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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,
2002

Commission file number 0-26123


ONLINE RESOURCES CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 52-1623052                                 
|(State or other jurisdiction of incorporation
    or organization) |  | (I.R.S. Employer Identification
    Number)
|                                                                  
|7600 Colshire Drive                                                |  |                                            
|McLean, Virginia                                                   |  | 22102                                      
|(Address of principal executive
    offices)                       |  | (Zip code)                                 

(703) 394-5100


(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

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 o

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
the 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
an accelerated filer (as defined in Exchange Act
Rule 12b-2).  Yes o     No x

As of June 28, 2002, the aggregate market
value of the voting stock held by non-affiliates of the
registrant, based upon the closing sales price of the
registrants common stock of $3.20 per share as reported on
the Nasdaq National Market System, was approximately
$43.4 million. As of December 31, 2002, the aggregate
market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sales price of the
registrants common stock of $2.809 per share as reported
by the Nasdaq National Market System, was approximately
$38.5 million. As of February 28, 2003, the registrant
had 13,707,298 shares of its common stock outstanding.

DOCUMENTS INCORPORATED BY
REFERENCE

The registrant intends to file a definitive proxy
statement for its 2003 Annual Meeting of Stockholders pursuant
to Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 2002. Portions of such proxy
statement are incorporated by reference into Part III of
this Form 10-K.









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ONLINE RESOURCES CORPORATION

FORM 10-K

TABLE OF CONTENTS

|                              |  |                                                                                                    |    |      |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                    |    | Page
|                              |  |                                                                                                    |    |     
|PART I                        |  |                                                                                                    |    |     
|Item 1:                       |  | Business                                                                                           |    |      | 2  | 
|Item 2:                       |  | Properties                                                                                         |    |      | 18 | 
|Item 3:                       |  | Legal Proceedings                                                                                  |    |      | 18 | 
|Item 4:                       |  | Submission of Matters to a Vote of Security
    Holders                                            |    |      | 18 | 
|PART II                       |  |                                                                                                    |    |     
|Item 5:                       |  | Market for the Registrants Common Equity
    and Related Stockholder Matters                      |    |      | 19 | 
|Item 6:                       |  | Selected Financial Data                                                                            |    |      | 20 | 
|Item 7:                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |    |      | 21 | 
|Item 7A:                      |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |    |      | 29 | 
|Item 8:                       |  | Financial Statements and Supplementary Data                                                        |    |      | 29 | 
|Item 9:                       |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |    |      | 46 | 
|PART III                      |  |                                                                                                    |    |     
|Item 10:                      |  | Directors and Executive Officers of the Company                                                    |    |      | 46 | 
|Item 11:                      |  | Executive Compensation                                                                             |    |      | 46 | 
|Item 12:                      |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |    |      | 46 | 
|Item 13:                      |  | Certain Relationships and Related transactions                                                     |    |      | 46 | 
|Item 14:                      |  | Controls and Procedures                                                                            |    |      | 46 | 
|PART IV                       |  |                                                                                                    |    |     
|Item 15:                      |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |    |      | 47 | 
|Signatures                    |  |                                                                                                    | 51 |     
|Certifications                |  |                                                                                                    | 52 |     
|Index to financial statements |  |                                                                                                    | 29 |     



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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

In addition to historical information, this
Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. These
statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as may,
will, should, expect,
anticipate, intend, plan,
believe, estimate,
potential, continue, the negative of
these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ
materially from any forward-looking statement. In evaluating
these statements, you should specifically consider various
factors, including the risks outlined under Risk
Factors in Item 1 of part I.

Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the
forward-looking statements. We undertake no obligation to update
publicly any forward-looking statements for any reason after the
date of this Annual Report on Form 10-K.





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PART I

Item 1.     Business
Overview

Online Resources Corporation is an outsourcer of
Internet banking and payment services to over 500 financial
institutions nationwide. We own and operate the critical
banking, payments and marketing infrastructure that enable our
clients to provide their customers with end-to-end Internet
channel functionality and a high quality user experience. Our
services, branded to our financial institution clients, power
approximately 100 million transactions and $5 billion
in consumer bill payments annually.

Our clients are primarily regional and
community-based depository financial institutions with assets of
$10 billion or less. Regional and community financial
institutions serve over half of the nations retail
checking accounts, but often lack the internal resources to
build or operate Internet-based remote financial services. We
enable these clients to offer services through the Internet
channel on a cost effective basis and without the resource
commitment of building and supporting the infrastructure
internally.

Depending on their needs, our financial
institution clients choose one of our two primary product lines:
full service, which includes a suite of Internet banking, bill
payment, call center and other support services, or stand-alone
bill payment and presentment services. Approximately half of our
implemented financial institution clients use our full suite of
services, while the other half use our stand-alone bill payment
services. Our full service Internet banking clients typically
pay us a recurring monthly fee based on the number of their
customers who use our services. Our stand-alone bill payment
clients also typically pay us a recurring monthly fee based on
their number of customers and, in some cases, pay us an
additional fee per payment transaction. In addition, they
typically pay us a one-time implementation fee to link our
respective systems, allowing their customers to connect to us
through the Internet.

The customers of our full service clients may
access our proprietary banking service, which allows them to
view account statements and balances of accounts maintained with
our clients, and perform funds transfers and certain other funds
management functions. Their customers may also use our bill
payment and presentment services, allowing them to pay any bill
automatically. Our banking and bill payment services are
complemented by our call center, database services, consumer
marketing, web site design and hosting and other support
services, giving our clients the benefit of a single, integrated
solution. We help our clients drive increased adoption of
Internet-based services and create a profitable Internet channel
through our extensive consumer marketing capabilities. We also
back our services with a comprehensive end-to-end service
quality guarantee.

Our bill payment services are built on patented
debit architecture that we believe offers substantial cost and
quality advantages. By connecting to our clients through online
payments networks, we realize the advantage of real-time,
guaranteed debits in reducing paper remittances and improving
the speed of payments. We have certified to over 50 online
payment networks, commonly known as electronic funds transfer
(EFT) networks, operated by both core processors and ATM
networks, potentially allowing us access to approximately 95% of
U.S. consumer checking accounts. We believe our patented EFT
connectivity is unique and has broad applications for payments
products beyond the payment of bills.

