | 44 |  |       | Director                                                      
|Patrick McFadden |  |     | 73 |  |       | Director                                                      
|Charles Moran    |  |     | 56 |  |       | Director                                                      

Set forth below is certain
biographical information for each of these individuals.

Dean Hattonhas been our president, chief executive officer
and director since March 2002. From 2001 to 2002, Mr. Hatton was president and chief executive officer of Yclip, Inc., a direct marketing



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promotion company that was sold to First Data Corporation. From 1999 to 2001, Mr. Hatton was executive vice president and chief operations officer of Carlson Wagonlit Travel, a corporate
travel and expense management company, and from 1997 to 1999, he was senior vice president at Citigroup, where he was chief executive officer of Travelers Property Casualty Direct Response. Mr. Hatton is also a director of Higher One, Inc.
Mr. Hatton holds a BA in Economics from Franklin and Marshall College and a graduate degree in bank management from the Stonier Graduate School of Banking. As a result of his service as our president and chief executive officer for over 8
years, we believe Mr. Hatton provides the board with a deep understanding of all aspects of our business, and therefore should serve on our board.

Mark Volchek is one of our founders and has been our chairman and chief financial officer since 2000 and 2002, respectively. From 2000 to 2002, Mr. Volchek was our chief executive officer.
Prior to founding Higher One, Mr. Volchek worked at College Pro, where he most recently held the position of general manager. Mr. Volchek is also a director of innRoad, Inc. He is a founding officer of the Yale Entrepreneurial Society, a
not-for-profit organization that promotes entrepreneurship among Yale students, faculty and alumni and served on its board from 1999 to 2010. Since 2007, Mr. Volchek has been the chairman of the board of the Tweed New Haven Airport Authority.
Other past civic roles have included positions on the New Haven Economic Development Commission and the Regional Growth Partnership strategic planning committee. Mr. Volchek holds a BA and an MA in economics from Yale University. We believe
that Mr. Volchek, having served as our chief executive officer and then chief financial officer over the course of the last 10 years, brings institutional knowledge to the board, especially in regard to our finances, and therefore should serve
on our board.

Miles Lasater is one of our founders and has been our chief operations officer since 2000. Prior to
founding Higher One, Mr. Lasater was a member of the invention team at Walker Digital, where he worked on intellectual property for companies such as Priceline and Retail DNA. Mr. Lasater serves on the board of Yale New Haven Hospital.
Mr. Lasater has been a board member of the New Haven Port Authority, Chairman of SeeClickFix, a software-as-a-service company that provides a platform for governments and citizens to interact, and a member of Yale Universitys Advisory
Committee on Investor Responsibility. Mr. Lasater has been a founding officer and board member of both the Yale Entrepreneurial Society and the Yale Entrepreneurial Institute since 1999 and 2008, respectively. Both are organizations at Yale
University that promote entrepreneurship among Yale students, faculty and alumni. Mr. Lasater holds a BA in computer science from Yale University. Having served as our chief operations officer over the past 10 years, Mr. Lasater is
involved with every aspect of our business, including our marketing strategies and operations, and therefore we believe should serve on our board.

Casey McGuane has been our chief service officer since January 2009. From 2005 to 2008, Mr. McGuane was our senior vice president of client operations and, from 2000 to 2005, he was our vice
president of client operations. Prior to joining Higher One in 2000, Mr. McGuane was a business manager for SPS, Inc., where he managed sales and operations in his region for commercial contracting projects. Since July 2009, Mr. McGuane
has served as a member of the board of the Connecticut Association of Human Services, a not-for-profit organization in Hartford, Connecticut. Mr. McGuane holds a BA in psychology from the University of Rhode Island.

Robert Reach has been our chief sales officer since 2009 and our vice president of sales from 2004 to 2009. From 1985 to 1990,
Mr. Reach was the branch manager and national sales manager in the Financial Services Group for CompuServe and, from 1990 to 1995, he was the national sales manager in Lotus Development Corporations One Source division. He also served as
the vice president of sales for Metatec Corporation from 1995 to 1997. Additionally, from 2000 to 2001, Mr. Reach served as director of partner relations for HNC Software, an industry leader in credit card fraud prevention and analytic
software. Mr. Reach holds a BA in English from Franklin and Marshall College.

Paul Biddelman has been a director
of Higher One since 2002. Mr. Biddelman has been president of Hanseatic Corporation, a private investment company and the manager of our investor, Hanseatic Americas LDC, since 1997, where he has primary investment responsibilities. He is also
a director of SystemOne Technologies, Inc. Mr. Biddelman served as a director of Celadon Group, Inc. from 1992 to 2006, Insituform Technologies, Inc. from 1988 to 2005, Six Flags, Inc. from



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1992 to 2006, Star Gas LP from 1999 to 2006, ApplyYourself, Inc. from 2001 to 2007, DocuSys, Inc. from 2001 to 2009 and Passlogix, Inc. from 2000 to 2009. Mr. Biddelman is also currently the
chairman of the Lehigh University College of Arts & Sciences Deans Advisory Board. Mr. Biddelman holds a BS from Lehigh University, a JD from Columbia Law School and an MBA from Harvard Business School. We believe that
Mr. Biddelmans service on the boards of numerous public companies has provided him with valuable experience and insight into the issues faced by such companies which, together with the deep knowledge of our company derived from his
long-standing relationship with us, leads us to believe he should serve on our board.

David Cromwell has been a
director of Higher One since 2001. Mr. Cromwell has been an adjunct professor of entrepreneurship at the Yale School of Management since 1996. Prior to that, he worked for 30 years in various positions at JPMorgan & Company in New York
and London. From 2000 to 2009, Mr. Cromwell was chairman of the board and co-founder of CE University, Inc., an online provider of continuing education for insurance professionals. He helped found and serves as a faculty advisor to one of our
early investors, Sachem Ventures, a student-run venture capital fund at the Yale School of Management. Mr. Cromwell has served as an advisor to numerous venture-backed and growth companies in Connecticut. Mr. Cromwell holds a BA in
Economics from Ohio Wesleyan University and an MBA from New York University, Stern School of Business. We believe that Mr. Cromwell should serve on our board as he brings to it substantial experience as an advisor to high-growth companies such
as ours.

Stewart Gross has been a director of Higher One since 2008. Mr. Gross is a managing director and member
of the investment committee of one of our investors, Lightyear Capital, a private equity firm. Prior to joining Lightyear Capital in 2005, Mr. Gross spent 17 years at Warburg Pincus, where he was a managing director and member of the executive
management group. Mr. Gross is currently a director of Flagstone Reinsurance Holdings Limited, Antares Holdings Limited, Cetera Financial Group and Argus Software, Inc., a trustee of Boys & Girls Harbor and the chairman of Civic
Capital Corporation, an affiliate of the NYC Investment Fund. He was previously a trustee of the Mt. Sinai Childrens Center Foundation. Mr. Gross holds an AB in Government from Harvard University and an MBA from Columbia Business School.
The knowledge and skills Mr. Gross has acquired as an investor in, and director of, public and private companies focused on financial services and financial technology makes him a valuable source with respect to regulatory and other issues
specific to such companies, leading us to conclude that he should serve on our board.

Shamez Kanji has been a director
of Higher One since 2003. Since 2000, Mr. Kanji has been a general partner of one of our investors, North Hill Ventures, a venture capital fund. He is currently a director of Metatomix, Inc., Interactions Corporation and the Doug Flutie Jr.
Foundation for Autism. From 2004 to 2006, Mr. Kanji served as a director of eCredit, Inc. Mr. Kanji holds a BA in Social Studies from Harvard University and an MBA from Harvard Business School. We believe Mr. Kanji should serve on our
board because of his substantial experience as an investor and director in financial services and financial technology companies such as ours and skill in evaluating financial results.

Patrick McFadden has been a director of Higher One since 2008. From 1987 to 2010, Mr. McFadden was the non-executive chairman
and director of UIL Holdings Corporation and the United Illuminating Company, a regional utility company. Mr. McFadden has also been a director of Godspeed Opera in Haddam, Connecticut since 2007 and a director and the vice-chairman of the
Yale-New Haven Health Services Corporation since 1984. Previously, Mr. McFadden served as a director of Citizens Bank of Connecticut in New Haven and the South Central Connecticut Regional Water Authority. Mr. McFadden has also held
executive positions at the Bank of New Haven, which was sold to Citizens Bank of Connecticut, the Connecticut National Bank and First National Bank. Mr. McFadden holds a BS in management from the University of Notre Dame and a graduate degree
from the Stonier Graduate School of Banking. We believe that Mr. McFadden should serve on our board due to the experience in executive management, corporate governance and risk management he has acquired through his service as an executive at
numerous financial institutions and as the chairman of a public company.



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Charles Moran has been a director of Higher One since 2009. Mr. Moran is the
founder of SkillSoft PLC where since 1998 he has held various positions, including member of the board of directors, president, chief executive officer and, since November 2006, chairman of the board. SkillSoft PLC is a leading software-as-a-service
provider of on demand e-learning and performance solutions for global enterprises, government, educational institutions and small-to-medium size businesses. Mr. Moran holds a BS in General Management from Boston College and an MBA from Suffolk
University. We believe Mr. Moran is qualified to serve on our board because the skills and experience he has gained in his role as chairman and chief executive officer of a leading technology company that was formerly publicly traded.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of our
common stock, to file initial reports of beneficial ownership of our stock and reports of changes in beneficial ownership of our stock with the SEC. Executive officers, directors and greater than 10% beneficial owners are required by the SEC to
furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely upon a review of the copies
of such forms furnished to us and written representations from our directors and executive officers, we believe that during the year ended December 31, 2010 all Section 16(a) filing requirements applicable to our directors, executive
officers and greater than ten percent beneficial owners were complied with on a timely basis.

Code of Ethics

We have adopted a written code of ethics, which we refer to as our Code of Business Conduct, that applies to directors,
executive officers and all employees of the Company, including our principal executive officer and principal financial officer. The Code of Business Conduct is posted on our website at
http://ir.higherone.com/phoenix.zhtml?c=235726&p=irol-govhighlights. Any updates or amendments to the Code of Business Conduct, and any waiver that applies to a director or executive officer, will also be posted on the website.

Audit Committee

Our board of directors has established a standing audit committee, which consists of Messrs. McFadden (chair), Biddelman and Kanji, and assists our board in overseeing the preparation of our financial
statements, the independent registered public accounting firms qualifications and independence, the performance of our internal audit function and independent registered public accounting firm and our compliance with legal and regulatory
requirements. Mr. McFadden qualifies as an audit committee financial expert as such term is defined in the regulations under the Exchange Act. All of the members of the audit committee are independent, as determined in accordance
with the rules of the NYSE and any relevant federal securities laws and regulations.



|Item 11. | Executive Compensation
|-------- | ----------------------

Compensation Discussion and Analysis

The purpose of this compensation discussion and analysis section is to provide information about the material elements of compensation that are paid, awarded to, or earned by our named executive
officers, who consist of our principal executive officer, our principal financial officer, and the three other most highly compensated executive officers. For fiscal year 2010, our named executive officers were:



| |  |  | Dean Hatton, President and Chief Executive Officer
| | - |  | --------------------------------------------------



| |  |  | Mark Volchek, Chief Financial Officer
| | - |  | -------------------------------------



| |  |  | Miles Lasater, Chief Operations Officer
| | - |  | ---------------------------------------



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| |  |  | Casey McGuane, Chief Service Officer
| | - |  | ------------------------------------



| |  |  | Robert Reach, Chief Sales Officer
| | - |  | ---------------------------------

Compensation Philosophy and Objectives

Our compensation philosophy,
objectives and structures have been very much informed by the history of our Company. Messrs. Volchek and Lasater are founders of the Company and Mr. Hatton has been with the Company as president and chief executive officer since 2002. Our
compensation program reflects the fact that our executive officers have long operated as a team with the shared goal of strengthening and expanding the Company. It has also reflected the fact that our executive officers have been deeply involved in
all aspects of our business and work together with the Companys employees at every level. Historically, our compensation philosophy has been to provide a base salary that was competitive among comparable venture-backed companies but to focus
primarily on rewarding positive performance that encouraged our executive officers to grow the Company. As a result, our executive compensation program emphasized incentive compensation over guaranteed base salaries. We have offered a mix of
short-term and long-term incentives consisting of cash bonuses and stock options (and in 2009, restricted stock) respectively, in order to motivate achievement of the Companys annual business plan and creation of long-term stockholder value.
Our executives have historically shared an annual cash bonus pool based on Company performance. They have also received equity awards along with substantially all other employees. Our executive officers have received no benefits or perquisites in
addition to those offered to all employees of the Company.

We believe that our compensation program should remain focused on
the essentials necessary to retain and reward our experienced executives and to attract others to the Company as needed. However, while our basic philosophy and objectives remain unchanged, we recognize that we are now at a different stage in our
Companys development and in a different market for executive talent. As a result, as described further below, in 2010 we re-evaluated our executive compensation program and decided to adjust the balance between its component parts.

Role of the Compensation Committee

The compensation committee has the responsibility of evaluating, reviewing and approving the compensation plans, policies and programs of the Company, and ensuring that such plans, policies and programs
provide appropriate incentives to recruit, motivate and retain employees.

The compensation committee has meets at least one
time per year, normally in December but most recently in January 2011, in order to review the compensation from the prior year and set its compensation policy for the coming year. During that meeting, the compensation committee has historically
reviewed and approved (or recommended for approval by the board) the compensation of executive officers, including base salary, annual incentive bonus and equity compensation.

At its annual meeting, the committee has conferred with our chief executive officer to establish annual goals for him and the other executive officers. The chief executive officer discusses the specific
accomplishments of the management team during the prior year, as well as the teams business development plans for the upcoming year, which the committee uses to help it set the annual targets for the executive officers bonus
opportunities. The chief executive officer also provides relevant information to the committee regarding specific challenges or opportunities facing the management team in the upcoming year, such as changes in the Companys business development
plan, anticipated hiring of new employees and retention of current employees, and exploration of new avenues of business growth. The committee also meets in executive session without the presence of executive officers in order to evaluate the
officers performance with respect to the goals set by the committee, market compensation data, and our performance and shareholder return during the year.

In preparation for the initial public offering, the compensation committee engaged Steven Hall & Partners as its independent compensation consultant in January 2010. Steven Hall &
Partners assisted



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the committee in examining our compensation levels and structures in the context of other similar public companies and in designing programs that will properly compensate and motivate the
executive team in light of the Companys changed circumstances. Before engaging Steven Hall & Partners, the committee did not consult a compensation consultant when determining compensation for our executive officers.

Steven Hall & Partners does not have any relationship or arrangement with the Company other than its engagement as a consultant
to the compensation committee.

Compensation Benchmarking and Peer Group

One basis for determining the structure of the Companys compensation program and establishing target compensation levels for the
Companys named executive officers prior to our initial public offering was the analysis of compensation packages offered to similarly situated executive officers of publicly-held peer group companies. As part of its engagement in 2010, the
compensation committee directed Steven Hall & Partners to develop a comparative group of companies and to perform analyses of executive compensation levels and designs in that group. The comparative information provided by Steven
Hall & Partners was obtained from publicly filed reports of each company in the comparative peer group, as well as from nationally recognized compensation surveys.

Steven Hall & Partners identified business services, financial transaction and/or technology companies with total revenues within a range of 50% to 400% of the Companys projected revenues
for 2010 and then narrowed the group down based upon business description. The list was further refined through a review of 1-year revenue growth, 3-year revenue growth, adjusted EBITDA, net income and market cap with the final groups average
figures approximately 57%, 63%, 110%, 37% and 82% of the Companys projected 2010 figures, respectively. The peer group identified in the report created by Steven Hall & Partners consisted of the following companies:



|                        |  |                                    |  |                                  
|----------------------- |  | ---------------------------------- |  | ---------------------------------
|    ACI Worldwide      |  |     Bottomline Technologies, Inc. |  |     Online Resources Corporation
|                        |  |                                   
|    ArcSight, Inc      |  |     Concur Technologies, Inc.     |  |     Riskmetrics Group Inc.      
|                        |  |                                   
|    athenahealth, Inc. |  |     CyberSource Corporation       |  |     SolarWinds, Inc.            
|                        |  |                                   
|    Blackbaud, Inc.    |  |     Ebix, Inc.                    |  |     Wright Express Corporation  
|                        |  |                                   
|    Blackboard Inc.    |  |     NetSuite Inc.                 |  |                                  

Steven Hall & Partners ultimately developed recommendations for 2010 compensation that
were presented to the compensation committee for its consideration, as discussed below.

Elements of Compensation

Our executive compensation program for 2010, as set by the compensation committee consisted of the following components:



| |  |  | Base salary;
| | - |  | ------------



| |  |  | Annual cash incentive awards linked to Company performance;
| | - |  | -----------------------------------------------------------



| |  |  | Periodic grants of long-term equity-based compensation, such as stock options and restricted stock; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Company-wide employee welfare and retirement benefits.
| | - |  | ------------------------------------------------------



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Base Salary

We pay an annual base salary to our executive officers in order to provide them with a fixed rate of cash compensation during the year.
The compensation committee historically has conducted an annual review of each executive officers salary, and considered whether the amount of that salary is appropriate. In making this determination, the committee has taken into consideration
the salary paid at other similar companies, based on the committee members collective experience with companies in similar stages of development and certain surveys brought to the committees attention by its members, but has not relied
upon any formal benchmarking process. The committee also has considered the executives responsibilities, prior performance and other discretionary factors, such as the executives business planning and development, identification of areas
for Company growth, management style and effectiveness, ability to motivate and set appropriate goals for the Companys workforce, ability to cultivate and retain a productive workforce, and ability to work effectively with outside
professionals and consultants.

Steven Hall & Partners peer group data indicated that the overall cash and
equity compensation paid to our named executive officers was, on average, less than that paid by the peer group companies, and our named executive officers received a much lower percentage of their total compensation as base salary. For fiscal year
2009, our named executive officers base salaries compared to executives in our peer group in the same or similar position was as follows: Mr. Hattons salary was 18% below median; Mr. Volcheks salary was 49% below median;
Mr. Lasaters salary was 49% below median; Mr. McGuanes salary was 15% below median; and Mr. Reachs salary was 29% below median. In order to offer a mix of compensation that is more in line with market practice in our
peer group, the compensation committee approved increases in base salary for each of our named executive officers for fiscal year 2010. Mr. Hattons salary increased from $285,000 to $375,000; Mr. Volcheks salary increased from
$175,000 to $275,000; Mr. Lasaters salary increased from $175,000 to $275,000; Mr. McGuanes salary increased from $165,000 to $200,000; Mr. Reachs salary increased from $155,000 to $200,000. The increased salary
levels of Messrs. Hatton, Volchek and Lasater in the aggregate are at the median of the peer group. We believe that this combined analysis reflects the team attitude of our top executives and the fact that Messrs. Volchek and Lasater have
responsibilities that exceed peer group executives holding the same titles because, as discussed above, many of the responsibilities and duties traditionally carried out by a chief executive officer are shared among Messrs. Hatton, Volchek and
Lasater. As two of the original founders of the Company, Messrs. Volchek and Lasater are involved in all of the Companys key decisions, and Messrs. Hatton, Volchek and Lasater typically work together in developing the Companys business
plan, strategy and goals. Additionally, Mr. Volchek serves as chairman of the board.

Annual Bonus

We pay our executive officers an annual bonus as an incentive to achieve the short-term goals of the Company as
reflected in its annual business plan. All of our named executive officers are eligible to receive an annual cash bonus based on the achievement of certain pre-determined targets set by the compensation committee at its annual meeting. The
compensation committee establishes the aggregate amount of the target bonus pool, which is shared among the executive officers at percentages also pre-determined by the compensation committee.

At its meetings on February 9, 2010 and February 22, 2010, the compensation committee determined that the target bonus pool for
2010 would be established at $1,075,000 which is equal to the sum of 100% of the base salaries of Messrs. Hatton, Volchek and Lasater, 60% of the base salary of Mr. McGuane, and 15% of the base salary of Mr. Reach. The maximum bonus pool
which may be earned is $2,150,000. The measures, targets and weightings were set as follows: revenues (25%), adjusted EBITDA (50%), and management objectives (25%). The 2010 management objectives include (i) maintaining or improving our
employee survey scores and keeping employee (other than customer service representatives) turnover below 10%, (ii) client retention, including maintaining a retention rate of 98% or higher, (iii) promoting efficient growth based on cost
management and establishing efficiency



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initiatives, (iv) expanding product opportunities through internal development or acquisition, (v) completion of our initial public offering and (vi) establishing a robust investor
relations program.

For each performance measure, if actual performance does not meet the threshold for such performance
measure, no amount will be earned in respect of such measure. To the extent actual performance exceeds the threshold, the portion of the target bonus pool attributable to such performance measure (based upon the weighting given to such measure) will
be determined by extrapolation between threshold and target levels and target and maximum levels, respectively. The final bonus pool and individual bonuses are subject to adjustment at the discretion of the compensation committee.

The compensation committee determined that the 2010 bonus pool would be shared in the following percentages:



|              |  |  |    |  
|------------- |  |  | -- | -
|Dean Hatton   |  |  | 35 | %
|Mark Volchek  |  |  | 25 | %
|Miles Lasater |  |  | 25 | %
|Casey McGuane |  |  | 12 | %
|Robert Reach  |  |  | 3  | %

With
respect to Mr. Reach, in 2010, we have two sales commission plans, the Higher One, Inc. Sales Commission Plan 2010 and the Higher One CASHNet Suite 2010 Business Development Commission Plan. Under the Higher One, Inc. Sales Commission Plan 2010
commissions may be earned for contributing materially to the sale of CASHNet modules to a school that is not already a CASHNet customer. Under the Higher One CASHNet Suite 2010 Business Development Commission Plan, commissions may be earned for:
(i) subscription and deployment of CASHNet suite contracts and (ii) new OneDisburse® contracts, based
on the number of undergraduate students in attendance at the institution.

The compensation committee, during its meeting on
January 11, 2011, recommended that the 2010 bonus pool be awarded at $2,084,305, slightly less than the maximum pool under the criteria established and based on achieving all management objectives, exceeding the adjusted EBITDA maximum target
and falling slightly short of the revenue maximum target.

The Company adopted a new annual incentive plan, the Short Term
Incentive Plan, on March 26, 2010 for its executive officers. The Short Term Incentive Plan is intended to provide for payments of executive compensation that qualify as performance-based compensation under Section 162(m). If the plan
qualifies under Section 162(m), amounts paid to named executive officers would be deductible by us, even if those amounts exceed the $1 million limit imposed on deductible compensation under Section 162(m). To qualify under
Section 162(m), the material terms of the plan and the performance formula must be disclosed to, and approved by, stockholders. Bonuses will be granted under the Short Term Incentive Plan commencing in fiscal year 2011. Currently the
compensation committee envisions operating the Short Term Incentive Plan consistent with historical bonus practices for our named executive officers.

Equity-Based Compensation

Our compensation committee believes that
equity-based compensation is an important component of our executive compensation program, and that providing equity-based awards to our named executive officers aligns the incentives of our executives with the long-term interests of our
shareholders and with our long-term corporate success and provides our executives with a powerful retention incentive.

Generally, each executive officer has received a stock option grant when he or she joined the Company, and has then received periodic
awards thereafter in the discretion of the compensation committee and board, although the timing of these awards was not made according to an established policy. Until 2010, awards were made under the 2000 Stock Option Plan with varying vesting
schedules ranging from one to five years, as set out in the respective stock option agreements. Stock option grants



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have typically been split between incentive stock options (within the meaning of Section 422 of the Code) and nonqualified stock options.

The 2000 Stock Option Plan terminated by its terms in April 2010. The Company adopted the 2010 Equity Incentive Plan on March 26,
2010. The aggregate number of shares available under the 2010 Equity Incentive Plan is 4,860,000 shares. The 2010 Equity Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units
and other stock-based awards. Directors, officers and other employees of the Company and its subsidiaries and affiliates, as well as their independent contractors, will be eligible for grants under the 2010 Equity Incentive Plan. The purpose of the
2010 Equity Incentive Plan is to provide incentives and rewards that will encourage officers, directors, employees and independent contractors to continue in the service of the Company by providing them with a proprietary interest in pursuing the
long-term growth, profitability and financial success of the Company.

No grants of stock options were made to our named
executive officers in 2010 due to the large grants made to executive officers and other employees in 2008 in connection with the Companys recapitalization. In February 2011, the compensation committee granted stock options under the 2010
Equity Incentive Plan to our named executive officers. Messrs. Hatton, Volchek and Lasater each received 50,000 stock options and Messrs. McGuane and Reach each received 25,000 stock options. The stock options awarded in February 2011 have an
exercise price of $18.05, vest over five years beginning on the first anniversary of the grant date and have a term of ten years.

Employee Welfare and Retirement Benefits.

We provide the following
benefits to our executive officers on the same basis as all other eligible employees of the Company:



| |  |  | Health insurance;
| | - |  | -----------------



| |  |  | Vacation, personal holiday and sick days;
| | - |  | -----------------------------------------



| |  |  | Life insurance;
| | - |  | ---------------



| |  |  | Short-term and long-term disability insurance; and
| | - |  | --------------------------------------------------



| |  |  | 401(k) plan with Company matching contributions of 4%.
| | - |  | ------------------------------------------------------

We believe these benefits are generally consistent with those offered by our peer group companies.

Policy on Code Section 162(m)

As a private company, prior to
the consummation of our initial public offering we were not subject to the limits on deductibility of compensation set forth in Section 162(m) of the Code. Section 162(m) denies publicly-held companies a tax deduction for annual
compensation in excess of $1 million paid to their chief executive officer or any of their three other most highly compensated executive officers (other than the chief financial officer) employed on the last day of a given year, unless their
compensation is based on qualified performance criteria. Subject to certain transition rules that apply to companies that first become publicly held in connection with an initial public offering, to qualify for deductibility, these criteria must be
established by a committee of independent directors and approved, as to their material terms, by that companys stockholders. In future years, we intend to structure our bonus and equity-based incentive programs so that they qualify as
performance-based compensation under Section 162(m). However, our compensation committee may approve compensation or changes to plans, programs or awards that may cause the compensation or awards not to comply with Section 162(m) if it
determines that such action is appropriate and in our best interests.

Summary Compensation Table

The following table sets forth the compensation paid to or earned during the fiscal years ended December 31, 2010 and 2009, by
(i) our principal executive officer, (ii) our principal financial officer, and



66



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(iii) our three other most highly compensated executive officers who were serving as executive officers (collectively, the named executive officers or NEOs):



|                                                |  |      |      |  |           |         |         |          |  |   |                     |  |  |                 |   |  |                                            |   |   |                             |  |         |          |  |  |       |       |  |  |           |           | 
|----------------------------------------------- |  | ---- | ---- |  | --------- | ------- | ------- | -------- |  | - | ------------------- |  |  | --------------- | - |  | ------------------------------------------ | - | - | --------------------------- |  | ------- | -------- |  |  | ----- | ----- |  |  | --------- | --------- | 
|Name and Principal Position                     |  | Year |      |  | Salary($) |         |         | Bonus($) |  |   | StockAwards 
($)(1) |  |  | OptionAwards($) |   |  | Non-EquityIncentivePlanCompensation ($)(2) |   |   | All
OtherCompensation($)(3) |  |         | Total($) | 
|                                                |  |      |      |  |           |         |         |         
|Dean HattonPresident and ChiefExecutive Officer |  |      | 2010 |  |           |         | 375,000 |          |  |   |                    |  |  |                 |  |  |                                            |   |  |                             |  |         | 729,507  |  |  |       | 9,800 |  |  |           | 1,114,307 | 
|                                                |  | 2009 |      |  |           | 285,000 |         |          |  |  |                     |  |  | 163,847         |   |  |                                            |  |   |                             |  | 548,100 |          |  |  | 9,800 |       |  |  | 1,006,747 |          
|                                                |  |      |      |  |           |         |         |         
|Mark VolchekChief Financial Officer             |  |      | 2010 |  |           |         | 275,000 |          |  |   |                    |  |  |                 |  |  |                                            |   |  |                             |  |         | 521,076  |  |  |       | 9,800 |  |  |           | 805,876   | 
|                                                |  | 2009 |      |  |           | 175,000 |         |          |  |  |                     |  |  | 117,029         |   |  |                                            |  |   |                             |  | 391,500 |          |  |  | 9,800 |       |  |  | 693,329   |          
|                                                |  |      |      |  |           |         |         |         
|Miles LasaterChief Operations Officer           |  |      | 2010 |  |           |         | 275,000 |          |  |   |                    |  |  |                 |  |  |                                            |   |  |                             |  |         | 521,076  |  |  |       | 9,800 |  |  |           | 805,876   | 
|                                                |  | 2009 |      |  |           | 175,000 |         |          |  |  |                     |  |  | 117,029         |   |  |                                            |  |   |                             |  | 391,500 |          |  |  | 9,800 |       |  |  | 693,329   |          
|                                                |  |      |      |  |           |         |         |         
|Casey McGuaneChief Service Officer              |  |      | 2010 |  |           |         | 200,000 |          |  |   |                    |  |  |                 |  |  |                                            |   |  |                             |  |         | 250,117  |  |  |       | 9,800 |  |  |           | 459,917   | 
|                                                |  | 2009 |      |  |           | 165,000 |         |          |  |  |                     |  |  | 56,182          |   |  |                                            |  |   |                             |  | 187,920 |          |  |  | 9,800 |       |  |  | 418,902   |          
|                                                |  |      |      |  |           |         |         |         
|Robert ReachChief Sales Officer                 |  |      | 2010 |  |           |         | 470,842 | (4)      |  |   |                    |  |  |                 |  |  |                                            |   |  |                             |  |         | 62,529   |  |  |       | 9,800 |  |  |           | 543,171   | 
|                                                |  | 2009 |      |  |           | 301,876 | (4)     |          |  |  |                     |  |  | 14,029          |   |  |                                            |  |   |                             |  | 46,980  |          |  |  | 9,800 |       |  |  | 372,685   |          



|(1) | The amounts in this column reflect the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of restricted stock awards granted to our named
executive officers. For a description of the assumptions used in determining grant date fair value, see Note 2 to our consolidated financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The amounts in this column reflect annual cash bonuses earned by our named executive officers as described in the section Elements of CompensationAnnual
Bonus above.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The amount shown for each named executive officer represents Company matching contributions under our 401(k) plan.
|--- | ------------------------------------------------------------------------------------------------------------------

|(4) | The amount shown for Mr. Reach includes base salary of $155,000 and $200,000 and sales commissions of $146,876 and $270,842 for 2009 and 2010, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Grants of Plan-Based Awards in Fiscal Year 2010

The following table sets forth, for each of the named executive officers, awards granted during fiscal 2010 under our annual cash bonus
program.



|              |              |                                                                |        |           |  |  |             |  |  |  |         | 
|------------- | ------------ | -------------------------------------------------------------- | ------ | --------- |  |  | ----------- |  |  |  | ------- | 
|Name          |              | Estimated Future Payouts
UnderNon-Equity Incentive Plan Awards |       
|              | Threshold($) |                                                                |        | Target($) |  |  | Maximum ($) | 
|              |              |                                                                |       
|Dean Hatton   |              |                                                                | 94,063 |           |  |  | 376,250     |  |  |  | 752,500 | 
|              |              |                                                                |       
|Mark Volchek  |              |                                                                | 67,188 |           |  |  | 268,750     |  |  |  | 537,500 | 
|              |              |                                                                |       
|Miles Lasater |              |                                                                | 67,188 |           |  |  | 268,750     |  |  |  | 537,500 | 



