##### 





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF
    1934
  For the fiscal year ended December 31, 2007
  Commission file number 0-26123
  ONLINE RESOURCES
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

52-1623052(I.R.S. Employer
    Identification Number)4795 Meadow Wood Lane, Suite 300
    Chantilly, Virginia(Address of principal
    executive offices)

20151(Zip
    code)  (703) 653-3100
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
  Title of Each
    Class
 Common Stock, $0.0001 par value per share
  o þ
  o þ
  Rule 12b-2 o þ
  o þ
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller Reporting
    company o       DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K: Form 10-K




---



##### 





ONLINE
    RESOURCES CORPORATION
  ANNUAL
    REPORT ON
    FORM 10-K
  TABLE OF
    CONTENTS
   
 PagePART IItem 1:


Business Overview


4Item 1A:


Risk Factors


17Item 2:


Properties


28Item 3:


Legal Proceedings


28Item 4:


Submission of Matters to a Vote of Security Holders


28PART IIItem 5:


Market for the Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities


29Item 6:


Selected Consolidated Financial Data


30Item 7:


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


31Item 7A:


Quantitative and Qualitative Disclosures About Market Risk


49Item 8:


Consolidated Financial Statements and Supplementary Data


50Index to Consolidated Financial Statements


50Item 9:


Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


89Item 9A:


Controls and Procedures


89Item 9B:


Other Information


91PART IIIItem 10:


Directors and Executive Officers of the Company


92Item 11:


Executive Compensation


92Item 12:


Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholders Matters


92Item 13:


Certain Relationships and Related Transactions


92Item 14:


Principal Accountant Fees and Services


92PART IVItem 15:


Exhibits and Financial Statement Schedules


93Signatures


96   2




---



##### 



SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K 10-K.
  Form 10-K.
 3




---



##### 



PART I  Item 1.
    Business
    Overview  Business
    Overview
      
    Banking Services: For more than 1,400 banks, credit
    unions and other depository financial institutions, we provide a
    fully integrated suite of web-based account presentation,
    payment, relationship management and professional services,
    giving clients a single point of accountability, an enhanced
    experience for their users, the marketing processes to drive
    Internet channel adoption, and innovative services that help
    them maintain their competitive position. We enable business and
    consumer end-users to consolidate information from multiple
    accounts and make bill payments to multiple billers or
    merchants, or virtually anyone, via their financial
    institutions web site. We also offer our electronic bill
    payment services to financial institutions on a stand-alone
    basis. Many of the bill payment services we offer use our
    patented payments gateway, which leverages the nations
    real-time electronic funds transfer, also known as EFT,
    infrastructure. By debiting end-users accounts in
    real-time, we are able to improve the speed, cost and quality of
    payments, while eliminating the risk that bills will be paid
    against insufficient funds.
    e-Commerce
    Services:For more than 400 billers, card issuers,
    processors, and other creditors, we provide web-based account
    presentation, payment, relationship management and professional
    services. We enable consumer and business end-users to manage
    their account or make a payment to a single card issuer,
    processor, creditor or biller. Specifically for billers, we
    provide a full suite of payment options, including consolidation
    of incoming payments made by credit cards, signature debit
    cards, ACH and PIN-less debit via multiple access points such as
    online, interactive voice response, or IVR, and call center
    customer service representatives. The suite also includes bill
    presentment, convenience payments, and flexible payment
    scheduling. We obtained these biller services and the
    industrys largest biller network as a result of our
    acquisitions of Princeton eCom Corporation, which we refer to as
    Princeton, in July 2006 and Internet Transaction Solutions,
    Inc., which we refer to as ITS, in August 2007. Specifically for
    card issuers, processors and creditors, we offer account
    presentation and self-service capabilities, as well as a
    web-based tool that improves collections of late and delinquent
    funds in a private, non-confrontational manner. In addition, for
    payment acquirers and very large online billers we provide
    payment services that enable real-time debits for a variety of
    web-originated consumer payments and fund transfers using our
    patented EFT payments gateway, which lowers transaction costs
    and increases the speed and certainty of payments.   4




---



##### 



Our
    Industry
  US
    Online Banking: Five Year Forecast US EBPP Forecast: 2006 To 2011
  12-month
  
    generate significantly higher revenues than offline customers by
    using more banking products and services and maintaining higher
    account balances;
    cost less to serve because online users tend to utilize more
    self-service functions and therefore interact with the more
    costly retail branch and call center service channels less
    frequently than offline customers; and
    are less likely to move their accounts to other financial
    institutions than offline customers.     5




---



##### 



Online
    Credit Card Report
      
    managing multiple technology vendors to provide account
    presentation, payments and other services;
    reconciling multiple payment methods and sources in increasingly
    shortened timeframes;
    understanding how to evaluate and enhance channel
    profitability; and
    maximizing the value of the channel by increasing adoption.    Our
    Solution
    Our Technology Infrastructure. one-by-one
 6




---



##### 



Our Operating and Technical Expertise.
  Our Integrated Marketing Process.
  Our Professional and Support Services.
 7




---



##### 



Our
    Strategy
    Continue to Grow Our Client Bases.
  Increase Adoption Rates.
    Provide Additional Products and Services to Our Installed
    Client Base.
  e-commerce
  Maintain and Leverage Technological
    Leadership.
 8




---



##### 



Pursue Strategic Acquisitions.
  Leverage Growth Over Our Relatively Fixed Cost
    Base.
  Our
    Services
      
   and/or
     9




---



##### 



Account Presentation Services.
  
    view transaction histories and account balances;
    review and retrieve current and past statements;
    transfer funds and balances;
    initiate or schedule either one-time or recurring payments;
    access and maintain account information; and
    perform many self-service administrative functions.  Money
    HQ sm ®
  Payments Services. Money
    HQ sm and other services that we can offer through our web
    interfaces.
         10




---



##### 



Relationship Management Services. e-mail
    Professional Services.
  Third-Party Services.
  
    fully integrated bill payment and account retrieval through
    Intuits
    Quicken®;
    check ordering available through Harland, Deluxe, Clarke
    American or Liberty;
    inter-institution funds transfer and account aggregation
    provided by CashEdge;
    check imaging provided by AFS and its service bureaus, Bisys,
    Fiserv, FSI/ Vsoft, Empire Corporate, Intercept, Fidelity,
    Corporate One, Eascorp, MICR Resource Management (MRM), Synergy,
    Transdata and Mid-Atlantic; and
    electronic statement through BIT Statement, COWWW, BDI
    e-statement,
    Datamail, Digital Mailer, InfoImage, Reed Data, XDI and Bankware.  Sales and
    Marketing
       11




---



##### 



Our
    Technology
    
    front-end servers proprietary and commercial
    communications software and hardware providing Internet and
    private communications access to our platform for end-users;
    middleware proprietary and commercial
    software and hardware used to integrate end-user and financial
    data and to process financial transactions;
    back-end systems databases and proprietary
    software which support our account presentation and payments
    services;
    support systems proprietary and commercial
    systems supporting our end-user service and other support
    services;
    enabling technology software enabling clients
    and their end-users to easily access our platform; and
    interoperable Service Oriented Architecture, or SOA software design permitting consistent, tight
    integration of product functionality across various product
    lines.           12




---



##### 



Note:
    This diagram is a representation of our gateway and does not
    include all links. Connections depicted are for illustrative
    purposes only.       13




---



##### 



Proprietary
    Rights
             14




---



##### 



Competition
               15




---



##### 




    trust and reliability;
    technical capabilities, scalability, and security;
    speed to market;
    end-user service;
    ability to interface with our clients and their
    technology; and
    operating effectiveness.  Government
    Regulation
    truth-in-lending case-by-case
   16




---



##### 



Employees
    Available
    Information
  www.orcc.com. Form 10-K, Form 10-Q Form 8-K
  Item 1A.
    Risk
    Factors  You should carefully consider the following risks before
    investing in our common stock. These are not the only risks that
    we may face. If any of the events referred to below occur, our
    business, financial condition, liquidity and results of
    operations could suffer. In that case, the trading price of our
    common stock could decline, and you may lose all or part of your
    investment.
  Risks
    Related to Our Business
  We
    cannot be sure that we will achieve profitability in all future
    periods.
    Our
    clients are concentrated in a small number of industries,
    including the financial services industry, and changes within
    those industries could reduce demand for our products and
    services.
   17