As of December 31, 2002, we provided
services to approximately 623,000 customers of our client
financial institutions. Our 534 financial institution clients
collectively serve an aggregate of approximately
18.2 million retail accounts, including approximately
9.9 million checking accounts.

Industry Background

The outlook for the e-financial services industry
continues to be vigorous with consumers and small businesses
increasingly banking online because of the 24 hours a day,
7 days a week convenience. In its October 2002 report,
Jupiter Media Matrix, a technology research and advisory firm,
estimated that 25.3 million U.S. households banked
online in 2002, and that the number of U.S. households
banking online will more than double to 54.6 million by
2007.

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Today, the overwhelming majority of U.S.
financial institutions with more than $100 million in
assets have adopted the Internet as a means of delivering
financial services to their customers. Financial institutions
recognize the advantages offered by online delivery systems,
including the opportunity to offer their services to targeted
audiences while reducing or eliminating workload, paper and
other back office expenses associated with traditional
distribution channels. Additionally, these solutions provide
financial institutions the opportunity to gain market share by
attracting new customers and then increase profitability by more
successfully retaining them.

Historically, very large financial institutions
have been the drivers of the online banking trend. Regional and
community financial institutions were compelled to offer
comparable services to remain competitive. Initially, there were
many obstacles in making e-financial services available to their
customers. In particular, they often lacked the capital and
human resources required to develop and manage the technology
infrastructure to provide their customers with online banking
services.

Today, however, the picture is very different.
With the majority of financial institutions having already
adopted the Internet, either by developing the capability
in-house or outsourcing to one of several providers, there are
new obstacles:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Managing technology vendors, which could mean
    multiple relationships in order to provide online banking, bill
    payment and other services;
|
| |  | Providing integrated customer support for their
    online banking services to an increasingly sophisticated
    consumer base;                  
|
| |  | Understanding how to evaluate channel
    profitability and/or return on investment; and                                                         
|
| |  | Maximizing the value of the channel by increasing
    adoption through consumer marketing and other means.                                       

As a service provider, we believe that we must
help our financial institution clients to meet these challenges
as a part of inducing them to choose, or switch to, our solution
for providing competitive online banking and payments services.

The Online Resources Solution

We provide a single source, fully integrated
solution through our QuotienSM e-financial suite of
services, which we believe enables depository financial
institutions to offer the breadth of financial services needed
to remain competitive as well as profit from their Internet
channel. We bring economies of scale and technical expertise to
our clients, who would otherwise lack the resources to compete
in the rapidly changing, complex financial services industry. We
differentiate ourselves by internally developing, integrating
and controlling many critical services, such as bill payment,
consumer marketing and call center support, rather than relying
primarily on third-party providers for these services. As a
single source vendor, we believe our clients benefit from having
one point of accountability and control. We believe our solution
provides our clients with a cost-effective means to retain and
expand their customer base, deliver their services more
efficiently and strengthen their customer relationships. We
provide our services through:

Our Technology Infrastructure.We provide our QuotienSM
e-financial suite of services by connecting our financial
institution clients, their customers and other financial service
providers through our integrated communications, systems,
processing and support capabilities. Our middleware enables us
to integrate customer and financial data in order to coordinate
customer authorization, transactions, settlement, security, user
profiles, data warehousing, database marketing, registration,
fulfillment, administrative support and our customer call center
services. These functions operate substantially in real-time and
provide an integrated application for our clients and their
customers.

Our Operating and Technical Expertise.We provide regional and community
based depository financial institutions with our operating and
technical expertise. We believe that our industry focus and
outsourcing capabilities add value for our clients by
simplifying complex processes and technologies. After more than
a decade of operating experience, we have established the
processes, procedures, controls and staff necessary to

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keep our systems running reliably and securely.
At the same time, we have developed the organizational
flexibility and staff relationships necessary to adjust to a
rapidly changing environment.


Our Relationship Marketing Services.We drive the Internet channel through
the entire user lifecycle, using a combination of cutting-edge
customer relationship management (CRM) technology and
processes and our multiple consumer touch-points. Marketing
costs are born by or shared with our clients. The marketing
programs include web-based marketing, direct marketing,
telemarketing, statement stuffers and branch incentives. We
privately brand the marketing programs for the financial
institutions so that they may take advantage of their existing
relationships.

Our Support Services.We provide a comprehensive set of
support services to complement our Internet banking and bill
payment services. These support services include our call
center, web site design and hosting, training, professional
services and administrative services. We provide each of these
services on an optional basis and have fully integrated them
into our service platform.

Strategy

Our goal is to become the vendor of choice for
regional and community-based banks, thrifts and credit unions
who outsource remote delivery of consumer and small business
e-financial services. We position ourselves as a single,
outsourced solution to our financial institution clients,
providing them our proprietary Internet banking and bill payment
services, and other complementary e-financial services. Our
consumer and small business services and content are further
supported by proprietary infrastructure and support services,
such as our call center, consumer marketing, real-time payments
processing, customization and other professional services.

We believe our offering gives our clients the
advantage of a single point-of-contact, an end-to-end service
quality guarantee, relatively seamless customer care, packaged
pricing advantages, and integrated data for consumer marketing
and service enhancement purposes. Approximately half of our
implemented financial institution clients use our full suite of
services, while the other half use our stand-alone bill payment
services. Both enjoy the benefit of our real-time debit
capabilities, integrated customer care, and relatively high
percentage of electronic remittances.

We have grown our business organically and
developed a base of 534 financial institution clients, who have
typically entered into two to five year service contracts. They
typically pay us based on their number of users and volume of
transactions, as well as on the number of products and services
used. Our primary strategy, therefore, is to focus on our
substantial existing client base, and to promote Internet
banking usage and the cross-selling of our proprietary bill
payment services. Also important is our goal to retain and add
to our client base, expanding our already substantial
distribution channel for an integrated suite of e-financial
transaction, cultivation and communication services.