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|              |              |                                                                |        |           |  |  |             |  |  |  |         | 
|------------- | ------------ | -------------------------------------------------------------- | ------ | --------- |  |  | ----------- |  |  |  | ------- | 
|Name          |              | Estimated Future Payouts
UnderNon-Equity Incentive Plan Awards |       
|              | Threshold($) |                                                                |        | Target($) |  |  | Maximum ($) | 
|              |              |                                                                |       
|Casey McGuane |              |                                                                | 32,250 |           |  |  | 129,000     |  |  |  | 258,000 | 
|              |              |                                                                |       
|Rob Reach     |              |                                                                | 8,063  |           |  |  | 32,250      |  |  |  | 64,500  | 

Outstanding Equity
Awards at Fiscal Year End 2010

The following table sets forth, for each of the named executive officers, the equity
awards outstanding as of the end of fiscal 2010.



|              |  |            |           |  |                                                                |  |         |                                                                  |  |  |                         |     |  |                |      |  |                                                        |  |           |                                                                   |  |  |        |     |  |  |         | 
|------------- |  | ---------- | --------- |  | -------------------------------------------------------------- |  | ------- | ---------------------------------------------------------------- |  |  | ----------------------- | --- |  | -------------- | ---- |  | ------------------------------------------------------ |  | --------- | ----------------------------------------------------------------- |  |  | ------ | --- |  |  | ------- | 
|              |  |            |           |  | Option Awards                                                  |  |         | Stock Awards                                                     | 
|Name          |  | Grant Date |           |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable |  |         | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |  |  | OptionExercisePrice ($) |     |  | ExpirationDate |      |  | Number ofShares orUnits ofStock thatHave NotVested (#) |  |           | Market Value ofShares of
Unitsof Stock thatHave NotVested ($) (3) | 
|Dean Hatton   |  |            | 3/26/2002 |  |                                                                |  | 984,340 |                                                                  |  |  |                        |     |  |                | 0.20 |  |                                                        |  | 3/25/2012 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 3/3/2004  |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 0.29 |  |                                                        |  | 3/2/2014  |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/17/2006 |  |                                                                |  | 180,000 |                                                                  |  |  |                        |     |  |                | 0.67 |  |                                                        |  | 1/16/2016 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/23/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 1.34 |  |                                                        |  | 1/22/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/7/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 2.67 |  |                                                        |  | 12/6/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 9/25/2008 |  |                                                                |  | 210,937 |                                                                  |  |  | 164,063                 | (1) |  |                | 4.59 |  |                                                        |  | 9/24/2018 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/4/2009 |  |                                                                |  |         |                                                                  |  |  |                         |     |  |                |      |  |                                                        |  |           |                                                                   |  |  | 11,379 | (4) |  |  | 230,197 | 
|              |  |            |           |  |                                                                |  |        
|Mark Volchek  |  |            | 3/3/2004  |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 0.29 |  |                                                        |  | 3/2/2014  |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/17/2006 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 0.67 |  |                                                        |  | 1/16/2016 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/23/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 1.34 |  |                                                        |  | 1/22/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/7/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 2.67 |  |                                                        |  | 12/6/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 9/25/2008 |  |                                                                |  | 210,937 |                                                                  |  |  | 164,063                 | (1) |  |                | 4.59 |  |                                                        |  | 9/24/2018 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/4/2009 |  |                                                                |  |         |                                                                  |  |  |                         |     |  |                |      |  |                                                        |  |           |                                                                   |  |  | 8,127  | (4) |  |  | 164,409 | 
|              |  |            |           |  |                                                                |  |        
|Miles Lasater |  |            | 3/3/2004  |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 0.29 |  |                                                        |  | 3/2/2014  |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/17/2006 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 0.67 |  |                                                        |  | 1/16/2016 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 1/23/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 1.34 |  |                                                        |  | 1/22/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/7/2007 |  |                                                                |  | 75,000  |                                                                  |  |  |                        |     |  |                | 2.67 |  |                                                        |  | 12/6/2017 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 9/25/2008 |  |                                                                |  | 210,937 |                                                                  |  |  | 164,063                 | (1) |  |                | 4.59 |  |                                                        |  | 9/24/2018 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 12/4/2009 |  |                                                                |  |         |                                                                  |  |  |                         |     |  |                |      |  |                                                        |  |           |                                                                   |  |  | 8,127  | (4) |  |  | 164,409 | 
|              |  |            |           |  |                                                                |  |        
|Casey McGuane |  |            | 9/12/2002 |  |                                                                |  | 210,124 |                                                                  |  |  |                        |     |  |                | 0.20 |  |                                                        |  | 9/11/2012 |                                                                   |  |  |        |     |  |  |         | 
|              |  |            | 2/10/2005 |  |                                                                |  | 150,000 |                                                                  |  |  |                        |     |  |                | 0.50 |  |                                                        |  | 2/9/2015  |                                                                   |  |  |        |     |  |  |         | 



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|          |  |  |            |  |  |  |        |  |  |  |        |     |  |  |      |  |  |  |            |  |  |  |       |     |  |  |        | 
|--------- |  |  | ---------- |  |  |  | ------ |  |  |  | ------ | --- |  |  | ---- |  |  |  | ---------- |  |  |  | ----- | --- |  |  | ------ | 
|          |  |  |            |  |  |  |        |  | 
|          |  |  |            |  |  |  |        |  |  |  |        |     |  |  |      |  |  |  |            |  | 
|          |  |  | 12/7/2007  |  |  |  | 54,000 |  |  |  | 36,000 | (2) |  |  | 2.67 |  |  |  | 12/6/2017  |  |  |  |       |     |  |  |        | 
|          |  |  | 9/25/2008  |  |  |  | 42,187 |  |  |  | 32,813 | (1) |  |  | 4.59 |  |  |  | 9/24/2018  |  |  |  |       |     |  |  |        | 
|          |  |  | 12/4/2009  |  |  |  |        |  |  |  |        |     |  |  |      |  |  |  |            |  |  |  | 3,903 | (4) |  |  | 78,958 | 
|          |  |  |            |  |  |  |       
|Rob Reach |  |  | 10/12/2004 |  |  |  | 78,926 |  |  |  |       |     |  |  | 0.32 |  |  |  | 10/11/2014 |  |  |  |       |     |  |  |        | 
|          |  |  | 12/7/2007  |  |  |  | 45,000 |  |  |  | 30,000 | (2) |  |  | 2.67 |  |  |  | 12/6/2017  |  |  |  |       |     |  |  |        | 
|          |  |  | 9/25/2008  |  |  |  | 42,187 |  |  |  | 32,813 | (1) |  |  | 4.59 |  |  |  | 9/24/2018  |  |  |  |       |     |  |  |        | 
|          |  |  | 12/4/2009  |  |  |  |        |  |  |  |        |     |  |  |      |  |  |  |            |  |  |  | 975   | (3) |  |  | 19,724 | 



|(1) | This award vests at a rate of 25% on the first anniversary of the grant date, and in thirty-six equal monthly installments over the following three years.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This award vests over five years in sixty equal monthly installments commencing on the grant date.
|--- | --------------------------------------------------------------------------------------------------

|(3) | The amounts in this column represent the number of unvested restricted shares outstanding for the named executive officers at fiscal year-end multiplied by the stock
price of $20.23 (closing price for a share of our common stock on December 31, 2010).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | This award vests over four years in four equal installments commencing on the first anniversary of the grant date.
|--- | ------------------------------------------------------------------------------------------------------------------

For a description of the treatment of outstanding equity awards upon the executive officers termination of employment or a change
in control of the Company, please see Part III. Item 10. Directors, Executive Officers and Corporate GovernancePotential Payments Upon Termination or Change in Control.

Options Exercised and Stock Vested

The following table shows exercises of stock options and restricted stock vesting for the year ended December 31, 2010, for each of the executive officers named in the Summary Compensation Table.



|              |  |                                        |         |  |                                |  |           |                                         |  |  |                                  |  |  |  |        | 
|------------- |  | -------------------------------------- | ------- |  | ------------------------------ |  | --------- | --------------------------------------- |  |  | -------------------------------- |  |  |  | ------ | 
|              |  | Option Awards                          |         |  | Stock Awards                   | 
|Name          |  | Number ofSharesAcquired onExercise (#) |         |  | ValueRealized onExercise($)(1) |  |           | Number ofShares 
Acquiredon Vesting (#) |  |  | Value Realizedon Vesting 
($)(2) | 
|              |  |                                        |         | 
|Dean Hatton   |  |                                        | 532,760 |  |                                |  | 5,731,050 |                                         |  |  | 3,792                            |  |  |  | 78,987 | 
|              |  |                                        |         | 
|Mark Volchek  |  |                                        |        |  |                                |  |          |                                         |  |  | 2,709                            |  |  |  | 56,428 | 
|              |  |                                        |         | 
|Miles Lasater |  |                                        |        |  |                                |  |          |                                         |  |  | 2,709                            |  |  |  | 56,428 | 
|              |  |                                        |         | 
|Casey McGuane |  |                                        | 56,126  |  |                                |  | 617,616   |                                         |  |  | 1,299                            |  |  |  | 27,058 | 
|              |  |                                        |         | 
|Rob Reach     |  |                                        | 26,074  |  |                                |  | 282,642   |                                         |  |  | 324                              |  |  |  | 6,749  | 



|(1) | Amounts reflect the difference between the exercise price of the stock options and the market price of our common stock at the time of exercise.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Amounts reflect the market value of our common stock on the day on which the restricted stock vested.
|--- | -----------------------------------------------------------------------------------------------------



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Potential Payments Upon Termination or Change in Control

Our named executive officers are not entitled to any severance payments upon termination of their employment or in connection with a
change of control of the Company. Other than as discussed below, under the 2000 Stock Option Plan, upon a termination of employment, all unvested equity awards (and awards where all restrictions have not lapsed) terminate and vested stock options
may continue to be exercised within a three-month period (extended to a twelve-month period if terminated due to a disability within the meaning of Section 22(e)(3) of the Code or death).

Under the 2000 Stock Option Plan, if in connection with or following a Change-in-Control (as defined below), a named
executive officers employment is terminated by the Company for any reason other than Cause (as defined below) or he terminates his employment for Good Reason (as defined below), any unvested stock options or shares of
restricted stock held by such named executive officer shall vest immediately and be exercisable or transferable, respectively, in accordance with the terms of the 2000 Stock Option Plan. The table below provides an estimate of the value of such
accelerated vesting of unvested awards assuming that a Change-in-Control and a qualifying termination of employment occurred on December 31, 2010 and assuming a stock price of $20.23 per share, the closing price of a share of our common stock,
on such date. However, the executives employment was not terminated on December 31, 2010 under such agreement and a change in control did not occur on that date. There can be no assurance that a termination of employment, a change in
control or both would produce the same or similar results as those set forth below if either or both of them occur on any other date or at any other price, or if any other assumption used in calculating the benefits set forth below is not correct in
fact.



|              |  |                                                |           |  |                                                     |  |         |                    |  |  |           | 
|------------- |  | ---------------------------------------------- | --------- |  | --------------------------------------------------- |  | ------- | ------------------ |  |  | --------- | 
|Name          |  | Value of AcceleratedStock OptionVesting ($)(1) |           |  | Value of 
AcceleratedRestrictedStock Vesting ($)(2) |  |         | Total Benefits ($) | 
|              |  |                                                |          
|Dean Hatton   |  |                                                | 2,565,945 |  |                                                     |  | 230,197 |                    |  |  | 2,796,142 | 
|              |  |                                                |          
|Mark Volchek  |  |                                                | 2,565,945 |  |                                                     |  | 164,409 |                    |  |  | 2,730,354 | 
|              |  |                                                |          
|Miles Lasater |  |                                                | 2,565,945 |  |                                                     |  | 164,409 |                    |  |  | 2,730,354 | 
|              |  |                                                |          
|Casey McGuane |  |                                                | 1,145,355 |  |                                                     |  | 78,958  |                    |  |  | 1,224,313 | 
|              |  |                                                |          
|Robert Reach  |  |                                                | 1,039,995 |  |                                                     |  | 19,724  |                    |  |  | 1,059,719 | 



|(1) | The amounts in this column represent for each named executive officer the intrinsic value of the stock options subject to accelerated vesting calculated as the excess
of $20.23 per share subject to each outstanding stock option over the applicable per share exercise price set forth in the Outstanding Equity Awards at Fiscal Year End 2010 Table above.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The amounts in this column represent for each named executive officer the value of the restricted stock subject to accelerated vesting calculated by multiplying the
number of unvested shares of restricted stock, as set forth in the Outstanding Equity Awards at Fiscal Year End 2010 Table above, by $20.23 per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the 2000 Stock Option Plan, Change-in-Control is defined as a merger or consolidation of the Company with another entity, or a sale of the Companys assets or stock in which:



| | (i) | the shareholders of the Company immediately prior to the transaction own less than 50% of the voting power of the surviving corporation after the transaction, and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | the price per share of the Companys common stock in such transaction, as determined in good faith by our board of directors, is at least $1.17, subject to
adjustment to reflect stock splits, reverse stock splits, or combinations.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Under the 2000 Stock Option Plan, Cause is defined as:



| | (i) | habitual intoxication,
| | --- | ----------------------



| | (ii) | illegal drug use or addiction,
| | ---- | ------------------------------



| | (iii) | conviction of a felony (or plea of guilty or nolo contendere),
| | ----- | --------------------------------------------------------------



| | (iv) | material failure or inability to perform ones agreements, duties or obligations as an employee, other than from illness or injury, and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (v) | willful misconduct or negligence in the performance of ones agreements, duties or obligations as an employee.
| | --- | --------------------------------------------------------------------------------------------------------------

In addition, under the 2000 Stock Option Plan, the named executive officer has Good Reason to terminate his employment with
the Company if:



| | (i) | his compensation has been materially reduced,
| | --- | ---------------------------------------------



| | (ii) | his position, duties or responsibilities have been materially reduced,
| | ---- | ----------------------------------------------------------------------



| | (iii) | he has been required to move his principal residence because his primary place of employment is moved to a location greater than thirty (30) miles away from its
then current location,
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | the Company has not paid to the named executive officer when due any salary, bonus or other material benefit due to him, or
| | ---- | ---------------------------------------------------------------------------------------------------------------------------



| | (v) | there exists a breach by the Company of any material provision of any employment agreement between it and the named executive officer, provided, however he shall notify
the Company of such event and give it fifteen (15) days to remedy the situation before termination his employment.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have entered into certain non-competition agreements with our named executive officers. The named executive officers are not entitled to any payment under these agreements. See Part III,
Item 13. Certain Relationships and Related Party TransactionsNon-Competition Agreements of this report.

Director Compensation

The following table sets forth compensation paid to our non-employee directors (or in certain cases to the shareholder which they represent on the board) for service on our board and board committees in
fiscal 2010. Directors who are also our employees do not receive additional compensation for their service on our board or board committees.



|                 |  |                                  |        |  |                    |  |   |           |  |  |        | 
|---------------- |  | -------------------------------- | ------ |  | ------------------ |  | - | --------- |  |  | ------ | 
|Name             |  | Fees Earned 
orPaidin Cash(1)($) |        |  | OptionAwards($)(2) |  |   | Total ($) | 
|                 |  |                                  |       
|Paul Biddelman   |  |                                  | 40,900 |  |                    |  |  |           |  |  | 40,900 | 
|                 |  |                                  |       
|David Cromwell   |  |                                  | 29,053 |  |                    |  |  |           |  |  | 29,053 | 
|                 |  |                                  |       
|Stewart Gross    |  |                                  | 28,380 |  |                    |  |  |           |  |  | 28,380 | 
|                 |  |                                  |       
|Shamez Kanji     |  |                                  | 30,918 |  |                    |  |  |           |  |  | 30,918 | 
|                 |  |                                  |       
|Patrick McFadden |  |                                  | 37,110 |  |                    |  |  |           |  |  | 37,110 | 
|                 |  |                                  |       
|Charles Moran    |  |                                  | 24,361 |  |                    |  |  |           |  |  | 24,361 | 



|(1) | In the case of Mr. Cromwell, the fees were paid to Sachem Ventures, LLC, prior to the initial public offering, and in the case of Messrs. Gross and Kanji, all of
the fees were paid to Lightyear Capital LLC and North Hill Ventures II, L.P., respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The following table sets forth, for each of the directors, the equity awards outstanding as of December 31, 2010.
|--- | -----------------------------------------------------------------------------------------------------------------



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|                 |  |                                                               |           |     |                                                                  |  |        |                        |  |  |                      |     |  |  |       |  |  |  |            | 
|---------------- |  | ------------------------------------------------------------- | --------- | --- | ---------------------------------------------------------------- |  | ------ | ---------------------- |  |  | -------------------- | --- |  |  | ----- |  |  |  | ---------- | 
|Name(1)          |  | Grant Date                                                    |           |     | Option Awards                                                    | 
|                 |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable |           |     | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |  |        | OptionExercisePrice($) |  |  | OptionExpirationDate |    
|Paul Biddelman   |  |                                                               | 3/28/2007 |     |                                                                  |  | 28,800 |                        |  |  |                     |     |  |  | 1.34  |  |  |  | 3/27/2017  | 
|                 |  |                                                               | 12/4/2009 |     |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 
|David Cromwell   |  |                                                               | 12/4/2009 |     |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 
|Stewart Gross    |  |                                                               | 12/4/2009 | (2) |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 
|Shamez Kanji     |  |                                                               | 3/28/2007 |     |                                                                  |  | 28,800 |                        |  |  |                     |     |  |  | 1.34  |  |  |  | 3/27/2017  | 
|                 |  |                                                               | 12/4/2009 | (3) |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 
|Patrick McFadden |  |                                                               | 11/1/2001 |     |                                                                  |  | 28,800 |                        |  |  |                     |     |  |  | 0.14  |  |  |  | 10/31/2011 | 
|                 |  |                                                               | 1/27/2009 |     |                                                                  |  | 67,083 |                        |  |  | 37,917               | (5) |  |  | 4.59  |  |  |  | 1/26/2019  | 
|                 |  |                                                               | 12/4/2009 |     |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 
|Charles Moran    |  |                                                               | 1/27/2009 |     |                                                                  |  | 32,082 |                        |  |  | 37,917               | (5) |  |  | 4.59  |  |  |  | 1/26/2019  | 
|                 |  |                                                               | 12/4/2009 |     |                                                                  |  | 10,000 |                        |  |  | 20,000               | (4) |  |  | 10.80 |  |  |  | 12/3/2019  | 



|(1) | Our non-employee directors may have entered into agreements with the funds they represent with respect to the economic benefits granted to them.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This award was granted to Lightyear Capital II, LLC.
|--- | ----------------------------------------------------

|(3) | This award was granted to North Hill Ventures II, L.P.
|--- | ------------------------------------------------------

|(4) | This award vests at a rate of one-third on each of the first three anniversaries of the grant date.
|--- | ---------------------------------------------------------------------------------------------------

|(5) | This award vests at a rate of one-third on the first anniversary of the grant date, and in 24 equal monthly installments over the following two years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, on March 28, 2007, an option was granted to Sachem Ventures, LLC on the same terms as the
other grants made on such date.

Prior to our initial public offering, non-employee directors of the Company (or in certain
cases the shareholder which they represent on the board) were entitled to receive the following compensation:



|                                                                                 |  |   |       | 
|-------------------------------------------------------------------------------- |  | - | ----- | 
|      board meeting (in person)                                                 |  | $ | 1,000 | 
|      board meeting (by telephone)                                              |  | $ | 750   | 
|      committee meeting not held in connection with a board meeting (in
person) |  | $ | 1,000 | 
|      committee meeting held in connection with a board meeting (in person)     |  | $ | 500   | 
|      committee meeting (by telephone)                                          |  | $ | 750   | 
|      committee chair annual retainer                                           |  | $ | 5,000 | 

Non-employee
directors are also reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meeting attendance.

Following our initial public offering in June 2010, we have paid all of our non-employee directors (or in certain cases the shareholder which they represent on the board) annual retainer fees only, with
no additional fees for attendance at board meetings, and intends to make annual equity grants to our non-employee directors under our 2010 Equity Incentive Plan, in each case in the amounts set annually by the compensation committee. Each
non-employee director receives an annual cash retainer of $35,000 and annual equity awards valued at $100,000, which may be split between restricted stock and stock options as the Compensation Committee determines at such time. Annual retainers are
paid to the chair of each



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committee of the board of directors as follows: $20,000 for the audit committee chair, $10,000 for the compensation committee chair and $7,500 for the nominating and governance committee chair.
Annual retainers are paid to committee members as follows: $10,000 for the audit committee, $5,000 for the compensation committee and $3,750 for the nominating and governance committee. Other than as described above, we do not expect to provide any
of our directors with any other compensation or perquisites.

In February 2011, each non-employee director was granted 10,000
stock options under the 2010 Equity Incentive Plan. The stock options were vested immediately, have a term of ten years and have an exercise price of $18.05.

Compensation Committee Report

The compensation committee has
reviewed and discussed the Compensation Discussion and Analysis included at Part III, Item 11 in this report with management. Based on the compensation committees review and discussion, the compensation committee recommended to the board
of directors that the Compensation Discussion and Analysis be included in this report.



| |  |  |  |                       
| |  |  |  | ----------------------
| |  |  |  | Paul Biddelman (Chair)
| |  |  |  | David Cromwell        
| |  |  |  | Shamez Kanji          

Compensation Committee
Interlocks and Insider Participation

None of the members of our compensation committee are currently or have ever been an
officer or employee of us. None of our executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive
officers serving as one of our directors or on our compensation committee.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The following table sets forth information as of December 31, 2010 (unless otherwise indicated) regarding the beneficial ownership of
our common stock by:



| |  |  | each person or group who is known by us to beneficially own more than 5% of our outstanding shares of common stock;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | each of our named executive officers;
| | - |  | -------------------------------------



| |  |  | each of our directors and each director nominee; and
| | - |  | ----------------------------------------------------



| |  |  | all of the executive officers, directors and each director nominee as a group.
| | - |  | ------------------------------------------------------------------------------

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of
the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities or has the right to
acquire such powers within 60 days. The information does not necessarily indicate beneficial ownership for any other purpose, including economic interest. Except as disclosed in the footnotes to this table and subject to applicable community
property laws, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. For purposes of the calculations in the table below,
the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options held by the respective person which may be exercised within 60 days after December 31, 2010. For purposes of calculating each
persons percentage ownership, shares



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of common stock issuable pursuant to stock options exercisable within 60 days after December 31, 2010 are included as outstanding and beneficially owned for that person or group, but are not
deemed outstanding for the purposes of computing the percentage ownership of any other person.

Applicable percentage
ownership prior to this offering is based on 56,109,234 shares of common stock outstanding on December 31, 2010.



|                                                             |  |                                                                  |            |            |  |                               |  |  |      |  
|------------------------------------------------------------ |  | ---------------------------------------------------------------- | ---------- | ---------- |  | ----------------------------- |  |  | ---- | -
|                                                             |  | Shares of Common Stock BeneficiallyOwned as of December 31,
2010 |           
|Name and Address of Beneficial Owner (1)                     |  | Number (2)                                                       |            | Percentage | 
|5% Stockholders                                              |  |                                                                  |            |            |  |                               |  |  |      |  
|Lightyear Capital                                            |  |                                                                  | 14,000,045 |            |  | (3)                           |  |  | 24.9 | %
|North Hill Ventures II, L.P.                                 |  |                                                                  | 3,537,318  |            |  | (5)                           |  |  | 6.3  | %
|Club Circle Partners                                         |  |                                                                  | 3,403,624  |            |  | (4)                           |  |  | 6.1  | %
|Kevin Jones                                                  |  |                                                                  | 2,958,860  |            |  | (6)                           |  |  | 5.3  | %
|Hanseatic Americas LDC                                       |  |                                                                  | 2,813,925  |            |  | (12)                          |  |  | 5.0  | %
|                                                             |  |                                                                  |           
|All 5% stockholders as a group (5 persons)                   |  |                                                                  | 26,713,772 |            |  | (3)(4)(5)                     |  |  | 47.6 | %
|                                                             |  |                                                                  |            |            |  | (6)(12)                       |  |  |      |  
|Executive Officers and Directors                             |  |                                                                  |            |            |  |                               |  |  |      |  
|Dean Hatton                                                  |  |                                                                  | 1,931,373  |            |  | (7)                           |  |  | 3.3  | %
|Mark Volchek                                                 |  |                                                                  | 2,578,488  |            |  | (8)                           |  |  | 4.6  | %
|Miles Lasater                                                |  |                                                                  | 2,578,488  |            |  | (9)                           |  |  | 4.6  | %
|Casey McGuane                                                |  |                                                                  | 471,046    |            |  | (10)                          |  |  | *    |  
|Robert Reach                                                 |  |                                                                  | 173,037    |            |  | (11)                          |  |  | *    |  
|Paul Biddelman                                               |  |                                                                  | 2,813,925  |            |  | (12)                          |  |  | 5.0  | %
|David Cromwell                                               |  |                                                                  | 655,382    |            |  | (13)                          |  |  | 1.2  | %
|Stewart Gross                                                |  |                                                                  | 14,000,045 |            |  | (3)                           |  |  | 24.9 | %
|Shamez Kanji                                                 |  |                                                                  | 3,537,318  |            |  | (5)                           |  |  | 6.3  | %
|Patrick McFadden                                             |  |                                                                  | 121,716    |            |  | (14)                          |  |  | *    |  
|Charles Moran                                                |  |                                                                  | 200,916    |            |  | (15)                          |  |  | *    |  
|All executive officers and directors as a group (11 persons) |  |                                                                  | 29,061,734 |            |  | (3)(5)(7)(8)                  |  |  | 51.6 | %
|                                                             |  |                                                                  |            |            |  | (9)(10)(11)
(12)(13)(14) (15) |  |  |      |  



|* | Less than one percent (1%)
|- | --------------------------

|(1) | The addresses for the listed beneficial owners are as follows: for Lightyear Capital, 375 Park Avenue, Floor 11, New York, NY, 10152; for Club Circle Partners, 780 N.
Water Street, Milwaukee, Wisconsin 53202; for North Hill Ventures II, L.P., c/o Shamez Kanji, 10 Post Office Square, 11th Floor, Boston, Massachusetts 02109; for Hanseatic Americas LDC, c/o Paul Biddelman, 450 Park Ave, Suite 2302, New York, New
York 10022; for Kevin Jones, c/o Evisions, 752 Rodeo Circle, Orange, California 92869; and for each director, executive officer, or other selling stockholder, c/o Higher One Holdings, Inc., 25 Science Park, New Haven, Connecticut 06511.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes options held by each shareholder, if any, that are currently exercisable or will become exercisable within 60 days of December 31, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes (i) 13,908,128 shares of common stock held by Lightyear Fund II, (ii) 71,917 shares of common stock held by Lightyear Co-Invest II, (iii) 10,000
options to purchase common stock held by Lightyear Capital II, LLC (Lightyear Capital II), and (iv) 10,000 options to purchase common stock held by Stewart Gross, all of which were granted in February 2011 and are exercisable within
60 days of December 31, 2010. As the sole general partner of Lightyear Fund II, Lightyear Fund II GP possesses the power to direct the voting and disposition of the shares owned by Lightyear Fund II. As the general partner of Lightyear Fund II
GP and Lightyear Co-Invest II, Lightyear Fund II GP Holdings may also be deemed to share voting and/or dispositive power over such securities. As the managing member of Lightyear Fund II GP Holdings, Marron & Associates may also be deemed
to share voting and/or dispositive power over such securities. As the sole member of Marron & Associates, Chestnut Venture Holdings may also be deemed to share voting and/or dispositive power over such securities. As the managing member of
Chestnut Venture Holdings, Mr. Donald B. Marron may also be deemed to share voting and/or dispositive power over such securities. However, Mr. Donald B. Marron disclaims beneficial ownership of the shares held by Lightyear Fund
II and Lightyear Co-Invest, except to the extent of his pecuniary interest in such shares. Additionally, 30,000 options to purchase common stock are held directly by Lightyear Capital II. 10,000 of these options to purchase common stock became
exercisable as of December 4, 2010. As the sole member of Lightyear Capital II, Lightyear Capital, LLC (Lightyear Capital) may be deemed to share voting and/or dispositive power over the securities held by Lightyear Capital II. As
the managing member of Lightyear Capital, Mr. Donald B. Marron may be deemed to share voting and/or dispositive power over the securities held by Lightyear Capital. However, Mr. Donald B. Marron disclaims beneficial ownership of
the shares held by Lightyear Capital II and Lightyear Capital, except to the extent of his pecuniary interest in such shares. Mr. Donald B. Marron does not directly own securities of our securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Henry G. Gus Fuldner, a partner and the manager of Club Circle Partners, holds sole voting and dispositive power over the securities held
by Club Circle Partners. Mr. Fuldner disclaims beneficial ownership of the securities held by Club Circle Partners,
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | except to the extent of his pecuniary interest therein. Mr. Fuldner has observer rights on the board.
| | -----------------------------------------------------------------------------------------------------

|(5) | Includes (i) 3,124,771 shares of common stock held by North Hill Ventures II, L.P., (ii) 38,800 options to purchase common stock exercisable within 60 days
after December 31, 2010 held by North Hill Ventures II, L.P., (iii) 179,982 shares of common stock held by Shamez Kanji, (iv) 183,765 shares of common stock held by Brett Rome and (v) 10,000 options to purchase common stock
exercisable within 60 days after December 31, 2010 held by Shamez Kanji, all of which were granted in February 2011. North Hill Ventures GP II, LLC is the general partner and manages North Hill Ventures II, L.P. Shamez Kanji and Brett Rome are
the two managing members of North Hill Ventures GP II, LLC. Messrs. Kanji and Rome share voting and/or dispositive rights power over the securities held by North Hill Ventures II, L.P. Mr. Kanji may be deemed to be the beneficial owner of
shares owned by North Hill Ventures II, L.P.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 2,958,860 shares held in escrow and subject to our right to repurchase under certain conditions as set forth in an intellectual property purchase agreement
between Kevin Jones and the company. See Part III, Item 13. Certain Relationships and Related TransactionsEduCard Transaction.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 15,471 shares of common stock held by Dean Hatton, 300,000 shares of common stock held by The Dean W. Hatton Grantor Retained Annuity Trust and 1,615,902
options to purchase common stock exercisable within 60 days after December 31, 2010 held by Dean Hatton. Dean Hatton may be deemed to be the beneficial owner of shares owned by The Dean W. Hatton Grantor Retained Annuity Trust.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes 2,051,926 shares of common stock and 526,562 options to purchase common stock exercisable within 60 days after December 31, 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 1,796,229 shares of common stock held by Miles Lasater, 252,988 shares of common stock held by the Miles Hanson Lasater 2009 GRAT and 526,562 options to
purchase common stock exercisable within 60 days after December 31, 2010 held by Miles Lasater. Miles Lasater is married to Glyn Elizabeth Lasater, who is the trustee of the Miles Hanson Lasater 2009 GRAT. Mr. Lasater may be deemed to be
the beneficial owner of shares owned by the Miles Hanson Lasater 2009 GRAT. Mr. Lasater disclaims beneficial ownership of any securities owned by the Miles Hanson Lasater 2009 GRAT, except to the extent of his pecuniary interest therein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 8,610 shares of common stock and 462,436 options to purchase common stock exercisable within 60 days after December 31, 2010.
|---- | --------------------------------------------------------------------------------------------------------------------------------------

|(11) | Includes 1,299 shares of common stock and 171,738 options to purchase common stock exercisable within 60 days after December 31, 2010.
|---- | --------------------------------------------------------------------------------------------------------------------------------------

|(12) | Includes 2,7,65,125 shares held by Hanseatic Americas LDC and 48,800 options to purchase common stock exercisable within 60 days after December 31, 2010 held by
Paul Biddelman, 10,000 of which were granted in February 2011. Paul Biddelman is president of Hanseatic Corporation, the manager of Hanseatic Americas LDC, and president of Hanseatic Americas LDC. Mr. Biddelman and Wolfgang Traber share voting
and/or dispositive power over the securities held by Hanseatic Americas LDC. Mr. Biddelman may be deemed to be the beneficial owner of shares owned by Hanseatic Americas LDC.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Includes 606,582 shares of common stock, 28,800 options to purchase common stock exercisable within 60 days after December 31, 2010 held by Sachem Ventures, LLC,
and 20,000 options to purchase common stock exercisable within 60 days after December 31, 2010 held by David Cromwell, 10,000 of which were granted in February 2011. David Cromwell is the president of Hillhouse Advisors, Inc., which is the
Managing Member of Sachem Ventures, LLC, and Mr. Cromwell controls the voting of shares held by Sachem Ventures, LLC. Mr. Cromwell may be deemed to be the beneficial owner of shares owned by Sachem Ventures, LLC. Mr. Cromwell
disclaims beneficial ownership of any securities owned by Sachem Ventures, LLC.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Includes 121,716 options to purchase common stock exercisable within 60 days after December 31, 2010, 10,000 of which were granted in February 2011.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Includes 142,998 shares of common stock and 57,918 options to purchase common stock exercisable within 60 days after December 31, 2010, 10,000 of which were
granted in February 2011.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Securities Authorized For Issuance Under Equity Compensation Plans

The table below sets forth the following information as of the end of December 31, 2010 for (1) all compensation plans previously approved by
our stockholders and (2) all compensation plans not previously approved by our stockholders.



|                                                       |  |                                                                                    |           |  |                                                    |   |      |                                                        |  |  |                                                                                                      |  |  |  |           | 
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------- | --------- |  | -------------------------------------------------- | - | ---- | ------------------------------------------------------ |  |  | ---------------------------------------------------------------------------------------------------- |  |  |  | --------- | 
|                                                       |  | Equity Compensation Plan Information                                               |          
|Plan Category                                          |  | Number of sharesof common stockto be issued 
uponexercise ofoutstandingoptions (2) |           |  | Weighted-averageexercise priceofoutstandingoptions |   |      | Weighted-averageterm toexpiration ofoptionsoutstanding |  |  | Number of sharesof common stockremaining availablefor 
future issuanceunder equitycompensation plans | 
|Equity compensation plans approved by stockholders (1) |  |                                                                                    | 7,305,743 |  |                                                    | $ | 3.58 |                                                        |  |  | 5.72 years                                                                                           |  |  |  | 4,289,250 | 
|Equity compensation plans not approved by stockholders |  |                                                                                    |          |  |                                                    |   |     |                                                        |  |  |                                                                                                     |  |  |  |          | 



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|(1) | Reflects number of shares of common stock to be issued upon exercise of outstanding options under all of our equity compensation plans, including our 2000 Stock Option
Plan and 2010 Equity Incentive Plan. No shares of common stock are available for future issuance under any of our equity compensation plans, except the 2010 Equity Incentive Plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Does not include 32,508 restricted shares outstanding that were issued under the 2000 Incentive Plan.
|--- | -----------------------------------------------------------------------------------------------------



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

Investor Rights Agreement

On August 26, 2008, we entered into an
amended and restated investor rights agreement with certain key holders of our common stock relating to all shares of our capital stock that they hold or may hold in the future. Although the majority of the agreements provisions terminated
upon completion of our initial public offering, some provisions remain in effect. These provisions principally relate to our obligation, under certain circumstances, to register shares of our capital stock held by certain stockholders under the
Securities Act of 1933, as amended. We believe that the terms of the investor rights agreement were reasonable and comparable to the terms of an agreement negotiated on an arms-length basis.