---



##### 



The
    failure to retain existing end-users or changes in their
    continued use of our services will adversely affect our
    operating results.
    Any
    failure of our clients to effectively market our services could
    have a material adverse effect on our business.
    Demand
    for low-cost or free online financial services and competition
    may place significant pressure on our pricing structure and
    revenues and may have an adverse effect on our financial
    condition.
    If we
    are unable to expand or adapt our services to support our
    clients and end-users needs, our business may be
    materially adversely affected.
   18




---



##### 



If we
    lose a material client, our business may be adversely
    impacted.
    Consolidation
    of the financial services industry could negatively impact our
    business.
    Our
    failure to compete effectively in our markets would have a
    material adverse effect on our business.
        We may
    have exposure to greater than anticipated tax
    liabilities.
    Our
    quarterly financial results are subject to fluctuations, which
    could have a material adverse effect on the price of our
    stock.
   19




---



##### 



Interest
    rate fluctuations could have a material adverse impact on our
    revenues.
    Our
    limited ability to protect our proprietary technology and other
    rights may adversely affect our ability to
    compete.
    Our
    failure to properly develop, market or sell new products could
    adversely affect our business.
    If we
    are found to infringe the proprietary rights of others, we could
    be required to redesign our products, pay royalties or enter
    into license agreements with third parties.
      
    be expensive and time consuming to defend;
    cause us to cease making, licensing or using products that
    incorporate the challenged intellectual property;
    require us to redesign our products, if feasible;
    divert managements attention and resources; and 20




---



##### 




    require us to pay royalties or enter into licensing agreements
    in order to obtain the right to use necessary technologies.    System
    failures could hurt our business and we could be liable for some
    types of failures the extent or amount of which cannot be
    predicted.
    Security
    breaches could have a material adverse effect on our
    business.
        The
    potential obsolescence of our technology or the offering of new,
    more efficient means of conducting account presentation and
    payments services could negatively impact our
    business.
   21




---



##### 



We
    rely on internally developed software and systems as well as
    third-party products, any of which may contain errors and
    bugs.
  and/or
  The
    failure to attract or retain our officers and skilled employees
    could have a material adverse effect on our
    business.
    We
    could be sued for contract or product liability claims and
    lawsuits may disrupt our business, divert managements
    attention or have an adverse effect on our financial
    results.
    Failure
    to comply with financial network operating rules could reduce
    the value of our services to our clients and make those services
    more costly to provide.
   22




---



##### 



Government
    regulation could interfere with our business.
        If we
    cannot maintain a satisfactory rating from the federal
    depository institution regulators, we may lose existing clients
    and have difficulty attracting new clients.
    We are
    exposed to increased costs and risks associated with complying
    with increasing and new regulation of corporate governance and
    disclosure standards.
   23




---



##### 



If we
    are unable to expand our financial reporting capabilities to
    accommodate our rapid growth, we could fail to prevent or detect
    material errors and have to restate our financial statements.
    Any such restatement could increase our litigation risk, limit
    our access to the capital markets and reduce investor
    confidence, which may adversely affect the market price of our
    common stock.
    Risks
    Related to Acquisitions
  We may
    face difficulties in integrating acquired
    businesses.
      
    the loss of key employees or end-users;
    the need to coordinate diverse organizations;
    difficulties in integrating administrative and other functions;
    the loss of key members of management following the
    acquisition; and
    the diversion of our managements attention from our
    day-to-day operations.    We may
    have limited knowledge of, or experience with, the industries
    served and products provided by our acquired
    businesses.
   24




---



##### 



Our
    acquisitions increase the size of our operations and the risks
    described herein.
    We
    made our acquisitions and may make future acquisitions, on the
    basis of available information, and there may be liabilities or
    obligations that were not or will not be adequately
    disclosed.
    Acquired
    companies give us limited warranties and indemnities in
    connection with their businesses, which may give rise to claims
    by us.
    Goodwill
    recorded on our balance sheet may become impaired, which could
    have a material adverse effect on our operating
    results.
  Goodwill and Intangible Assets
  Risks
    Related to Our Capital Structure
  Our
    stock price is volatile.
    
    actual or anticipated variations in quarterly operating results;
    announcements of technological innovations;
    new products or services offered by us or our competitors;
    changes in financial estimates or ratings by securities analysts;
    conditions or trends in the Internet and online commerce
    industries;
    changes in the economic performance
    and/or
    market valuations of other Internet, online service industries; 25




---



##### 




    announcements by us of significant acquisitions, strategic
    partnerships, joint ventures or capital commitments;
    additions or departures of key personnel;
    future equity or debt offerings or acquisitions or our
    announcements of these transactions; and
    other events or factors, many of which are beyond our control.    We
    have a substantial number of shares of common and convertible
    preferred stock outstanding, including shares issued in
    connection with certain acquisitions and shares that may be
    issued upon exercise of grants under our equity compensation
    plans that, if sold, could affect the trading price of our
    common stock.
    We
    have a significant amount of debt and redeemable preferred stock
    which will have to be repaid and may adversely affect our
    financial performance.
    Our
    plans to operate and grow may be limited if we are unable to
    obtain sufficient financing.
   26




---



##### 



Holders
    of our outstanding preferred stock have liquidation and other
    rights that are senior to the rights of the holders of our
    common stock.
  Series A-1 (Series A-1 Series A-1 Series A-1
  Holders
    of our
    Series A-1
    Preferred Stock have voting rights that may restrict our ability
    to take corporate actions.
  Series A-1 Series A-1
  Holders
    of our
    Series A-1
    Preferred Stock have a redemption right.
  Series A-1
  We may
    have to pay cash or issue shares related to the price protection
    agreement granted to former ITS shareholders.
  10-day 10-day
 27




---



##### 



Future
    offerings of debt, which would be senior to our common stock
    upon liquidation, and/or preferred equity securities which may
    be senior to our common stock for purposes of dividend
    distributions or upon liquidation, may adversely affect the
    market price of our common stock.
  Series A-1
  If we
    are unable to comply with the covenants in our credit agreement,
    a default under the terms of that agreement could arise thereby
    potentially resulting in an acceleration of the repayment of
    borrowed funds.
    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   28




---



##### 



PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities    2007

2006Fiscal Quarter Ended

High

Low

High

LowFirst Quarter

$
11.47


$
9.03


$
13.65


$
11.4Second Quarter


12.43



10.21



13.89



9.17Third Quarter


13.75



10.39



12.47



9.62Fourth Quarter


13.39



7.86



13.09



9.49   Risk Factors Our Stock Price is Volatile 10-K.
      Equity Compensation Plans Form 10-K.
  Number of securities



Number of securitiesto be issued upon



remaining available forexercise of

Weighted-average

future issuance underoutstanding options,

exercise price of

equity compensation planswarrants and rights

outstanding options,

(excluding securities(a)

warrants and rights

reflected in column(a))Equity compensation plans approved by security holders


1,518,916


$
4.54



928,856Equity compensation plans not approved by security holders


1,992,916


$
4.70



  29




---



##### 



Item 6.
    Selected
    Consolidated Financial Data  Consolidated Financial Statements and
    Supplementary Data Form 10-K. Form 10-K.
  Year Ended December 31,(In thousands, except per share amounts)2007


2006


2005


2004


2003Statement of Operations Data:Revenues:Service fees

$
121,364


$
81,573


$
52,383


$
39,202


$
33,607Professional services and other


13,768



10,163



8,118



3,083



4,801Total revenues


135,132



91,736



60,501



42,285



38,408Cost of revenues


64,083



41,317



26,057



19,279



16,631Gross profit


71,049



50,419



34,444



23,006



21,777General and administrative


28,933



19,780



13,664



9,586



8,161Sales and marketing


23,446



18,009



8,680



6,263



6,433Systems and development


9,196



7,382



4,204



3,246



3,831Total expenses

$
61,575


$
45,171


$
26,548


$
19,095


$
18,425Income from operations

$
9,474


$
5,248


$
7,896


$
3,911


$
3,352Other (expense) income


(11,231
)


(3,992
)


1,301



182



(1,234
)(Loss) income before income tax (benefit) provision


(1,757
)


1,256



9,197



4,093



2,118Income tax (benefit) provision


(12,703
)