We have become profitable but believe that our
shareholders, clients, employees and partners still place a high
premium on our ability to increase and sustain our
profitability. Our business model is driven by financial and
operating leverage derived from earning our largely recurring
user and transaction fees spread over our relatively fixed cost
base. Therefore, our near-term efforts center on:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing adoption of our Internet banking
    services among the customers of our 228 full service clients,
    who have approximately 3.8 million checking account and
    3.2 million non-checking account relationships;               
|
| |  | Cross-selling our proprietary bill payment, as
    well as other services, to those Internet banking users;                                                                                                                                 
|
| |  | Cross-selling our bill payment, as well as other
    services, to the customers of our 306 stand-alone bill payment
    clients, who have approximately 6.2 million checking
    account and 5.1 million non-checking account relationships;

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| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Retaining and expanding the financial institution
    distribution channel for our services, particularly by
    attracting clients who wish to replace another provider,
    bringing with them an already established base of Internet
    banking and bill payment customers; and
|
| |  | Controlling our costs by keeping growth in our
    overhead expenses low, gaining operating efficiencies through
    ongoing automation and process improvement efforts, and creating
    further standardization of our technology infrastructure.                                 

Though near-term growth in profitability is an
important objective, we recognize, and are investing in, a
number of strategic initiatives that we believe will result in
high, sustainable profitability. These include:

Consumer Marketing.We have invested heavily in a variety
of consumer marketing capabilities where we materially
supplement the marketing efforts of our client institutions.
These programs are fully funded or co-funded by our clients,
with the goal of increasing customer adoption and converting the
Internet into a cost-effective means to promote and deliver a
profitable set of financial services. Our consumer marketing
programs make extensive use of multiple consumer touch-points
and data derived from our banking and bill payment applications.
These consumer touch-points include real-time personalized and
targeted messages within our banking application, use of our
call center, targeted emails, and offline media. Our database
capabilities include data mining, analysis, campaign management
and data integration. All of our consumer marketing efforts use
patented methods for the collection and analysis of confidential
banking and bill payment data that are fully self-contained and
compliant with privacy laws.

Strategic New Products.We believe our large business base of
534 financial institutions with its potential of
approximately 18 million consumer relationships represents
an attractive distribution channel for the additional financial
services and content provided by us and by our third-party
partners. Therefore, we will continue our strategy to cross-sell
new products to clients with the goal of increasing the
recurring revenue per customer. In particular, we believe that
we can provide a set of new products that leverage our unique
real-time financial transaction processing over the Internet. By
the end of 2002, we were processing approximately
100 million annual transactions and our bill payment
service was processing over $5 billion per year. The
increased volume and efficiency of these transactions not only
is critical to our business, but also will generate potentially
valuable data using our patented method for confidential
messaging without compromising consumer privacy. This data can
be extracted using various data mining and aggregation tools and
techniques, and packaged for new personalized products and
services.

Enhanced Technology Infrastructure.We believe that the scope and
integration of our technology-based services gives us a
competitive advantage. Our data center and front-end web
server-based technology is integrated with our back-end payments
processing and multiple databases through middleware and a set
of tools that manage it completely. We continue to standardize
protocols and interfaces to both internal and external content
and services in order to more effectively integrate additional
capabilities.

Other Strategic Initiatives.While we have built our business
organically, without mergers or acquisitions, we have relied on
partnerships and alliances to augment our growth and provide
critical technologies. These include both software providers and
core processors who resell our Internet banking and payment
services. We have relationships with specialized technology
providers in cases where we believe we are better off using
third-party technology for a portion of our service than
developing it ourselves. We also have product partnerships where
third-party software and services are integrated into our
platform. We intend to further develop both existing and new
partnerships, as well as pursue merger and acquisition
opportunities to supplement our organic growth.

Our Services

We offer our outsourced services under the
QuotienSM brand to our client financial institutions,
which in turn brand them under the financial institutions
name. We also provide software products, which are used by our
financial institutions to facilitate use of our services.

Client financial institutions typically contract
with us for one of two major service lines: full service,
consisting of our integrated suite Internet banking, bill
payment, call center and other support services; or

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stand-alone bill payment and presentment service,
which is unbundled from our full service suite. In addition, we
offer a number of complementary e-financial services, such as
cash management, and additional functionality from third-party
providers that enhance our solution. Finally, we offer
professional services to support new client and product
implementations, as well as customization.


Most of our services generate revenue from
recurring monthly fees charged to financial institution clients,
typically based on the number of customers they have using our
system. The pricing of these services to customers is at the
discretion of each financial institution. Because our clients
generally derive internal cost savings, account retention and
other ROI and marketing benefits by offering our services, the
majority of our clients do not pass all of these charges through
to their customers, and most of our clients offer the banking
portion of our services free-of-charge.

Full Service Suite

Our QuotienSM Internet Banking and
Bill Payment service provides a comprehensive set of online
services for a financial institutions customers. The
services include the following features:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Viewing transaction histories and real-time
    account balances;                                    
|
| |  | Transferring funds within and between financial
    institutions either immediately or in the future;
|
| |  | Pay anyone functionality by
    initiating immediate and future bill payments or transfers;        
|
| |  | Accessing account information and initiating
    transactions through Intuits Quicken application;  
|
| |  | Guaranteed, real-time payments and transfers
    through the patented EFT gateway; and               
|
| |  | Viewing projected balances based upon bill
    payment and account activities.                       

Using our bill payment service, Internet banking
customers may pay any merchant biller or individual.
Approximately 64% of our bill payments are currently made
electronically to merchants. We guarantee electronic bill
payments will be received by the payee within two business days
of initiation by the customer. We guarantee paper check payments
will be received by the payee within five business days. Paper
and electronic payments are drawn on our escrow account. As of
December 31, 2002, we had a bill payment database of
approximately 407,000 discrete merchants.

We believe our real-time debit process offers
substantial cost and quality advantages in our bill payment
services. Under alternative batch-oriented debit systems, the
bill payment processor cannot immediately verify the
availability of sufficient funds to cover the bill payment. This
may result in potential collections issues, the need to assess
credit risk and increased use of paper versus electronic
payments. We therefore believe that real-time debit capability
results in a higher percentage of electronic payments, lower
operating costs and a higher quality of service.