Indemnification Agreements

Our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. As permitted by Delaware law, we have entered into
indemnification agreements with each of our directors and executive officers that require us to indemnify our directors and executive officers against all expenses (including reasonable attorneys, witness or other professional fees) and
liabilities (including judgments, damages and amounts paid in settlement, including those arising out of the negligence or active or passive wrongdoing of such persons) incurred, suffered or paid by a director or executive officer in connection with
any threatened, pending or completed claim, action, suit, arbitration, alternate dispute resolution process, investigation, administrative hearing, appeal, or any other proceeding, to which any such director may be a party or threatened to be made a
party or otherwise involved in as a witness by reason of such directors status serving (i) as our director or executive officer, as applicable, (ii) in any capacity with respect to any of our employee benefit plans, or (iii) as
a director, partner, trustee, officer, employee or agent of any other entity at our request, including one of our subsidiaries.

The indemnification agreements also require us to advance expenses incurred by such persons within thirty days after receipt of a written
request, provided that such persons undertake to repay such amounts if it is ultimately determined that they are not entitled to indemnification. Additionally, the agreements set forth certain procedures that will apply in the event of a claim for
indemnification thereunder, including a presumption that such persons are entitled to indemnification under the agreements and that we have the burden of proof to overcome that presumption in reaching any contrary determination.

We are not required to provide indemnification under the agreements for certain matters, including: (i) indemnification and
advancement of expenses for any action initiated by or on behalf of such person without the consent of our board of directors (except actions to enforce a right to indemnification or advancement of expenses under this agreement), and
(ii) indemnification beyond that permitted by Delaware law. We believe that the terms of the agreements were reasonable and comparable to the terms of agreements negotiated on an arms-length basis.



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Non-Competition Agreements

We have not entered into and currently do not intend to enter into any employment agreements with our executive officers. However, we
have entered into certain non-competition agreements with our executive officers. Each non-competition agreement provides that the executive generally will not disclose our proprietary information and will not compete with us or solicit our
customers and employees for the duration of the executives employment and for a period of twelve months following termination of employment. We believe that the terms of the agreements were reasonable and comparable to the terms of agreements
negotiated on an arms-length basis.

EduCard Transaction

In June 2008, we acquired EduCard, which provided prepaid debit card processing and other payment solutions, and entered into a related
integration agreement with EduCards parent company, Evisions, to integrate a software application. The president and chief executive officer of Evisions is Kevin Jones, who owns shares of our common stock, which he acquired in connection with
his sale of certain intellectual property to us, as described below.

In connection with the EduCard
acquisition and pursuant to an intellectual property purchase agreement, we purchased certain intellectual property from Kevin Jones for an aggregate consideration of 3,000,000 shares of our common stock. The shares are held in an escrow account and
are subject to the following conditional rights to repurchase at par value, $0.001 per share: (i) we had the right to repurchase all of the shares if, on December 31, 2009, the number of students enrolled at higher education institutional
clients that use the Evisions software with OneDisburse®, or Evisions Students, had been less than 100,000;
(ii) we may exercise our right to repurchase all of the shares if, on December 31, 2010, the number of Evisions Students is less than 200,000; and (iii) if, on December 31, 2011, the number of Evisions Students is less than
1,000,000, our repurchase right shall automatically be exercised in respect of the number of shares equal to 3,000,000 less three times the number of Evisions Students. As of December 31, 2010, there were 443,511 Evisions Students and,
consequently, on December 31, 2011, not less than 1,330,533 shares of our common stock will be released from escrow to Mr. Jones. We believe that the terms of the EduCard acquisition and the terms of the related purchase of intellectual
property were reasonable and comparable to the terms of a transaction negotiated on an arms-length basis.

Policy Concerning
Related Party Transactions

We have a formal written policy concerning related party transactions. A related party
transaction is a transaction, arrangement or relationship involving us or a consolidated subsidiary (whether or not we or the subsidiary is a direct party to the transaction), on the one hand, and (i) a director, executive officer or employee
of us or a consolidated subsidiary, his or her immediate family members or any entity that any of them controls or in which any of them has a substantial beneficial ownership interest; or (ii) any person who is the beneficial owner of more than
5% of our voting securities or a member of the immediate family of such person.

The audit committee evaluates each related
party transaction for the purpose of recommending to the disinterested members of the board whether the transaction is fair, reasonable and within our companys policy, and should be ratified and approved by the board. Relevant factors include
the benefits of the transaction to us, the terms of the transaction and whether the transaction was on an arms-length basis and in the ordinary course of our business, the direct or indirect nature of the related partys interest in the
transaction, the size and expected term of the transaction and other facts and circumstances that bear on the materiality of the related party transaction under applicable law and listing standards. At least annually, management will provide the
audit committee with information pertaining to related party transactions. Related party transactions entered into, but not approved or ratified as required by our policy concerning related party transactions, will be subject to termination by us or
the relevant subsidiary, if so directed by the audit committee or the board, taking into account factors as such body deems



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appropriate and relevant.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The following table sets forth the aggregate fees paid or accrued for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for fiscal years 2010
and 2009 and the aggregate fees paid or accrued for audit-related services and all other services rendered by PricewaterhouseCoopers LLP for fiscal years 2010 and 2009 (in thousands of dollars).



|                   |  |                  |       |  |                  |   |     | 
|------------------ |  | ---------------- | ----- |  | ---------------- | - | --- | 
|                   |  | Fiscal 
Year2010 |       |  | Fiscal 
Year2009 |  
|Audit fees         |  | $                | 1,273 |  |                  | $ | 248 | 
|Audit-related fees |  |                  | 18    |  |                  |   | 17  | 
|Tax fees           |  |                  | 85    |  |                  |   | 53  | 
|All other fees     |  |                  | 2     |  |                  |   |    | 
|                   |  |                  |       |  |                  |   |     | 
|                   |  |                 
|Total              |  | $                | 1,378 |  |                  | $ | 318 | 
|                   |  |                  |       |  |                  |   |     | 

The category of Audit fees includes fees for our annual audit, quarterly reviews and services
rendered in connection with regulatory filings with the SEC, such as the issuance of comfort letters and consents related to our initial public offering in 2010.

The category of Audit-related fees includes a United States Department of Education compliance audit.

The category of Tax fees includes fees for tax compliance, tax advice and tax planning services.

The category of All other fees includes the licensing of accounting and finance research technology owned by PricewaterhouseCoopers LLP.

All above audit services, audit-related services and tax services were pre-approved by the Audit Committee, which concluded that the
provision of such services by PricewaterhouseCoopers LLP was compatible with the maintenance of that firms independence in the conduct of its auditing functions. The Audit Committees outside auditor independence policy provides for
pre-approval of all services performed by the outside auditors.



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PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

(a)

1. Financial Statements

The following financial statements are filed as part of this annual report:



|                                                                                                                       |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|Document                                                                                                               |  | Page |     
|Report of Independent Registered Public Accounting Firm                                                                |  |      | F-1  | 
|Consolidated Balance Sheets as of December 31, 2009 and 2010                                                           |  |      | F-2  | 
|Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and
2010                             |  |      | F-3  | 
|Consolidated Statements of Changes in Stockholders (Deficit)/Equity for years ended December 
31, 2008, 2009 and 2010 |  |      | F-4  | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and
2010                             |  |      | F-5  | 
|Notes to Consolidated Financial Statements                                                                             |  |      | F-7  | 
|Informed Decisions
Corporation dba CASHNet March 31, 2009 and 2008 
Financial Statements:                              | 
|Independent Auditors Report                                                                                           |  |      | F-36 | 
|Balance Sheets                                                                                                         |  |      | F-37 | 
|Statements of Operations and Retained Earnings (Accumulated Deficit)                                                   |  |      | F-38 | 
|Statements of Cash Flows                                                                                               |  |      | F-39 | 
|Notes to Financial Statements                                                                                          |  |      | F-40 | 
|Informed Decisions
Corporation dba CASHNet (unaudited) September 30, 2009 and 2008                                     | 
|Financial Statements:                                                                                                  | 
|Balance Sheets                                                                                                         |  |      | F-49 | 
|Statements of Operations and Accumulated Deficit                                                                       |  |      | F-50 | 
|Statements of Cash Flows                                                                                               |  |      | F-51 | 
|Notes to Financial Statements                                                                                          |  |      | F-52 | 

2. Financial
Statement Schedules

Financial statement schedules are not submitted because they are not applicable, not required or the
information is included in our consolidated financial statements.

3. Exhibits

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this annual report.



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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K for the year ended
December 31, 2010 to be signed on their behalf by the undersigned, thereunto duly authorized.



|                                                                                                           
|-----------------------------------------------------------------------------------------------------------
|Date: February 23, 2011                                                                                    
|                                                                                                           
|Higher One Holdings, Inc.                                                                                  
|                                                                                                           
|/S/    DEAN
HATTON                                                                                         
|Dean Hatton President and Chief Executive Officer (Duly authorized officer and
principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons and in the capacities and on the dates indicated.



|                      |  |                                                                                                            |  |                  
|--------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | -----------------
|Signature             |  | Title                                                                                                      |  | Date             
|                      |  |                                                                                                           
|/S/    DEAN
HATTON    |  |                                                                                                            |  |                  
|Dean Hatton           |  | President, Chief Executive Officer and Director(principal executive officer)                               |  | February 23, 2011
|                      |  |                                                                                                           
|/S/    MARK
VOLCHEK   |  |                                                                                                            |  |                  
|Mark Volchek          |  | Chief Financial Officer and Chairman of the Board of Directors(principal financial and accounting officer) |  | February 23, 2011
|                      |  |                                                                                                           
|/S/    MILES
LASATER  |  | Director                                                                                                   |  | February 23, 2011
|Miles Lasater         |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/    PAUL
BIDDELMAN |  | Director                                                                                                   |  | February 23, 2011
|Paul Biddelman        |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/    DAVID
CROMWELL |  | Director                                                                                                   |  | February 23, 2011
|David Cromwell        |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/    STEWART
GROSS  |  | Director                                                                                                   |  | February 23, 2011
|Stewart Gross         |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/    SHAMEZ
KANJI   |  | Director                                                                                                   |  | February 23, 2011
|Shamez Kanji          |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/ PATRICK
MCFADDEN  |  | Director                                                                                                   |  | February 23, 2011
|Patrick McFadden      |  |                                                                                                            |  |                  
|                      |  |                                                                                                           
|/S/    CHARLES
MORAN  |  | Director                                                                                                   |  | February 23, 2011
|Charles Moran         |  |                                                                                                            |  |                  



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Higher One Holdings, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in
stockholders (deficit) equity and of cash flows present fairly, in all material respects, the financial position of Higher One Holdings, Inc. and its subsidiaries at December 31, 2009 and 2010, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut

February 23, 2011



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND
SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2009 and 2010

(In thousands, except share and per
share amounts)



|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                             |  | 2009 |         |   | 2010 |  
|Assets                                                                                                                                                                                                                                       |  |      |         |   |      |   |         |  
|Current assets:                                                                                                                                                                                                                              |  |      |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                    |  | $    | 3,339   |   |      | $ | 34,484  |  
|Investments in marketable securities                                                                                                                                                                                                         |  |      |        |   |      |   | 14,697  |  
|Accounts receivable                                                                                                                                                                                                                          |  |      | 2,359   |   |      |   | 2,622   |  
|Income receivable                                                                                                                                                                                                                            |  |      | 3,337   |   |      |   | 3,719   |  
|Deferred tax assets                                                                                                                                                                                                                          |  |      | 477     |   |      |   | 48      |  
|Prepaid expenses and other current assets                                                                                                                                                                                                    |  |      | 2,501   |   |      |   | 6,981   |  
|Restricted cash                                                                                                                                                                                                                              |  |      |        |   |      |   | 8,250   |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                                                         |  |      | 12,013  |   |      |   | 70,801  |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Deferred costs                                                                                                                                                                                                                               |  |      | 5,332   |   |      |   | 3,782   |  
|Fixed assets, net                                                                                                                                                                                                                            |  |      | 4,221   |   |      |   | 9,919   |  
|Intangible assets, net                                                                                                                                                                                                                       |  |      | 21,526  |   |      |   | 18,456  |  
|Goodwill                                                                                                                                                                                                                                     |  |      | 15,058  |   |      |   | 15,830  |  
|Other assets                                                                                                                                                                                                                                 |  |      | 545     |   |      |   | 653     |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                                                                                                                 |  | $    | 58,695  |   |      | $ | 119,441 |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                         |  |      |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                                                                                         |  |      |         |   |      |   |         |  
|Accounts payable                                                                                                                                                                                                                             |  | $    | 2,800   |   |      | $ | 3,063   |  
|Accrued expenses                                                                                                                                                                                                                             |  |      | 8,695   |   |      |   | 11,786  |  
|Capital lease obligations                                                                                                                                                                                                                    |  |      | 7       |   |      |   |        |  
|Current portion of line of credit                                                                                                                                                                                                            |  |      | 18,000  |   |      |   |        |  
|Acquisition payable                                                                                                                                                                                                                          |  |      | 9,640   |   |      |   | 8,250   |  
|Deferred revenue                                                                                                                                                                                                                             |  |      | 5,258   |   |      |   | 7,974   |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                                    |  |      | 44,400  |   |      |   | 31,073  |  
|Deferred revenue                                                                                                                                                                                                                             |  |      | 1,428   |   |      |   | 2,051   |  
|Deferred tax liabilities                                                                                                                                                                                                                     |  |      | 5,761   |   |      |   | 2,926   |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                                            |  |      | 51,589  |   |      |   | 36,050  |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Commitments and contingencies (Note 16)                                                                                                                                                                                                      |  |      |         |   |      |   |         |  
|Stockholders equity:                                                                                                                                                                                                                        |  |      |         |   |      |   |         |  
|Convertible preferred stock, $.001 par value; 20,000,000 shares authorized; 12,975,169 shares issued and outstanding at
December 31, 2009; no shares issued or outstanding at December 31, 2010 (liquidation preference of $54,148 for 2009) |  |      | 80,954  |   |      |   |        |  
|Common stock, $.001 par value; 200,000,000 shares authorized; 12,276,765 and 56,109,234 shares issued and outstanding at
December 31, 2009 and 2010, respectively;                                                                           |  |      | 12      |   |      |   | 56      |  
|Additional paid-in capital                                                                                                                                                                                                                   |  |      | 4,624   |   |      |   | 136,760 |  
|Accumulated deficit, net of 2008 $93,933 of stock tender transaction                                                                                                                                                                         |  |      | (78,484 | ) |      |   | (53,425 | )
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                                                   |  |      | 7,106   |   |      |   | 83,391  |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                   |  | $    | 58,695  |   |      | $ | 119,441 |  
|                                                                                                                                                                                                                                             |  |      |         |   |      |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2008, 2009 and 2010

(In thousands
of dollars, except shares and per share amounts)



|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                     |  | 2008 |            |   | 2009 |   |            | 2010 | 
|Revenue:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Account revenue                                                      |  | $    | 37,570     |   |      | $ | 68,529     |      |  | $ | 113,516    |  
|Payment transaction revenue                                          |  |      | 29         |   |      |   | 1,688      |      |  |   | 15,742     |  
|Higher education institution revenue                                 |  |      | 3,220      |   |      |   | 5,135      |      |  |   | 12,543     |  
|Other revenue                                                        |  |      | 3,187      |   |      |   | 2,254      |      |  |   | 3,168      |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Total revenue                                                        |  |      | 44,006     |   |      |   | 77,606     |      |  |   | 144,969    |  
|Cost of revenue                                                      |  |      | 16,302     |   |      |   | 26,529     |      |  |   | 51,845     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Gross margin                                                         |  |      | 27,704     |   |      |   | 51,077     |      |  |   | 93,124     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Operating expenses:                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|General and administrative                                           |  |      | 11,725     |   |      |   | 18,143     |      |  |   | 32,381     |  
|Product development                                                  |  |      | 1,629      |   |      |   | 2,287      |      |  |   | 3,311      |  
|Sales and marketing                                                  |  |      | 4,399      |   |      |   | 7,966      |      |  |   | 16,185     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                             |  |      | 17,753     |   |      |   | 28,396     |      |  |   | 51,877     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Income from operations                                               |  |      | 9,951      |   |      |   | 22,681     |      |  |   | 41,247     |  
|Interest income                                                      |  |      | (152       | ) |      |   | (4         | )    |  |   | (29        | )
|Interest expense                                                     |  |      | 357        |   |      |   | 558        |      |  |   | 729        |  
|Preferred stock warrant fair value adjustment                        |  |      | 55         |   |      |   |           |      |  |   |           |  
|Other income                                                         |  |      | (234       | ) |      |   | (17        | )    |  |   |           |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Net income before income taxes                                       |  |      | 9,925      |   |      |   | 22,144     |      |  |   | 40,547     |  
|Income tax expense                                                   |  |      | 3,547      |   |      |   | 7,925      |      |  |   | 15,488     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                           |  | $    | 6,378      |   |      | $ | 14,219     |      |  | $ | 25,059     |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Net income (loss) available to common stockholders:                  |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                |  | $    | (74,366    | ) |      | $ | 2,742      |      |  | $ | 16,149     |  
|Participating securities                                             |  |      | 0          |   |      |   | 11,477     |      |  |   | 8,910      |  
|                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Diluted                                                              |  |      | (74,366    | ) |      |   | 14,219     |      |  |   | 25,059     |  
|Net income (loss) available to common stockholders per common share: |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                |  | $    | (7.22      | ) |      | $ | 0.29       |      |  | $ | 0.48       |  
|Diluted                                                              |  |      | (7.22      | ) |      |   | 0.27       |      |  |   | 0.44       |  
|Weighted average shares outstanding:                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                |  |      | 10,306,392 |   |      |   | 9,298,131  |      |  |   | 33,395,310 |  
|Diluted                                                              |  |      | 10,306,392 |   |      |   | 53,150,890 |      |  |   | 57,302,843 |  

The accompanying notes
are an integral part of these consolidated financial statements.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders (Deficit) Equity

For the Years Ended December 31, 2008, 2009 and 2010

(In thousands of dollars, except shares)



|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|--------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ------------ | - | ------- | ----------------------------------- |  |  | ------------------------- | - |  | ------------------ | -- | - | ----------------------------------- | - | ---- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                                      |  | Convertible Preferred Stock |             |   | Common Stock |   |         | Stockholder SubscriptionsReceivable |  |  | AdditionalPaid-in Capital |   |  | AccumulatedDeficit |    |   | TotalStockholders (Deficit) Equity |  
|                                                                      |  | Shares                      |             |   | Amount       |   |         | Shares                              |  |  | Amount                    |   |  |                    |    |  
|Balance at December 31, 2007                                          |  |                             |             |   |              |   |         |                                     |  |  | 11,749,125                |   |  | $                  | 12 |   |                                     | $ | (960 | ) |  | $ | 1,722   |   |  | $ | (5,148  | ) |  | $ | (4,374   | )
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Stock-based compensation                                              |  |                             |             |   |              |   |         |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 498     |   |  |   |        |   |  |   | 498      |  
|Expiration of subscription agreement and repurchase of common stock   |  |                             |             |   |              |   |         |                                     |  |  | (720,000                  | ) |  |                    | (1 | ) |                                     |   | 960  |   |  |   | (959    | ) |  |   |        |   |  |   |         |  
|Convertible preferred stock reclassified to equity                    |  |                             | 14,183,789  |   |              | $ | 17,213  |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   |        |   |  |   | 17,213   |  
|Issuance of Series E Convertible, net of issuance costs of $3,058     |  |                             | 5,454,545   |   |              |   | 71,942  |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   |        |   |  |   | 71,942   |  
|Repurchase and retirement of outstanding equity instruments           |  |                             | (6,663,165  | ) |              |   | (8,335  | )                                   |  |  | (2,806,344                | ) |  |                    | (3 | ) |                                     |   |     |   |  |   | (3,971  | ) |  |   | (93,933 | ) |  |   | (106,242 | )
|Warrant liability reclass to permanent equity                         |  |                             |            |   |              |   | 134     |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   |        |   |  |   | 134      |  
|Issuance of common stock and stock-based customer acquisition expense |  |                             |            |   |              |   |        |                                     |  |  | 3,000,000                 |   |  |                    | 3  |   |                                     |   |     |   |  |   | 1,239   |   |  |   |        |   |  |   | 1,242    |  
|Tax benefit related to options                                        |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 1,285   |   |  |   |        |   |  |   | 1,285    |  
|Exercise of stock options                                             |  |                             |            |   |              |   |        |                                     |  |  | 404,160                   |   |  |                    | 1  |   |                                     |   |     |   |  |   | 186     |   |  |   |        |   |  |   | 187      |  
|Net income                                                            |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   | 6,378   |   |  |   | 6,378    |  
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2008                                          |  |                             | 12,975,169  |   |              | $ | 80,954  |                                     |  |  | 11,626,941                |   |  | $                  | 12 |   |                                     | $ |     |   |  | $ |        |   |  | $ | (92,703 | ) |  | $ | (11,737  | )
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Stock-based compensation                                              |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 1,387   |   |  |   |        |   |  |   | 1,387    |  
|Purchase of common stock pursuant to stock subscription agreement     |  |                             |            |   |              |   |        |                                     |  |  | 108,000                   |   |  |                    |   |   |                                     |   |     |   |  |   | 495     |   |  |   |        |   |  |   | 495      |  
|Stock-based customer acquisition expense                              |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 2,385   |   |  |   |        |   |  |   | 2,385    |  
|Tax benefit related to options                                        |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 148     |   |  |   |        |   |  |   | 148      |  
|Issuance of restricted common stock                                   |  |                             |            |   |              |   |        |                                     |  |  | 43,344                    |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   |        |   |  |   |         |  
|Exercise of stock options                                             |  |                             |            |   |              |   |        |                                     |  |  | 498,480                   |   |  |                    |   |   |                                     |   |     |   |  |   | 209     |   |  |   |        |   |  |   | 209      |  
|Net income                                                            |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   | 14,219  |   |  |   | 14,219   |  
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2009                                          |  |                             | 12,975,169  |   |              | $ | 80,954  |                                     |  |  | 12,276,765                |   |  | $                  | 12 |   |                                     | $ |     |   |  | $ | 4,624   |   |  | $ | (78,484 | ) |  | $ | 7,106    |  
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Stock-based compensation                                              |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 2,913   |   |  |   |        |   |  |   | 2,913    |  
|Stock-based customer acquisition expense                              |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 7,274   |   |  |   |        |   |  |   | 7,274    |  
|Tax benefit related to options and restricted stock                   |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   | 2,811   |   |  |   |        |   |  |   | 2,811    |  
|Conversion of preferred stock to common stock                         |  |                             | (12,975,169 | ) |              |   | (80,954 | )                                   |  |  | 38,925,507                |   |  |                    | 39 |   |                                     |   |     |   |  |   | 80,915  |   |  |   |        |   |  |   |         |  
|Issuance of common stock                                              |  |                             |            |   |              |   |        |                                     |  |  | 3,569,395                 |   |  |                    | 4  |   |                                     |   |     |   |  |   | 37,205  |   |  |   |        |   |  |   | 37,209   |  
|Exercise of stock options, net of repurchases                         |  |                             |            |   |              |   |        |                                     |  |  | 1,337,567                 |   |  |                    | 1  |   |                                     |   |     |   |  |   | 1,018   |   |  |   |        |   |  |   | 1,019    |  
|Net income                                                            |  |                             |            |   |              |   |        |                                     |  |  |                          |   |  |                    |   |   |                                     |   |     |   |  |   |        |   |  |   | 25,059  |   |  |   | 25,059   |  
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2010                                          |  |                             |            |   |              | $ |        |                                     |  |  | 56,109,234                |   |  | $                  | 56 |   |                                     | $ |     |   |  | $ | 136,760 |   |  | $ | (53,425 | ) |  | $ | 83,391   |  
|                                                                      |  |                             |             |   |              |   |         |                                     |  |  |                           |   |  |                    |    |   |                                     |   |      |   |  |   |         |   |  |   |         |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008, 2009 and 2010

(In thousands
of dollars)



|                                                                                                      |  |      |          |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                      |  | 2008 |          |   | 2009 |   |         | 2010 | 
|Cash flows from operating activities                                                                  |  |      |          |   |      |   |         |      |  |   |         |  
|Net income                                                                                            |  | $    | 6,378    |   |      | $ | 14,219  |      |  | $ | 25,059  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                     |  |      |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                         |  |      | 1,452    |   |      |   | 2,969   |      |  |   | 7,292   |  
|Amortization of deferred finance costs                                                                |  |      | 31       |   |      |   | 113     |      |  |   | 204     |  
|Non-cash interest expense                                                                             |  |      |         |   |      |   | 40      |      |  |   | 360     |  
|Stock-based customer acquisition expense                                                              |  |      | 1,239    |   |      |   | 2,385   |      |  |   | 7,274   |  
|Stock-based compensation                                                                              |  |      | 498      |   |      |   | 1,387   |      |  |   | 2,913   |  
|Loss on disposal of fixed assets                                                                      |  |      | 55       |   |      |   |        |      |  |   | 24      |  
|Preferred stock warrant fair value adjustment                                                         |  |      |         |   |      |   |        |      |  |   |        |  
|Deferred income tax expense (benefit)                                                                 |  |      | 1,808    |   |      |   | (726    | )    |  |   | (3,166  | )
|Changes in operating assets and liabilities, net of effects of acquisition:                           |  |      |          |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                   |  |      | (49      | ) |      |   | 27      |      |  |   | (263    | )
|Income receivable                                                                                     |  |      | (1,373   | ) |      |   | 219     |      |  |   | (382    | )
|Deferred costs                                                                                        |  |      | (1,620   | ) |      |   | (1,917  | )    |  |   | (988    | )
|Prepaid expenses and other current assets                                                             |  |      | (514     | ) |      |   | (811    | )    |  |   | (4,480  | )
|Deferred income tax provision                                                                         |  |      | (24      | ) |      |   |        |      |  |   |        |  
|Other assets                                                                                          |  |      | (65      | ) |      |   | (330    | )    |  |   | (125    | )
|Accounts payable                                                                                      |  |      | 58       |   |      |   | 665     |      |  |   | 263     |  
|Accrued expenses                                                                                      |  |      | 2,143    |   |      |   | 2,109   |      |  |   | 2,732   |  
|Deferred revenue                                                                                      |  |      | (55      | ) |      |   | 307     |      |  |   | 3,339   |  
|                                                                                                      |  |      |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                             |  |      | 9,962    |   |      |   | 20,656  |      |  |   | 40,056  |  
|                                                                                                      |  |      |          |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities                                                                  |  |      |          |   |      |   |         |      |  |   |         |  
|Investment securities, available for sale:                                                            |  |      |          |   |      |   |         |      |  |   |         |  
|Purchases                                                                                             |  |      |         |   |      |   |        |      |  |   | (20,777 | )
|Proceeds from sales and maturities                                                                    |  |      |         |   |      |   |        |      |  |   | 6,080   |  
|Purchases of fixed assets, net of disposals and $347 of construction payables as of December 31, 2010 |  |      | (1,840   | ) |      |   | (2,188  | )    |  |   | (7,059  | )
|Acquisition of Informed Decisions Corporation, net of cash acquired                                   |  |      |         |   |      |   | (16,543 | )    |  |   |        |  
|Payment of acquisition payable                                                                        |  |      |         |   |      |   |        |      |  |   | (1,750  | )
|Payment to escrow agent                                                                               |  |      |         |   |      |   |        |      |  |   | (8,250  | )
|Purchase of intangibles                                                                               |  |      | (1,500   | ) |      |   |        |      |  |   |        |  
|                                                                                                      |  |      |          |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                 |  |      | (3,340   | ) |      |   | (18,731 | )    |  |   | (31,756 | )
|                                                                                                      |  |      |          |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities                                                                  |  |      |          |   |      |   |         |      |  |   |         |  
|Repayment of capital lease obligations                                                                |  |      | (1,138   | ) |      |   | (27     | )    |  |   | (7      | )
|Proceeds from line of credit                                                                          |  |      | 23,274   |   |      |   | 20,250  |      |  |   | 4,000   |  
|Repayments of line of credit                                                                          |  |      | (4,374   | ) |      |   | (21,150 | )    |  |   | (22,000 | )
|Proceeds from issuance of common and preferred stock, net of issuance costs                           |  |      | 71,942   |   |      |   | 495     |      |  |   | 37,209  |  
|Purchase of tendered stock, options and warrants                                                      |  |      | (106,238 | ) |      |   |        |      |  |   |        |  
|Tax benefit from restricted stock and options                                                         |  |      | 1,285    |   |      |   | 148     |      |  |   | 2,811   |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows(Continued)

For the Years Ended December 31, 2008, 2009 and 2010

(In thousands of
dollars)



|                                                    |  |      |         |   |      |   |       |      |  |   |        |  
|--------------------------------------------------- |  | ---- | ------- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                    |  | 2008 |         |   | 2009 |   |       | 2010 | 
|Proceeds from exercise of stock options             |  |      | 186     |   |      |   | 210   |      |  |   | 1,019  |  
|Payment of deferred financing costs                 |  |      |        |   |      |   |      |      |  |   | (187   | )
|Proceeds from exercise of non-tendered warrants     |  |      | 174     |   |      |   |      |      |  |   |       |  
|                                                    |  |      |         |   |      |   |       |      |  |   |        |  
|Net cash provided by (used in) financing activities |  |      | (14,889 | ) |      |   | (74   | )    |  |   | 22,845 |  
|                                                    |  |      |         |   |      |   |       |      |  |   |        |  
|Net change in cash and cash equivalents             |  |      | (8,267  | ) |      |   | 1,851 |      |  |   | 31,145 |  
|Cash and cash equivalents at beginning of year      |  |      | 9,755   |   |      |   | 1,488 |      |  |   | 3,339  |  
|                                                    |  |      |         |   |      |   |       |      |  |   |        |  
|Cash and cash equivalents at end of year            |  | $    | 1,488   |   |      | $ | 3,339 |      |  | $ | 34,484 |  
|                                                    |  |      |         |   |      |   |       |      |  |   |        |  
|Supplemental information:                           |  |      |         |   |      |   |       |      |  |   |        |  
|Cash paid for interest                              |  | $    | 130     |   |      | $ | 581   |      |  | $ | 165    |  
|Income tax paid                                     |  |      | 1,214   |   |      |   | 8,732 |      |  |   | 16,491 |  



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2010

(In thousands of dollars, except share and per
share amounts)

1. Nature of Business and Organization

Higher One Holdings, Inc. (the Company or HOH) is a leading provider of technology and payment services to the higher education industry. The Company is incorporated in Delaware
and provides a comprehensive suite of disbursement and payment solutions specifically designed for higher education institutions and their students. The Company has developed proprietary software-based solutions to provide these services. The
Company has a wholly owned subsidiary, Higher One, Inc. (HOI) which has three wholly owned subsidiaries, Higher One Machines, Inc. (HOMI), Higher One Payments, Inc. (HOPI) and Higher One Real Estate, Inc.
(Real Estate Inc). Real Estate Inc has one wholly owned subsidiary, Higher One Real Estate SP, LLC (Real Estate LLC). HOMI owns and manages the Companys cash disbursement machines and home-based customer service agent
services. HOPI is the acquired entity formerly known as Informed Decisions Corporation (IDC) discussed in Note 3. Real Estate Inc and Real Estate LLC were each formed for the purpose of our real estate development project discussed in
Note 17.