935



(13,466
)


146



16Net income


10,946



321



22,663



3,947



2,102Preferred stock accretion


8,302



4,309











Net income (loss) available to common stockholders

$
2,644


$
(3,988
)

$
22,663


$
3,947


$
2,102Net income (loss) available to common stockholders per share:Basic

$
0.10


$
(0.16
)

$
0.97


$
0.22


$
0.14Diluted

$
0.09


$
(0.16
)

$
0.88


$
0.20


$
0.13Shares used in calculation of net income (loss) to common
    stockholders per share:Basic


27,153



25,546



23,434



18,057



15,141Diluted


29,150



25,546



25,880



20,128



16,686   30




---



##### 



Year Ended December 31,(in thousands)2007

2006

2005

2004

2003Balance Sheet Data:Cash, cash equivalents and investments(1)

$
22,362


$
32,154


$
55,864


$
4,641


$
13,038Working capital


17,625



41,483



61,688



10,056



14,744Total assets


340,717



286,591



115,596



44,533



26,735Notes payable, less current portion


75,438



85,000











Other long-term liabilities


6,508



9,565



5,229



1,998



314Total liabilities


120,005



111,148



12,560



9,712



4,378Redeemable convertible preferred stock


82,542



72,108











Stockholders equity


138,170



103,335



103,036



34,771



22,309   (1)
    Includes a $9.1 million short-term investment in the
    Columbia Strategic Cash Portfolio fund in 2007, which is
    expected to liquidate within the next twelve months. For
    additional information, see Note 5, Investments, in
    the Notes to the consolidated Financial Statements.  Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  CAUTIONARY
    NOTE
  Consolidated Financial Statements and
    Supplementary Data, Form 10-K. Risk Factors 10-K.
  OVERVIEW
     31




---



##### 



Increase/Period Ended December 31,

(Decrease)2007

2006

Change

%Account presentation users (000s):Banking segment


1,101



916



185



20
%eCommerce segment


3,066



2,375



691



29
%Enterprise


4,167



3,291



876



27
%Payment services users (000s):Banking segment


3,459



3,097



362



12
%eCommerce segment


4,890



2,626



2,264



86
%Enterprise


8,349



5,723



2,626



46
%Total users (000s):Banking segment


4,367



3,836



531



14
%eCommerce segment


7,956



5,001



2,955



59
%Enterprise


12,323



8,837



3,486



39
%Payment services transactions (000s):Banking segment


166,815



104,208



62,607



60
%eCommerce segment


34,109



11,144



22,965



206
%Enterprise


200,924



115,352



85,572



74
%   set-up
    Critical
    Accounting Policies and Estimates
    Revenue Recognition Policy.
 32




---



##### 



No. 00-21 Revenue Arrangements with Multiple Deliverables No. 00-21). Revenue Recognition in Financial Statements
    No. 00-21.
  No. 00-21, Summary of Significant Accounting Policies Form 10-K
  No. 97-2, Software Revenue Recognition (SOP 97-2) SOP No. 98-9, Software Revenue Recognition With Respect to Certain
    Transactions (SOP No. 98-9). SOP No. 97-2,
 33




---



##### 



SOP No. 97-2, Long-Term Construction-Type
    Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1),
    Allowance for Doubtful Accounts.
  Income Taxes.
  Accounting for Income Taxes
 34




---



##### 



Cost of Internal Use Software and Computer Software to be
    Sold. SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use (SOP No. 98-1).
  Accounting for the Costs of
    Computer Software to be Sold, Leased or Otherwise Marketed
  Impairment of Goodwill, Intangible Assets and Long-Lived
    Assets. Accounting for the Impairment or
    Disposal of Long-Lived Assets
  Theoretical Swap Derivative. Series A-1 (Series A-1 Accounting for Derivative Instruments and Hedging Activities
 35




---



##### 



Series A-1
  Derivative Instruments and Hedging
    Activities.
  Statement of Cash Flows
  Stock-Based Compensation.
  Recently Issued Pronouncements. Fair Value
    Measurements ).
 36




---



##### 



The
    Fair Value Options for Financial Assets and Financial
    Liabilities
  Business Combinations Summary of Significant Accounting
    Policies Form 10-K,
  Results
    of Operations
    Year Ended December 31,2007


2006


2005Dollars


%


Dollars


%


Dollars


%Revenues:Banking

$
100,119



74
%

$
77,106



84
%

$
52,445



87
%eCommerce


35,013



26
%


14,630



16
%


8,056



13
%Total

$
135,132



100
%

$
91,736



100
%

$
60,501



100
%   37




---



##### 



Dollars


Margin


Dollars


Margin


Dollars


MarginGross profit:Banking

$
58,952



59
%

$
46,756



61
%

$
31,052



59
%eCommerce


14,075



40
%


4,843



33
%


3,674



46
%Unallocated(1)


(1,978
)






(1,180
)






(282
)Total

$
71,049



53
%

$
50,419



55
%

$
34,444



57
%   Dollars


%


Dollars


%


Dollars


%Operating expenses:Banking

$
24,158



39
%

$
24,047



53
%

$
17,563



66
%eCommerce


15,018



24
%


8,995



20
%


2,942



11
%Unallocated(1)


22,399



37
%


12,129



27
%


6,043



23
%Total

$
61,575



100
%

$
45,171



100
%

$
26,548



100
%   Dollars


Margin


Dollars


Margin


Dollars


MarginIncome from operations:Banking

$
34,794



35
%

$
22,709



29
%

$
13,489



26
%eCommerce


(943
)


−3
%


(4,152
)


−28
%


732



9
%Unallocated(1)


(24,377
)






(13,309
)






(6,325
)Total

$
9,474



7
%

$
5,248



6
%

$
7,896



13
%   (1)
    
    Unallocated expenses are comprised of intangible asset acquired
    technology amortization in costs of revenues and general and
    administrative expense of $14.9 million, intangible asset
    customer list amortization of $7.3 million and
    $0.2 million of technology development expense that are not
    included in the measure of segment profit or loss used
    internally to evaluate the segments for the twelve months ended
    December 31, 2007.  Year
    Ended December 31, 2007 Compared to the Year Ended
    December 31, 2006
  Revenues
    38




---



##### 



Years Ended December 31,


Change2007


2006


Difference


%Revenues (in thousands):Account presentation services

$
8,998


$
8,051


$
947



12
%Payment services


104,228



65,501



38,728



59
%Relationship management services


8,138



8,022



116



1
%Professional services and other


13,768



10,162



3,605



35
%Total revenues

$
135,132


$
91,736


$
43,396



47
%Payment metrics:Payment services clients(1)


902



877



25



3
%Payment transactions (000s)(1)


66,766



58,151



8,615



15
%Adoption rates:Account presentation services  Banking(1)(2)


32.8
%


26.5
%


6.3
%


24
%Payment services  Banking(1)(3)


11.8
%


10.4
%


1.4
%


13
%   Notes:
  (1)
    
    Excludes Princeton and ITS for the purposes of comparison to
    prior year.(2)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of potential users
    enabled for account presentation services.(3)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of potential users enabled for
    payment services.  Account Presentation Services.
  Payment Services.
  Relationship Management Services.
  Professional Services and Other.
 39




---



##### 



Costs and
    Expenses
  Years Ended December 31,


Change2007(1)


2006(1)


Difference(1)


%Revenues

$
135,132


$
91,736


$
43,396



47
%Costs of revenues


64,083



41,317



22,766



55
%Gross profit


71,049



50,419



20,630



41
%Gross margin


53
%


55
%Operating expensesGeneral and administrative


28,933



19,780



9,153



46
%Sales and marketing


23,446



18,009



5,437



30
%Systems and development


9,196



7,382



1,814



25
%Total operating expenses


61,575



45,171



16,404



36
%Income from operations


9,474



5,248



4,226



81
%Other (expense) incomeInterest income


1,242



1,961



(719
)


−37
%Interest and other expense


(6,848
)


(5,953
)


(895
)


n/aLoss on extinguishment of debt


(5,625
)






(5,625
)


n/aTotal other (expense) income


(11,231
)


(3,992
)


(7,239
)


n/a(Loss) income before tax (benefit) provision


(1,757
)


1,256



(3,013
)


n/aIncome tax (benefit) provision


(12,703
)