Stand-Alone Bill Payment and Presentment
Services

Our QuotienSM Internet Bill Payment
Service is an unbundled version of the bill payment service
featured in our full service suite of services. It is unique in
the industry because it leverages the banking industrys
EFT infrastructure for online payments. By leveraging this
patented technology, our clients take advantage of existing
trusted systems, security, clearing, settlement, regulations and
procedures. Users of QuotienSM Internet Bill Payment
Service also benefit from a secure, reliable real-time direct
link to their accounts. As in our full service suite, customers
schedule transactions and view balances via our intuitive web
user interface, which is branded for the financial institution.
We provide users of this service with complete support and
payment inquiry processing through our call center.

Our QuotienSM Remittance Service is an
attractive add-on service for financial institutions of all
sizes that run their own in-house online banking system or other
providers of Internet banking solutions that do not have a bill
payment infrastructure. It provides their system with the extra
functionality of bill payment processing, and is backed by
complete funds settlement, payment research, inquiry resolution,
and merchant services. Customers provide bill payment
instructions via their existing online banking interface, which

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validates the availability of funds on the date
bills are to be paid. If funds are available, the users
account is debited and a designated clearing account is
credited. On a daily basis, we receive a file of all bill
payment requests and we respond immediately, processing bill
payment requests and remitting payments to designated merchants.
We return a file of transaction confirmations, error
descriptions, and data updates. Additionally we provide instant
access to comprehensive payment processing and status
information through our web-based Payment IQ system.


Other Complementary e-Financial
Services

Our QuotienSM Cash Management service
is a key component of our business banking service offering.
Through customized software developed by Magnet Communications,
Inc. and integrated into our platform, we provide added value in
a number of ways. QuotienSM Cash Managements
comprehensive application platform provides financial
institutions with additional leverage to attract a greater
spectrum of business customers. And, as it helps them build
their business base, QuotienSM Cash Management can
help them retain that base with a highly flexible selection of
applications, compelling support features, 24 hours a day,
seven days a week online accessibility, and a secure
environment. Just as important, QuotienSM Cash
Management provides additional revenue opportunities through
fee-based transactions such as ACH, balance reporting, wire
transfers, book transfers, and stop payments.

Our QuotienSM Customer Care service
provides critical high touch customer support to the
consumer and small business users of our services, all branded
in our financial institution clients name.We
maintain a customer service center for financial institution
clients that choose to outsource this service to us. Customers
can access the customer service operation by phone or e-mail
24 hours a day, seven days a week. As of December 31,
2002, our customer service center had over 100 employees
available to respond to customers questions relating to
enrollment, transactions or technical support. Customer care
services generate revenue from recurring monthly fees charged to
financial institution clients, typically based on the number of
enrolled customers. For those clients that choose not to use our
customer care function, we license them our proprietary software
for use in their in-house customer service operations.

Our QuotienSM Web Design and Hosting
capabilities give clients an integrated, outsourced solution for
their informational web site. We charge an upfront fee for
design and a recurring monthly maintenance fee for hosting the
web site.

Our QuotienSM Training Services fit
the needs of our clients, ranging from operational training to
service-oriented sales workshops. Our training services team
develops and delivers effective and professional programs in
banking, operations, call centers, sales and communications for
our clients.

Our QuotienSM Relationship Marketing
Support provides consumer marketing capabilities to our clients
to help maximize adoption and usage of their Internet channel by
their customers. We have developed a customer relationship
management approach designed to motivate customers to sign up
for Internet banking, begin using Internet banking, sign up for
Internet bill payment and, finally, to continue ongoing usage of
the Internet channel. We employ a variety of offline, online and
call center based marketing programs to contact the customers
and influence their use of our clients Internet channel.

Our QuotienSM Administrative Services
provides administrative and MIS support services to our
financial institution clients including the compilation of
customized reports regarding their customers account
activity. We generally charge our clients on an hourly basis for
these services.

Enhancing Third-Party
Services

We facilitate customers linking to
additional service capabilities and content that are provided or
controlled outside of our platform by third parties who enhance
our QuotienSM suite of services. The following
services are available or scheduled for launch within the next
twelve months.



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Fully integrated bill payment and account
    retrieval through Intuits Quicken®;
|
| |  | Check ordering, available through either Harland,
    Deluxe, or Clarke American; 

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| |   |                                                   
| | - | --------------------------------------------------
| |  | Foreign account aggregation, provided by CashEdge;
|
| |  | Check imaging, provided by AFS.                   

To provide our clients with a business
application and complement our cash management offering, we
provide small office/ home office capabilities and
have partnered with Intuit to support Quicken online access.

We have also developed business arrangements and
links to third parties for expanded customer access. We
currently have such arrangements with third-party access
providers, typically banking and credit union software providers
such as Ultradata (a subsidiary of Harland), Aftech and Users,
Inc. (subsidiaries of Fiserv), and Symitar (a subsidiary of Jack
Henry).

By aggregating the customers of our financial
institution clients into a large online community, we believe we
have begun to assemble an attractive audience for third parties
to market their products and services. In cooperation with our
financial institution clients, we believe that over time this
aggregated community will generate significant buying power and
could attract many additional third-party providers.

Professional Services

The majority of our professional services are
implementation services, consisting of systems integration work
and a pilot testing period. At the time of entering into a
contract, the financial institution client pays a one-time fee,
which generally ranges from $2,500 to $25,000, depending on the
size and complexity of the implementation. A project management
team is assembled to integrate our platform with a financial
institution clients legacy host system, typically via an
ATM network or a direct host communications interface. A
financial institutions legacy host system houses its
transaction accounts. Upon completion of systems integration, we
conduct a pilot testing period using selected customers and
employees of the client financial institution. Following the
pilot, the financial institution client is fully launched and
services are made available to its customers. Generally, at this
point, the financial institution client begins to pay at least
the minimum service fees. For clients who are linked to the over
50 core processors and ATM networks with whom we are
certified, implementation typically takes 90 to 180 days
between signing and launch.

Additionally, we offer professional services
intended to tailor our services to meet the financial
institutions specific needs. Our financial institution
clients generally pay us an hourly rate for these customization
services.