2. Significant Accounting Policies

Basis of Presentation and Consolidation

The consolidated financial
statements reflect the financial position and results of operations of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates include those related to
the valuation of deferred taxes, provision for operational losses, valuation of acquired intangible assets and assumptions used in the valuation of stock options. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all short-term, highly-liquid investments, with an original maturity of three months or less, to be cash equivalents. Cash equivalents are recorded at cost which approximates their
fair value.

Investments in Marketable Securities

Marketable securities that have a readily determinable fair value and that we do not intend to trade are classified as available for sale
and carried at fair value. Unrealized holding gains and losses are recorded as other comprehensive income, a separate component of shareholders equity, net of deferred income taxes.

Fair Value of Financial Instruments

The carrying amounts of the Companys financial instruments, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value because of the
short-term nature of these instruments.

Fair Value Measurements

As of January 1, 2008, the Company adopted Financial Accounting Standards Board Accounting Standards Codification (FASB
ASC) 820 Fair Value Measurements and Disclosures (ASC 820). The



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



adoption of ASC 820 did not have a material impact on the Companys consolidated results of operations and financial condition. ASC 820 defines fair value, establishes a fair value hierarchy
for assets and liabilities measured at fair value and expands required disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires
financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:



| |  |  | Level 1quoted prices in active markets for identical assets and liabilities
| | - |  | ----------------------------------------------------------------------------



| |  |  | Level 2inputs other than Level 1 quoted prices that are directly or indirectly observable
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Level 3unobservable inputs that are not corroborated by market data
| | - |  | --------------------------------------------------------------------

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level
to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

The
following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2010 (in thousands):



|                                 |  |         |        |  |         |   |   |         |  |   |   | 
|-------------------------------- |  | ------- | ------ |  | ------- | - | - | ------- |  | - | - | 
|                                 |  | Level 1 |        |  | Level 2 |   |   | Level 3 | 
|Fair values at December 31, 2010 |  |         |        |  |         |   |   |         |  |   |   | 
|Assets:                          |  |         |        |  |         |   |   |         |  |   |   | 
|U.S. government debt securities  |  | $       | 13,695 |  |         | $ |  |         |  | $ |  | 
|Corporate debt securities        |  |         | 1,002  |  |         |   |  |         |  |   |  | 
|                                 |  |         |        |  |         |   |   |         |  |   |   | 
|Total assets                     |  | $       | 14,697 |  |         | $ |  |         |  | $ |  | 
|                                 |  |         |        |  |         |   |   |         |  |   |   | 
|Liabilities                      |  | $       |       |  |         | $ |  |         |  | $ |  | 
|                                 |  |         |        |  |         |   |   |         |  |   |   | 

The Company had no recorded unrealized gains or losses from investments as of either December 31, 2009
or 2010 and there is no difference between the amortized cost and fair value of securities held by the Company. There were no assets or liabilities carried at fair value measured on a recurring basis as of December 31, 2009.

At December 31, 2010, the Companys investments have remaining maturities which varies between 1 and 13 months. The fair value
of the Companys cash equivalents as of December 31, 2009 and 2010 was valued based upon Level 1 inputs.

Concentration of Credit Risk

Potential concentrations of credit risk for the Company consist primarily of trade accounts receivable from university clients. For the years ended December 31, 2009 and 2010 no university client
individually accounted for more than 10% of trade accounts receivable or revenue.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases and the tax bases
of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carry-forwards. These deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such amounts are
expected to reverse or be utilized. The realization of total deferred tax assets is contingent upon the generation of



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.

Income tax provision or benefit includes U.S. federal, and state and local income taxes and is based on pre-tax income or loss. In
determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Companys annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and
local taxes and the ability of the Company to use tax credits and net operating loss carry-forwards.

The Company follows the
provisions of FASB ASC 740, Income Taxes (ASC 740). ASC 740 clarifies the accounting for uncertainty in income taxes. It prescribes that a company should use a more-likely-than-not recognition threshold based on the
technical merits of the tax position taken.

Tax positions that meet the more-likely-than-not recognition threshold should be
measured as the largest amount of the tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. The Company recognizes interest and penalties
related to income tax matters in income tax expense. All tax years are subject to examination. All of the Companys unrecognized tax benefit liability would affect the Companys effective tax rate if recognized.

Fixed Assets

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Capital lease assets are
depreciated over the lesser of the estimated useful life of the asset or the term of the lease.

Capitalized Software

The Company has adopted FASB ASC 350-40, Internal Use Software (ASC 350-40) and applies
this statement to its software purchase and development activities. Under ASC 350-40, computer software costs incurred in the preliminary project stage are expensed as incurred until the capitalization criteria have been met. The criteria for
capitalization is defined as the point at which the preliminary project stage is complete and management commits to funding a computer software project and it is probable that the project will be completed and the software will be used to perform
the function intended. Capitalization ceases at the point that the computer software project is substantially complete and ready for its intended use. The capitalized costs are amortized using the straight-line method over the estimated economic
life of the software, generally three years. Although the Company incurred costs relating to software improvements, for the years ended December 31, 2008, 2009 and 2010, none of these costs met the criteria for capitalization.

Business Combinations

The Company accounts for its business acquisitions in accordance with FASB ASC 805, Business Combinations (ASC 805). ASC 805 requires the acquiring entity in a business
combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business
combination. Contingent consideration, if any, is recognized and measured at fair value on the acquisition date. Transaction costs associated with the acquisition are expensed. ASC 805 is effective for business combinations and adjustments to
an acquired entitys deferred tax asset and liability balances occurring after December 31, 2008. See Note 3 for further information.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



Goodwill and Intangible Assets

Goodwill represents costs in excess of the fair value of consideration transferred over the fair values assigned to the underlying net
identifiable assets of acquired businesses. Annual impairment testing of goodwill is assessed in accordance with ASC 350, IntangiblesGoodwill and Other, which compares carrying values of the reporting units to fair values
and, when appropriate, the carrying value of these assets is reduced to fair value. Accordingly, the Company tests goodwill for impairment annually on October 31, or whenever events or changes in circumstances indicate that an impairment may
have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or
regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If it is determined that an impairment has occurred, the Company records a write-down of the carrying value and charges the
impairment as an operating expense in the period the determination is made. In accordance with ASC 350, the Company is required to test intangible assets for impairment whenever events occur indicating that the carrying value may be impaired. We
were not required to record any impairment on goodwill or indefinite-lived intangibles during the years ended December 31, 2009 or 2010.

The costs of defending and protecting patents are expensed. All costs incurred to the point when a patent application is to be filed are expensed as incurred.

Intangible assets are amortized using the straight-line method over the following estimated useful lives of the assets:



|                       |  |  |               | 
|---------------------- |  |  | ------------- | 
|Acquired technology    |  |  | 5 to 7 years  | 
|Customer contracts     |  |  | 4 to 10 years | 
|Non-compete agreements |  |  | 5 years       | 
|Trademarks             |  |  | 10 years      | 

Impairment of
Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount.

Provision for Operational Losses

The Company has entered into an agreement with a third-party FDIC-insured bank to hold all deposit accounts of the Companys accountholders. Although those deposit funds are held by the third-party
bank, the Company is liable to the bank for any uncollectible accountholder overdrafts and any other losses due to fraud or theft. The Company provides reserves for its estimated overdraft liability and its estimated uncollectible fees to the
third-party bank. The provision for these reserves is included within the costs of revenue on the accompanying consolidated financial statements. Such reserve is based upon an analysis of outstanding overdrafts and historical repayment rates. See
Note 8 for further information.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



Revenue Recognition and Deferred Revenue

The Company derives revenues from the delivery of services to institutions of higher education and their constituents such as students,
faculty, staff and alumni. Revenues are recognized when persuasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable and collectability is reasonably assured. The Company enters into long-term
(generally three- or five-year initial term) contracts with the institutions to provide payment and disbursement services. The Company categorizes revenue as account revenue, payment transaction revenue, higher education institution revenue and
other revenue. Deferred revenue consists of amounts billed to or received from customers for services prior to the recognition of services revenue.

Account Revenue

Account revenue is generated from deposit accounts opened
and funded by students and other members of the campus community. The account offered to customers has no monthly fee or minimum balance. The Company earns fees for services based on a fee schedule, including interchange fees charged to merchants,
ATM, non-sufficient funds and other fees. Revenue on such transactions is recognized when the banking transaction is completed.

Payment Transaction Revenue

Payment transaction revenue is generated through convenience fees charged to students, parents or other payors who make online payments to higher education institutional clients through the Companys
online payment product using a credit or debit card. Payment transaction revenue is recognized as the transaction is processed and reflects the convenience fees from items paid by our clients customers via the service.

Higher Education Institution Revenue

Revenue from higher education institutional clients is generated from fees charged for the services they purchase from the Company. For refund management services, clients are charged an annual fee and
per-transaction fees for certain transactions. The annual fee is recognized ratably over the year of service and the transaction fees are recognized when the transaction is completed.

Revenues from payment services include subscription license fees from clients accessing on-demand application services. Subscription fees
are recognized ratably over the term of the subscription agreement, which generally ranges from 1 to 5 years and are renewable at the option of the customer. For certain payment transaction products, an implementation fee may be charged. This
implementation fee is deferred and recognized over the estimated client relationship period, which we estimate is 5 years.

Other Revenue

Other revenue consists of two main components: (1) fees received from the Companys bank partner based on prevailing interest rates and the total deposits held in accounts and (2) a
marketing incentive fee paid by MasterCard International Incorporated (MasterCard) based on new debit card issuances. The Company recognizes this other revenue as it is earned in each period.

Cost of Revenues

Cost of revenue consists primarily of data processing expenses, interchange expenses related to online payment and ATM transactions, amortization of acquired technology and uncollectible fees and



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



customer service expenses.

The Company incurs set-up and other direct
costs of implementation at the outset of certain contracts that are comprised primarily of employee labor costs. These costs are directly related to a contract and are thus deferred and amortized to costs of revenue over the expected term of the
contract, which is generally three to five years. In instances where a client terminates its contract before the end of the expected term of the contract, the Company modifies the amortization period of the deferred costs of the related contract to
equal the remaining period of time until termination of the service. See Note 5 for further information.

Stock-based
Compensation

The Company accounts for stock-based compensation expense in accordance with FASB ASC 718,
Compensation  Stock Compensation (ASC 718) (Prior authoritative literature: Staff Accounting Bulletin (SAB) No. 110, Share-Based Payment) which requires the measurement and
recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following
assumptions for stock options granted during the years ended December 31, 2008, 2009 and 2010:



|                    |  |                 |  |                 |  |                
|------------------- |  | --------------- |  | --------------- |  | ---------------
|                    |  | 2008            |  | 2009            |  | 2010           
|Expected term       |  | 6.3 - 6.5 years |  | 5.8 - 6.3 years |  | 6.2 - 6.3 years
|Expected volatility |  | 40.2%           |  | 50.7%           |  | 51.0% - 51.9%  
|Risk-free rate      |  | 2.4% - 3.4%     |  | 2.2% - 3.2%     |  | 1.5% - 3.0%    
|Expected dividends  |  | None            |  | None            |  | None           

Expected term 
This is the period of time that the equity grants are expected to remain outstanding. The Company calculates the expected life of the options using the simplified method as prescribed under the provisions of ASC 718. The simplified
method was used because sufficient historical exercise data necessary for the Company to provide a reasonable basis to estimate the expected term does not exist. The Company generally uses the midpoint between the end of the vesting period and the
contractual life of the grant to estimate option exercise timing. The simplified method was applied for all options granted during 2008, 2009 and 2010.

Expected volatility  Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected
volatility) during a period. The Company based its estimated volatility on the historical volatility of a peer group of publically traded companies which includes companies that are in the same industry or are competitors.

Risk-free rate  This is the average U.S. Treasury rate at the time of grant having a term that most closely approximates the
expected term of the option.

Dividend yield  The Company has never declared or paid dividends on its common stock and
does not anticipate paying dividends in the foreseeable future.

Restricted stock is a stock award that entitles the holder to
receive shares of the Companys common stock as the award vests over time. The fair value of each restricted stock award is estimated using the intrinsic value method which is based on the fair market value price on the date of grant.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



Compensation expense for restricted stock awards is recognized ratably over the vesting period on a straight-line basis.

Basic and Diluted Net Income Available to Common Stockholders per Common Share

Net income per common share reflects application of the two class method. In a hypothetical distribution, all classes of preferred stock, until their conversion into common stock upon the Companys
initial public offering, would have participated pro rata in dividends if and when the Company declared a dividend. Therefore, the two class method of calculating basic net income per common share has been applied. Basic net income per common share
excludes dilution for potential common stock issuances and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects
the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per common share, the basic weighted-average number of shares is
increased by the dilutive effect of stock options using the treasury-stock method. The treasury-stock method assumes that the options or warrants are exercised at the beginning of the year (or date of issue if later), and that the company uses those
proceeds to purchase common stock for the treasury. As discussed in Note 11, on June 22, 2010, the Company consummated an initial public offering of common stock. Upon completion of the initial public offering, all classes of preferred stock
converted to common shares. As a result, the two class method does not apply to the period following the initial public offering.

The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income available to common stockholders per common share:



|                                                    |  |      |            |   |      |   |            |      |  |   |            | 
|--------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                                    |  | 2008 |            |   | 2009 |   |            | 2010 | 
|Net income (loss) available to common shareholders: |  |      |            |   |      |   |            |      |  |   |            | 
|Basic                                               |  | $    | (74,366    | ) |      | $ | 2,742      |      |  | $ | 16,149     | 
|Participating securities                            |  |      |           |   |      |   | 11,477     |      |  |   | 8,910      | 
|                                                    |  |      |            |   |      |   |            |      |  |   |            | 
|Diluted                                             |  | $    | (74,366    | ) |      | $ | 14,219     |      |  | $ | 25,059     | 
|Weighted average shares outstanding:                |  |      |            |   |      |   |            |      |  |   |            | 
|Basic                                               |  |      | 10,306,392 |   |      |   | 9,298,131  |      |  |   | 33,395,310 | 
|Stock awards                                        |  |      |           |   |      |   | 43,852,759 |      |  |   | 23,907,533 | 
|                                                    |  |      |            |   |      |   |            |      |  |   |            | 
|Diluted                                             |  |      | 10,306,392 |   |      |   | 53,150,890 |      |  |   | 57,302,843 | 
|Net income (loss) per common share:                 |  |      |            |   |      |   |            |      |  |   |            | 
|Basic                                               |  | $    | (7.22      | ) |      | $ | 0.29       |      |  | $ | 0.48       | 
|Diluted                                             |  |      | (7.22      | ) |      |   | 0.27       |      |  |   | 0.44       | 



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



The dilutive effect of restricted stock and options of 50,469,480, 5,149,209 and
2,638,703 were not included in the computation of diluted net income (loss) per common share for the years ended December 31, 2008, 2009 and 2010, respectively. The stock options were not included as their effect would be anti-dilutive. The
restricted stock was not included as all necessary conditions have not been satisfied by the end of the period.

Comprehensive Net Income

Comprehensive net income includes net income, combined with any unrealized gains and losses not included in earnings and reflected as a separate component of stockholders equity. There were no
differences between net income and comprehensive net income for the years ended December 31, 2008, 2009 and 2010.

Segment Information

The Company currently operates in one business segment, namely, providing technology and payment services to the higher education industry. The Company provides products and services to two distinct, but
related target markets, higher education institutions and their students. The Company is not organized by market and is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively
manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its products or product development. Accordingly, the Company does not accumulate discrete financial
information with respect to separate product lines and does not have separately reportable segments as defined by FASB ASC 280, Segment Reporting. All of the Companys material identifiable assets are located in the United
States.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to be comparable with current year presentation. These reclassifications have had no effect on total assets, net
income or net equity. Also refer to Note 19 for information regarding a revision to our account revenue and cost of revenue.

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13 Multiple-Deliverable Revenue Arrangements. This ASU establishes the accounting and
reporting guidance for arrangements including multiple revenue-generating activities. This ASU provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting.
The amendments in this ASU also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendors multiple-deliverable revenue
arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also required providing information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal
years beginning on or after June 15, 2010.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



The Company will adopt this standard on January 1, 2011 and it is not expected that the standard will have a material impact on our results of operations, cash flows or financial position.

In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That Include Software
Elements. This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are essential to the functionality, and scopes these products out of current software
revenue guidance. The new guidance will include factors to help companies determine what software elements are considered essential to the functionality. The amendments will now subject software-enabled products to other revenue guidance
and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years
beginning on or after June 15, 2010. The Company will adopt this standard on January 1, 2011 and it is not expected that the standard will have a material impact on our results of operations, cash flows or financial position.

In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition, which indicates the
criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Companies can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in
which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This ASU is effective for fiscal years beginning after June 15, 2010. The Company will adopt this standard on January 1, 2011 and it is
not expected that the standard will have a material impact on our results of operations, cash flows or financial position.

3. Acquisitions

Intellectual Property Acquisition

On June 9, 2008 HOI entered into a purchase agreement with Educard, LLC, a business in the financial services industry to purchase certain intangible assets including all intellectual property and
contract rights. Also entered into on June 9, 2008 with Evisions, Inc., the parent company of EduCard, LLC, was an integration and marketing agreement between Evisions, Inc. and HOI whereby Evisions, Inc. provided a software integration engine
and is to provide technical and marketing support to HOI for a term of five years. Non-compete agreements were also executed between certain key individuals of Educard, LLC for a term of five years.

The purchase price of $1,500 in consideration of these intangible assets was divided into two payments. An initial payment of $1,000 was
paid at closing and a second milestone payment of $500 was paid upon the successful integration of Educard, LLCs technology with HOIs systems. The purchase was accounted for as an asset acquisition and the purchase price has been
capitalized as an intangible asset on the accompanying consolidated balance sheet and is being amortized over 4-5 years based on the estimated useful lives of the assets.

The purchase price was allocated between the identified intangible assets as follows:



|                       |  |   |       | 
|---------------------- |  | - | ----- | 
|Customer contracts     |  | $ | 870   | 
|Non-compete agreements |  |   | 536   | 
|Acquired technology    |  |   | 94    | 
|                       |  |   |       | 
|                       |  | $ | 1,500 | 
|                       |  |   |       | 



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



Also on June 9, 2008, HOI entered into a purchase agreement with one of the
officers of Educard, LLC to purchase certain intellectual property owned by this individual. The purchase price of 3,000,000 shares of common stock of the Company issued to the individual is subject to restrictions and certain repurchase rights
through December 31, 2011 based upon student enrollment at qualified educational institutions, which convert to HOIs platform as defined in the agreement. The Company has a right to repurchase such shares at $0.001 in the event certain
milestones are not met. As specific student milestones are met, the individual will vest in a defined number of shares, and such shares cannot be repurchased. The shares are currently being held in escrow until either repurchased or the net
distributed to the seller on January 31, 2012. Given that any consideration is contingent upon new customer generation, the Company is accounting for the vesting of shares as a selling expense.

The Company recorded $1,240, $2,385 and $7,274 of expense associated with shares that were vested in 2008, 2009 and 2010, respectively,
based on the fair value of the shares at the time they were vested. As of December 31, 2010 1,330,533 shares were vested, while 1,669,467 remained unvested.

Informed Decisions Corporation Acquisition

On November 19,
2009 the Company entered into a Stock Purchase Agreement (SPA) with IDC to acquire all of the shares of outstanding capital stock of IDC. The total initial purchase price was $27,489. The purchase price was comprised of cash paid of
$17,889, excluding cash acquired, and an acquisition payable of $9,600. The Company incurred related transaction costs of approximately $125 which were expensed to general and administrative expense. Acquisition related transaction costs include
legal fees directly related to the acquisition. Pursuant to the SPA, the Company is required to pay initial post-closing payments of $10,000. The initial post-closing payments called for four quarterly payments of $1,750 each on or before
March 31, June 30, September 30 and December 31, 2010. A final post-closing payment of $3,000 was to be paid on or before December 31, 2010, but is subject to an escrow deposit reduction in regard to any applicable
indemnification adjustments. After making the post-closing payment on March 31, 2010 of $1,750, the remaining amount due was placed into an escrow account. See Notes 4, 10 and 16 for further information.

IDC, renamed to Higher One Payments, Inc. (HOPI) upon the acquisition, conducts business as CASHNet and provides payment
services to higher education institutions. Management believes that the acquisition of IDC will allow the Company to cross-sell its products to acquired IDC customers, thereby resulting in greater market penetration and increased revenue growth.

The acquisition was accounted for under the purchase method of accounting in accordance with the Business Combinations topic
of the FASB Accounting Standards Codification. Assets acquired and liabilities assumed were recorded at their fair values as of November 19, 2009.

The Company has included the financial results of HOPI in its consolidated financial statements beginning November 20, 2009.

Under the acquisition method of accounting, the total fair value of consideration transferred was allocated to IDCs net tangible and intangible assets based on their estimated fair values as of
November 19, 2009. The excess of the fair value of consideration transferred over the fair value of the net tangible and identifiable intangible assets was recorded as goodwill. The fair values of the intangible assets acquired and the deferred
revenue assumed was based upon a third party valuation, which was



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



based on estimates and assumptions that are subject to change. The fair value of consideration transferred was allocated as follows:



|                                              |  |                  |        | 
|--------------------------------------------- |  | ---------------- | ------ | 
|                                              |  | November 19,2009 |       
|Assets acquired:                              |  |                  |        | 
|Cash and cash equivalents                     |  | $                | 1,346  | 
|Accounts receivable                           |  |                  | 1,686  | 
|Prepaid and other assets                      |  |                  | 984    | 
|Fixed assets                                  |  |                  | 102    | 
|Deferred tax assets, net                      |  |                  | 619    | 
|Deferred deployment costs                     |  |                  | 2,549  | 
|Intangible assets                             |  |                  | 20,880 | 
|Goodwill                                      |  |                  | 15,830 | 
|                                              |  |                  |        | 
|Total assets acquired                         |  | $                | 43,996 | 
|                                              | 
|Liabilities assumed:                          |  |                  |        | 
|Accounts payable and accrued liabilities      |  |                  | 2,321  | 
|Deferred revenue                              |  |                  | 6,310  | 
|Deferred tax liabilities                      |  |                  | 7,876  | 
|                                              |  |                  |        | 
|Total liabilities assumed                     |  | $                | 16,507 | 
|                                              |  |                  |        | 
|Total fair value of consideration transferred |  | $                | 27,489 | 
|                                              |  |                  |        | 

Definite-lived intangible assets of $20,880 consist of the value assigned to IDCs customer
relationships of $10,160, developed software of $6,790, trademarks of $450 and the non-competes between the Company and the two former shareholders of IDC of $3,480. These intangible assets, other than the non-compete agreements, are not
deductible for tax purposes.

As of the date of acquisition, IDC maintained relationships with over 200 active customers. The
majority of these customer relationships are contractual in nature and it has been determined that the customer relationships meet the separability criterion of ASC 805. The value assigned to IDCs customer relationships was determined by
utilizing the direct method of the Income Approach to valuation, whereby after-tax cash flows attributable to the existing customer relationships were examined. A discounted cash flow analysis was performed whereby the expected cash flows of the
acquired customers were estimated assuming an attrition rate based on the average life of a customer. The present value of the cash flows was added to the present value of the related tax shield associated with the customer relationships
amortization to determine the fair value of the customer relationships. The estimated cash flows were based on revenues for those existing customers net of operating expenses and net of contributory asset charges associated with servicing those
customers. The projected revenues were based on existing recurring subscription revenues, revenue associated with the deployment of subscription backlog, additional sales of add- on modules and new products to be developed and adopted by existing
customers. Operating expenses were estimated based on the supporting infrastructure expected to sustain the assumed revenue streams. Net contributory asset charges were based on the estimated fair value of those assets that contribute to the
generation of the estimated cash flows and estimated to be 8% of gross revenue. A discount rate of 23% was deemed appropriate for valuing the existing customer base. The Company amortizes the value of IDCs customer relationships on a
straight-line basis over an



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



estimated useful life of ten years.

The value assigned to IDCs
developed software was determined by utilizing the relief from royalty method of the Income Approach to valuation, whereby the net cash flows generated by the sales revenue, license income, or royalty income associated with the distribution of the
software system in the marketplace was projected. The relief from royalty method was used to estimate the cost savings that accrue to the owner of the intangible asset who would otherwise have to pay royalties (or license fees) on revenue earned
through use of the asset. The royalty rate used in the analysis was based on an analysis of empirical, market-driven royalty rates for comparable or guideline intangible assets. In the case of product software, revenues are projected over the
expected remaining economic life of the software. The market-derived royalty rate is then applied to estimate the royalty savings. The net after-tax royalty savings are calculated for each year in the remaining economic life of the software and then
discounted to a present value, as in the discounted cash flow method. A discount rate of 23% was deemed appropriate for valuing developed software and was based on the risks associated with the respective cash flows. The Company amortizes the
developed software on a straight-line basis over an estimated useful life of seven years.

The value assigned to IDCs
trademarks was determined by utilizing the relief from royalty method of the Income Approach to valuation, whereby net aftertax royalty savings are calculated for each year in the remaining economic life of the trademarks and then discounted
to a present value, as in the discounted cash flow method. The trademarks are comprised of CASHNet and CASHNet Business Offices. Service marks include CASHNet and CASHNetany payment, anytime,
anywhere. The royalty rate of 0.5% used to value the trademarks was based on estimates of prevailing royalty rates paid for the use of similar trademarks in arms-length licensing transactions of companies that operate in related
industries. A discount rate of 23% was deemed appropriate for valuing IDCs trademarks and was based on the risks associated with the respective royalty savings. The Company amortizes the trademarks on a straight-line basis over an estimated
useful life of ten years.

Upon close of the acquisition, the Company also entered into two separate five year non-compete
agreements with each of the former shareholders of IDC. The value assigned to IDCs non-compete agreements was determined by utilizing the discounted cash flow method of the Income Approach to valuation, whereby a comparative discounted cash
flow analysis was completed. In the analysis, the expected cash flows of IDC were estimated assuming the covenant not to compete is executed and was then compared to the diminished cash flows assuming the covenant not to compete was absent whereby
the company is assumed to be impaired by the competition and solicitation of the covenantor for the term of the covenant. The difference in the present value of the cash flows under the two scenarios is then probability weighted (based
on the likelihood of the covenantor competing and soliciting) and added to the present value of the related tax shield associated with the covenants amortization to determine the fair value of the covenant. A discount rate of 23% was deemed
appropriate for valuing the covenants not to compete. The Company amortizes the value of IDCs non-competes on a straight-line basis over the actual term of the agreement of five years.