935



(13,638
)


n/aNet income


10,946



321



10,625



n/aPreferred stock accretion


8,302



4,309



3,993



93
%Net income (loss) available to common stockholders

$
2,644


$
(3,988
)

$
6,632



n/aNet income (loss) available to common stockholders per share:Basic

$
0.10


$
(0.16
)

$
0.26



n/aDiluted

$
0.09


$
(0.16
)

$
0.25



n/aShares used in calculation of net income (loss) available to
    common stockholders per share:Basic


27,153



25,546



1,607



6
%Diluted


29,150



25,546



3,604



14
%   Notes:
  (1)
    
    In thousands except for per share amounts.  Costs of Revenues.
  Gross Profit.
 40




---



##### 



General and Administrative.
  Sales and Marketing.
  Systems and Development.
  Income from Operations.
  Interest Income.
  Interest and Other Expense.
  Loss on Extinguishment of Debt.
  Income Tax (Benefit) Provision.
 41




---



##### 



Preferred Stock Accretion. Series A-1 Series A-1
  Net Income (Loss) Available to Common
    Stockholders.
  Year
    Ended December 31, 2006 Compared to the Year Ended
    December 31, 2005
  Revenues
    Years Ended December 31,


Change2006


2005


Difference


%Revenues (in thousands):Account presentation services

$
8,051


$
8,826


$
(775
)


9
%Payment services


65,500



35,841



29,659



83
%Relationship management services


8,022



7,716



306



4
%Professional services and other


10,163



8,118



2,045



25
%Total revenues

$
91,736


$
60,501


$
31,235



52
%Payment metrics:Payment services clients(1)


877



790



87



11
%Payment transactions (000s)(1)


58,151



46,212



11,939



26
%Adoption rates:Account presentation services  Banking(1)(2)


26.5
%


22.9
%


3.6
%


16
%Payment services  Banking(1)(3)


10.4
%


9.2
%


1.2
%


13
%   Notes:
  (1)
    
    Excludes Princeton for the purposes of comparison to prior year.(2)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of potential users
    enabled for account presentation services. 42




---



##### 



(3)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of potential users enabled for
    payment services.  Account Presentation Services.
  Payment Services.
  Relationship Management Services.
  Professional Services and Other.
 43




---



##### 



Costs and
    Expenses
  Years Ended December 31,


Change2006(1)


2005(1)


Difference(1)


%Revenues

$
91,736


$
60,501


$
31,235



52
%Costs of revenues


41,317



26,057



15,260



59
%Gross profit


50,419



34,444



15,975



46
%Gross margin


55
%


57
%


−2
%


−4
%Operating expensesGeneral and administrative


19,780



13,664



6,116



45
%Sales and marketing


18,009



8,680



9,329



107
%Systems and development


7,382



4,204



3,178



76
%Total operating expenses


45,171



26,548



18,623



70
%Income from operations


5,248



7,896



(2,648
)


−34
%Other (expense) incomeInterest income


1,961



1,303



658



50
%Interest expense


(5,953
)


(2
)


(5,951
)


n/aTotal other (expense) income


(3,992
)


1,301



(5,293
)


n/aIncome before tax provision (benefit)


1,256



9,197



(7,941
)


−86
%Income tax provision (benefit)


935



(13,466
)


14,401



n/aNet income


321



22,663



(22,342
)


−99
%Preferred stock accretion


4,309







4,309



n/aNet (loss) income available to common stockholders

$
(3,988
)

$
22,663


$
(26,651
)


n/aNet (loss) income available to common stockholders per share:Basic

$
(0.16
)

$
0.97


$
(1.13
)


n/aDiluted

$
(0.16
)

$
0.88


$
(1.04
)


n/aShares used in calculation of net (loss) income available to
    common stockholders per share:Basic


25,546



23,434



2,112



9
%Diluted


25,546



25,880



(334
)


−1
%   Notes:
  (1)
    
    In thousands except for per share amounts.  Costs of Revenues. SOP No. 98-1
  Gross Profit.
 44




---



##### 



General and Administrative.
  Sales and Marketing.
  Systems and Development. SOP No. 98-1.
  Income from Operations.
  Other (Expense) Income, Net. Series A-1
  Income Tax Provision (Benefit).
  Preferred Stock Accretion. Series A-1
 45




---



##### 



Series A-1 Series A-1
  Net (Loss) Income Available to Common
    Stockholders.
  Liquidity
    and Capital Resources
           46




---



##### 



10-day 10-day
       47




---



##### 



Year Ended December 31,Total


2008


2009


2010


2011


2012


ThereafterCapital lease obligations

$
92


$
37


$
36


$
19


$



$



$
Operating leases


34,874



4,557



4,661



4,726



4,804



4,504



11,622Purchase obligations


730



730



















Notes payable


85,000



9,562



15,937



17,000



32,938



9,563



Total obligations

$
120,840


$
15,030


$
20,634


$
21,745


$
37,742


$
14,067


$
11,622  48




---



##### 



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk           49




---



##### 



Item 8.
    Consolidated
    Financial Statements and Supplementary Data INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS  Reports of Independent Registered Public Accounting Firm


53Consolidated Balance Sheets


55Consolidated Statements of Operations


56Consolidated Statements of Stockholders Equity


57Consolidated Statements of Cash Flows


58Notes to Consolidated Financial Statements


60Supplementary DataFinancial Statement Schedule for each of the three years in the
    period ended December 31, 2007Schedule II  Valuation and Qualifying Accounts
    and Reserves*


95   *
    All other schedules prescribed under
    Regulation S-X
    are omitted because they are not applicable or not required. 50




---



##### 



Report of
    Independent Registered Public Accounting Firm    Internal Control  Integrated Framework
             51




---



##### 



Internal Control  Integrated Framework
      52




---



##### 



REPORT OF
    INDEPENDENT REGISTERED
 PUBLIC ACCOUNTING FIRM
          Internal Control 
    Integrated Framework
      53




---



##### 



REPORT OF
    INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM
          Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements Share Based Payment
   
    54




---



##### 



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    BALANCE SHEETS

(in
    thousands, except par value amounts)  December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
13,227


$
31,189Restricted cash


1,535



3,919Consumer deposits receivable


8,279



Short-term investments


9,135



965Accounts receivable (net of allowance of $84 and $148,
    respectively)


16,546



14,291Deferred implementation costs


1,459



1,598Deferred tax asset, current portion


902



2,561Prepaid expenses and other current assets:


4,601



3,543Total current assets


55,684



58,066Property and equipment, net


26,852



19,110Deferred tax asset, less current portion


32,914



11,635Deferred implementation costs, less current portion


1,628



1,015Goodwill


184,300



168,085Intangible assets


36,924



25,128Other assets


2,415



3,552Total assets

$
340,717


$
286,591LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,001


$
2,332Consumer deposits payable


10,555



Accrued expenses


5,494



3,996Accrued compensation


2,019



2,306Notes payable, senior secured debt, current portion


9,562



Deferred revenues, current portion


5,673



4,919Interest payable


72



2,688Other current liabilities


2,683



342Total current liabilities


38,059



16,583Notes payable, senior secured debt, less current portion


75,438



85,000Deferred revenues, less current portion


3,916



3,374Other long-term liabilities


2,592



6,191Total liabilities


120,005



111,148Commitments and contingenciesRedeemable convertible preferred stock:Series A-1
    convertible preferred stock, $0.01 par value;
    75 shares authorized and issued at December 31, 2007
    (Redeemable on July 3, 2013 at $135,815)


82,542



72,108Stockholders equity:Series B junior participating preferred stock,
    $0.01 par value; 297.5 shares authorized; none issued






Common stock, $0.0001 par value; 70,000 shares
    authorized; 28,895 issued and 28,819 outstanding at
    December 31, 2007 and 25,865 issued and 25,789 outstanding
    at December 31, 2006


3



3Additional paid-in capital


198,333



166,355Accumulated deficit


(59,744
)


(62,388
)Treasury stock, 76 shares


(228
)


(228
)Accumulated other comprehensive loss


(194
)