Institutional Sales and Marketing

In addition to our extensive consumer marketing
capabilities to drive customer adoption and cross-selling, we
seek to retain and expand our financial institution client base,
which serves as a distribution channel for our consumer and
small business online financial services. Our client services
function consists of a 15 person team of account managers
who support and cross-sell our services to existing financial
institution clients and a 9 person sales team focusing on
new financial institution prospects.

Our account management team focuses primarily on
helping our clients increase the profitability of their Internet
channel. They do this by introducing our extensive consumer
marketing capabilities and supporting our clients own
marketing programs. The account management team also cross-sells
our clients to new and enhanced services, and was responsible
for over 1,300 sales events in 2002. This team also handles
contract renewals and supports our clients in resolving
operating issues.

Our sales team focuses on new client acquisition,
either through direct contact with prospects or through our
network of reseller relationships. Our target prospects are
typically regional and community-based banks, thrifts and credit
unions who are either looking to replace their current Internet
banking or bill payment solution, and institutions who have no
existing capability. We believe that our suite of services is
especially attractive to prospects whose Internet solution has
limited capabilities, or who seek a more integrated set of
banking, bill payment, call center, marketing and other
services. Further, we offer these prospects a single point of
accountability backed by our unique end-to-end service
guarantee, which covers access systems

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availability, response time, payments speed and
quality, problem resolution, call center access and other
service functions that we own, operate and control.


Systems and Technology

Overview.We
designed our systems and technology around real-time
communications and processing, which optimizes quality,
scalability and cost. Our systems are based on a multi-tiered
architecture consisting of:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Front-end servers  proprietary and
    commercial communications software and hardware providing
    Internet and private communications access to our platform for
    customers;
|
| |  | Middleware  proprietary and commercial
    software and hardware used to integrate customer and financial
    data and to process financial transactions;                         
|
| |  | Back-end systems  databases and
    proprietary software which support our banking and bill payment
    services;                                                                 
|
| |  | Support systems  proprietary and
    commercial systems supporting our customer service and other
    support services; and                                                       
|
| |  | Enabling technology  software enabling
    clients and their customers to easily access our platform.                                                                             

Our systems architecture is designed to provide
customer access into a common database integrated with our
banking and bill payment services and our proprietary support
services software. Third-party financial services are linked to
our systems through the Internet, which we integrate into our
customer application and transaction processing. Incorporating
such third-party capabilities into our system, enable us to
focus our technical resources on our proprietary middleware and
integrating capabilities.

Connectivity for Real-Time Financial
Information and Online Payments.We
typically link to our client financial institutions in two ways;
we operate an information gateway to gather customer account
information and we operate an EFT payment gateway for online
debits, settlement authentication and limited supplemental
financial information. We believe that our extensive
connectivity to financial institutions is unique, particularly
our EFT gateway component that links to the online payments
infrastructure of core processors and ATM networks.

By using an online payment network to link into a
financial institution clients primary database for
customer accounts, we take advantage of established electronic
funds transfer infrastructure. This includes all
telecommunications and software links, security, settlements and
other critical operating rules and processes. Using this
real-time payments architecture, financial institution clients
avoid the substantial additional costs necessary to expand their
existing infrastructure. The net result of using this
architecture is that high quality remote financial electronic
commerce services can be provided, enabling customers to access
their financial account information and pay bills by debiting
funds from their accounts.

In addition to quality and cost benefits
associated with bill payment, we believe that our real-time
architecture is more scalable than traditional batch systems,
which warehouse and store duplicate data. Instead of duplicating
each financial institutions host system by daily batch
transmittal of customer balance information, we communicate in
real-time through EFT networks and directly to our clients or
their core processors to retrieve account balances as needed.

Security and Systems Integrity.Our services and related products are
designed to provide security and system integrity, based on
Internet and other communications standards, EFT network
transaction processing procedures, and banking industry
standards for control and data processing. Prevailing security
standards for Internet-based transactions are incorporated into
our Internet services, including but not limited to, Secure
Socket Layer 128K encryption, using public-private key
algorithms developed by RSA Security, along with firewall
technology for secure transactions. In the case of payment and
transaction processing, we meet security transaction processing
and other operating standards for each EFT network or core
processor through which we route transactions. Additionally, we
have established a business resumption plan to ensure that our

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technical services and operating infrastructure
could be resumed within an acceptable time frame should some
sort of business interruption affect our data center.
Furthermore, management receives feedback on the sufficiency of
security and controls built into our information technology,
payment processing, and customer support processes from
independent reviews such as semi-annual network penetration
tests, an annual SAS70  Type II Examination, periodic
FFIEC examinations, and internal audits.


Proprietary Rights

Patents are important to our business; no
particular patent is so important, however, that its loss would
significantly adversely affect our operations as a whole.

In June 1993, we were awarded U.S. patent
number 5,220,501 covering our real-time EFT network-based
payments process. This patent covers bill payment and other
online payments made from the home using any enabling device
where the transaction is routed in real-time through an EFT
network. We have licensed this patent to other parties for
limited use. In March 1995 we cross-licensed this patent to
Citibank for their internal use in settlement of litigation.

On February 9, 1999, we were awarded
U.S. patent number 5,870,724 for targeting advertising in a
home banking delivery service. This patent provides for the
targeting of advertising or messaging to home banking users,
using their confidential bill payment and other financial
information, while preserving consumer privacy. Acting in
cooperation and on behalf of a financial institution client, we
first analyze their bill payment and other financial data to
determine an advertising profile or purchasing power. The patent
provides for the targeted advertisement or other message to the
selected person or group based on their profile. No third
parties gain access to the customers sensitive financial
data. Through interactive messaging, selected customers of our
financial institutions receiving the advertisement or message
then have the choice of releasing their names to the advertiser
or messenger. The confidentiality of their sensitive financial
information is thereby preserved and released only with the
approval of the financial institution client and their customers.

On March 13, 2001, we were awarded
U.S. patent number 6,202,054 that is a continuation of
U.S. patent number 5,220,501. The continuation expands and
clarifies the claims in that patent thereby increasing its
applicability and usefulness. For example, the continuation
broadens the original narrow definitions: PIN is replaced by
user identification info; ATM network is replaced by inter-bank
financial services network; Debit becomes debit or credit.