Of the total purchase price, approximately $15,830 has been allocated to goodwill. Goodwill represents the excess of the fair value
of consideration transferred of an acquired business over the fair value of the net tangible and intangible assets acquired. Goodwill exists in the transaction as a result of value beyond that of the tangible and other intangible assets,
attributable to synergies that exist in the combined business. Goodwill is not deductible for tax purposes.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



IDC does not constitute a separate operating segment under the guidance of ASC 280. The
Companys strategy is to fully integrate the payment services business into the Companys existing business and combine the various functions of the former IDC business with the Companys operations. The Company has also concluded
that its operating segment is a single reporting unit. The Companys single operating segment does not have any components that constitute a separate business for which discrete information will be available. The Company plans to operate the
combined enterprise as one integrated business under which each legacy business will lose its individual historical characteristics. Accordingly, the goodwill arising from the acquisition will be assigned to the Companys single operating
segment and single reporting unit.

As a result of the IDC acquisition, the Company recorded tax deferred liabilities of
$7,876 resulting primarily from the acquired intangible assets which have no tax basis. The deferred tax liabilities are offset by approximately $619 in net deferred tax assets that relate primarily to federal and state net operating losses and
certain amortization and depreciation expenses.

Deferred Revenue

In connection with the purchase price allocation, the estimated fair value of the support obligation assumed from IDC in connection with
the acquisition was determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to fulfilling the obligation plus a normal profit margin. The sum of the costs and operating profit
approximates the amount that the Company would be required to pay a third party to assume the support obligation. Estimated costs to fulfill the support obligation, including cost of sales, administrative expenses and expected income taxes, were
based on IDCs historical and projected financial ratios and the guideline public company financial ratios. These estimated costs did not include any costs associated with selling efforts. Profit associated with selling efforts is excluded
because IDC had concluded the selling effort on the contracts prior to November 19, 2009. As a result, in allocating the purchase price, the Company recorded an adjustment to reduce the carrying value of IDCs November 19, 2009
deferred revenue to $6,310 which represents the Companys estimate of the fair value of the service obligation assumed. As former IDC customers renew these annually billed service contracts, the Company will recognize revenue for the full
value of the service contracts over the remaining term of the contracts.

Pro Forma Financial Information (Unaudited)

The financial information in the table below summarizes the combined results of operations of HOH and IDC on a pro
forma basis, as though the companies had been combined as of the beginning of the period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have
been achieved if the acquisition had taken place at the beginning of each of the periods presented. The pro forma financial information for all periods presented also includes amortization expense from acquired intangible assets, adjustments to
interest expense, interest income and related tax effects.

The pro forma financial information for the year ended
December 31, 2009 combines the historical results for the Company for the year ended December 31, 2009 and the historical results for IDC for the period from January 1, 2009 to November 19, 2009. The information required to
provide pro forma disclosure for the year ended December 31, 2008 was not available to the Company.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                                    |  |      |        | 
|----------------------------------- |  | ---- | ------ | 
|                                    |  | 2009 |       
|Total revenues                      |  | $    | 92,549 | 
|Net income                          |  |      | 12,275 | 
|Basic net income per common share   |  |      | 0.25   | 
|Diluted net income per common share |  |      | 0.23   | 

4. Restricted Cash

On June 22, 2010, HOI provided notice and a certificate of claim for indemnity to the former stockholders of IDC under the Stock
Purchase Agreement arising from certain misrepresentations and breaches of warranty. At the same time, HOI deposited an amount of $8,250, equal to the remaining balance of the acquisition payable, with an escrow agent. The funds held in escrow are
shown on the accompanying balance sheet as restricted cash pending resolution of the outstanding claims. See Note 16 for additional discussion of the indemnity claim made by HOI and the complaint filed by the former stockholders of IDC.

5. Deferred Costs

Deferred costs consist of the following:



|                               |  |                |        |   |      |   |        |  
|------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                               |  | December 31,   |       
|                               |  | 2009           |        |   | 2010 |  
|                               |  | (In thousands) |       
|Deferred implementation costs  |  | $              | 8,664  |   |      | $ | 9,788  |  
|Deferred financing costs       |  |                | 365    |   |      |   | 222    |  
|Other deferred costs           |  |                | 250    |   |      |   |       |  
|Less: Accumulated amortization |  |                | (3,947 | ) |      |   | (6,228 | )
|                               |  |                |        |   |      |   |        |  
|                               |  | $              | 5,332  |   |      | $ | 3,782  |  
|                               |  |                |        |   |      |   |        |  

For the years ended December 31, 2008, 2009 and 2010, the Company deferred $1,669, $2,008, and $1,308
respectively, of such costs. Amortization of deferred costs for the years ended December 31, 2008, 2009 and 2010 was $739, $1,583 and $2,538, respectively. Amortization of deferred financing costs is charged to interest expense. Amortization of
other deferred costs is charged to cost of revenue.

6. Fixed Assets

Fixed assets consist of the following:



|                       |  |                                |      |  |              |      |       |  |  |   |       | 
|---------------------- |  | ------------------------------ | ---- |  | ------------ | ---- | ----- |  |  | - | ----- | 
|                       |  | EstimatedUseful Life(in years) |      |  | December 31, |     
|                       |  |                                | 2009 |  |              | 2010 |      
|Computers and software |  |                                | 7    |  |              | $    | 2,491 |  |  | $ | 4,549 | 



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                                                |  |  |   |  |  |   |        |   |  |   |        |  
|----------------------------------------------- |  |  | - |  |  | - | ------ | - |  | - | ------ | -
|Equipment                                       |  |  | 7 |  |  |   | 3,589  |   |  |   | 6,508  |  
|Furniture and fixtures                          |  |  | 5 |  |  |   | 396    |   |  |   | 481    |  
|Leasehold improvements                          |  |  | 5 |  |  |   |       |   |  |   | 376    |  
|Assets under construction                       |  |  |   |  |  |   | 645    |   |  |   | 2,529  |  
|                                                |  |  |   |  |  |   |        |   |  |   |        |  
|                                                |  |  |   |  |  |   | 7,121  |   |  |   | 14,443 |  
|Less: Accumulated depreciation and amortization |  |  |   |  |  |   | (2,900 | ) |  |   | (4,524 | )
|                                                |  |  |   |  |  |   |        |   |  |   |        |  
|                                                |  |  |   |  |  | $ | 4,221  |   |  | $ | 9,919  |  
|                                                |  |  |   |  |  |   |        |   |  |   |        |  

Depreciation and amortization of fixed assets for the years ended December 31, 2008, 2009 and 2010 was
$637, $883 and $1,684, respectively.

7. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:



|                               |  |                              |    |  |              |   |        |      |  |   |        |  
|------------------------------ |  | ---------------------------- | -- |  | ------------ | - | ------ | ---- |  | - | ------ | -
|                               |  | WeightedAverageAmort. Period |    |  | December 31, |  
|                               |  | (in years)                   |    |  | 2009         |   |        | 2010 | 
|Goodwill                       |  |                              |    |  |              | $ | 15,058 |      |  | $ | 15,830 |  
|                               |  |                              |    |  |              |   |        |      |  |   |        |  
|Acquired technology            |  |                              | 7  |  |              | $ | 6,883  |      |  | $ | 6,883  |  
|Internal use software          |  |                              | 3  |  |              |   | 422    |      |  |   | 422    |  
|Contracts and customer lists   |  |                              | 10 |  |              |   | 11,031 |      |  |   | 11,031 |  
|Trademarks and domain names    |  |                              | 10 |  |              |   | 450    |      |  |   | 450    |  
|Covenants not to compete       |  |                              | 5  |  |              |   | 4,016  |      |  |   | 4,016  |  
|                               |  |                              |    |  |              |   |        |      |  |   |        |  
|                               |  |                              |    |  |              |   | 22,802 |      |  |   | 22,802 |  
|Less: Accumulated amortization |  |                              |    |  |              |   | (1,276 | )    |  |   | (4,346 | )
|                               |  |                              |    |  |              |   |        |      |  |   |        |  
|Intangible assets, net         |  |                              |    |  |              | $ | 21,526 |      |  | $ | 18,456 |  
|                               |  |                              |    |  |              |   |        |      |  |   |        |  

Intangible assets from acquisitions are amortized over five to ten years. Amortization expense related to
intangible assets was approximately $153, $710 and $3,070 for the years ended December 31, 2008, 2009 and 2010, respectively. Amortization related to internal use software is expensed to cost of service revenues, while amortization of
other intangibles is expensed to general and administrative expenses. Amortization expense for the years ended December 31, 2011, 2012, 2013, 2014 and 2015 is expected to be approximately $3,070, $2,949, $2,783, $2,644 and $2,031,
respectively.

The goodwill balance increased during the year ended December 31, 2010 as a result of an adjustment to
deferred income taxes.

8. Provision for Operational Losses



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HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



Activity in the provision for operational losses for each of the last three years is as
follows:



|                                                          |      |              |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------- | ---- | ------------ | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                          |      | December 31, |       
|                                                          | 2008 |              |        | 2009 |  |   | 2010   |  
|(Prepayment of) reserve for operational losses, beginning |      | $            | (546   | )    |  | $ | 201    |   |  | $ | 533    |  
|Provision for operational losses                          |      |              | 4,608  |      |  |   | 5,492  |   |  |   | 7,197  |  
|Payments to third party for losses, net of recoveries     |      |              | (3,861 | )    |  |   | (5,160 | ) |  |   | (9,600 | )
|                                                          |      |              |        |      |  |   |        |   |  |   |        |  
|(Prepayment of) reserve for operational losses, ending    |      | $            | 201    |      |  | $ | 533    |   |  | $ | (1,870 | )
|                                                          |      |              |        |      |  |   |        |   |  |   |        |  

The balance as of December 31, 2008 and 2009 is included within accrued expenses on the accompanying
consolidated balance sheets. The balance as of December 31, 2010 is included within prepaid expenses and other current assets on the accompanying balance sheet.

9. Accrued Expenses

Accrued expenses consist of the following:



|                                     |  |              |       |  |      |   |        | 
|------------------------------------ |  | ------------ | ----- |  | ---- | - | ------ | 
|                                     |  | December 31, |      
|                                     |  | 2009         |       |  | 2010 |  
|Compensation and benefits            |  | $            | 3,312 |  |      | $ | 5,066  | 
|Bank and payment processing expenses |  |              | 1,626 |  |      |   | 2,167  | 
|Data processing                      |  |              | 1,061 |  |      |   | 1,487  | 
|Reserve for operational losses       |  |              | 533   |  |      |   |       | 
|Other                                |  |              | 2,163 |  |      |   | 3,066  | 
|                                     |  |              |       |  |      |   |        | 
|                                     |  | $            | 8,695 |  |      | $ | 11,786 | 
|                                     |  |              |       |  |      |   |        | 

10. Credit Facilities and Acquisition Payable

Credit Facilities

August 2008 Facility

In August 2008, HOI entered into a credit agreement
with two lenders for a revolving loan facility and such agreement was amended in July 2009 and November 2009 (the August 2008 Facility). The August 2008 Facility permitted up to $25,000 in borrowings and matured on December 31,
2010. There was no amount outstanding at maturity of the August 2008 Facility. The August 2008 Facility also provided for a letter of credit facility of $3,000 and permitted acquisitions up to an aggregate of $2,000. The loan was guaranteed by HOH
and HOMI and was collateralized by a negative pledge of the intellectual property of the Company, including issued and applied for patents and trademarks and the issued and outstanding capital stock of HOI. The August 2008 Facility carried certain
financial covenants that dictated the availability of funds on the line of credit, including (1) maintenance of a minimum level of liquidity which is defined as cash and marketable securities plus the amount by which availability under



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



the loan facility exceeds amounts borrowed, (2) a funded debt to EBITDA ratio, (3) an interest coverage ratio and (4) a debt service coverage ratio.

Amounts borrowed under the August 2008 Facility bore interest based on LIBOR, plus an interest rate margin based upon a funded debt to
EBITDA ratio. At December 31, 2009, the interest rate on the revolving loan facility was 1.9%, respectively.

The
agreement required (1) a minimum liquidity level of $2,500 for the period of October 1, 2009 through December 31, 2009 and then a minimum liquidity level to $5,000 through the maturity date, (2) a funded debt to EBITDA ratio of
no more than 2.0 to 1.0, (3) an interest coverage ratio of a minimum of 3.5 to 1.0 and (4) a minimum debt service coverage ratio of 1.25 to 1.00. As of December 31, 2009 and 2010, the Company was in compliance with each loan covenant.

The Company incurred financing costs of $208 and $157 in 2008 and 2009, respectively, relating to the August 2008 Facility
and amendments. These financing costs were included in deferred costs on the accompanying consolidated balance sheet. The deferred financing costs were amortized over the term of the loan through December 31, 2010. For the years ended
December 31, 2009 and 2010, $113 and $204 of deferred financing costs were amortized to expense.

December 2010
Facility

On December 31, 2010, HOI entered into a new senior secured revolving credit facility in an amount of
$50,000 (the December 2010 Facility). The December 2010 Facility provides for a letter of credit facility of up to $3,000 and includes certain restrictions on the amount of acquisitions the Company may complete. Each of HOH, HOMI, HOPI,
Real Estate Inc. and Real Estate LLC (together with HOI, the Loan Obligors) is a guarantor of HOIs obligations under the December 2010 Facility.

The December 2010 Facility is secured by a perfected first priority security interest in all of the capital stock of Higher One, Inc. and its subsidiaries, and substantially all of each Loan
Obligors tangible and intangible assets, other than intellectual property. Each of the Loan Obligors has also granted to the administrative agent under the December 2010 Facility a negative pledge of the intellectual property of Higher One,
Inc. and its subsidiaries including patents and trademarks that are pending and acquired in the future.

At the Companys
option, each advance under the December 2010 Facility accrues interest on the basis of a base rate or on the basis of a one-month, two-month or three-month Eurodollar rate, plus in either case, the Applicable Margin based on our Funded Debt to
EBITDA, as each term is defined in the December 2010 Facility, at the time each loan is made. We also pay commitment fees for the unused portion of the revolving loan on a quarterly basis equal to the product obtained by multiplying the Applicable
Margin for commitment fees by the average daily unused commitment for that calendar quarter. The Applicable Margin for base rate advances is between (1.25%) and 0%, subject to a minimum rate of 2%, and the Applicable Margin for Eurodollar rate
advances is between 2.0% and 3.25%. The Applicable Margin for commitment fees is between 0.25% and 0.375%. The base rate is the higher of Bank of Americas announced prime rate, the federal funds rate plus 0.50% or the Eurodollar rate plus
1.00%. Interest on Eurodollar loans is payable at the end of each applicable interest period. Interest on base rate advances is payable quarterly in arrears.

The December 2010 Facility contains certain affirmative covenants including, among other things, covenants to furnish the lenders with financial statements and other financial information and to provide
the lenders notice of material events and information regarding collateral. The December 2010 Facility



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



also contains certain negative covenants that, among other things, restrict Higher One, Inc.s ability, subject to certain exceptions, to incur additional indebtedness, grant liens on its
assets, undergo fundamental changes, make investments, sell assets, make restricted payments, change the nature of its business and engage in transactions with its affiliates.

In addition, the December 2010 Facility contains certain financial covenants that require Higher One, Inc. to maintain a minimum EBITDA level measured on the prior four fiscal quarters of $50 million, a
funded debt to EBITDA ratio not to exceed 2.00 to 1.00, and a fixed charge coverage ratio of at least 1.25 to 1.00. The Company was in compliance with all of the applicable debt covenants in the December 2010 Facility as of December 31, 2010.

The Company incurred financing costs of $187 in 2010, relating to the December 2010 Facility. These financing costs are
included in deferred costs on the accompanying consolidated balance sheet.

Acquisition Payable

In November 2009 and in conjunction with the acquisition of IDC the Company incurred payment obligations totaling an amount of $10,000 to
the former shareholders of IDC. The agreement calls for four quarterly payments of $1,750 to be made on or before each quarter ended March 31, June 30, September 30 and December 31, 2010. The agreement also calls for one
final payment of $3,000 on or before December 31, 2010, subject to adjustments for indemnification claims. The payment obligations are non-interest bearing. The acquisition payable was recorded at is fair value of $9,600 based upon an estimated
interest rate of 5.0%. The payable was accreted to its principle amount on an effective interest rate method. For the years ended December 31, 2009 and 2010 the Company recorded $40 and $360 of interest expense, respectively.

During 2010 we made one payment of $1,750 to the former shareholders of IDC and deposited the remaining $8,250 in an escrow account
pending the resolution of the legal matter described in Note 16.

11. Capital Stock

Initial Public Offering

On June 22, 2010, the Company consummated an initial public offering of 3,569,395 shares of newly issued common stock and 6,780,605 shares offered by selling stockholders. The aggregate public
offering price of the offering amount registered was $124,200 and the offering did not terminate before all of the shares registered in the registration statement were sold. Proceeds to the Company of $37,209, net of issuance costs were used to
pay outstanding amounts on the Credit Facility, make an escrow payment of $8,250 related to the acquisition payable described in Note 10 above and fund working capital. The Company did not receive any of the proceeds from the sale of shares by the
selling stockholders.

Upon consummation of the Companys initial public offering, 417,049 shares of Series A convertible
preferred stock outstanding, 1,086,784 shares of Series B convertible preferred stock outstanding, 2,522,554 shares of Series C convertible preferred stock outstanding, 2,180,633 shares of Series C-1 convertible preferred stock outstanding,
1,313,604 shares of Series D convertible preferred stock outstanding and 5,454,545 shares of Series E convertible preferred stock outstanding were converted into 38,925,507 shares of common stock after giving effect to the 3-for-1 stock split
discussed below. Following the consummation of the offering, there were no shares of preferred stock outstanding.

Common Stock



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



In connection with the initial public offering, the Company effected a 3-for-1 stock
split of the outstanding shares of its Common Stock that was previously approved by stockholders. All common share amounts and per common share amounts have been adjusted in the financial statements for all periods presented. The Company is
authorized to issue up to 200,000,000 shares of Common Stock with a par value of $.001 per share. Each share of Common Stock entitles the holder to one vote on all matters submitted to a vote of the Companys stockholders. Common stockholders
are not entitled to receive dividends unless declared by the Board of Directors.

Common stockholders are not entitled to
receive dividends unless declared by the Board of Directors. Any such dividends would be subject to the preferential dividend rights of the preferred stockholders. If such a dividend is declared, then the Board of Directors shall declare at the same
time a dividend upon the outstanding shares of Preferred Stock as if the Preferred Stock had converted to Common Stock.

Convertible Preferred Stock

The Company is authorized to issue 20,000,000 shares of Preferred Stock with a par value of $.001 per share. Convertible preferred stock consisted of the following classes as of December 31, 2009:



|                                                                                                                                                                              |  |   |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------ | 
|Series A, $.001 par value; 1,012,314 shares authorized; 417,049 shares issued and outstanding for (liquidation preference of
$254)                                            |  | $ | 313    | 
|Series B, $.001 par value; 1,622,078 shares authorized; 1,086,784 shares issued and outstanding (liquidation preference of
$869)                                              |  |   | 882    | 
|Series C, $.001 par value; 4,315,216 shares authorized; 2,522,554 shares issued and outstanding (liquidation preference of
$2,523)                                            |  |   | 3,478  | 
|Series C-1, $.001 par value; 3,250,000 shares authorized; 2,180,633 shares issued and outstanding (liquidation preference of
$4,361)                                          |  |   | 2,085  | 
|Series D, $.001 par value; 3,999,999 shares authorized; 1,313,604 shares issued and outstanding (liquidation preference of
$4,598)                                            |  |   | 2,254  | 
|Series E convertible participating preferred stock, $.001 par value; 5,454,545 shares authorized; 5,454,545 shares issued and
outstanding (liquidation preference of $41,543) |  |   | 71,942 | 
|                                                                                                                                                                              |  |   |        | 
|                                                                                                                                                                              |  | $ | 80,954 | 
|                                                                                                                                                                              |  |   |        | 

On August 26, 2008, the Company issued 5,454,545 shares of Series E Convertible Preferred Stock
(Series E Preferred Stock) at $13.75 per share for $71,942, net of issuance costs of $3,058.

As of
December 31, 2010, no shares of preferred stock were outstanding.

12. Repurchase of Shares

During 2008, the Company used the proceeds of the August 2008 credit agreement (Note 10) and the Series E financing (Note 11) to affect a
repurchase of certain of the Companys outstanding equity instruments. All shareholders received a tender offer notification that indicated the Companys intent to



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



repurchase a specified percentage of the outstanding shares, for a limited time, at the election of the holder.

On August 26, 2008, the Company completed a tender offer, repurchasing 2,806,344 shares of the Companys issued Common Stock for a repurchase cost of $12,762. As a result of the tender offer
999,573 Common Stock options and 75,000 Common Stock warrants were simultaneously exercised, and Common Stock was issued and tendered for a repurchase cost of $4,581 and $330, respectively. All of the repurchased shares were cancelled upon tender.

In conjunction with the tender offer, the Company also repurchased 595,265 shares of Series A Preferred Stock, 535,294 shares
of Series B Preferred Stock, 1,777,662 shares of Series C Preferred Stock, 1,069,162 shares of Series C-1 Preferred Stock and 2,681,282 shares of Series D Preferred Stock Preferred Stock pursuant to a tender offer. The total repurchase cost of the
tendered preferred shares was $88,774. 4,500 shares of Series C warrants were simultaneously exercised, issued and tendered for a purchase cost of $59. The tender offer payments served to reduce Common and Preferred Stock and additional paid-in
capital to the extent of original issuance price. The difference between the original issuance price and the tender price was $93,933 in aggregate and was deducted from additional paid in capital and retained earnings, and resulted in an accumulated
deficit for the year ended December 31, 2008.

13. Warrants

A summary of the Companys warrant activity for the years ended December 31, 2008 and 2009 is as follows:



|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 
|-------------------------------- |  | ---------------- | -------- | - | ---------------------------- | - | ---- | ---------------- |  |  | ---------------------------- | - |  | - | ---- | 
|                                 |  | Preferred Stock  |          |   | Common Stock                 |  
|                                 |  | NumberofWarrants |          |   | WeightedAverageExercisePrice |   |      | NumberofWarrants |  |  | WeightedAverageExercisePrice |  
|Outstanding at December 31, 2007 |  |                  | 189,000  |   |                              | $ | 1.00 |                  |  |  | 75,000                       |   |  | $ | 0.33 | 
|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 
|Exercised                        |  |                  | (178,500 | ) |                              |   | 1.00 |                  |  |  | (75,000                      | ) |  |   | 0.33 | 
|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 
|Outstanding at December 31, 2008 |  |                  | 10,500   |   |                              | $ | 1.00 |                  |  |  |                             |   |  | $ |     | 
|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 
|Forfeited / Canceled             |  |                  | (10,500  | ) |                              |   | 1.00 |                  |  |  |                             |   |  |   |     | 
|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 
|Outstanding at December 31, 2009 |  |                  |         |   |                              | $ |     |                  |  |  |                             |   |  | $ |     | 
|                                 |  |                  |          |   |                              |   |      |                  |  |  |                              |   |  |   |      | 

There were no warrants outstanding or exercisable during 2010.

Effective January 1, 2006, the Company adopted new guidance under ASC Topic 480, Distinguishing Liabilities From
Equity. This guidance addresses whether warrants on shares classified outside of permanent equity should be reflected as liabilities. The impact to the Company was to classify its preferred stock warrants as liabilities because such
instruments embody an obligation to transfer assets. Upon adoption of this guidance the warrants were recorded as a liability at their estimated fair value of $397. Subsequent to adoption, the warrants are measured at fair value each period with
changes in fair value recognized in earnings. For the year ended December 31, 2008 the Company recognized a charge of $55 for the change in fair value of the warrants. Effective August 26, 2008, the Company changed its Articles of
Incorporation which caused its preferred stock to be classified as permanent



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



equity, which resulted in the remaining warrant carrying value of $134 being reclassified from liabilities to equity.

14. Stock Based Compensation

The Companys Board of Directors adopted
the 2000 Stock Plan (the 2000 Plan) on April 20, 2000. The Plan, as amended, permitted the granting of stock options and restricted stock to employees and directors not to exceed in the aggregate 11,400,000 shares of Common Stock.
Such options expire ten years from the date of grant and options are no longer able to be granted under the 2000 Plan. On March 26, 2010, the Companys Board of Directors adopted the 2010 Equity Incentive Plan (the 2010 Plan).
The 2010 Plan permits the granting of stock options, restricted stock and other stock-based awards to employees and directors not to exceed in the aggregate 4,860,000 shares of Common Stock. Options for the Companys employees under the 2000
Plan and 2010 Plan vest over periods ranging from one month to five years, with the majority vesting as follows: one-fifth of the granted options vest one year from the date of grant; the remaining four-fifths vest at a rate of 1/48 per month
over the remaining four years of the vesting period. The Company grants primarily incentive stock options, but occasionally grants nonqualified stock options to key members of management.

As of December 31, 2010, 6,736,743 and 4,858,250 shares of common stock were reserved under the 2000 Plan and 2010 Plan,
respectively, of which 4,289,250 remain available for grant under the 2010 Plan.

A summary of stock option and restricted
stock activity under the Companys stock plan for the years ended December 31, 2008, 2009 and 2010, and changes during the years then ended are as follows:



|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|-------------------------------- |  | ------------- | ---------- | - | ---------------------------- | - | ----- | ------ |  |  | ------------------------------- | ---- |  | - | ----- | 
|                                 |  | Stock Options |            |   | Restricted Stock             |  
|                                 |  | Shares        |            |   | WeightedAverageExercisePrice |   |       | Shares |  |  | WeightedAverageGrant StockPrice |     
|Outstanding at December 31, 2007 |  |               | 7,543,752  |   |                              | $ | 0.64  |        |  |  |                                |      |  | $ |      | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|Granted                          |  |               | 1,842,000  |   |                              |   | 4.48  |        |  |  |                                 |      |  |   |       | 
|Exercised                        |  |               | (1,403,733 | ) |                              |   | 0.34  |        |  |  |                                 |      |  |   |       | 
|Forfeited / Canceled             |  |               | (201,603   | ) |                              |   | 1.93  |        |  |  |                                 |      |  |   |       | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|Outstanding at December 31, 2008 |  |               | 7,780,416  |   |                              | $ | 1.57  |        |  |  |                                |      |  | $ |      | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|Granted                          |  |               | 1,241,250  |   |                              |   | 7.97  |        |  |  | 43,344                          |      |  |   | 10.80 | 
|Exercised                        |  |               | (498,480   | ) |                              |   | 0.42  |        |  |  |                                 |      |  |   |       | 
|Forfeited / Canceled             |  |               | (59,754    | ) |                              |   | 3.51  |        |  |  |                                 |      |  |   |       | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|Outstanding at December 31, 2009 |  |               | 8,463,432  |   |                              | $ | 2.57  |        |  |  | 43,344                          |      |  | $ | 10.80 | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 
|Granted                          |  |               | 630,750    |   |                              |   | 14.48 |        |  |  |                                |      |  |   |      | 
|Exercised                        |  |               | (1,337,567 | ) |                              |   | 0.81  |        |  |  | (10,833                         | )(1) |  |   | 10.80 | 
|Forfeited / Canceled             |  |               | (450,872   | ) |                              |   | 8.03  |        |  |  |                                |      |  |   |      | 
|                                 |  |               |            |   |                              |   |       |        |  |  |                                 |      |  |   |       | 



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                                 |  |   |           |  |  |   |      |  |  |   |        |  |  |   |       | 
|-------------------------------- |  | - | --------- |  |  | - | ---- |  |  | - | ------ |  |  | - | ----- | 
|Outstanding at December 31, 2010 |  |   | 7,305,743 |  |  | $ | 3.58 |  |  |   | 32,511 |  |  | $ | 10.80 | 
|                                 |  |   |           |  |  |   |      |  |  |   |        |  |  |   |       | 
|Intrinsic value                  |  |   |           |  |  |   |      |  |  |   |        |  |  |   |       | 
|Shares outstanding               |  | $ | 121,627   |  |  |   |      |  |  | $ | 658    |  |  |   |       | 
|Shares vested                    |  |   | 94,922    |  |  |   |      |  |  |   |        |  |  |   |       | 



|(1) | Represents restricted stock vested
|--- | ----------------------------------

The weighted-average grant-date fair value of options granted during the years ended December 31, 2008, 2009 and 2010 was $2.02, $4.12 and $7.58, respectively. The weighted-average grant-date fair
value of options vested during the years ended December 31, 2008, 2009 and 2010 was $0.44, $1.25 and $2.28. The total grant-date fair value of options vested during the years ended December 31, 2008, 2009 and 2010 was $374, $1,450 and
$2,545, respectively. The weighted-average grant-date fair value of options forfeited in 2008, 2009 and 2010 was $0.84, $1.71 and $4.11, respectively.

The following table summarizes information about stock options outstanding at December 31, 2010:



|                        |  |                     |           |  |                                                    |  |     |                              |  |   |                   |  |  |                                                    |           |  |                              |  |     |  |  |   |       | 
|----------------------- |  | ------------------- | --------- |  | -------------------------------------------------- |  | --- | ---------------------------- |  | - | ----------------- |  |  | -------------------------------------------------- | --------- |  | ---------------------------- |  | --- |  |  | - | ----- | 
|                        |  | Options Outstanding |           |  | Options Exercisable                                | 
|Range of
Exercise Price |  | NumberOutstanding   |           |  | WeightedAverageRemainingContractualLife (in years) |  |     | WeightedAverageExercisePrice |  |   | NumberExercisable |  |  | WeightedAverageRemainingContractualLife (in years) |           |  | WeightedAverageExercisePrice | 
|                        |  |                     |           |  |                                                    | 
|$0.13-0.33              |  |                     | 2,020,156 |  |                                                    |  | 1.9 |                              |  | $ | 0.23              |  |  |                                                    | 2,020,156 |  |                              |  | 1.9 |  |  | $ | 0.23  | 
|0.34-0.99               |  |                     | 1,055,750 |  |                                                    |  | 4.7 |                              |  |   | 0.61              |  |  |                                                    | 1,039,475 |  |                              |  | 4.7 |  |  |   | 0.60  | 
|1.00-1.99               |  |                     | 504,885   |  |                                                    |  | 6.1 |                              |  |   | 1.34              |  |  |                                                    | 439,235   |  |                              |  | 6.1 |  |  |   | 1.34  | 
|2.00-3.99               |  |                     | 670,604   |  |                                                    |  | 7.0 |                              |  |   | 2.76              |  |  |                                                    | 465,329   |  |                              |  | 6.9 |  |  |   | 2.72  | 
|4.00-6.00               |  |                     | 2,056,498 |  |                                                    |  | 7.9 |                              |  |   | 4.69              |  |  |                                                    | 1,048,040 |  |                              |  | 7.8 |  |  |   | 4.63  | 
|10.00-13.99             |  |                     | 796,100   |  |                                                    |  | 9.1 |                              |  |   | 12.20             |  |  |                                                    | 154,249   |  |                              |  | 9.0 |  |  |   | 11.70 | 
|14.00-22.00             |  |                     | 201,750   |  |                                                    |  | 9.7 |                              |  |   | 15.79             |  |  |                                                    | 500       |  |                              |  | 9.8 |  |  |   | 16.66 | 
|                        |  |                     |           |  |                                                    |  |     |                              |  |   |                   |  |  |                                                    |           |  |                              |  |     |  |  |   |       | 
|                        |  |                     | 7,305,743 |  |                                                    |  | 5.7 |                              |  | $ | 3.58              |  |  |                                                    | 5,166,984 |  |                              |  | 4.7 |  |  | $ | 1.86  | 
|                        |  |                     |           |  |                                                    |  |     |                              |  |   |                   |  |  |                                                    |           |  |                              |  |     |  |  |   |       | 
|                        |  |                     |           |  |                                                    |  |     |                              |  |   |                   |  |  |                                                    |           |  |                              |  |     |  |  |   |       | 

The total intrinsic value, the amount by which the stock price exceeds the exercise of the option
on the date of exercise, of stock options exercised for the years ended December 31, 2008, 2009 and 2010 was $5,713, $4,037 and $17,550, respectively.