(407
)Total stockholders equity


138,170



103,335Total liabilities and stockholders equity

$
340,717


$
286,591    55




---



##### 



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF OPERATIONS

(in
    thousands, except per share amounts)  Year Ended December 31,2007


2006


2005Revenues:Account presentation services

$
8,998


$
8,051


$
8,826Payment services


104,228



65,500



35,841Relationship management services


8,138



8,022



7,716Professional services and other


13,768



10,163



8,118Total revenues


135,132



91,736



60,501Costs and expenses:Service costs


57,456



34,623



21,386Implementation and other costs


6,627



6,694



4,671Costs of revenues


64,083



41,317



26,057Gross profit


71,049



50,419



34,444General and administrative


28,933



19,780



13,664Sales and marketing


23,446



18,009



8,680Systems and development


9,196



7,382



4,204Total expenses


61,575



45,171



26,548Income from operations


9,474



5,248



7,896Other (expense) income:Interest income


1,242



1,961



1,303Interest expense


(6,731
)


(5,506
)


(5
)Other (expense) income


(117
)


(447
)


3Loss on extinguishment of debt


(5,625
)






Total other (expense) income


(11,231
)


(3,992
)


1,301Income (loss) before income taxes


(1,757
)


1,256



9,197Income tax (benefit) provision


(12,703
)


935



(13,466
)Net income


10,946



321



22,663Preferred stock accretion


8,302



4,309



Net income (loss) available to common stockholders

$
2,644


$
(3,988
)

$
22,663Net income (loss) available to common stockholders per share:Basic

$
0.10


$
(0.16
)

$
0.97Diluted

$
0.09


$
(0.16
)

$
0.88Shares used in calculation of net income (loss) available to
    common stockholders per share:Basic


27,153



25,546



23,434Diluted


29,150



25,546



25,880    56




---



##### 



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

(in
    thousands)  AccumulatedAdditional








Other


TotalCommon Stock


Paid-In


Accumulated


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Deficit


Stock


Income (Loss)


EquityBalance at December 31, 2004


19,265


$
2


$
114,648


$
(79,651
)

$
(228
)

$



$
34,771Comprehensive income:Net income














22,663











22,663Comprehensive income


























22,663Exercise of common stock options


516







2,992















2,992Tax benefit from the exercise of employee stock options










47















47Issuance of common stock


131







339















339Issuance of common stock in connection with follow-on offering,
    net of costs


5,120



1



40,224















40,225Issuance of common stock in connection with IDS acquisition


181







1,999















1,999Balance at December 31, 2005


25,213



3



160,249



(56,988
)


(228
)






103,036Adjustment under SAB No. 108 (Note 2)














(1,412
)










(1,412
)Comprehensive loss:Net income














321











321Unrealized loss on hedging instrument






















(407
)


(407
)Comprehensive loss


























(86
)Preferred stock accretion














(4,309
)










(4,309
)Equity compensation cost










2,512















2,512Exercise of common stock options


541







3,288















3,288Issuance of common stock


35







306















306Balance at December 31, 2006


25,789



3



166,355



(62,388
)


(228
)


(407
)


103,335Comprehensive income:Net income














10,946











10,946Net unrealized gain on hedging instrument, net of taxes of $60






















213



213Comprehensive income


























11,159Preferred stock accretion














(8,302
)










(8,302
)Equity compensation cost










3,296















3,296Exercise of common stock options


771







3,767















3,767Issuance of common stock


42







202















202Issuance of common stock in connection with ITS acquisition


2,217







24,713















24,713Balance at December 31, 2007


28,819


$
3


$
198,333


$
(59,744
)

$
(228
)

$
(194
)

$
138,170    57




---



##### 



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

(in
    thousands)  Year Ended December 31,2007


2006


2005Operating activitiesNet income

$
10,946


$
321


$
22,663Adjustments to reconcile net income to net cash provided by
    operating activities:Deferred tax benefit


(13,380
)


(531
)


(13,665
)Depreciation and amortization


19,811



12,772



5,856Equity compensation expense


3,198



2,512



Write off and amortization of debt issuance costs


4,330



445



Loss on disposal of assets


180



1



104(Benefit) provision for losses on accounts receivable


(12
)


(21
)


2Loss on investments


117







Change in fair value of stock price protection


(355
)






Change in fair value of theoretical swap derivative


(1,145
)






Loss on cash flow hedge derivative security


350







Amortization of bond discount










(1
)Loss on preferred stock derivative security






158



Changes in operating assets and liabilities, net of acquisitions:Restricted cash


2,292



(1,699
)


(569
)Consumer deposit receivable


(3,297
)






Consumer deposit payable


5,285







Accounts receivable


(2,169
)


(1,486
)


1,327Prepaid expenses and other assets


(1,769
)


646



1,453Deferred implementation costs


(474
)


(1,484
)


(249
)Accounts payable


(3,247
)


58



(565
)Accrued expenses and other liabilities


(1,118
)


(275
)


511Interest payable


(2,616
)


2,688



Deferred revenues


1,296



2,905



1,578Net cash provided by operating activities


18,225



17,010



18,445Investing activitiesPurchases of property and equipment


(16,360
)


(9,823
)


(7,481
)Purchase of short-term investments


(10,167
)


(965
)


Sale of short-term investments


1,880







Purchases of available-for-sale securities










(3,100
)Sales of available-for-sale securities










4,400Acquisition of Internet Transactions Solutions, Inc., net of
    cash acquired


(12,220
)






Acquisition of Princeton, net of cash acquired






(184,362
)


Acquisition of Integrated Data Systems, Inc., net of cash
    acquired










(3,317
)Net cash used in investing activities


(36,867
)


(195,150
)


(9,498
)Financing activitiesNet proceeds from issuance of common stock


3,998



3,486



3,378Net proceeds from issuance of common stock in follow-on offering










40,224Net proceeds from issuance of redeemable convertible preferred
    stock






69,912



Purchase of cash flow derivative


(121
)


(455
)


Sale of cash flow derivative


22







Debt issuance costs on refinancing of long-term debt


(1,479
)






Prepayment penalty on repayment of 2006 notes


(1,700
)






Proceeds from issuance of 2007 notes


85,000







Repayment of 2006 notes


(85,000
)






Net proceeds from issuance of 2006 notes






80,549



Repayment of capital lease obligations


(40
)


(27
)


(27
)Net cash provided by financing activities


680



153,465



43,575Net (decrease) increase in cash and cash equivalents


(17,962
)


(24,675
)


52,522Cash and cash equivalents at beginning of year


31,189



55,864



3,342Cash and cash equivalents at end of year

$
13,227


$
31,189


$
55,864    58




---



##### 



ONLINE
    RESOURCES CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS (continued)
 (in
    thousands except share data)
  SUPPLEMENTAL
    INFORMATION TO STATEMENT OF CASH FLOWS:
  Year Ended December 31,2007

2006

2005Cash paid for interest

$
10,091


$
2,665


$
4Income taxes paid

$
464


$
77


$
282Net unrealized gain (loss) on hedge and investments

$
137


$
(407
)

$
   SUPPLEMENTAL
    SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
  Acquisitions,
    Cash and cash equivalents

$
8,431Consumer deposits receivable


4,982Accounts receivable


48Other current assets


50Property and equipment


2,063Trademarks and patents


8Customer lists


21,220Goodwill


33,123Other assets


15Total assets purchased


69,940Accounts payable


7,634
(1)Consumer deposits payable


5,270Accrued expenses


1,089Deferred tax liabilities


7,808Total liabilities assumed


21,801Total net assets

$
48,139Cash

$
20,306Issuance of 2,216,552 common shares at $11.15 per share


24,713Stock price protection


2,783Transaction costs


337Aggregate purchase price

$
48,139     (1)
    
    Included $7.1 million of liabilities assumed related to the
    settlement of stock options which was expected to occur prior to
    closing.  SUPPLEMENTAL
    SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
  Year Ended December 31,2007

2006

2005Common stock issued in connection with ITS acquisition

$
24,713


$



$
Common stock issued in connection with IDS earnout and
    acquisition

$



$
119


$
1,999Issuance of equity award liabilities

$



$
(11
)

$
    59




---



##### 



ONLINE
    RESOURCES CORPORATION



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    ORGANIZATION    2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Changes
    in Application of Accounting Policy
  Theoretical Swap Derivative Series A-1 (Series A-1
    Increase to other assets