In addition to our patents, we have registered
trademarks. A significant portion of our systems, software and
processes are proprietary. Accordingly, as a matter of policy,
all management and technical employees execute non-disclosure
agreements as a condition of employment.

Competition

We believe that the principal competitive factors
in our market are industry trust, technical capabilities,
operating effectiveness, cost and scalability, customer service,
security, speed to market, and capital. Many of our competitors
have the financial, technical and marketing resources, plus
established industry relationships, to better compete based on
these factors. Competitive pressures we face may have a
materially adverse effect on our business, financial condition
or operating results.

We are not aware of any other company that offers
a similar suite of Internet banking and payment services that
fully integrates support services and online payment links to
other financial service providers. However, many of our current
and potential competitors have longer operating histories,
greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing
resources. Further, some of our more specialized competitors,
such as CheckFree, while currently targeting bill payment
services to large financial institutions, may increasingly
direct their marketing initiatives towards our targeted smaller
financial institution client base.

Other competitors that serve primarily smaller
depository financial institutions, such as Jack Henry,
Metavante, EDS, Fiserv and other core banking processors, have
large distribution channels that bundle broader services and
products for their clients. These competitors also have
developed or acquired Internet

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banking capabilities of their own, including a
bill payment service in the case of Metavante, which may be
further expanded to exceed or meet our capabilities.


In addition, a significant number of companies
offer portions of the services provided by us and compete
directly with us to provide such services. For example, the web
servers of companies such as Digital Insight, FundsXpress and
S1 Corporation compete with our front-end Internet banking
capabilities. These companies may in turn use bill payment
providers, such as CheckFree, Princeton eCom, and Metavante, to
compete with our offering. There are also other software
providers such as Sanchez Computer, Intelidata, Corillian and
Sybase Financial Fusion that market their software to large
financial institutions, that may seek to penetrate our targeted
regional and community banking market.

There are also Internet financial service
providers who target non-banking firms, who may target our
depository financial institution market. These potential
competitors support brokerage firms, credit card issuers,
insurance and other financial service companies. There are also
Internet financial portals, such as Quicken.com, Yahoo Finance
and MSN, who offer bill payment and aggregate consumer financial
information from multiple financial institutions. Suppliers to
these remote financial service providers potentially compete
with us.

Government Regulation

We are not licensed by the Office of the
Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation, the National Credit Union
Administration or other federal or state agencies that regulate
or supervise depository institutions or other providers of
financial services. We are subject to examination by federal
depository institution regulators under the Bank Service Company
Act, the Examination Parity and Year 2000 Readiness for
Financial Institutions Act and the Gramm Leach Bliley Act of
1999, among other regulations. As such, we have agreed to
periodic examinations by these agencies and these agencies have
broad supervisory authority to remedy any shortcomings
identified in any such examination.

We are also subject to encryption and security
export laws and regulations that, depending on future
developments, could render our business or operations more
costly, less efficient or impossible.

Federal, state or foreign agencies may attempt to
regulate our activities. Congress could enact legislation that
would require us to comply with consumer privacy, data, record
keeping, processing and other requirements. The Federal Reserve
Board may adopt new rules and regulations for electronic funds
transfers that could lead to increased operating costs and could
also reduce the convenience and functionality of our services,
possibly resulting in reduced market acceptance. Because of the
growth in the electronic commerce market, Congress has held
hearings on whether to regulate providers of services and
transactions in the electronic commerce market, and Federal or
state authorities could enact laws, rules or regulations
affecting our business operations. We also may be subject to
Federal, state and foreign money transmitter laws, encryption
and security export laws and regulations and state and foreign
sales and use tax laws. If enacted or deemed applicable to us,
such laws, rules or regulations could be imposed on our
activities or our business thereby rendering our business or
operations more costly, burdensome, less efficient or
impossible, any of which could have a material adverse effect on
our business, financial condition and operating results.

The market we currently target, depository
financial institutions, is subject to extensive and complex
Federal and state regulation. Our current and prospective
clients, which consist of financial institutions such as
commercial banks, thrifts, credit unions, brokerage firms,
credit card issuers, consumer finance companies, other loan
originators, insurers and other providers of retail financial
services, operate in markets that are subject to extensive and
complex Federal and state regulations and oversight. While we
are not generally subject to such regulations, our services and
related products must be designed to work within the extensive
and evolving regulatory constraints in which our clients
operate. These constraints include Federal and state
truth-in-lending disclosure rules, state usury laws, the Equal
Credit Opportunity Act, the Electronic Funds Transfer Act, the
Fair Credit Reporting Act, the Bank Secrecy Act, the Community
Reinvestment Act, the Financial Services Modernization Act, the
Bank Service Company Act, the Electronic Signatures in Global
and National Commerce Act, privacy and information security
regulations, laws against unfair or deceptive

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practices, the Electronic Signatures in Global
and National Commerce Act, the USA Patriot Act of 2001 and other
state and local laws and regulations. Because many of these
regulations were promulgated before the development of our
system, the application of such regulations to our system must
be determined on a case-by-case basis. We do not make
representations to clients regarding the applicable regulatory
requirements, but instead rely on each such client making its
own assessment of the applicable regulatory provisions in
deciding whether to become a client. Furthermore, some consumer
groups have expressed concern regarding the privacy, security
and interchange pricing of financial electronic commerce
services. It is possible that one or more states or the Federal
government may adopt laws or regulations applicable to the
delivery of financial electronic commerce services in order to
address these or other privacy concerns. We cannot predict the
impact that any such regulations could have on our business.


We currently offer services on the Internet. It
is possible that laws and regulations may be enacted with
respect to the Internet, covering issues such as user privacy,
pricing, content, characteristics and quality of services and
products. The adoption of any such laws or regulations may limit
the growth of the Internet, which could affect our ability to
utilize the Internet to deliver financial electronic commerce
services.

Employees

At December 31, 2002, we had
296 employees. None of our employees are represented by a
collective bargaining arrangement. We believe our relationship
with our employees is good.

RISK FACTORS

You should carefully consider the following risk
factors in your evaluation of us. Our business and results of
operations could be seriously harmed by any of the following
risks. The trading price of our common stock could decline due
to any of these risks, and you may lose part or all of your
investment.