The compensation expense that has been recognized in the consolidated statements of operations for the Companys stock plans for the years ended December 31, 2008, 2009 and 2010 was $498, $1,387
and $2,913, respectively.



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



As of December 31, 2010, the total compensation cost related to non-vested options
and restricted stock not yet recognized in the consolidated financial statements is approximately $7,315, net of estimated forfeitures. The cost is expected to be recognized through December 2015 with a weighted average recognition period of
approximately 3.4 years.

The total income tax benefits recognized in the consolidated statements of operations for the years
ended December 31, 2008, 2009 and 2010 were approximately $1,440, $152 and $71, respectively.

15. Income Taxes

The components of income tax expense for the years ended December 31, 2008, 2009 and 2010, were as follows:



|                                      |  |      |       |   |      |   |       |      |  |   |        |  
|------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                      |  | 2008 |       |   | 2009 |   |       | 2010 | 
|Current income tax (benefit) expense  |  |      |       |   |      |   |       |      |  |   |        |  
|Federal                               |  | $    | 1,512 |   |      | $ | 8,276 |      |  | $ | 17,035 |  
|State and local                       |  |      | 227   |   |      |   | 375   |      |  |   | 1,619  |  
|                                      |  |      |       |   |      |   |       |      |  |   |        |  
|Total                                 |  |      | 1,739 |   |      |   | 8,651 |      |  |   | 18,654 |  
|                                      |  |      |       |   |      |   |       |      |  |   |        |  
|Deferred income tax expense (benefit) |  |      |       |   |      |   |       |      |  |   |        |  
|Federal                               |  |      | 1,827 |   |      |   | (677  | )    |  |   | (3,082 | )
|State and local                       |  |      | (19   | ) |      |   | (49   | )    |  |   | (84    | )
|                                      |  |      |       |   |      |   |       |      |  |   |        |  
|Total                                 |  |      | 1,808 |   |      |   | (726  | )    |  |   | (3,166 | )
|                                      |  |      |       |   |      |   |       |      |  |   |        |  
|Income tax expense                    |  | $    | 3,547 |   |      | $ | 7,925 |      |  | $ | 15,488 |  
|                                      |  |      |       |   |      |   |       |      |  |   |        |  

The reconciliation of expected income tax expense at the statutory federal income tax rate to the effective
income tax rate is as follows:



|                                             |  |      |       |   |      |   |       |      |  |   |        |  
|-------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                             |  | 2008 |       |   | 2009 |   |       | 2010 | 
|Expected federal income tax expense          |  | $    | 3,374 |   |      | $ | 7,750 |      |  | $ | 14,191 |  
|Non-deductible expenses                      |  |      | 12    |   |      |   | 251   |      |  |   | 496    |  
|State tax expense, net of federal tax effect |  |      | 159   |   |      |   | 201   |      |  |   | 968    |  
|Federal credits                              |  |      | (11   | ) |      |   | (141  | )    |  |   | (98    | )
|Warrant fair value adjustment                |  |      | 19    |   |      |   |      |      |  |   |       |  
|Other                                        |  |      | (6    | ) |      |   | (136  | )    |  |   | (69    | )
|                                             |  |      |       |   |      |   |       |      |  |   |        |  
|                                             |  | $    | 3,547 |   |      | $ | 7,925 |      |  | $ | 15,488 |  
|                                             |  |      |       |   |      |   |       |      |  |   |        |  

Deferred tax (liabilities) assets reflect the net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys net deferred tax (liabilities) assets are as follows:



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                                |  |              |        |   |      |   |        |  
|------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                |  | December 31, |       
|                                |  | 2009         |        |   | 2010 |  
|Gross deferred tax assets:      |  |              |        |   |      |   |        |  
|Net operating losses            |  | $            | 838    |   |      | $ | 264    |  
|Tax credits                     |  |              | 618    |   |      |   | 596    |  
|Intangibles                     |  |              | 1,421  |   |      |   | 3,901  |  
|Other                           |  |              | 179    |   |      |   | 979    |  
|                                |  |              |        |   |      |   |        |  
|                                |  |              | 3,056  |   |      |   | 5,740  |  
|                                |  |              |        |   |      |   |        |  
|Gross deferred tax liabilities: |  |              |        |   |      |   |        |  
|Fixed assets                    |  |              | (771   | ) |      |   | (1,776 | )
|Intangibles                     |  |              | (6,972 | ) |      |   | (6,142 | )
|                                |  |              |        |   |      |   |        |  
|                                |  |             
|                                |  |              | (7,743 | ) |      |   | (7,918 | )
|                                |  |              |        |   |      |   |        |  
|Net deferred tax liabilities    |  |              | (4,687 | ) |      |   | (2,178 | )
|Less: valuation allowance       |  |              | (597   | ) |      |   | (700   | )
|                                |  |              |        |   |      |   |        |  
|                                |  | $            | (5,284 | ) |      | $ | (2,878 | )
|                                |  |              |        |   |      |   |        |  

As of December 31, 2010, the Company had approximately $9,174 of state net operating loss
carry-forwards, which expire from 2020 through 2030. The Company also has approximately $784 in state credit carry-forwards layers of which expire from 2011 to 2029. State net operating loss and credit carry-forwards of approximately $1,199 and
$137, respectively are restricted under Section 382 of the Internal Revenue Code. As of December 31, 2010, the Company had federal net operating loss carry-forwards of approximately $214 that expire in 2022 and federal credit
carry-forwards of approximately $86 that expire from 2020 to 2023. All federal net operating loss and credit carry-forwards are restricted under Section 382 of the Internal Revenue Code. Section 382 of the Internal Revenue Code limits the
utilization of net operating losses and credits when ownership changes, as defined by that section, occur. The Company has performed an analysis of its Section 382 ownership changes and has determined that the utilization of certain of its net
operating loss and credit carry-forwards may be limited. The Company does not expect that Section 382 will limit the utilization of the net operating or credit loss carry-forwards. Valuation allowances have been established primarily for state
tax credits and net state operating loss carry-forwards.

During the years ended December 31, 2008, 2009, and 2010, The
Company recorded interest and penalties related to unrecognized tax benefits of approximately $7, $22 and $48, respectively. Total accrued interest and penalties at December 31, 2009 and 2010 was approximately $39 and $78, respectively. All tax
years are subject to examination. The Company does not expect its unrecognized tax benefit liability to change significantly over the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2008, 2009 and 2010 are as follows:



|                                                        |  |      |     |  |      |   |     |      |  |   |     | 
|------------------------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                                        |  | 2008 |     |  | 2009 |   |     | 2010 | 
|Balance at January 1                                    |  | $    | 185 |  |      | $ | 363 |      |  | $ | 545 | 
|Additions for tax positions related to the current year |  |      | 178 |  |      |   | 60  |      |  |   | 40  | 



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                                              |  |   |     |  |  |   |     |   |  |   |     |  
|--------------------------------------------- |  | - | --- |  |  | - | --- | - |  | - | --- | -
|Additions for tax positions of prior years    |  |   |    |  |  |   | 1   |   |  |   | 33  |  
|Reductions for tax positions of prior years   |  |   |    |  |  |   | (6  | ) |  |   |    |  
|Settlements                                   |  |   |    |  |  |   | (10 | ) |  |   | (12 | )
|Acquisition of Informed Decisions Corporation |  |   |    |  |  |   | 137 |   |  |   |    |  
|                                              |  |   |     |  |  |   |     |   |  |   |     |  
|Balance at December 31                        |  | $ | 363 |  |  | $ | 545 |   |  | $ | 606 |  
|                                              |  |   |     |  |  |   |     |   |  |   |     |  

The Company is subject to examination by various domestic tax authorities. The Companys U.S. federal
income tax returns are currently under audit for the tax periods ended December 31, 2008 and 2009.

16. Commitments and Contingencies

Operating Leases

The Company leases facilities with varying terms, renewal options and expiration dates. The Company recognizes rent expense associated with operating leases as incurred. Aggregate future minimum lease
payments under non-cancelable operating leases are as follows:



|               |  |   |       | 
|-------------- |  | - | ----- | 
|2011           |  | $ | 843   | 
|2012           |  |   | 179   | 
|2013           |  |   | 187   | 
|2014           |  |   | 186   | 
|2015           |  |   | 189   | 
|Thereafter     |  |   | 16    | 
|               |  |   |       | 
|Total payments |  | $ | 1,600 | 
|               |  |   |       | 

Rent expense under non-cancelable operating leases for the years ended December 31, 2008, 2009 and 2010
was $1,074, $1,142 and $1,036, respectively.

Litigation and Regulatory

The Company and its subsidiaries, from time to time, are subject to litigation relating to matters in the ordinary course of business, as
well as regulatory examinations, information gathering requests, inquiries and investigations. In February 2011, the New York Regional Office of the FDIC notified the Company that it is prepared to recommend to the Director of FDIC Supervision that
an enforcement action be taken against the Company for alleged violations of certain applicable laws and regulations principally relating to our compliance management system and policies and practices for past overdraft charging on persistently
delinquent accounts, collections and transaction error resolution. Any such enforcement action could result in an order to pay restitution and civil money penalties. The Company is in the process of responding to the FDICs notification. In
view of the inherent difficulty of predicting the outcome of regulatory matters, including the FDIC notification, the Company generally cannot predict what the eventual outcome of pending matters will be, what the timing of the ultimate resolution
of these matters will be or the potential loss associated with these matters. In accordance with applicable accounting guidance, the Company would establish an accrued liability for litigation and regulatory matters if and when those matters were to
present loss contingencies that were both probable and reasonably estimable. With respect to known contingencies, the Company believes that any ultimate



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



liability resulting from such contingencies will not have a material adverse effect on the Companys results of operations, financial position or cash flows.

On June 22, 2010, HOI provided notice and a certificate of claim for indemnity under the Stock Purchase Agreement by and among us
and the former stockholders of IDC dated November 19, 2009, arising from certain misrepresentations and breaches of warranty. At the same time, we deposited $8.25 million, equal to the remaining balance of the post-closing payments, with an
escrow agent. The funds held in escrow are shown on the accompanying balance sheet as restricted cash pending resolution of the outstanding claims.

Separately, the former stockholders of IDC filed a complaint against HOI in the United States District Court for the Northern District of California (the Complaint) on July 20, 2010,
disputing that misrepresentations were made and that warranties were breached; alleging breach of contract and anticipatory breach; and seeking a declaratory judgment ordering that the post-closing payments be made in accordance with the schedule
set forth in the Stock Purchase Agreement. On October 27, 2010, HOI filed a motion to dismiss and, in the alternative, to move the action to the District of Delaware pursuant to a contractual forum selection clause and to strike certain
allegations of the complaint. On December 21, 2010, the court denied the motion as to dismissal or transfer, but agreed to strike the former stockholders request for a jury trial. HOI answered the Complaint on January 14, 2011, and
also alleged counterclaims for breach of contract, negligent misrepresentation, and fraud. On February 7, 2011, the former stockholders moved to dismiss the counterclaims for fraud and misrepresentation only. That motion is currently being
litigated. HOI intends to vigorously defend against the Complaint brought against us and to vigorously pursue its counterclaims. There can be no assurances of success in these matters. Due to the uncertainty of the outcome of HOIs claim, HOI
is unable to estimate any potential settlement at this time and accreted interest on the acquisition payable to the original final payment due date of December 31, 2010. As of December 31, 2010, the acquisition payable of $8,250 was
recorded as a liability on the accompanying balance sheet and HOI had not recorded any potential gain or loss in connection with this claim or Complaint.

In February 2009, HOI filed a complaint against TouchNet Information Systems, Inc., or TouchNet, in the United States District Court for the District of Connecticut alleging patent infringement related to
TouchNets offering for sale and sales of its eRefund product in violation of one of its patents. In the complaint, HOI seeks a judgment that TouchNet has infringed its patent, a judgment that TouchNet pay damages and interest on
damages to compensate HOI for infringement, an award of HOIs costs in connection with this action and an injunction barring TouchNet from further infringing HOIs patent. TouchNet answered the complaint and asserted a number of defenses
and counterclaims, including that it does not infringe HOIs patent, that HOIs patent is invalid or unenforceable and certain allegations of unfair competition. In addition, TouchNets counterclaims seek dismissal of HOIs
claims with prejudice, declaratory judgment that TouchNet does not infringe HOIs patent and that HOIs patent is invalid or unenforceable, as well as an award of fees and costs related to the action, and an injunction permanently
enjoining HOI from suing TouchNet regarding infringement of HOIs patent. The parties are currently in the discovery stage of the proceeding. HOI intends to pursue the matter vigorously. There can be no assurances of success in these
proceedings.

17. Real Estate Development Project

As of December 31, 2010, the Company has incurred approximately $2.5 million on a project to develop two existing commercial buildings located in New Haven, Connecticut into which the Company



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



expects to move at the completion of the project in 2012.

On
November 9, 2010, Real Estate LLC entered into an agreement with Winchester Arms NH, LLC to develop the buildings.

Real
Estate LLC signed a construction contract with John Moriarty & Associates (Moriarty) effective January 28, 2011, whereby Moriarty will be the general contractor for the project.

On February 18, 2011, Real Estate LLC signed a land lease with Science Park Development Corporation, or SPDC, which owns the
property on which the two buildings reside, concerning the leasing, expansion and buyout of the land. The agreement provides for a long term lease of the land at a nominal cost per year and includes a buyout option for a nominal amount after seven
years.

18. Employee Benefit Plans

The Company has a 401(k) plan covering all employees of the Company who have met certain eligibility requirements. Under the terms of the 401(k) plan, the employees may elect to make tax-deferred
contributions to the plan. In addition, the Company will match employee contributions up to 4% of the employees compensation for the full year.



|                                      |  |      |     |  |      |   |     |      |  |   |     | 
|------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                      |  | 2008 |     |  | 2009 |   |     | 2010 | 
|Employer Contributions to 401(k) Plan |  | $    | 249 |  |      | $ | 288 |      |  | $ | 392 | 

19. Quarterly Results (unaudited)

The quarterly results of the Company for the year ended December 31, 2010 and 2009 are as follows:



|                               |  |               |        |  |              |   |        |                   |  |   |                  |  |  |   |        | 
|------------------------------ |  | ------------- | ------ |  | ------------ | - | ------ | ----------------- |  | - | ---------------- |  |  | - | ------ | 
|                               |  | March 31,2010 |        |  | June 30,2010 |   |        | September 30,2010 |  |   | December 31,2010 | 
|Revenue                        |  | $             | 38,870 |  |              | $ | 27,750 |                   |  | $ | 38,566           |  |  | $ | 39,783 | 
|Gross margin                   |  |               | 26,331 |  |              |   | 17,351 |                   |  |   | 24,176           |  |  |   | 25,266 | 
|Income from operations         |  |               | 13,659 |  |              |   | 3,258  |                   |  |   | 10,780           |  |  |   | 13,550 | 
|Net income before income taxes |  |               | 13,431 |  |              |   | 3,013  |                   |  |   | 10,706           |  |  |   | 13,397 | 
|Net income                     |  |               | 8,264  |  |              |   | 1,830  |                   |  |   | 6,429            |  |  |   | 8,536  | 
|Basic net income per share     |  |               | 0.17   |  |              |   | 0.04   |                   |  |   | 0.12             |  |  |   | 0.16   | 
|Diluted net income per share   |  |               | 0.15   |  |              |   | 0.03   |                   |  |   | 0.11             |  |  |   | 0.14   | 
|                               |  |               |        | 
|                               |  | March 31,2009 |        |  | June 30,2009 |   |        | September 30,2009 |  |   | December 31,2009 | 
|Revenue                        |  | $             | 17,670 |  |              | $ | 12,758 |                   |  | $ | 21,102           |  |  | $ | 26,076 | 
|Gross margin                   |  |               | 12,495 |  |              |   | 7,713  |                   |  |   | 14,066           |  |  |   | 16,803 | 
|Income from operations         |  |               | 6,474  |  |              |   | 784    |                   |  |   | 7,501            |  |  |   | 7,922  | 
|Net income before income taxes |  |               | 6,313  |  |              |   | 665    |                   |  |   | 7,389            |  |  |   | 7,777  | 



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##### Table of Contents

HIGHER ONE HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements(Continued)

December 31, 2010

(In thousands of dollars, except share and per share
amounts)



|                             |  |  |       |  |  |  |      |  |  |  |       |  |  |  |       | 
|---------------------------- |  |  | ----- |  |  |  | ---- |  |  |  | ----- |  |  |  | ----- | 
|Net income                   |  |  | 4,046 |  |  |  | 413  |  |  |  | 4,793 |  |  |  | 4,967 | 
|Basic net income per share   |  |  | 0.09  |  |  |  | 0.01 |  |  |  | 0.10  |  |  |  | 0.10  | 
|Diluted net income per share |  |  | 0.08  |  |  |  | 0.01 |  |  |  | 0.09  |  |  |  | 0.09  | 

The Company has
revised its consolidated statements of operations for immaterial errors for the year ended December 31, 2009 and its quarterly results during the years ended December 31, 2009 and 2010 to increase account revenue and cost of revenue for
certain interchange income which was previously reflected as a reduction in cost of revenue, rather than as account revenue. This revision has no impact on the Companys gross margin, net income or cash flows. This error was inconsequential for
the year ended December 31, 2008.

Account revenue and cost of revenue were each increased by $2,089 for the year ended
December 31, 2009. Account revenue and cost of revenue were each increased by $435, $294, $599 and $761 for the quarters ended March 31, 2009, June 30, 2009, September 30, 2009 and December 31, 2009, respectively.
Account revenue and cost of revenue were each increased by $1,302, $809 and $1,341 for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, respectively. The Company has also revised its 2009 consolidated
financial statements to adjust a misclassification of its deferred tax liability at December 31, 2009.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Financial Statements

for the year ended March 31, 2009 and the nine months ended March 31, 2008



---

##### Table of Contents

Independent Auditors Report

The Board of Directors and Stockholders

of
Informed Decisions Corporation

We have audited the accompanying balance sheets of Informed Decisions Corporation dba CASHNet
as of March 31, 2009 and 2008, and the related statements of operations and retained earnings (accumulated deficit), and cash flows for the year ended March 31, 2009 and for the nine months ended March 31, 2008. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The Company is not required to have, nor have we been engaged to perform, an audit of the Companys internal control over financial reporting. An audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Informed
Decisions Corporation dba CASHNet as of March 31, 2009 and 2008, and the results of its operations and its cash flows for the year ended March 31, 2009 and for the nine months ended March 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 11 to the financial statements, certain
errors resulting in the understatement of deferred revenue and deferred costs as of March 31, 2009 and 2008, and overstatement of professional services and other revenue and cost of sales for the year ended March 31, 2009 and the nine
months ended March 31, 2008 were discovered by management of the Company in the subsequent period. Accordingly, the accompanying balance sheets and the related statements of operations and retained earnings (accumulated deficit) and cash flows
have been restated to correct the errors.

As described in Note 12 to the financial statements, the Company was acquired by
another entity effective November 19, 2009.

/s/ Burr Pilger Mayer, Inc.

Walnut Creek, California

March 16, 2010



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Balance Sheets

March 31, 2009 and 2008



|                                                                                                                   |  |                             |            |   |                             |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | --------------------------- | - | ---------- | -
|                                                                                                                   |  | March 31, 2009(as restated) |            |   | March 31, 2008(as restated) |  
|Assets                                                                                                             |  |                             |            |   |                             |   |            |  
|Current assets:                                                                                                    |  |                             |            |   |                             |   |            |  
|Cash                                                                                                               |  | $                           | 1,542,973  |   |                             | $ | 2,563,348  |  
|Depository accounts, net                                                                                           |  |                             | 728,874    |   |                             |   | 492,787    |  
|Accounts receivable, net                                                                                           |  |                             | 2,456,176  |   |                             |   | 1,852,881  |  
|Inventory                                                                                                          |  |                             | 7,872      |   |                             |   | 7,872      |  
|Prepaid expenses                                                                                                   |  |                             | 127,035    |   |                             |   | 177,135    |  
|Deferred costscurrent                                                                                             |  |                             | 669,358    |   |                             |   | 293,086    |  
|Deferred taxescurrent                                                                                             |  |                             | 320,000    |   |                             |   | 90,000     |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total current assets                                                                                               |  |                             | 5,852,288  |   |                             |   | 5,477,109  |  
|Property and equipment, net                                                                                        |  |                             | 111,129    |   |                             |   | 111,028    |  
|Computer software development costs, net                                                                           |  |                             | 446,667    |   |                             |   | 606,655    |  
|Assets held for sale                                                                                               |  |                             | 225,000    |   |                             |   | 225,000    |  
|Deferred costslong term                                                                                           |  |                             | 1,383,603  |   |                             |   | 835,197    |  
|Deferred taxeslong term                                                                                           |  |                             | 72,000     |   |                             |   | 92,100     |  
|Other assets                                                                                                       |  |                             | 15,612     |   |                             |   | 32,038     |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total assets                                                                                                       |  | $                           | 8,106,299  |   |                             | $ | 7,379,127  |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Liabilities and Stockholders Equity (Deficit)                                                                     |  |                             |            |   |                             |   |            |  
|Current liabilities:                                                                                               |  |                             |            |   |                             |   |            |  
|Accounts payable                                                                                                   |  | $                           | 158,965    |   |                             | $ | 148,365    |  
|Accrued expenses                                                                                                   |  |                             | 1,031,581  |   |                             |   | 698,929    |  
|Related party payable                                                                                              |  |                             | 102,605    |   |                             |   | 1,805,353  |  
|Deferred revenue-current                                                                                           |  |                             | 6,009,220  |   |                             |   | 3,764,297  |  
|Current portion of notes payable                                                                                   |  |                             | 37,774     |   |                             |   | 26,067     |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total current liabilities                                                                                          |  |                             | 7,340,145  |   |                             |   | 6,443,011  |  
|Deferred revenuelong term                                                                                         |  |                             | 1,098,147  |   |                             |   | 646,825    |  
|Note payable to stockholder                                                                                        |  |                             | 13,772     |   |                             |   | 13,418     |  
|Notes payable                                                                                                      |  |                             | 12,205     |   |                             |   | 9,767      |  
|Deferred rent                                                                                                      |  |                             | 28,033     |   |                             |   | 44,138     |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total liabilities                                                                                                  |  |                             | 8,492,302  |   |                             |   | 7,157,159  |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Commitments, contingencies, and subsequent events (Note 10 and 12)                                                 |  |                             |            |   |                             |   |            |  
|                                                                                                                   |  |                            
|Stockholders equity (deficit):                                                                                    |  |                             |            |   |                             |   |            |  
|Convertible preferred stock, no par value, 100,000 shares authorized, 1,240 shares Series A issued and
outstanding |  |                             | 1,240,000  |   |                             |   | 1,240,000  |  
|Convertible preferred stock Series A note receivable                                                               |  |                             | (1,030,000 | ) |                             |   | (1,240,000 | )
|Common stock, no par value, 900,000 shares authorized, 100,000 shares issued and outstanding                       |  |                             | 50,000     |   |                             |   | 50,000     |  
|Additional paid in capital                                                                                         |  |                             | 44,073     |   |                             |   | 44,073     |  
|Retained earnings (accumulated deficit)                                                                            |  |                             | (690,076   | ) |                             |   | 127,895    |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total stockholders equity (deficit)                                                                               |  |                             | (386,003   | ) |                             |   | 221,968    |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  
|Total liabilities and stockholders equity (deficit)                                                               |  | $                           | 8,106,299  |   |                             | $ | 7,379,127  |  
|                                                                                                                   |  |                             |            |   |                             |   |            |  

The accompanying notes are an integral part of this financial statement.



F-37



---

##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Statements of Operations and Retained Earnings (Accumulated Deficit)

for the year ended March 31, 2009 and for the nine months ended March 31, 2008



|                                                                          |  |                                       |            |   |                                              |   |           |  
|------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | -------------------------------------------- | - | --------- | -
|                                                                          |  | Year endedMarch 31, 2009(as restated) |            |   | Nine months endedMarch 31, 2008(as restated) |  
|Revenue:                                                                  |  |                                       |            |   |                                              |   |           |  
|SmartPay service charge                                                   |  | $                                     | 10,220,305 |   |                                              | $ | 6,800,185 |  
|License and subscription                                                  |  |                                       | 4,168,431  |   |                                              |   | 2,199,046 |  
|Professional services and other                                           |  |                                       | 527,594    |   |                                              |   | 240,257   |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Total revenue                                                             |  |                                       | 14,916,330 |   |                                              |   | 9,239,488 |  
|Cost of revenues                                                          |  |                                       | 11,307,363 |   |                                              |   | 6,991,812 |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Gross profit                                                              |  |                                       | 3,608,967  |   |                                              |   | 2,247,676 |  
|Sales and marketing expense                                               |  |                                       | 2,831,339  |   |                                              |   | 1,258,921 |  
|General and administrative expense                                        |  |                                       | 1,774,853  |   |                                              |   | 840,174   |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Operating (loss) income                                                   |  |                                       | (997,225   | ) |                                              |   | 148,581   |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Other (expense) income:                                                   |  |                                       |            |   |                                              |   |           |  
|Interest income                                                           |  |                                       | 30,000     |   |                                              |   | 85,415    |  
|Interest expense                                                          |  |                                       | (5,658     | ) |                                              |   | (3,120    | )
|Other Expense                                                             |  |                                       | (40,010    | ) |                                              |   |          |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Total other (expense) income, net                                         |  |                                       | (15,668    | ) |                                              |   | 82,295    |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Net (loss) income before income taxes                                     |  |                                       | (1,012,893 | ) |                                              |   | 230,876   |  
|Benefit from income taxes                                                 |  |                                       | 194,922    |   |                                              |   | 9,942     |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Net (loss) income                                                         |  |                                       | (817,971   | ) |                                              |   | 240,818   |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Beginning retained earnings (accumulated deficit), as previously reported |  |                                       | (112,994   | ) |                                              |   | (112,923  | )
|Less-prior period adjustments                                             |  |                                       | 240,889    |   |                                              |   |          |  
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Beginning retained earnings (accumulated deficit), as restated            |  |                                       | 127,895    |   |                                              |   | (112,923  | )
|                                                                          |  |                                       |            |   |                                              |   |           |  
|Ending retained earnings (accumulated deficit)                            |  | $                                     | (690,076   | ) |                                              | $ | 127,895   |  
|                                                                          |  |                                       |            |   |                                              |   |           |  

The accompanying notes are an integral part of these financial statement.



F-38



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Statements of Cash Flows

for the year ended March 31, 2009 and the nine months ended March 31, 2008



|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | -------------------------------------------- | - | ---------- | -
|                                                                                                   |  | Year EndedMarch 31, 2009(as restated) |            |   | Nine months endedMarch 31, 2008(as restated) |  
|Cash flows from operating activities:                                                              |  |                                       |            |   |                                              |   |            |  
|Net (loss) income                                                                                  |  | $                                     | (817,971   | ) |                                              | $ | 240,818    |  
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |                                       |            |   |                                              |   |            |  
|Depreciation and amortization                                                                      |  |                                       | 230,761    |   |                                              |   | 123,187    |  
|(Increase) decrease in:                                                                            |  |                                       |            |   |                                              |   |            |  
|Depository accounts, net                                                                           |  |                                       | 247,492    |   |                                              |   | (172,826   | )
|Accounts receivable, net                                                                           |  |                                       | (603,295   | ) |                                              |   | (1,111,382 | )
|Inventories                                                                                        |  |                                       |           |   |                                              |   | 4,615      |  
|Prepaid expenses and other current asset                                                           |  |                                       | 20,099     |   |                                              |   | (71,776    | )
|Deferred Deployment Cost                                                                           |  |                                       | (678,281   | ) |                                              |   | (662,730   | )
|Deferred taxes                                                                                     |  |                                       | (209,900   | ) |                                              |   |           |  
|Other assets                                                                                       |  |                                       | 16,426     |   |                                              |   | 36         |  
|Increase (decrease) in:                                                                            |  |                                       |            |   |                                              |   |            |  
|Accounts payable                                                                                   |  |                                       | (472,978   | ) |                                              |   | 227,220    |  
|Related party payable                                                                              |  |                                       | (1,702,748 | ) |                                              |   | 461,043    |  
|Accrued expenses                                                                                   |  |                                       | 332,652    |   |                                              |   | 138,668    |  
|Deferred rent                                                                                      |  |                                       | (16,105    | ) |                                              |   | (8,597     | )
|Deferred revenue                                                                                   |  |                                       | 2,449,848  |   |                                              |   | 1,318,907  |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Net cash (used in) provided by operating activities                                                |  |                                       | (1,204,000 | ) |                                              |   | 487,183    |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Cash flows from investing activities:                                                              |  |                                       |            |   |                                              |   |            |  
|Cash payments for equipment and capitalized software                                               |  |                                       | (70,874    | ) |                                              |   | (71,357    | )
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Net cash used in investing activities                                                              |  |                                       | (70,874    | ) |                                              |   | (71,357    | )
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Cash flows from financing activities:                                                              |  |                                       |            |   |                                              |   |            |  
|Proceeds from issuance of debt                                                                     |  |                                       | 50,000     |   |                                              |   | 25,000     |  
|Principal payments on debt and capital leases                                                      |  |                                       | (35,501    | ) |                                              |   | (24,657    | )
|Collections on preferred stock note receivable                                                     |  |                                       | 240,000    |   |                                              |   |           |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Net cash provided by financing activities                                                          |  |                                       | 254,499    |   |                                              |   | 343        |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Net (decrease) increase in cash                                                                    |  |                                       | (1,020,375 | ) |                                              |   | 416,169    |  
|Cash, beginning of period                                                                          |  |                                       | 2,563,348  |   |                                              |   | 2,147,179  |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Cash, end of period                                                                                |  | $                                     | 1,542,973  |   |                                              | $ | 2,563,348  |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Supplemental cash flow informationcash paid for:                                                  |  |                                       |            |   |                                              |   |            |  
|Interest expense                                                                                   |  | $                                     | 5,653      |   |                                              | $ | 2,109      |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Income taxes                                                                                       |  | $                                     | 7,719      |   |                                              | $ | 30,000     |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  
|Noncash investing and financing activities:                                                        |  |                                       |            |   |                                              |   |            |  
|Capitalized software financed by unpaid accounts payable                                           |  | $                                     |           |   |                                              | $ | 508,778    |  
|                                                                                                   |  |                                       |            |   |                                              |   |            |  

The accompanying notes are an integral part of these financial statements.



F-39



---

##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes To Financial Statements

1. Summary of Significant Accounting Policies

General

Informed Decisions Corporation (the Company) provides hosted software solutions, services
and best practices training to colleges, universities and health networks. The Company offers a suite of products, called
CASHNet®, that automate cashiering, payment processing, billing, and tracking and enable on-line bill
presentment and payment functions for the institutions served in an installed or hosted environment. The Company provides customers with a single repository of information for all payments and tender types. The Company offers an ASP electronic
payment processing solution, called CASHNet® SmartPay, to clients that enables their customers to make payments
via credit card or electronic check. The Companys clients are primarily colleges and universities, including two-year, four-year, public, and private institutions, across the country. The Company has been in business since 1983 and is
headquartered in California, with remote sales or support personnel in New Mexico, New York, Maryland, Oregon, and Florida. The Company currently operates under the name Informed Decisions Corporation dba CASHNet®.