$
229Increase to
    Series A-1
    Preferred Stock

$
1,928Decrease to other long-term liabilities

$
(2,289
)Decrease to preferred stock accretion

$
(204
)Decrease to interest expense

$
(461
)   Change in Method of Recognition of Revenue and Deferred
    Costs No. 00-21 Revenue Arrangements with Multiple Deliverables No. 00-21), set-up
 60




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue Recognition
    in Financial Statements
  Decrease to revenue

$
(161
)Decrease to cost of revenue

$
(109
)Decrease to net income

$
(52
)     Significant
    Accounting Policies
  Use of
    Estimates
    Principles
    of Consolidation
    Cash
    and Cash Equivalents
    Restricted
    Cash
    Consumer
    Deposit Receivable and Payables
    Short-term
    Investments
   61




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair
    Value of Financial Instruments
  Financial
    Instruments.
  Concentration
    of Credit Risk
      Revenue
    Recognition
    No. 00-21.
 62




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 00-21, Change in Application of
    Accounting Policy
    No. 00-21.
  No. 97-2, Software Revenue Recognition (SOP 97-2) SOP No. 98-9, Software Revenue Recognition With Respect to Certain
    Transactions (SOP No. 98-9). SOP No. 97-2,
  SOP No. 97-2, Long-Term
    Construction-Type Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1),
   63




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Deferred
    Income Taxes
  Income Taxes,
  Allowance
    for Doubtful Accounts
    Property
    and Equipment
  Property and Equipment and Capitalized Software Costs,
  Asset Group

Depreciable LifeCentral processing systems and terminals

3-5 yearsOffice furniture and equipment

5 yearsCentral processing systems and terminals under capital leases

shorter life of 3-5 years or lease termOffice furniture and equipment under capital leases

shorter life of 5 years or lease termLeasehold improvements

generally remaining lease term (1)     (1)
    
    If the leasehold improvements estimated life is shorter than the
    remaining lease term, the estimated life is used as the
    depreciable term. 64




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Capitalized
    Software Costs
  SOP No. 98-1, Accounting for Costs of Computer Software Developed or
    Obtained for Internal Use (SOP No. 98-1).
  Accounting for the Costs
    of Computer Software to be Sold, Leased or Otherwise Marketed
  Property and Equipment and Capitalized Software
    Costs,
  Goodwill
  Business Combinations Goodwill and Intangible Assets
  Impairment
    of Long-Lived Assets and Intangible Assets
  Accounting for
    Impairment or Disposal of Long-Lived Assets
  Theoretical
    Swap Derivative
  Series A-1 Accounting for Derivative Instruments
    and Hedging Activities
 65




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series A-1 Changes in Application of
    Accounting Policy
  Accounting
    Policy for Derivative Instruments
      Statement of Cash
    Flows
  Reclassification
    Net
    Income (Loss) Available to Common Stockholders Per
    Share
   66




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accumulated
    Comprehensive Income (Loss)
  Reporting Comprehensive Income
  Stock-Based
    Compensation
  Share-Based Payment Accounting for
    Stock-Based Compensation No. D-32, Intraperiod Tax Allocation of the Tax Effect of Pretax Income
    from Continuing Operations.
  Accounting for Stock Issued to
    Employees
    Twelve Months EndedDecember 31, 2005(In thousands, exceptper share amounts)Net income, as reported

$
22,663Adjustment to net income for:Pro forma stock-based compensation expense


(2,783
)Pro forma net income

$
19,880Basic net income per share:As reported

$
0.97Pro forma

$
0.85Diluted net income per share:As reported

$
0.88Pro forma

$
0.77   Equity Compensation Plans,
  Recently
    Issued Pronouncements
  Fair Value Measurements
 67




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      The
    Fair Value Options for Financial Assets and Financial
    Liabilities
  Business
    Combinations
  3.
    ACQUISITIONS  Internet
    Transaction Solutions, Inc.
    10-day
 68




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10-day
         69




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Unaudited Pro forma InformationFor the Year Ended December 312007

2006Revenues

$
146,891


$
106,267Net income (loss) available to common stockholders


2,703



(4,931
)Net income (loss) available to common stockholders per share:Basic

$
0.09


$
(0.18
)Diluted

$
0.07


$
(0.18
)     At August 10, 2007Cash and cash equivalents

$
8,431Consumer deposits receivable


4,982Accounts receivable


48Other current assets


50Property and equipment


2,063Trademarks and patents


8Customer lists


21,220Goodwill


33,123Other assets


15Total assets purchased


69,940Accounts payable


7,634
(1)Consumer deposits payable


5,270Accrued expenses


1,089Deferred tax liabilities


7,808Total liabilities assumed


21,801Total net assets

$
48,139Cash

$
20,306Issuance of 2,216,552 common shares at $11.15 per share


24,713Stock price guarantee


2,783Transaction costs


337Aggregate purchase price

$
48,139     (1)
    
    Included $7.1 million of liabilities assumed related to the
    settlement of stock options which was expected to occur prior to
    closing.  Princeton
   70




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series A-1 Series A-1
  Series A-1 Series A-1 Senior Secured Notes, Redeemable Convertible Preferred
    Stock
           71




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Unaudited Pro forma InformationFor the Year Ended December 312006


2005Revenues

$
111,924


$
92,587Net (loss) income

$
(8,640
)

$
159Net loss available to common stockholders

$
(17,267
)

$
(8,477
)Net loss available to common stockholders per share:Basic

$
(0.68
)

$
(0.36
)Diluted

$
(0.68
)

$
(0.36
)     At July 3,2006Current assets

$
13,697Property, plant and equipment


1,836Other assets


125Identifiable intangible assets (nine year weighted-average
    useful life):Customer list (eleven year weighted-average useful life)


18,355Purchased technology (six year weighted-average useful life)


9,36143,374Goodwill


151,406Total assets acquired


194,780Current liabilities


(3,915
)Long-term liabilities


(503
)Total liabilities assumed


(4,418
)Net assets acquired

$
190,362   4.
    REPORTABLE
    SEGMENTS   72




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        UnallocatedBanking


eCommerce


Expenses(1)


TotalYear ended December 31, 2007:Revenues:Account presentaion services

$
2,936


$
6,062


$



$
8,998Payment services


80,334



23,894







104,228Relationship management services


8,033



106







8,138Professional services and other


8,816



4,951







13,768Total revenues


100,119



35,013







135,132Costs of revenues


41,167



20,938



1,978



64,083Gross profit


58,952



14,075



(1,978
)


71,049Operating expenses


24,158



15,018



22,399



61,575Income (loss) from operations

$
34,794


$
(943
)

$
(24,377
)

$
9,474Year ended December 31, 2006:Revenues:Account presentaion services

$
2,751


$
5,300


$



$
8,051Payment services


59,277



6,224







65,501Relationship management services


7,988



34







8,022Professional services and other


7,090



3,072







10,162Total revenues


77,106



14,630







91,736Costs of revenues


30,350



9,787



1,180



41,317Gross profit


46,756



4,843



(1,180
)


50,419Operating expenses


24,047



8,995



12,129



45,171Income (loss) from operations

$
22,709


$
(4,152
)

$
(13,309
)

$
5,248 73




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  UnallocatedBanking


eCommerce


Expenses(1)


TotalYear ended December 31, 2005:Revenues:Account presentaion services

$
2,939


$
5,887


$



$
8,826Payment services


35,765



76







35,841Relationship management services


7,716











7,716Professional services and other


6,025



2,093







8,118Total revenues


52,445



8,056







60,501Costs of revenues


21,393



4,382



282



26,057Gross profit


31,052



3,674



(282
)


34,444Operating expenses


17,563



2,942



6,043



26,548Income (loss) from operations

$
13,489


$
732


$
(6,325
)

$
7,896     (1)
    
    Unallocated expenses are comprised of intangible asset acquired
    technology amortization in costs of revenues and general and
    administrative expense of $14.9 million, intangible asset
    customer list amortization of $7.3 million and
    $0.2 million of technology development expense that are not
    included in the measure of segment profit or loss used
    internally to evaluate the segments for the twelve months ended
    December 31, 2007.  5.
    INVESTMENTS     74




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    PROPERTY
    AND EQUIPMENT AND CAPITALIZED SOFTWARE COSTS    December 31,2007