Prior to the third quarter of 2002, we had a
history of net losses; we have achieved net income profitability
for only two quarters and cannot be sure that we will be
profitable in future periods.

Although we achieved profitability under
generally accepted accounting principles, or GAAP, in the third
quarter of 2002, we cannot be certain that we can be profitable
in future periods. As of December 31, 2002 we had an
accumulated deficit of $85.7 million. Although we believe
we have achieved economies of scale, if growth in our revenues
does not significantly outpace the increase in our expenses, we
may not be profitable in future periods.

Our quarterly financial results are subject to
significant fluctuations and could cause our stock price to
fluctuate.

Our quarterly revenues, expenses and operating
results may vary significantly from quarter to quarter in the
future based upon a number of factors, many of which are not
within our control. Our revenue model is based largely on
recurring revenues derived from actual customer counts. The
number of our total customers is affected by many factors, many
of which are beyond our control, including the number of new
user registrations, customer turnover, loss of clients, and
general consumer trends. Our results of operations for a
particular period may be adversely affected if the revenues
based on the number of customers forecasted for that period are
less than expected. As a result, our operating results may fall
below market analysts expectations in some future
quarters, which could have a material adverse effect on the
market price of our stock.

We may need to raise capital in order to
achieve continued revenue and profit growth.

Although we achieved cash flow break-even, in the
fourth quarter of 2002, we may require additional infusions of
capital to sustain operations. This capital may not be available
on favorable terms, or at all. We may need to raise additional
funds sooner than we expect if we incur unforeseen required
capital expenditures or substantial operating losses. If
adequate funds are not available or are not available on
acceptable terms, we

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may not be able to develop or enhance our
services, take advantage of future opportunities or respond to
competitive pressures, which could have a material adverse
effect on our business.


The number of customers using our services may
not continue to increase.

There is no guarantee that the number of
customers using our services will continue to increase. Because
our fee structure is designed to establish recurring revenues
through monthly usage by customers of our financial institution
clients, our recurring revenues are dependent on the acceptance
of our services by customers and their continued use of online
banking, bill payment and other financial services. Failing to
retain the existing customers and the change in spending
patterns and budgetary resources of financial institutions and
their customers will affect our operating results.

We depend upon our financial institution
clients to market our services.

To market our services to customers, we depend
upon our financial institution clients. We generally charge our
clients fees based on the number of their customers who have
enrolled with our clients for online bill payment services and,
in some cases, online banking services. Therefore, customer
enrollment affects our revenue and is important to us. Because
our clients offer our services under their name, we must depend
on those clients to get their customers to use our services.
Although we conduct extensive marketing programs for our
clients, our clients may decide not to participate in our
programs or our financial institution clients may not
effectively market our services to their customers. Any failure
of our clients to effectively market our services could have a
material adverse effect on our business.

Consumer demand for low-cost or free online
financial services may force us to reduce or eliminate the fees
we charge for some services.

Consumers of many of the online services we
offer, including home-banking, bill payment and bill
presentment, may demand that these services be offered for lower
cost or even for free. Consumers may therefore reject our
services in favor of companies that can offer more competitive
prices. Thus, consumer demand and competition may place
significant pressure on our pricing structure and revenues, and
may have an adverse effect on our financial condition.

We rely on third parties for the success of
our marketing efforts.

We depend in part upon the assistance of
marketing partners who include some or all of our services and
related products as a part of their offerings to financial
institutions. Failure by these marketing partners to continue to
offer our services and related products could have a material
adverse effect on our business.

We may not be able to expand to meet increased
demand.

We may not be able to expand or adapt our
services and related products to meet the demands of our
financial institution clients and their customers quickly or at
a reasonable cost. The number of customers registered for our
services has increased from 21,000 as of December 31, 1997
to 623,000 as of December 31, 2002. This resulting growth
has placed, and is expected to continue to place, significant
demands on our personnel, management and other resources. We
will need to continue to expand and adapt our infrastructure,
services and related products to accommodate additional
financial institution clients and their customers, increased
transaction volumes and changing customer requirements. This
will require

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substantial financial, operational and management
resources. If we are unable to scale our system and processes to
support the variety and number of transactions and customers who
ultimately use our services, our business may be materially
adversely affected.


If we lose a material client, our business may
be adversely impacted.

Loss of any material financial institution
contract could negatively impact our ability to increase our
revenues and maintain profitability in the future. Additionally,
the departure of a large financial institution could impact our
ability to attract and retain other financial institution
clients.

One of our financial institution clients,
California Federal Bank, accounted for 15%, 13% and 14% of our
revenue for the years ended December 31, 2002, 2001 and
2000. During 2002, Citigroup acquired California Federal Bank or
Cal Fed, and expects to convert the Cal Fed customers to the
Citigroup banking and bill payment platform in the first quarter
of 2003.

Additionally, BB&T Corporation has announced
its intention to acquire our second largest customer, First
Virginia Banks, Inc., in the third quarter of 2003. We have
received no definitive notification from First Virginia as to
the impact of the acquisition, however, the acquisition may
result in the migration of First Virginias business to a
platform utilized by BB&T. For the year ended
December 31, 2002, First Virginia accounted for 5% of our
revenue.

Consolidation of the banking and financial
services industry could negatively impact our
business.

The continuing consolidation of the banking and
financial services industry could result in a smaller market for
our services. Consolidation frequently results in a complete
change in the electronic infrastructure of the combined entity.
This could result in the termination of our services and related
products if the acquiring institution has its own in-house
system or outsources to competitive vendors. This would also
result in the loss of revenue from actual or potential retail
customers of the acquired financial institution.

We may not be able to compete with larger,
more established businesses offering similar products or
services.

We may not be able to compete with current and
potential competitors, many of whom have longer operating
histories, greater name recognition, larger, more established
customer bases and significantly greater financial, technical
and marketing resources. Further, some of our competitors
provide or have the ability to provide the same range of
services we offer. They could market to our targeted regional
and community financial institution client base. Other
competitors, such as core banking processors, have broad
distribution channels that bundle competing products directly to
financial institutions. Also, competitors may compete directly
with us by adopting a similar business model or through the
acquisition of companies, such as resellers, who provide
complimentary products or services.