The CASHNet® suite of products and services automate cashiering,
payment processing, and on-line bill presentment and payment functions for the institutions it serves. In 2004 the Company decided to focus exclusively on its array of hosted solutions and currently only provides installed solutions to a few
customers. The Companys hosted ASP payment processing solution, CASHNet.com®, provides the safest and
easiest way to manage and control payments on the college and university campus. The CASHNet.com® service
includes the Companys outsourced third-party payment service, CASHNet® SmartPay, which has been in the
market since May 2000.

As described in Note 12, The Company was acquired by another entity effective November 19, 2009.

Revenue Recognition and Deferred Revenue

The Company derives its revenues primarily from three sources: (1) License and subscription revenues for managed
services which are comprised of fees from customers accessing its on demand application service,
(2) CASHNet® SmartPay, and (3) related professional services including implementation fees associated
with the initial deployment of our services and minor equipment sales.

The Company recognizes revenue when all of the
following conditions are met: (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the service has been provided to the customer, (iii) the price to the customer is fixed or determinable, and
(iv) collection of the revenues is probable. The Companys arrangements do not contain general rights of return or refund privileges.

License and subscription revenues are recognized ratably over the contract terms beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable
and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Revenue from
CASHNet® SmartPay is recognized monthly and reflects the Service Charge on the items paid by our clients
customers via our service.

A few older customer subscription agreements for which we provide installed solutions versus
hosted solutions, required us to provide future enhancements. In these situations, the Company recognized its subscription services revenue using a Proportional Performance Model and did not defer subscription service revenue when such contract
provisions existed because the customer was receiving ongoing service and the potential future enhancements were considered inconsequential and had no impact on the products current functionality.

Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately when these
services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenues are recognized as the services are rendered for time and material
contracts, and when the service projects are complete for fixed price contracts. For professional fees associated with the initial deployment of our services, the revenues and related direct costs are initially deferred and are recognized ratably
over the contract terms beginning on the commencement date of the license and subscription (which generally approximate five years). See Note 2 for additional information regarding the Companys billing policies and deferred revenue.



F-40



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



As of March 31, 2009 and 2008, total deferred revenues were $7,107,374 and
$4,411,122, respectively, of which $6,009,227 and $3,764,297, respectively, were classified as current liabilities.

Cash, Cash Equivalents, and Depository Cash Accounts

The Company considers all highly liquid debt instruments with maturities of three (3) months or less to be cash equivalents. No cash
equivalents existed at March 31, 2009 and 2008.

The Companys services include accepting credit card payments from
students for tuition payments made online through the Companys SmartPay product. The tuition payments are deposited into bank accounts controlled by the Company (the depository accounts) and each client has its own separate account. Under the
agreements made with the participating universities, the Company guarantees that the tuition payments will be remitted to the university within ten days of receipt. Funds not yet remitted to the universities are treated as a reduction in the
depository account balance. As of March 31, 2009 and 2008 those amounts totaled approximately $2.8 million and $3.3 million. Included in the net depository cash accounts are funds to be remitted to the credit card companies for processing fees,
the Companys last month of SmartPay revenue which is remitted shortly after month end and the Companys contribution to open the account.

Concentration of Credit Risk

The Company maintains its operating
cash balances at one financial institution. Accounts at the institution are insured by the Federal Deposit Insurance Corporation up to a certain amount. Such deposits may be in excess of the amount of the insurance provided by the federal government
on such deposits. To date, the Company has not experienced any losses on such deposits.

The Companys SmartPay
depository accounts, one for each client, are also maintained at the same major financial institution. For insurance purposes, the balances in these accounts are considered to be the property of the student until transferred to the respective
university. The bank insures each students deposit individually, rather than insuring the balance of the account as a whole.

No customer accounted for more than 10% of accounts receivable as of March 31, 2009 and 2008.

Inventory

Inventory consists of Hot Swap finished goods and are
stated at the lower of cost (first-in, first-out) or market value.

Property and Equipment

All assets are carried at cost. Expenditures for furniture and other equipment over $200 and for computer equipment over $500 are
capitalized. The Company provides for depreciation of assets over their useful lives of between two and five years for all assets, on a straight-line basis.

Computer Software Development Costs and Research and Development

Development costs related to software products to be sold are expensed as incurred as research and development until technological
feasibility of the product has been established. Software development costs incurred after technological feasibility is reached, and before release to customers, are capitalized to the degree the amounts are material. Commencing in fiscal year 2005
the Company began capitalizing the costs related to certain employee compensation and outside consultants directly associated with various new products developed for internal use in their hosted software solution. Total costs associated with
research and development activities, primarily employee compensation and consulting costs, during the year ended March 31, 2009 and for the nine months ended March 31, 2008 totaled $1,361,182 and $577,620, respectively, and is included in
cost of revenues.

As of March 31, 2009 and 2008, $1,015,241 of software development costs has been capitalized. These
costs were incurred through consulting agreements with related parties (see note 4). These costs are being amortized over the revenue producing lives of the products, estimated to be five years. Amortization of the product development costs
commences upon the products release. The amortization expense for the year ended March 31, 2009 and for the nine



F-41



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



months ended March 31, 2008 totaled $159,988 and $72,831, respectively. The accumulated amortization at March 31, 2009 and 2008 totaled $343,574 and $183,586, respectively.

Impairment of Long-Lived Assets

Long-lived assets, including computer software development costs held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Determination of recoverability of long-lived is based upon an estimate of undiscounted future cash flows resulting from the use of the asset. Measurement of an impairment loss for long lived assets that management expects to
hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying value of fair value less costs to sell. As of March 31, 2009 and 2008, the Company does not believe that any
long-lived assets are impaired.

Deferred Costs

Direct costs, primarily payroll related, pertaining to the initial deployment of our services are initially deferred and are recorded as
expense ratably over the contract terms beginning on the commencement date of the license and subscription. The deferred costs are amortized over the same five year period in which deferred deployment revenue is recognized. As of March 31, 2009
and 2008, total deferred costs were $2,052,961 and $1,128,283, respectively, of which $669,358 and $293,086, respectively, were classified as current assets.

Income Taxes

Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

The Company adopted accounting for uncertainties in income taxes effective April 1, 2009.

Use of Estimates

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

Discontinued Operations

As described in Note 12 to the financial statements, in connection with the sale of the Company in November 2009, the Company distributed
a technology asset to the stockholders of the Company that had a book value of approximately $225,000 and had been previously acquired from a related party in March 2008. The asset qualifies as a separate business component. The Company undertook
limited activity of this asset until April 2009, thus there is no separate operating activity to be reported as discontinued operations for the periods ended March 31, 2009 and 2008. The technology asset of $225,000 has been reflected on the
balance sheet at March 31, 2009 and 2008 as asset held for sale.

2. Accounts Receivable



|                                              |  |                |           |   |                |   |           |  
|--------------------------------------------- |  | -------------- | --------- | - | -------------- | - | --------- | -
|                                              |  | March 31, 2009 |           |   | March 31, 2008 |  
|                                              |  |               
|Accounts receivable consist of the following: |  |                |           |   |                |   |           |  
|Accounts receivable                           |  | $              | 2,903,637 |   |                | $ | 2,144,846 |  
|Less allowance for discounts                  |  |                | (447,461  | ) |                |   | (291,965  | )
|                                              |  |                |           |   |                |   |           |  
|                                              |  | $              | 2,456,176 |   |                | $ | 1,852,881 |  
|                                              |  |                |           |   |                |   |           |  



F-42



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



The Company performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for credit losses based upon its estimates and such losses have not been material. Therefore, management has not recorded an allowance for doubtful accounts. If amounts become uncollectible, they
will be charged to operations when that determination has been made. Actual credit losses may differ from estimates and such differences could be material to the financial statements. The Company allows a 20% discount on renewal annuity maintenance
contracts that are paid within a certain time frame. The Company bills renewal subscriptions up to 90 days in advance of subscription period commencement and records the amount in deferred revenue. Customers are obligated to cancel 90 days prior to
their anniversary/renewal date or they are liable for the next years license fee.

3. Property and Equipment

Property and equipment is summarized as follows:



|                              |  |                |          |   |                |   |          |  
|----------------------------- |  | -------------- | -------- | - | -------------- | - | -------- | -
|                              |  | March 31, 2009 |          |   | March 31, 2008 |  
|Computer equipment            |  | $              | 448,114  |   |                | $ | 398,704  |  
|Furniture and fixtures        |  |                | 86,635   |   |                |   | 65,171   |  
|Other equipment               |  |                | 94,734   |   |                |   | 94,734   |  
|                              |  |                |          |   |                |   |          |  
|Subtotal                      |  |                | 629,483  |   |                |   | 558,609  |  
|Less accumulated depreciation |  |                | (518,354 | ) |                |   | (447,581 | )
|                              |  |                |          |   |                |   |          |  
|                              |  | $              | 111,129  |   |                | $ | 111,028  |  
|                              |  |                |          |   |                |   |          |  

Depreciation expense was $70,773 for the year ended March 31, 2009 and $50,356 for the nine months
ended March 31, 2008.

4. Related Party Transactions

The Company has a loan agreement with its 49% stockholder that carries an interest rate of 9% and is due in June 2010. The Company is currently paying periodic monthly installments of $1,500 on this note.



|                                          |  |                |        |   |                |   |         |  
|----------------------------------------- |  | -------------- | ------ | - | -------------- | - | ------- | -
|                                          |  | March 31, 2009 |        |   | March 31, 2008 |  
|Notes payableStockholder                 |  | $              | 20,003 |   |                | $ | 28,134  |  
|Less current portion                      |  |                | (6,231 | ) |                |   | (14,716 | )
|                                          |  |                |        |   |                |   |         |  
|Total notes payable less current portions |  | $              | 13,772 |   |                | $ | 13,418  |  
|                                          |  |                |        |   |                |   |         |  

The accrued interest on this note, included in accrued expenses, was $9,869 and $18,136 at March 31,
2009 and 2008, respectively. The Company incurred interest expense on the note payable to the stockholder of $1,941 and $1,025 during the year ended March 31, 2009 and for the nine months ended March 31, 2008, respectively.

The Company has worked with its 51% majority stockholder under a technology consulting agreement to perform various software development
and research, some which is performed outside the United States.

For the year ended March 31, 2009 and for the nine
months ended March 31, 2008, the Company incurred fees of $1,070,660 and $727,821, respectively, from the related entity of which $0 and $253,778, respectively, have been capitalized in Computer Software Development Costs and the
balance recorded in cost of goods sold.

The Companys 51% stockholder also controls other entities whose operations are
similar to those of the Company. During March, 2008 the Company paid one of these entities for a software product. As described in Note 12, this software product was distributed to the stockholders in connection with the acquisition of the Company
effective November 19, 2009. At March 31, 2009 and 2008 the net book value of the asset is $225,000 and classified as an asset held for sale.

In May 2006, the Company entered into a hosting and MIS services support agreement with the 51% majority stockholder. The agreement requires a monthly fee of approximately $7,250 plus additional fees. The
agreement can be cancelled by providing a 30 day notice. For the year ended March 31, 2009 and the nine months ended March 31, 2008,



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Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



the Company incurred approximately $95,250 and $144,500, respectively, of expense associated with this agreement and such costs are included in cost of goods sold.

As of March 31, 2009 and 2008, $102,605 and $1,805,353, respectively, remains unpaid to the majority stockholder and an affiliate
company for such services. No interest is being charged on the unpaid balance.

5. Line of Credit

On September 5, 2007, the Company obtained a revolving line of credit with a bank for borrowings up to $300,000. The line of credit
expired in August 2008 and was not renewed. There were no outstanding balances as of March 31, 2009 and 2008.

6. Notes Payable

On September 5, 2007, the Company borrowed $25,000 from a financial institution bearing a fixed interest rate of
8.75%. The loan is secured by the assets of the Company and is payable in monthly installments of principal and interest, and matures in March 2010.

On April 10, 2008, the Company borrowed $50,000 from the same financial institution bearing a fixed interest rate of 6%. The loan is secured by the assets of the Company and is payable in monthly
installments of principal and interest, and matures in September 2010.

Notes payable comprise the following as of:



|                                         |  |                |         |   |                |   |         |  
|---------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------- | -
|                                         |  | March 31, 2009 |         |   | March 31, 2008 |  
|Note payable                             |  | $              | 11,354  |   |                | $ | 21,118  |  
|Note payable                             |  |                | 32,394  |   |                |   |        |  
|                                         |  |                |         |   |                |   |         |  
|Total notes payable                      |  |                | 43,748  |   |                |   | 21,118  |  
|Less current portion                     |  |                | (31,543 | ) |                |   | (11,351 | )
|                                         |  |                |         |   |                |   |         |  
|Total notes payable less current portion |  | $              | 12,205  |   |                | $ | 9,767   |  
|                                         |  |                |         |   |                |   |         |  

Future minimum payments on the notes payable are as follows:



|                     |  |   |        | 
|-------------------- |  | - | ------ | 
|For the year ending: |  |   |        | 
|2010                 |  | $ | 31,543 | 
|2011                 |  |   | 12,205 | 
|                     |  |   |        | 
|                     |  | $ | 43,748 | 
|                     |  |   |        | 

7. Equity

In October 2005, the Companys sole stockholder sold 51% of his common stock. In connection with that transaction, the Companys articles of incorporation were amended, authorizing 100,000
shares of preferred stock. Simultaneously the Companys new majority stockholder entered into an agreement to purchase 1,240 shares of Series A preferred stock for $1,240,000 from the Company. The purchase price for the stock was evidenced by a
promissory note. The promissory note bore interest at 8% and was due in full on September 30, 2008. The Note was paid in full in October of 2008. No interest was paid and no interest has been accrued as of March 31, 2009.

In September 2008, the Company advanced funds and issued a note receivable to the majority stockholder for $1,000,000. The note bears
interest rate of prime plus 1%. Principal and accrued interests are due in October 2009. As of March 31, 2009, the balance of the note and accrued interest receivable is $1,000,000 and $30,000 respectively. As described in Note 12, this note
receivable was settled in connection with the acquisition of the company effective November 19, 2009. For purposes of financial statements presentation, the subsequent issuance of this note is considered to be an extension of the above
mentioned $1.24 million note and is treated as a contra equity account.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



The holders of Series A preferred shares are entitled to certain liquidation preferences
upon liquidation or dissolution of the Company before any assets are distributed to the holders of common stock. The Series A preferred stock also contains certain provisions which allow or require the shares to be converted to common stock upon
certain events, such as a public offering raising more than $5 million. Additionally, the Series A preferred shares are entitled to receive cumulative annual dividends of $0.05 per share if dividends are declared by the board of directors. No such
dividends have been declared. The Series A preferred shares have no voting rights and are not redeemable. As described in Note 12, the Series A preferred shares were redeemed in connection with the acquisition of the Company effective
November 19, 2009.

As of March 31, 2009 and 2008, there was one stock option outstanding, originally issued in
1995, allowing the holder to purchase 2,500 shares of common stock for $1.50 per share. The option has no expiration date, is fully vested and is not part of a formal stock option plan. As described in Note 12, this stock option was repurchased in
conjunction with the acquisition of the Company effective November 19, 2009.

8. Provision for Income Taxes

The provision (benefit) for income taxes consists of the following:



|                                                |  |                |          |   |                |   |         |  
|----------------------------------------------- |  | -------------- | -------- | - | -------------- | - | ------- | -
|                                                |  | March 31, 2009 |          |   | March 31, 2008 |  
|                                                |  |               
|Current:                                        |  |                |          |   |                |   |         |  
|Federal tax                                     |  | $              | (1,352   | ) |                | $ | (10,742 | )
|State tax                                       |  |                | 16,330   |   |                |   | 800     |  
|                                                |  |                |          |   |                |   |         |  
|Subtotal                                        |  |                | 14,978   |   |                |   | (9,942  | )
|                                                |  |                |          |   |                |   |         |  
|Deferred tax:                                   |  |                |          |   |                |   |         |  
|Federal                                         |  |                | (209,900 | ) |                |   |        |  
|State                                           |  |                |         |   |                |   |        |  
|                                                |  |                |          |   |                |   |         |  
|Subtotal                                        |  |                | (209,900 | ) |                |   |        |  
|                                                |  |                |          |   |                |   |         |  
|Total (benefit from) provision for income taxes |  | $              | (194,922 | ) |                | $ | (9,942  | )
|                                                |  |                |          |   |                |   |         |  

A summary of net deferred tax assets is as follows:



|                      |  |                |          |   |                |   |         |  
|--------------------- |  | -------------- | -------- | - | -------------- | - | ------- | -
|                      |  | March 31, 2009 |          |   | March 31, 2008 |  
|                      |  |               
|Loss carryforwards    |  | $              | 598,460  |   |                | $ | 171,720 |  
|Tax credits           |  |                | 227,711  |   |                |   | 197,446 |  
|Reserves and accruals |  |                | 50,540   |   |                |   | 40,280  |  
|Deployment costs, net |  |                | (170,000 | ) |                |   | (84,000 | )
|Depreciation          |  |                | (120,000 | ) |                |   | (75,000 | )
|                      |  |                |          |   |                |   |         |  
|                      |  |                | 586,711  |   |                |   | 250,446 |  
|Valuation allowance   |  |                | (194,711 | ) |                |   | (68,346 | )
|                      |  |                |          |   |                |   |         |  
|Net deferred tax      |  | $              | 392,000  |   |                | $ | 182,100 |  
|                      |  |                |          |   |                |   |         |  

The valuation allowance increased by $126,365 for the year ended March 31, 2009 and decreased by
$50,554 for the nine months ended March 31, 2008. As of March 31, 2009 and 2008, $320,000 and $90,000, respectively, of the deferred tax assets are classified as a current asset as this is the portion expected to be used in the next fiscal
year. The remaining portion of the deferred tax asset, $72,000 and $92,100, has been classified as a long term asset. As a result of the equity transaction in October 2005 which resulted in a change of ownership, utilization of the loss carry
forwards and tax credits incurred prior to October 2005 are subject to severe limitations. The lengthy period of time required to realize the deferred tax assets creates uncertainty and thus necessitates a valuation allowance for a portion of the
deferred tax asset.

At March 31, 2009, the Company has net operating loss carry forwards of approximately $1,586,000 for
federal income tax purposes and $203,000 for state income tax purposes. The net operating loss carry forwards begin expiring in



F-45



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



2024 for federal income tax purposes and 2013 for state income tax purposes. At March 31, 2009, the Company had estimated R&D credit carryforwards of $123,000 for federal income tax
purposes and $89,000 for state income tax purposes. The credit carryforwards begin expiring in 2021 for federal tax purposes and have no expiration for state tax purposes.

As described in Note 12, the Company was acquired on November 19, 2009 and as result will no longer file separate tax returns subsequent to that date. Net operating losses available through
November 19, 2009 are expected to be used by the acquiring company based upon the terms of the transaction.

9. Operating Lease

The Company leases office facilities for its California headquarters. The lease is non-cancelable and it expires in May
2010. Future minimum rental payments required under the lease are $218,570.

Rent expense charged to operations was $189,928
and $135,982 for the year ended March 31, 2009 and the nine months ended March 31, 2008, respectively.

10. Commitments and
Contingencies

The Company has a retirement plan under Section 401(k) of the Internal Revenue Code and a profit
sharing plan. Substantially all full time employees are eligible to participate in the plans. Company contributions are discretionary. No contributions were made to the plans during the year ended March 31, 2009 and for the nine months ended
March 31, 2008.

The Company has entered into a contractual agreement with a telecommunications provider that will
provide data and telecommunication capabilities associated with its hosted software solutions. The agreement requires monthly payments of approximately $22,390 through October 2011. If the Company terminates the agreement prior to the autorenewal
date, a termination fee equal to 90% of future unpaid obligations would be due and payable.

The Company has entered into a
contractual agreement with a software provider (the Provider) that specializes in developing and licensing administrative software for educational institutions. The agreement required the Provider to create a product which would interface with the
Companys electronic payment services. As part of the agreement, the Provider and the Company will join their marketing efforts. Consideration for these services includes royalty fees ranging from 5% to 50% of the annual subscription fees
charged to each customer licensed under this arrangement. The term of the contract is for two years unless terminated sooner with a written notification.

In connection with the Companys SmartPay service charge income, they have entered into various agreements with the credit card companies that require the Company at the beginning of each month to
remit a fee based upon SmartPay service charge income collected. The fee paid to the credit card companies is included in cost of goods sold.

In the normal course of business, the Company may be involved in disputes over various issues, including its technology. The Company does not have any patents on its software products but vigorously
defends its legal rights and itself against all claims.

11. Correction of Errors and Reclassifications

As mentioned in Note 1, the revenues and costs for deployment are initially deferred and recognized ratably over the contract terms
beginning on the commencement date of the license and subscription. In the past, the Company erroneously recorded the fees and costs associated with the initial deployment of our services as revenues and expenses, respectively, on the commencement
date of the license and subscription (for revenues) and when incurred (for costs). Certain balances in the accompanying statements of operations were changed to conform with the correction of errors made. There was no impact on retained earnings
(accumulated deficit) for the periods prior to July 1, 2007.

The accompanying financial statements were restated to
correct the following errors related to deployment:



| |  |  | Overstatement of revenue totaling $678,282 and $421,841 and cost of goods sold totaling $924,679 and $662,730, which resulted in overstatement of net
loss by $246,390 and $240,888 for the year ended March 31, 2009 and the nine months ended March 31, 2008, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)



| |  |  | Understatement of deferred costs by $2,052,961 and $1,128,283 as of March 31, 2009 and 2008, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Understatement of deferred revenue by $1,565,675 and $887,394 as of March 31, 2009 and 2008, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Understatement of stockholders equity by $487,286 and $240,889 at March 31, 2009 and 2008.
| | - |  | ------------------------------------------------------------------------------------------

The Company changed its presentation of depository cash accounts from previously issued financial statements. The balance of depository
cash due to universities was previously included in the depository cash account balance with a corresponding depository cash liability. The balance of depository cash accounts is net of the amounts due to universities which approximates $2.8 million
and $3.3 million at March 31, 2009 and 2008.

As described in Note 7, a related party note receivable with principal and
accrued interest totaling $1,030,000 at March 31, 2009 has been reclassified from an asset to a contra equity account.

12. Business
AcquisitionSubsequent Event

Effective at the close of business on November 19, 2009, the stockholders of the
Company entered into a stock purchase agreement with Higher One Inc., a Delaware corporation (Higher One). The stock purchase agreement stipulates the terms and rights of all outstanding shares of the Company in exchange for current and future cash
consideration substantially in excess of the Companys current net book value. The agreement included several key provisions and actions which were undertaken by the Company in conjunction with and just prior to the closing of the
transaction. Such actions and key provisions are as follows:



| |  |  | The receipt of signed non-compete agreements from the Companys stockholders.
| | - |  | -----------------------------------------------------------------------------



| |  |  | Transition services agreements with key employees.
| | - |  | --------------------------------------------------



| |  |  | The Companys stockholders and Higher One have agreed to indemnify each other with respect to certain elements of the transaction. Such
indemnifications could result in the Companys stockholders receiving reduced future cash payments if claims are made by Higher One for certain matters, including any tax owed by the Company for periods prior to the closing date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Immediately prior to the closing, the transfer/distribution of a technology asset with a net book value of approximately $225,000, was completed to a
new entity owned and controlled by the Companys stockholders. The asset generated no revenue and the Company incurred minimal expenses associated with the asset prior to April 2009. The technology asset had previously been acquired from a
related party.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Redemption of the Companys issued and outstanding preferred stock in connection with the repurchase/exchange of the outstanding Preferred A stock
for the cancellation of a note receivable due from the majority stockholder. The book value of the preferred stock was $1,240,000 and the book value of the note receivable was $1,067,890 at the time of the exchange. The difference has been recorded
as an adjustment total stockholders equity prior to closing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Agreement between the Company and one employee to exchange the employees right to acquire 2,500 shares of common stock for a bonus related to
prior service. The payment of approximately $640,000 was accrued at November 19, 2009 and paid shortly thereafter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has evaluated all events occurring subsequent to March 31, 2009 through March 16, 2010 and with the exception of the items noted above, nothing has occurred outside of the normal
course of operations. The Company had originally issued their March 31, 2009 financial statements in April 2009 and has thus updated their evaluation based upon the reissuance of the financial statements.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Financial Statements

for the six months ended September 30, 2009 and 2008

(unaudited)



---

##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Balance Sheets

September 30, 2009 and 2008



|                                                                                                                   |  |                   |            |   |                   |   |            |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                                                                                   |  | September 30,2009 |            |   | September 30,2008 |  
|                                                                                                                   |  | (unaudited)       |            |   | (unaudited)       |  
|                                                                                                                   |  |                  
|Assets                                                                                                             |  |                   |            |   |                   |   |            |  
|Current assets:                                                                                                    |  |                   |            |   |                   |   |            |  
|Cash                                                                                                               |  | $                 | 1,379,646  |   |                   | $ | 2,525,557  |  
|Depository accounts, net                                                                                           |  |                   | 1,102,361  |   |                   |   | 940,124    |  
|Accounts receivable, net                                                                                           |  |                   | 2,111,109  |   |                   |   | 1,528,729  |  
|Inventory                                                                                                          |  |                   | 18,406     |   |                   |   | 7,871      |  
|Prepaid expenses                                                                                                   |  |                   | 185,059    |   |                   |   | 164,585    |  
|Deferred costscurrent                                                                                             |  |                   | 763,238    |   |                   |   | 434,573    |  
|Deferred taxescurrent                                                                                             |  |                   | 320,000    |   |                   |   | 210,000    |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total current assets                                                                                               |  |                   | 5,879,819  |   |                   |   | 5,811,439  |  
|Property and equipment, net                                                                                        |  |                   | 104,995    |   |                   |   | 124,256    |  
|Computer software development costs, net                                                                           |  |                   | 345,453    |   |                   |   | 543,630    |  
|Assets held for sale                                                                                               |  |                   | 225,000    |   |                   |   | 225,000    |  
|Deferred costslong term                                                                                           |  |                   | 1,700,368  |   |                   |   | 1,216,779  |  
|Deferred taxeslong term                                                                                           |  |                   | 72,000     |   |                   |   | 92,100     |  
|Other assets                                                                                                       |  |                   | 15,612     |   |                   |   | 15,612     |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total assets                                                                                                       |  | $                 | 8,343,247  |   |                   | $ | 8,028,816  |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Liabilities and Stockholders Deficit                                                                              |  |                   |            |   |                   |   |            |  
|Current liabilities:                                                                                               |  |                   |            |   |                   |   |            |  
|Accounts payable                                                                                                   |  | $                 | 74,683     |   |                   | $ | 63,881     |  
|Accrued expenses                                                                                                   |  |                   | 1,531,780  |   |                   |   | 1,027,964  |  
|Related party payable                                                                                              |  |                   | 86,528     |   |                   |   | 1,656,129  |  
|Deferred rent                                                                                                      |  |                   | 15,549     |   |                   |   | 36,296     |  
|Deferred revenue-current                                                                                           |  |                   | 7,191,587  |   |                   |   | 4,544,356  |  
|Current portion of notes payable                                                                                   |  |                   | 34,830     |   |                   |   | 37,789     |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total current liabilities                                                                                          |  |                   | 8,934,957  |   |                   |   | 7,366,415  |  
|Note to stockholder                                                                                                |  |                   | 13,772     |   |                   |   | 7,658      |  
|Notes Payable                                                                                                      |  |                   |           |   |                   |   | 32,952     |  
|Deferred revenuelong term portion                                                                                 |  |                   | 1,502,488  |   |                   |   | 925,048    |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total liabilities                                                                                                  |  |                   | 10,451,217 |   |                   |   | 8,332,073  |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Commitments, contingencies, and subsequent events (Note 10 and 12)                                                 |  |                   |            |   |                   |   |            |  
|                                                                                                                   |  |                  
|Stockholders deficit:                                                                                             |  |                   |            |   |                   |   |            |  
|Convertible preferred stock, no par value, 100,000 shares authorized, 1,240 shares Series A issued and
outstanding |  |                   | 1,240,000  |   |                   |   | 1,240,000  |  
|Less-convertible preferred stock Series A note receivable                                                          |  |                   | (1,030,000 | ) |                   |   | (1,240,000 | )
|Common stock, no par value, 900,000 shares authorized, 100,000 shares issued and outstanding                       |  |                   | 50,000     |   |                   |   | 50,000     |  
|Additional paid in capital                                                                                         |  |                   | 44,073     |   |                   |   | 44,073     |  
|Accumulated deficit                                                                                                |  |                   | (2,412,043 | ) |                   |   | (397,330   | )
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total stockholders deficit                                                                                        |  |                   | (2,107,970 | ) |                   |   | (303,257   | )
|                                                                                                                   |  |                   |            |   |                   |   |            |  
|Total liabilities and stockholders deficit                                                                        |  | $                 | 8,343,247  |   |                   | $ | 8,028,816  |  
|                                                                                                                   |  |                   |            |   |                   |   |            |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Statements of Operations and Accumulated Deficit

for the six months ended September 30, 2009 and 2008



|                                                             |  |                                   |            |   |                                   |   |           |  
|------------------------------------------------------------ |  | --------------------------------- | ---------- | - | --------------------------------- | - | --------- | -
|                                                             |  | Six months endedSeptember 30,2009 |            |   | Six months endedSeptember 30,2008 |  
|                                                             |  | (unaudited)                       |            |   | (unaudited)                       |  
|Revenue:                                                     |  |                                   |            |   |                                   |   |           |  
|SmartPay service charge                                      |  | $                                 | 6,978,734  |   |                                   | $ | 4,790,250 |  
|License and subscription                                     |  |                                   | 2,857,813  |   |                                   |   | 1,870,968 |  
|Professional Services and other                              |  |                                   | 318,665    |   |                                   |   | 233,645   |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Total Revenue                                                |  |                                   | 10,155,212 |   |                                   |   | 6,894,863 |  
|Cost of revenues                                             |  |                                   | 6,978,026  |   |                                   |   | 5,245,673 |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Gross profit                                                 |  |                                   | 3,177,186  |   |                                   |   | 1,649,190 |  
|Sales and marketing expense                                  |  |                                   | 1,536,561  |   |                                   |   | 1,380,405 |  
|General and administrative expense                           |  |                                   | 1,074,074  |   |                                   |   | 900,291   |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Operating income (loss)                                      |  |                                   | 566,551    |   |                                   |   | (631,506  | )
|                                                             |  |                                   |            |   |                                   |   |           |  
|Other expense:                                               |  |                                   |            |   |                                   |   |           |  
|Interest expense                                             |  |                                   | 2,178      |   |                                   |   | 2,990     |  
|Other expense                                                |  |                                   | 50,496     |   |                                   |   | 3,010     |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Total other expense                                          |  |                                   | 52,674     |   |                                   |   | 6,000     |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Net income (loss) before income taxes                        |  |                                   | 513,877    |   |                                   |   | (637,506  | )
|Benefit from income taxes                                    |  |                                   |           |   |                                   |   | 112,281   |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Net income (loss) from continuing operations                 |  |                                   | 513,877    |   |                                   |   | (525,225  | )
|(Loss) associated with discontinued operations               |  |                                   | (185,844   | ) |                                   |   |          |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Net income (loss)                                            |  |                                   | 328,033    |   |                                   |   | (525,225  | )
|Retained earnings (accumulated deficit), beginning of period |  |                                   | (690,076   | ) |                                   |   | 127,895   |  
|Less-cumulative impact of uncertain income taxes             |  |                                   | (50,000    | ) |                                   |   |          |  
|Less-dividends paid                                          |  |                                   | (2,000,000 | ) |                                   |   |          |  
|                                                             |  |                                   |            |   |                                   |   |           |  
|Accumulated deficit, end of period                           |  | $                                 | (2,412,043 | ) |                                   | $ | (397,330  | )
|                                                             |  |                                   |            |   |                                   |   |           |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Statements of Cash Flows

for the six months ended September 30, 2009 and September 30, 2008



|                                                        |  |                                    |            |   |                                    |   |           |  
|------------------------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | --------- | -
|                                                        |  | Six months endedSeptember 30, 2009 |            |   | Six months endedSeptember 30, 2008 |  
|                                                        |  | (unaudited)                        |            |   | (unaudited)                        |  
|Cash flows from operating activities:                   |  |                                    |            |   |                                    |   |           |  
|Net income (loss)                                       |  | $                                  | 328,033    |   |                                    | $ | (525,225  | )
|to net cash (used in) provided by operating activities: |  |                                    |            |   |                                    |   |           |  
|Depreciation and amortization                           |  |                                    | 127,502    |   |                                    |   | 102,226   |  
|(Increase) decrease in:                                 |  |                                    |            |   |                                    |   |           |  
|Depository accounts, net                                |  |                                    | (373,487   | ) |                                    |   | (447,338  | )
|Accounts receivable, net                                |  |                                    | 345,067    |   |                                    |   | 324,152   |  
|Inventories                                             |  |                                    | (10,534    | ) |                                    |   | 1         |  
|Prepaid expenses and other current asset                |  |                                    | (58,024    | ) |                                    |   | 12,550    |  
|Deferred Deployment                                     |  |                                    | 138,588    |   |                                    |   | (138,089  | )
|Deferred taxes                                          |  |                                    |           |   |                                    |   | (120,000  | )
|Other assets                                            |  |                                    |           |   |                                    |   | 16,426    |  
|Increase (decrease) in:                                 |  |                                    |            |   |                                    |   |           |  
|Accounts payable                                        |  |                                    | (84,282    | ) |                                    |   | (84,484   | )
|Related party payable                                   |  |                                    | (16,077    | ) |                                    |   | (149,224  | )
|Accrued expenses                                        |  |                                    | 450,199    |   |                                    |   | 329,035   |  
|Deferred rent                                           |  |                                    | (12,484    | ) |                                    |   | (7,842    | )
|Deferred revenue                                        |  |                                    | 1,037,470  |   |                                    |   | 673,302   |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Net cash (used in) provided by operating activities     |  |                                    | 1,871,971  |   |                                    |   | (14,510   | )
|                                                        |  |                                    |            |   |                                    |   |           |  
|Cash flows from investing activities:                   |  |                                    |            |   |                                    |   |           |  
|Cash payments for equipment and capitalized software    |  |                                    | (20,147    | ) |                                    |   | (52,429   | )
|                                                        |  |                                    |            |   |                                    |   |           |  
|Cash flows from financing activities:                   |  |                                    |            |   |                                    |   |           |  
|Proceeds from issuance of debt                          |  |                                    |           |   |                                    |   | 50,000    |  
|Principal payments on notes payable                     |  |                                    | (15,151    | ) |                                    |   | (20,852   | )
|Dividends                                               |  |                                    | (2,000,000 | ) |                                    |   |          |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Net cash provided by financing activities               |  |                                    | (2,015,151 | ) |                                    |   | 29,148    |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Net decrease in cash                                    |  |                                    | (163,327   | ) |                                    |   | (37,791   | )
|Cash, beginning of period                               |  |                                    | 1,542,973  |   |                                    |   | 2,563,348 |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Cash, end of period                                     |  | $                                  | 1,379,646  |   |                                    | $ | 2,525,557 |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Supplemental cash flow informationcash paid for:       |  |                                    |            |   |                                    |   |           |  
|Interest expense                                        |  | $                                  | 2,178      |   |                                    | $ | 2,990     |  
|                                                        |  |                                    |            |   |                                    |   |           |  
|Income taxes                                            |  | $                                  |           |   |                                    | $ |          |  
|                                                        |  |                                    |            |   |                                    |   |           |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements

(unaudited)

1. Summary of Significant Accounting Policies

Business

Informed Decisions Corporation (the Company) provides hosted software solutions, services and best practices training to colleges, universities and health networks. The Company offers a suite of
products, called CASHNet®, that automate cashiering, payment processing, billing, and tracking and enable
on-line bill presentment and payment functions for the institutions served in an installed or hosted environment. The Company provides customers with a single repository of information for all payments and tender types. The Company offers an ASP
electronic payment processing solution, called CASHNet® SmartPay, to clients that enables their customers to
make payments via credit card or electronic check. The Companys clients are primarily colleges and universities, including two-year, four-year, public, and private institutions, across the country. The Company has been in business since 1983
and is headquartered in California, with remote sales or support personnel in New Mexico, New York, Maryland, Oregon, and Florida. The Company currently operates under the name Informed Decisions Corporation dba CASHNet®.

The CASHNet® suite of products and services automate cashiering,
payment processing, and on-line bill presentment and payment functions for the institutions it serves. In 2004 the Company decided to focus exclusively on its array of hosted solutions and currently only provides installed solutions to a few
customers. The Companys hosted ASP payment processing solution, CASHNet.com®, provides the safest and
easiest way to manage and control payments on the college and university campus. The CASHNet.com® service
includes the Companys outsourced third-party payment service, CASHNet® SmartPay, which has been in the
market since May 2000. As described in Note 11, the Company was acquired by another entity effective November 19, 2009.

Revenue Recognition and Deferred Revenue

The Company derives its revenues primarily from three sources: (1) License and subscription revenues for managed
services which are comprised of fees from customers accessing its on demand application service,
(2) CASHNet® SmartPay, and (3) related professional services including implementation fees associated
with the initial deployment of our services and minor equipment sales.

The Company recognizes revenue when all of the
following conditions are met: (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the service has been provided to the customer, (iii) the price to the customer is fixed or determinable, and
(iv) collection of the revenues is probable. The Companys arrangements do not contain general rights of return or refund privileges.

License and subscription revenues are recognized ratably over the contract terms beginning on the commencement date of each contract. Amounts that have been invoiced are recorded in accounts receivable
and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Revenue from
CASHNet® SmartPay is recognized monthly and reflects the Service Charge on the items paid by our clients
customers via our service.

A few older customer subscription agreements for which we provide installed solutions versus
hosted solutions, required us to provide future enhancements. In these situations, the Company recognized its subscription services revenue using a Proportional Performance Model and did not defer subscription service revenue when such contract
provisions existed because the customer was receiving ongoing service and the potential future enhancements were considered inconsequential and had no impact on the products current functionality.

Professional services and other revenues, when sold with subscription and support offerings, are accounted for separately when these
services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value of each deliverable. When accounted for separately, revenues are recognized as the services are rendered for time and material
contracts, and when the service projects are complete for fixed price contracts. For professional fees associated with the initial deployment of our services, the revenues and related direct costs are initially deferred and are recognized ratably
over the contract terms beginning on the commencement date of the license and subscription (which generally approximate five years). See Note 2 for additional information regarding the Companys billing policies and deferred revenue.



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



As of September 30, 2009, total deferred revenue was $8,694,075, of which
$7,191,587 was classified as a current liability. As of September 30, 2008, total deferred revenue was $5,469,404, of which $4,544,356 was classified as a current liability.

Cash, Cash Equivalents, and Depository Cash Accounts

The Company considers all highly liquid debt instruments with maturities of three (3) months or less to be cash equivalents. No cash
equivalents existed at September 30, 2009 and 2008.

The Companys services include accepting credit card payments
from students for tuition payments made online through the Companys SmartPay product. The tuition payments are deposited into bank accounts controlled by the Company (the depository accounts) and each client has its own separate account. Under
the agreements made with the participating universities, the Company guarantees that the tuition payments will be remitted to the university within ten days of receipt. Funds not yet remitted to the universities are treated as a reduction in the
depository account balance. As of September 30, 2009 and 2008 those amounts totaled $3.6 million and $1.9 million. Included in the net depository cash accounts are funds to be remitted to the credit card companies for processing fees, the
Companys last month of SmartPay revenue which is remitted shortly after month end and the Companys contribution to open the account.

Concentration of Credit Risk

The Company maintains its operating
cash balances at one financial institution. Accounts at the institution are insured by the Federal Deposit Insurance Corporation up to a certain amount.

Such deposits may be in excess of the amount of the insurance provided by the federal government on such deposits. To date, the Company has not experienced any losses on such deposits.

The Companys SmartPay depository accounts, one for each client, are also maintained at the same major financial institution. For
insurance purposes, the balances in these accounts are considered to be the property of the student until transferred to the respective university. The bank insures each students deposit individually, rather than insuring the balance of the
account as a whole.

No customer accounted for more than 10% of accounts receivable as of September 30, 2009 and 2008.

Inventory

Inventory consists of Hot Swap finished goods and are stated at the lower of cost (first-in, first-out) or market value.

Property and Equipment

All assets are carried at cost. Expenditures
for furniture and other equipment over $200 and for computer equipment over $500 are capitalized. The Company provides for depreciation of assets over their useful lives of between two and five years for all assets, on a straight-line basis.

Computer Software Development Costs and Research and Development

Development costs related to software products to be sold are expensed as incurred as research and development until technological
feasibility of the product has been established. Software development costs incurred after technological feasibility is reached, and before release to customers, are capitalized to the degree the amounts are material. Commencing in fiscal year 2005
the Company began capitalizing the costs related to certain employee compensation and outside consultants directly associated with various new products developed for internal use in their hosted environment. Total costs associated with research and
development activities, primarily employee compensation and consulting costs, during the six months ended September 30, 2009 and 2008 totaled $523,470 and $643,685, respectively, and is included in cost of revenues.

As of September 30, 2009 and 2008, $1,015,241 of software development costs has been capitalized. These costs were incurred through
consulting agreements with related parties (see note 4). These costs are being amortized over the



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



revenue producing lives of the products, estimated to be five years. Amortization of the product development costs commences upon the products release. The amortization expense for the six months
ended September 30, 2009 and 2008 totaled $101,214 and $63,025, respectively. The accumulated amortization at September 30, 2009 and 2008 totaled $444,788 and $246,611, respectively.

Impairment of Long-Lived Assets

Long-lived assets, including computer software development costs held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable.

Determination of recoverability of long-lived is based upon an estimate of undiscounted future cash flows
resulting from the use of the asset. Measurement of an impairment loss for long lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying
value of fair value less costs to sell. As of September 30, 2009 and 2008, the Company does not believe that any long-lived assets are impaired.

Deferred Costs

Direct costs, primarily payroll related, pertaining
to the initial deployment of our services are initially deferred and are recorded as expense ratably over the contract terms beginning on the commencement date of the license and subscription. The deferred costs are amortized over the same five year
period in which deferred deployment revenue is recognized. As of September 30, 2009, total deferred costs were $2,463,606, of which $763,238 were classified as current assets. As of September 30, 2008, total deferred costs were $1,651,352,
of which $434,573 were classified as current assets.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Effective April 1, 2009, the Company adopted the provisions of the FASB interpretation for tax accounting of uncertainties in income
taxes. This standard clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements. It prescribes a recognition threshold and measurement standard for the financial statement recognition
and measurement of an income tax position taken or expected to be taken in a tax return. In addition, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Only
tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. Management has assessed the impact of its tax position based on its prior tax compliance practices and as a
result, it recognized approximately a $50,000 increase in liability for unrecognized tax benefits, which was accounted for subsequently as an increase to the April 1, 2009 balance of accumulated deficit.

Use of Estimates

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

Discontinued Operations

As described in Note 11 to the financial statements, in connection with the sale of the Company in November 2009, the Company distributed
a technology asset to the stockholders of the Company that had a book value of approximately $225,000 and had been previously acquired from a related party in March 2008. The asset qualifies as a separate business component. The Company undertook
limited activity of this asset until April 2009 and expenses incurred



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



subsequent to that date are reflected in loss on discontinued operations on the statement of operations. The technology asset of $225,000 has been reflected on the balance sheet at
September 30, 2009 and 2008 as asset held for sale.

2. Accounts Receivable

Accounts receivable consist of the following:



|                             |  |                   |           |   |                   |   |           |  
|---------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | -
|                             |  | September 30,2009 |           |   | September 30,2008 |  
|                             |  |                  
|Accounts receivable          |  | $                 | 2,398,047 |   |                   | $ | 1,725,877 |  
|Less allowance for discounts |  |                   | (286,938  | ) |                   |   | (197,148  | )
|                             |  |                   |           |   |                   |   |           |  
|                             |  | $                 | 2,111,109 |   |                   | $ | 1,528,729 |  
|                             |  |                   |           |   |                   |   |           |  

The Company performs ongoing credit evaluations of its customers and generally does not require collateral.
The Company maintains reserves for credit losses based upon its estimates and such losses have not been material. Therefore, management has not recorded an allowance for doubtful accounts. If amounts become uncollectible, they will be charged to
operations when that determination has been made. Actual credit losses may differ from estimates and such differences could be material to the financial statements. The Company allows a 20% discount on renewal annuity maintenance contracts that are
paid within a certain time frame. The Company bills renewal subscriptions up to 90 days in advance of subscription period commencement and records the amount in deferred revenue. Customers are obligated to cancel 90 days prior to their
anniversary/renewal date or they are liable for the next years license fee.

3. Property and Equipment

Property and equipment is summarized as follows:



|                              |  |                   |          |   |                   |   |          |  
|----------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -
|                              |  | September 30,2009 |          |   | September 30,2008 |  
|                              |  |                  
|Computer equipment            |  | $                 | 468,262  |   |                   | $ | 429,669  |  
|Furniture and fixtures        |  |                   | 86,635   |   |                   |   | 86,635   |  
|Other equipment               |  |                   | 94,734   |   |                   |   | 94,734   |  
|                              |  |                   |          |   |                   |   |          |  
|Subtotal                      |  |                   | 649,631  |   |                   |   | 611,038  |  
|Less accumulated depreciation |  |                   | (544,636 | ) |                   |   | (486,782 | )
|                              |  |                   |          |   |                   |   |          |  
|                              |  | $                 | 104,995  |   |                   | $ | 124,256  |  
|                              |  |                   |          |   |                   |   |          |  

Depreciation expense was $26,282 and $39,201 for the six months ended September 30, 2009 and 2008,
respectively.

4. Related Party Transactions

The Company has a loan agreement with its 49% stockholder that carries an interest rate of 9% and is due in June 2010. The Company is currently paying monthly installments of $1,500 on this note.



|                                         |  |                   |        |   |                   |   |         |  
|---------------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ------- | -
|                                         |  | September 30,2009 |        |   | September 30,2008 |  
|                                         |  |                  
|Note payableStockholder                 |  | $                 | 20,000 |   |                   | $ | 20,000  |  
|Less current portion                     |  |                   | (6,228 | ) |                   |   | (12,342 | )
|                                         |  |                   |        |   |                   |   |         |  
|Total notes payable less current portion |  | $                 | 13,772 |   |                   | $ | 7,658   |  
|                                         |  |                   |        |   |                   |   |         |  

The accrued interest on this note, included in accrued expenses, was $2,108 and $18,308 at
September 30, 2009 and 2008, respectively. The Company incurred interest expense on the note payable to the stockholder of $1,941 and



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



$1,025 during the six months ended September 30, 2009 and 2008, respectively.

The Company has worked with its 51% majority stockholder under a technology consulting agreement to perform various software development and research, some which is performed outside the United States.
For the six months ended September 30, 2009 and 2008, the Company incurred fees of $294,220 and $514,476, respectively, from the related entity all of which are recorded in cost of goods sold. The majority of capitalized software cost at
September 30, 2009 and 2008 were incurred prior to April 2008 and paid to this related party.

The Companys 51%
stockholder also controls other entities whose operations are similar to those of the Company. During March 2008, the Company paid one of these entities for a software product. As described in Note 12, this software product was distributed to the
stockholders in connection with the acquisition of the Company effective November 19, 2009. At September 30, 2009 and 2008 the net book value of the asset is $225,000 and classified as an asset held for sale.

In May 2006, the Company entered into a hosting and MIS services support agreement with the 51% majority stockholder. The agreement
requires a monthly fee of approximately $7,250 plus additional fees. The agreement can be cancelled by providing a 30 day notice. For the six months ended September 30, 2009 and 2008, the Company incurred approximately $41,000 and $52,000,
respectively, of expense associated with this agreement and such costs are included in cost of goods sold.

As of
September 30, 2009 and 2008, $86,528 and $1,656,129, respectively, remains unpaid to the majority stockholder and an affiliate company for such services. No interest is being charged on the unpaid balance.

5. Line of Credit

On
September 5, 2007, the Company obtained a revolving line of credit with a bank for borrowings up to $300,000. The line of credit expired in August 2008 and was not renewed.

6. Notes Payable

On September 5, 2007, the Company borrowed $25,000
from a financial institution bearing a fixed interest rate of 8.75%. The loan is secured by the assets of the Company and is payable in monthly installments of principal and interest, and matures in September 2009.

On April 10, 2008, the Company borrowed $50,000 from the same financial institution bearing a fixed interest rate of 6%. The loan is
secured by the assets of the Company and is payable in monthly installments of principal and interest, and matures in September 2009.

Notes payable comprise the following as of:



|                                         |  |                   |         |   |                   |   |         |  
|---------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                         |  | September 30,2009 |         |   | September 30,2008 |  
|                                         |  |                  
|Note payable                             |  | $                 | 5,954   |   |                   | $ | 16,519  |  
|Note payable                             |  |                   | 22,646  |   |                   |   | 41,881  |  
|                                         |  |                   |         |   |                   |   |         |  
|Total notes payable                      |  |                   | 28,600  |   |                   |   | 58,400  |  
|Less current portion                     |  |                   | (28,600 | ) |                   |   | (25,448 | )
|                                         |  |                   |         |   |                   |   |         |  
|Total notes payable less current portion |  | $                 |        |   |                   | $ | 32,952  |  
|                                         |  |                   |         |   |                   |   |         |  

On November 19, 2009 as part of Higher Ones Stock Purchase Agreement, both of the above loans
were paid off. No future minimum payment schedule is provided due to this subsequent event, see Note 12.

7. Equity

In October 2005, the Companys sole stockholder sold 51% of his common stock. In connection with that



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



transaction, the Companys articles of incorporation were amended, authorizing 100,000 shares of preferred stock. Simultaneously the Companys new majority stockholder entered into an
agreement to purchase 1,240 shares of Series A preferred stock for $1,240,000 from the Company. The purchase price for the stock was evidenced by a promissory note. The promissory note bore interest at 8% and was due in full on September 30,
2008. The Note was paid in full in October of 2008.

In September 2008, the Company issued a note receivable to the majority
stockholder for $1,000,000, and subsequently advanced the funds in October 2008. The note bears interest rate of prime plus 1%. Principal and accrued interests are due in October 2009. As of September 30, 2009, the balance of the note and
accrued interest receivable is $1,000,000 and $30,000 respectively. As described in Note 11, this note receivable was settled in connection with the acquisition of the Company effective November 19, 2009. For purposes of financial statements
presentation the subsequent issuance of this note is considered to be an extension of the above mentioned $1.24 million note and is treated as a contra equity account.

The holders of Series A preferred shares are entitled to certain liquidation preferences upon liquidation or dissolution of the Company before any assets are distributed to the holders of common stock.
The Series A preferred stock also contains certain provisions which allow or require the shares to be converted to common stock upon certain events, such as a public offering raising more than $5 million. Additionally, the Series A preferred shares
are entitled to receive cumulative annual dividends of $0.05 per share if dividends are declared by the board of directors. No such dividends have been declared. The Series A preferred shares have no voting rights and are not redeemable. As
described in Note 11, the series A preferred shares were redeemed in connection with the acquisition of the Company effective November 19, 2009.

As of September 30, 2009 and 2008, there was one stock option outstanding, originally issued in 1995, allowing the holder to purchase 2,500 shares of common stock for $1.50 per share. The option has
no expiration date, are fully vested and are not part of a formal stock option plan. As described in Note 11, this stock option was repurchased in conjunction with the acquisition of the Company on November 19, 2009.

During the six months ended September 30, 2009 a dividend of $2,000,000 was paid pro-rata to shareholders.

8. Income Taxes

The
Companys tax year end is March 31. The Company estimates tax expense or benefit to interim periods based upon the estimated effective tax rate for the year. The Company estimated effective tax rate is 0% for the six months ended
September 30, 2009 and 20% benefit for the six months ended September 30, 2008. Deferred tax assets at September 30, 2009 and 2008 of $392,000 and $302,000 are primarily related to the estimated future tax benefits of net
operating tax loss carryforwards net of an appropriate valuation allowance which totaled $128,000 and $68,000 at March 31, 2009 and 2008. As described in Note 11, the Company was acquired on November 19, 2009 and as result will no
longer file tax returns subsequent to that date. Net operating losses available through November 19, 2009 are expected to be used by the acquiring company based upon the terms of the transaction.

9. Operating Lease

The
Company leases office facilities for its California headquarters. The lease is non-cancelable and it expires in May 2010. Future minimum rental payments required under the lease are $218,570.

Rent expense charged to operations was $95,118 and $96,497 for the six months ended September 30, 2009 and 2008, respectively.

10. Commitments and Contingencies

The Company has a retirement plan under Section 401(k) of the Internal Revenue Code and a profit sharing plan. Substantially all full time employees are eligible to participate in the plans. Company
contributions are discretionary. No contributions were made to the plans during the six months ended September 30, 2009 and 2008.

The Company has entered into a contractual agreement with a telecommunications provider that will provide data



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##### Table of Contents

Informed Decisions Corporation

dba CASHNet

Notes to Financial Statements(Continued)

(unaudited)



and telecommunication capabilities associated with its hosted software solutions. The agreement requires monthly payments of approximately $22,390 through October 2011. If the Company terminates
the agreement prior to the autorenewal date, a termination fee equal to 90% of future unpaid obligations would be due and payable.

The Company has entered into a contractual agreement with a software provider (the Provider) that specializes in developing and licensing administrative software for educational institutions. The
agreement required the Provider to create a product which would interface with the Companys electronic payment services. As part of the agreement, the Provider and the Company will join their marketing efforts. Consideration for these services
includes royalty fees ranging from 5% to 50% of the annual subscription fees charged to each customer licensed under this arrangement. The term of the contract is for two years unless terminated sooner with a written notification.

In connection with the Companys SmartPay service charge income, they have entered into various agreements with the credit card
companies that require the Company at the beginning of each month to remit a fee based upon SmartPay service charge income collected. The fee paid to the credit card companies is included in cost of goods sold.

In the normal course of business, the Company may be involved in disputes over various issues, including its technology. The Company does
not have any patents on its software products but vigorously defends its legal rights and itself against all claims.

11. Business
Acquisition and Subsequent Events

Effective at the close of business on November 19, 2009, the stockholders of the
Company entered into a stock purchase agreement with Higher One Inc., a Delaware corporation (Higher One). The balance sheet presented is the historical balance of the Company just prior to the effective stock purchase agreement. The stock
purchase agreement stipulates the terms and rights of all outstanding shares of the Company in exchange for current and future cash consideration substantially in excess of the Companys current net book value. The agreement included
several key provisions and actions which were undertaken by the Company in conjunction with and just prior to the closing of the transaction. Such actions and key provisions are as follows:



| |  |  | The receipt of signed non-compete agreements from the Companys stockholders.
| | - |  | -----------------------------------------------------------------------------



| |  |  | Transition services agreements from key employees.
| | - |  | --------------------------------------------------



| |  |  | The Companys stockholders and Higher One have agreed to indemnify each other with respect to certain elements of the transaction. Such
indemnifications could result in the Companys stockholders receiving reduced future cash payments if claims are made by Higher One for certain matters, including any tax owed by the Company for periods prior to the closing date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Immediately prior to the closing, the transfer/distribution of a technology asset with a net book value of approximately $225,000, was completed to a
new entity owned and controlled by the Companys stockholders. The asset generated no revenue and the Company incurred minimal expenses associated with the asset prior to April 2009. The technology asset had previously been acquired from a
related party.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Redemption of the Companys issued and outstanding preferred stock in connection with the repurchase/exchange of the outstanding Preferred A stock
for the cancellation of a note receivable due from the majority stockholder. The book value of the preferred stock was $1,240,000 and the book value of the note receivable was $1,067,890 at the time of the exchange. The difference has been recorded
as an adjustment to accumulated deficit prior to closing.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Agreement between the Company and one employee to exchange the employees right to acquire 2,500 shares of common stock for a bonus related to
prior service. The bonus payment of approximately $640,000 was accrued at November 19, 2009 and paid shortly thereafter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has evaluated all events occurring subsequent to March 31, 2009 through March 16, 2010 and with the exception of the items noted above, nothing has occurred outside of the normal
course of operations.



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##### Table of Contents

Exhibit Index



|           |  |     |  |                                                                                                                                                                    
|---------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  |     |  | Description                                                                                                                                                        
|2.1        |  | (1) |  | Asset Purchase Agreement dated as of June 9, 2008 by and among Higher One, Inc., EduCard, LLC and the members listed therein.                                      
|2.2        |  | (1) |  | Intellectual Property Purchase Agreement dated as of June 9, 2008 by and between Kevin Jones and Higher One, Inc. (the Intellectual Property Purchase
Agreement).
|2.3        |  | (1) |  | First Amendment to the Intellectual Property Purchase Agreement dated as of May 7, 2009 by and between Kevin Jones and Higher One, Inc.                            
|2.4        |  | (1) |  | Second Amendment to the Intellectual Property Purchase Agreement dated as of August 21, 2009 by and between Kevin Jones and Higher One, Inc.                       
|2.5        |  | (1) |  | Stock Purchase Agreement dated as of November 19, 2009 by and among Higher One, Inc. and the shareholders of Informed Decisions Corporation listed thereto.        
|2.6        |  | *   |  | Third Amendment to the Intellectual Property Purchase Agreement dated as of May 5, 2010 by and between Kevin Jones and Higher One, Inc.                            
|2.7        |  | *   |  | Fourth Amendment to the Intellectual Property Purchase Agreement dated as of December 10, 2010 by and between Kevin Jones and Higher One, Inc.                     
|2.8        |  | *   |  | Fifth Amendment to the Intellectual Property Purchase Agreement dated as of February 3, 2010 by and between Kevin Jones and Higher One, Inc.                       
|3.1        |  | (2) |  | Second Amended and Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on June 18, 2010.            
|3.2        |  | (2) |  | Bylaws of the Registrant effective as of June 16, 2010.                                                                                                            
|10.1       |  | (1) |  | Amended and Restated Investor Rights Agreement dated as of August 26, 2008 by and among Higher One Holdings, Inc. and the shareholders listed thereto.             
|10.2       |  | (1) |  | Services Agreement dated as of May 9, 2008 by and between The Bancorp, Inc. and Higher One, Inc.**                                                                 
|10.3       |  | (1) |  | Lease Agreement dated as of November 1, 2007 by and between WE 150 Munson LLC and Higher One, Inc (the New Haven Lease).                                         
|10.4       |  | (1) |  | Amendment No. 1 to the New Haven Lease dated as of June 5, 2009 by and between WE 150 Munson LLC and Higher One, Inc.                                              
|10.5       |  | (1) |  | Amendment No. 2 to the New Haven Lease dated December 1, 2009 by and between WE 150 Munson LLC and Higher One, Inc.                                                
|10.6       |  | (1) |  | Higher One Holdings, Inc. 2000 Stock Incentive Plan dated as of April 20, 2000, as amended on August 3, 2006.                                                      
|10.7       |  | (1) |  | Form of Higher One Holdings, Inc. Incentive Stock Option Agreement.                                                                                                
|10.8       |  | (1) |  | Form of Higher One Holdings, Inc. Non-Qualified Stock Option Agreement.                                                                                            
|10.9       |  | (1) |  | Form of Higher One Holdings, Inc. Stock Restriction Agreement.                                                                                                     
|10.10      |  | (1) |  | Higher One Holdings, Inc. Short Term Incentive Plan, dated as of March 26, 2010                                                                                    
|10.11      |  | (1) |  | Higher One Holdings, Inc. 2010 Equity Incentive Plan, dated as of March 26, 2010                                                                                   
|10.12      |  | (1) |  | Form of Higher One Holdings, Inc. Stock Option Grant Agreement.                                                                                                    
|10.13      |  | (3) |  | Credit Agreement, dated as of December 31, 2010, by and among Higher One, Inc., and Bank of America, N.A.                                                          
|10.14      |  | *   |  | Guaranty dated as of December 31, 2010 by Higher One Holdings, Inc. in favor of Bank of America, N.A., as administrative agent.                                    
|10.15      |  | *   |  | Guaranty dated as of December 31, 2010 by Higher One Payments, Inc. in favor of Bank of America, N.A., as administrative agent.                                    
|10.16      |  | *   |  | Guaranty dated as of December 31, 2010 by Higher One Real Estate, Inc. in favor of Bank of America, N.A., as administrative agent.                                 
|10.17      |  | *   |  | Guaranty dated as of December 31, 2010 by Higher One Real Estate SP, LLC in favor of Bank of America, N.A., as administrative agent.                               
|10.18      |  | *   |  | Guaranty dated as of December 31, 2010 by Higher One Machines, Inc. in favor of Bank of America, N.A., as administrative agent.                                    
|10.19      |  | *   |  | Stock Pledge Agreement dated as of December 31, 2010 by and between Higher One Holdings, Inc. and Bank of America, N.A., as administrative agent.                  
|10.20      |  | *   |  | Lease Agreement dated as of May 21, 2010 by and between Higher One Payments, Inc. and                                                                              



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##### Table of Contents

|     |  |   |  |                                                                                                    
|---- |  | - |  | ---------------------------------------------------------------------------------------------------
|     |  |   |  | GSR II, LLC and LM Swan Way, LLC                                                                   
|     |  |  
|21.1 |  | * |  | List of Subsidiaries of Higher One Holdings, Inc.                                                  
|     |  |  
|23.1 |  | * |  | Consent of PricewaterhouseCoopers LLP                                                              
|     |  |  
|23.2 |  | * |  | Consent of Burr Pilger Mayer, Inc.                                                                 
|     |  |  
|31.1 |  | * |  | Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     |  |  
|31.2 |  | * |  | Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     |  |  
|32.1 |  | * |  | Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     |  |  
|32.2 |  | * |  | Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



| | ** | Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
| | -- | --------------------------------------------------------------------------------------------

| | (1) | Incorporated by reference to exhibit filed with Registrants registration statement on Form S-1 (File No. 333-165673), as amended.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference to exhibit filed with Registrants Quarterly Report on Form 10-Q for the period ending June 30, 2010.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference to exhibit filed with Registrants Report on Form 8-K filed on January 5, 2011
| | --- | --------------------------------------------------------------------------------------------------------

| | * | Filed herewith
| | - | --------------