2006Central processing systems and terminals

$
30,900


$
25,752Office furniture and equipment


3,057



2,903Central processing systems and terminals under capital leases


1,476



1,197Office furniture and equipment under capital leases


237



572Internal use software


20,552



14,862Leasehold improvements


6,048



2,425Total


62,270



47,711Less accumulated depreciation and amortization


(26,717
)


(21,957
)Less accumulated amortization of internal use software


(8,374
)


(5,462
)Less accumulated depreciation on assets held under capital leases


(327
)


(1,182
)$
26,852


$
19,110   7.
    GOODWILL
    AND INTANGIBLE ASSETS    Banking


eCommerceSegment


Segment


TotalBalance at December 31, 2005

$
4,736


$
11,587


$
16,323Goodwill acquired (Princeton eCom acquisition)


86,302



65,105



151,407Adjustments


378



(23
)


355Balance at December 31, 2006


91,416



76,669



168,085Goodwill acquired (ITS acquisition)






33,123



33,123Adjustments(1)


(9,638
)


(7,270
)


(16,908
)Balance at December 31, 2007

$
81,778


$
102,522


$
184,300     (1)
    
    Primarily related to the reversal of income tax valuation
    allowance established in acquisitions. 75




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006Gross carrying amount:Purchased technology

$
11,171


$
11,183Customer lists


40,483



19,263Patents and Trademarks


244



222Non-compete agreements


33



33Total gross carrying amount


51,931



30,701Accumulated amortization:Less accumulated amortization of purchased technology


(3,440
)


(1,475
)Less accumulated amortization of customer lists


(11,380
)


(3,931
)Less accumulated amortization of patents and trademarks


(171
)


(157
)Less accumulated amortization of non-compete


(16
)


(10
)Total accumulated amortization


(15,007
)


(5,573
)Total intangible assets

$
36,924


$
25,128       8.
    COMMITMENTS       76




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Operating


Capital2008

$
4,557


$
452009


4,661



402010


4,726



202011


4,804



2012


4,504



Thereafter


11,622



Total minimum lease payments

$
34,874



105Less amount representing interest






(13
)Present value of minimum lease payments






92Less current portion






(37
)Long-term portion of minimum lease payments





$
55   9.
    INCOME
    TAXES         77




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         December 31,2007


2006Deferred tax assets:Net operating loss carryforwards

$
48,006


$
87,848Deferred wages


2,552



1,450Deferred revenue


739



1,719Deferred rent


1,056



947Fixed assets


825



Other credits


647



Other deferred tax assets


186



286Total deferred tax assets


54,011



92,250Deferred liabilities:Acquired intangible assets


(14,312
)


(9,692
)Depreciation






(141
)Total deferred tax liabilities


(14,312
)


(9,833
)Valuation allowance for net deferred tax assets


(5,883
)


(68,221
)Net deferred tax assets

$
33,816


$
14,196    78




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2007


2006


2005Tax expense at statutory Federal rate

$
(597
)

$
427


$
3,127Effect of:State income tax, net


(401
)


113



380Other Permanent differences


(267
)


392



34Alternative minimum tax










187Return to provision adjustment


256







Increase (decrease) in valuation allowance


(11,694
)


3



(17,194
)Income tax (benefit) expense

$
(12,703
)

$
935


$
(13,466
)Income tax expense consists of the following (in thousands):Current ExpenseFederal

$
402


$



$
186State


275



3



10677



3



196Deferred ExpenseFederal


(12,497
)


761



(14,228
)State


(883
)


171



566(13,380
)


932



(13,662
)Income tax (benefit) expense

$
(12,703
)

$
935


$
(13,466
)   Accounting for Uncertainty in
    Income Taxes Accounting for Contingencies Accounting for Income Taxes
     79




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    10.
    FINANCIAL
    INSTRUMENTS  Derivatives
    Instruments and Hedging Activities
  Cash Flow
    Hedging Strategy
          Theoretical
    Swap Derivative
  Series A-1 Accounting for Derivative Instruments
    and Hedging Activities
 80




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series A-1 Changes in Application of
    Accounting Policy
  Series A-1
    Preferred Stock
  Series A-1 Convertible Preferred
    Stock, Series A-1
  ITS Price
    Protection
  10-day
    11.
    SENIOR
    SECURED NOTES     81




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year

Maturing Amounts(In thousands)2008

$
9,5622009

$
15,9372010

$
17,0002011

$
32,9382012

$
9,563   12.
    REDEEMABLE
    CONVERTIBLE PREFERRED STOCK  Series A-1
    Redeemable Convertible Preferred Stock
  Series A-1.
  Series A-1 Series A-1 Series A-1 Series A-1 Series A-1 Series A-1
  Series A-1 Series A-1 Series A-1 Series A-1 Series A-1
  Series A-1 Classification and Measurement of
    Redeemable Securities
 82




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Series A-1 Series A-1 Summary of Significant Accounting Policies
  Series A-1 Series A-1
  Series B
    Preferred Stock
    13.
    NET
    INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS PER
    SHARE    Year Ended December 31,2007


2006


2005Net income (loss) available to stockholders

$
2,644


$
(3,988
)

$
22,663Weighted average shares outstanding used in calculation of net
    income (loss) per share:Basic


27,153



25,546



23,434Dilutive options


1,997







2,446Diluted


29,150



25,546



25,880Net income (loss) available to common stockholders per share:Basic

$
0.10


$
(0.16
)

$
0.97Diluted

$
0.09


$
(0.16
)

$
0.88    83




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    EMPLOYEE
    BENEFIT PLANS  Employee
    Savings and Retirement Plan
    Employee
    Stock Purchase Plan
    15.
    EQUITY
    COMPENSATION PLANS    No. 98-1
   84




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Restricted
    Stock and Option Plans
        Stock
    Options
    Year Ended December 31,2007

2006

2005Dividend yield










Expected volatility


56
%


65
%


74
%Risk-free interest rate


4.62
%


4.57
%


3.87
%Expected life in years


5.3



5.2



5.1   Dividend Yield.
 85




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Expected Volatility.
  Risk-Free Interest Rate.
  Expected Life of Option Term.
  Forfeiture Rate.
    Weighted-Weighted-

AverageAverage

Remaining

AggregateExercise

Contract

IntrinsicShares

Price

Term

ValueOutstanding at January 1, 2007


3,796


$
5.36Granted


185


$
10.01Exercised


(771
)

$
4.87Forfeited or expired


(194
)

$
11.30Outstanding at December 31, 2007


3,016


$
5.39



3.9


$
20,013Vested or expected to vest at December 31, 2007


2,973


$
5.37



3.9


$
19,788Exercisable at December 31, 2007


2,269


$
5.00



3.7


$
16,016        86




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted
    Stock Units
    Weighted-AverageGrant-DateShares

Fair ValueNon-vested at January 1, 2007


126


$
11.07Granted


572


$
10.20Vested


(25
)

$
11.01Forfeited


(177
)

$
10.19Non-vested at December 31, 2007


496


$
10.39     16.
    SUMMARIZED
    QUARTERLY DATA (UNAUDITED)    Quarter EndedMarch 31, 2007

June 30, 2007

September 30, 2007

December 31, 2007Total revenues

$
30,849


$
31,941


$
34,244


$
38,098Gross profit

$
15,764


$
17,264


$
18,022


$
19,999Net (loss) income

$
(7,419
)

$
970


$
3,090


$
14,305Net (loss) income available to common stockholders

$
(9,454
)

$
(1,158
)

$
1,123


$
12,133Net (loss) income available to common stockholders per share:Basic

$
(0.36
)

$
(0.04
)

$
0.04


$
0.42Diluted

$
(0.36
)

$
(0.04
)

$
0.04


$
0.40    87




---



##### 



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Quarter EndedMarch 31, 2006

June 30, 2006

September 30, 2006

December 31, 2006Total revenues

$
16,717


$
17,359


$
28,266


$
29,394Gross profit

$
9,056


$
9,768


$
15,317


$
16,278Net income (loss)

$
757


$
1,397


$
(1,271
)

$
(563
)Net income (loss) available to common stockholders

$
757


$
1,397


$
(3,429
)

$
(2,713
)Net income (loss) available to common stockholders per share:Basic

$
0.03


$
0.05


$
(0.13
)

$
(0.11
)Diluted

$
0.03


$
0.05


$
(0.13
)

$
(0.11
)  88




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure  Regulation S-K
  Form 10-K Series A-1
  Regulation S-K
  Item 9A.
    Controls
    and Procedures  (a) Effectiveness
    of Disclosure Controls and Procedures
  Rules 13a-15(f) 15d-15(f)
  Rule 13a-15
 89




---



##### 



(b) Changes
    in Internal Control Over Financial Reporting
    (c) MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
        Internal Control 
    Integrated Framework
       90




---



##### 



(d) REMEDIATION
    MEASURES FOR MATERIAL WEAKNESS
    
    Providing additional training to non-financial project managers
    related to requirements for capitalizing internal use software
    development labor and properly deferring implementation and
    professional services costs;
    Strengthening procedures surrounding non-routine transactions
    and establishing specific review requirements and timelines;
    Increasing and improving staffing in its finance and accounting
    function, including hiring two staff members with experience in
    both technical accounting and statutory reporting;
    Reassessing the capability of its outside advisors and making
    changes as appropriate; and
    Beginning implementation of new management information and
    accounting systems designed to automate certain existing manual
    processes and improve the accuracy of information.    
    Management believes that additional staffing and capability
    increases are needed to keep up with its growth and increasing
    complexity, so it intends to create and fill additional
    positions during 2008,
    With additional staffing and capabilities, requisite US GAAP
    training, including specific training related to accounting for
    income taxes, will be provided, processes will be upgraded and
    review of work product will be expanded in 2008, and
    System installations and upgrades are planned through 2008 and
    into 2009 including the implementation of an ERP system which
    went live in January 2008.  Item 9B.
    Other
    Information   91




---



##### 



PART III  Item 10.
    Directors
    and Executive Officers of the Company    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Market for the Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities
  Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   92




---



##### 



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules    Consolidated Financial Statements. Form 10-K.
              Schedule II  Valuation and
    Qualifying Accounts.
    List of Exhibits.
  2
.1

Agreement and Plan of Merger dated May 5, 2006 among the
    Company, its acquisition subsidiary and Princeton (filed as Ex.
    2.1 to our
    Form 8-K
    filed on May 5, 2006)2
.2

Agreement and Plan of Merger dated July 26, 2007 among the
    Company, its acquisition subsidiary and Internet Transaction
    Solutions, Inc. (filed as Ex.
    99-1 to our
    Form 8-K
    filed on August 1, 2007)3
.1

Form of Amended and Restated Certificate of Incorporation of the
    Company (incorporated by reference from our registration
    statement on
    Form S-1;
    Registration
    No. 333-74777)3
.2

Form of Amended and Restated Bylaws of the Company (incorporated
    by reference from our registration statement on
    Form S-1;
    Registration
    No. 333-74777)3
.3

Certificate of Designation of shares of Series B Junior
    Participating Preferred Stock (filed as Exhibit 3.3 to our
    Form 10-K
    for the year ended December 31, 2002 filed on
    March 31, 2003)3
.4

Certificate of Designation of shares of
    Series A-1
    Convertible Preferred Stock (filed as Exhibit 3.1 to our
    Form 8-K
    filed on July 3, 2006)3
.5

Certificate of Correction to Certificate of Designation for the
    shares of
    Series A-1
    Convertible Preferred Stock (filed as Ex. 3.2 to our
    Form 8-K
    filed on September 14, 2006)4
.1

Specimen of Common stock Certificate of the Company
    (incorporated by reference from our registration statement on
    Form S-1;
    Registration
    No. 333-74777)4
.5

Investor Rights Agreement dated July 3, 2006, by and among
    the Company and the holders of its shares of
    Series A-1
    Convertible Preferred Stock (filed as Ex. 4.3 to our
    Form S-3/A
    filed on November 14, 200610
.1

Lease Agreement for premises at 7600 Colshire Drive, McLean,
    Virginia (incorporated by reference from our registration
    statement on
    Form S-1;
    Registration
    No. 333-74777)10
.2

Online Resources & Communications Corporation 1989
    Stock Option Plan (incorporated by reference from our
    registration statement on
    Form S-1;
    Registration
    No. 333-74777)10
.3

1999 Stock Option Plan (incorporated by reference from our
    registration statement on
    Form S-1;
    Registration
    No. 333-40674)10
.4

Employee Stock Purchase Plan (incorporated by reference from our
    registration statement on
    Form S-8;
    Registration
    No. 333-40674)10
.5

Lease Agreement to premises at 4796 Meadow Wood Lane, Chantilly,
    Virginia (filed as an exhibit to our
    form 10-Q
    for the quarter ended September 30, 2004 filed on
    November 5, 2004) 93




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10
.6

2005 Restricted Stock and Option Plan (filed with our Definitive
    Proxy Statement on April 5, 2005)10
.7

Equity Purchase Agreement by and among the Company and the
    purchasers of its
    Series A-1
    Convertible Preferred Stock (filed as Ex. 10.1 to our
    Form 8-K
    filed on July 3, 2006)10
.8

Credit Agreement with Bank of America dated February 21,
    2007 and filed as Exhibit 99.1 to the Companys
    Form 8-K
    on February 26, 200723
.1

Consent of KPMG LLP, Independent Registered Public Accounting
    Firm23
.2

Consent of Ernst & Young LLP, Independent Registered Public
    Accounting Firm31
.1

Certificate of Chief Executive Officer pursuant to
    Rule 13a-14(a)
    of the Securities Exchange Act, as amended31
.2

Certificate of Chief Financial Officer pursuant to
    Rule 13a-14(a)
    of the Securities Exchange Act, as amended32
.

Certificate of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002  94




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##### 



Schedule II 
    Valuation and Qualifying Accounts:

(in thousands) Balance atBeginning of





Balance at EndClassification

Period

Additions

Deductions

of PeriodAllowance for doubtful accounts:Year ended December 31, 2005

$
152


$
10


$
8
(1)

$
154Year ended December 31, 2006

$
154


$
42


$
48
(1)

$
148Year ended December 31, 2007

$
148


$



$
64
(1)

$
84Allowance for deferred tax asset:Year ended December 31, 2005

$
39,305


$



$
22,862
(2)

$
16,443Year ended December 31, 2006

$
16,443


$
56,889
(3)

$
5,111


$
68,221Year ended December 31, 2007

$
68,221


$



$
62,338
(4)

$
5,883    Notes:
  (1)
    
    Uncollectable accounts written off.(2)
    
    Release of valuation allowance.(3)
    
    2006 allowance for deferred tax asset balances have been revised
    to reflect the Companys acquisition of Princeton eCom
    Corporation (Princeton) and other items (which had
    no impact on the net deferred tax asset).(4)
    
    Reversal of $31.1 million due to electing to waive
    Princeton net operating losses that were determined not to be
    recoverable, release of $15.7 million of valuation
    allowance through goodwill related to valuation allowances
    established as a result of acquisitions, the release of
    $13.7 million through the income statement and a
    $1.9 million balance sheet reclassification. 95




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SIGNATURES      By:
    /s/  MATTHEW
    P. LAWLOR   Chairman and Chief Executive Officer
    Signature

Title

Date/s/  MATTHEW
    P. LAWLORMatthew
    P. Lawlor

Chairman and Chief Executive Officer (Principal Executive
    Officer)

April 8, 2008/s/  CATHERINE
    A. GRAHAMCatherine
    A. Graham

Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer)

April 8, 2008/s/  WILLIAM
    J. NEWMAN, IIIWilliam
    J. Newman, III

Vice President, Finance
    (Principal Accounting Officer)

April 8, 2008/s/  WILLIAM
    H. WASHECKAWilliam
    H. Washecka

Director

April 8, 2008/s/  JOSEPH
    J. SPALLUTOJoseph
    J. Spalluto

Director

April 8, 2008/s/  STEPHEN
    S. COLEStephen
    S. Cole

Director

April 8, 2008/s/  ERVIN
    R. SHAMESErvin
    R. Shames

Director

April 8, 2008/s/  MICHAEL
    E. LEITNERMichael
    E. Leitner

Director

April 8, 2008/s/  BARRY
    D. WESSLERBarry
    D. Wessler

Director

April 8, 2008/s/  MICHAEL
    H. HEATHMichael
    H. Heath

Director

April 8, 2008  96