A significant number of companies offer portions
of the services we provide and compete directly with us. For
example, the web servers of some companies compete with our
front-end Internet access capabilities. Other software providers
have created units to provide on an outsourced basis a portion
of services like ours. These companies may use bill payers who
team with access providers. Also, certain services may be
available to retail customers independent of financial
institutions such as Intuits Quicken.com and Yahoo!
Finance. Finally, there are some ATM and other networks that
provide similar services in addition to connecting to financial
institutions.

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Many of our competitors may be able to afford
more extensive marketing campaigns and more aggressive pricing
policies in order to attract financial institutions. Our failure
to compete effectively in our markets would have a material
adverse effect on our business.

System failures could hurt our business and we
could be liable for some types of failures.

Like other system operators, our operations are
dependent on our ability to protect our system from interruption
caused by damage from fire, earthquake, power loss,
telecommunications failure, unauthorized entry or other events
beyond our control. Although we have an agreement with an
offsite disaster recovery facility, Exodus, in the event of
major disasters, both locations could be equally impacted. We do
not currently have sufficient backup facilities to provide full
Internet services, if the Cable & Wireless facility is
not functioning. We could also experience system interruptions
due to the failure of our systems to function as intended or the
failure of the systems we rely upon to deliver our services such
as ATM networks, the Internet, or the systems of financial
institutions, processors that integrate with our systems and
other networks and systems of third parties. Loss of all or part
of our systems for a period of time could have a material
adverse effect on our business. We may be liable to our clients
for breach of contract for interruptions in service. Due to the
numerous variables surrounding system disruptions, we cannot
predict the extent or amount of any potential liability.

Security breaches could disrupt our
business.

Like other system operators, our computer systems
may be vulnerable to computer viruses, hackers, and other
disruptive problems caused by unauthorized parties entering our
system. We transmit confidential financial information in
providing our services. Although we intend to continue to
implement state-of-the-art security measures, computer attacks
or disruptions may jeopardize the security of information stored
in and transmitted through the computer systems of our financial
institution clients and their customers using our services,
which may result in significant losses or liability. This, or
the perception and concern that our systems may be vulnerable to
such attacks or disruptions, also may deter retail customers
from using our services.

Data networks are also vulnerable to attacks,
unauthorized access and disruptions. For example, in a number of
public networks, hackers have bypassed firewalls and
misappropriated confidential information. It is possible, that
despite existing safeguards, an employee could divert retail
customer funds while these funds are in our control, exposing us
to a risk of loss or litigation and possible liability. In
dealing with numerous consumers, it is possible that some level
of fraud or error will occur, which may result in erroneous
external payments. Losses or liabilities that we incur as a
result of any of the foregoing 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
Internet banking and bill payment could negatively impact our
business.

The industry for Internet banking services and
bill payment services is relatively new and unproven and is
subject to rapid change. Our success will depend substantially
upon our ability to enhance our existing products and to develop
and introduce, on a timely and cost-effective basis, new
products and features that meet the changing financial
institution and retail customer requirements and incorporate
technological advancements. If we are unable to develop new
products and enhanced functionalities or technologies to adapt
to these changes or if we cannot offset a decline in revenues of
existing products by sales of new products, our business would
suffer.

Our newly developed products may contain
undetected or unresolved defects.

Any new or enhanced products we introduce may
contain undetected or unresolved software or hardware defects
when they are first introduced or as new version are released.
These defects could result in a loss of sales and additional
costs as well as damage to our reputation and the loss of
relationship with our financial institution clients and their
customers.

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We depend on our officers and skilled
employees due to our complex business.

If we fail to attract, assimilate or retain
highly qualified managerial and technical personnel our business
could be materially adversely affected. Our performance is
substantially dependent on the performance of our executive
officers and key employees who must be knowledgeable and
experienced in both banking and technology. We are also
dependent on our ability to retain and motivate high quality
personnel, especially management and highly skilled technical
teams. The loss of the services of any executive officers or key
employees could have a material adverse effect on our business.
Our future success also depends on the continuing ability to
identify, hire, train and retain other highly qualified
managerial and technical personnel. If our managerial and key
personnel fail to effectively manage our business, our results
of operations and reputation could be harmed.

Potential litigation and liability claims may
have a material adverse effect on the operations, financial
performance and cash flows.

Our industry in general is susceptible to
litigation, liability claims and risks. Any negative outcome in
any significant legal proceeding or prolonged litigation may
result in material losses to us. Any errors, defects or other
performance problems in our products and services could result
in financial or other damages to our financial institutions for
which we may be liable. Moreover, we may be liable for
transactions executed using Internet services based on our
products and services even if the errors, defects or other
problems are unrelated to our products and services.

Management and directors have the ability to
control our corporate affairs.

As of February 28, 2003, management and
directors beneficially owned approximately 20% of our
outstanding common stock. As a result, they may have the ability
to effectively control us and direct our affairs and business,
including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also
have the effect of delaying, deferring or preventing a change in
control, and make some transactions more difficult or impossible
without the support of such stockholders, including proxy
contests, mergers, tender offers, open-market purchase programs
or other purchases of common stock that could give our
stockholders the opportunity to realize a premium over the
then-prevailing market price for shares of common stock.

Our stock price is volatile.

The market price of our common stock has been
subject to significant fluctuations and may continue to be
volatile in response to:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | 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;     
|
| |  | 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.                                                 

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The stock market in general and the Nasdaq
National Market have experienced extreme price and volume
fluctuations and volatility that has particularly affected the
market prices of many technology, emerging growth and
developmental stage companies. Such fluctuations and volatility
have often been unrelated or disproportionate to the operating
performance of such companies. In the past, following periods of
volatility in the market price of a companys securities,
securities class action litigation has often been instituted
against a company. Litigation, if instituted, whether or not
successful, could result in substantial costs and a diversion of
managements attention and resources, which would have a
material adverse effect on our business.

Government regulation could interfere with our
business.

The financial services industry is subject to
extensive and complex federal and state regulation. Financial
institutions such as commercial banks, savings and loans
associations, savings banks, and credit unions operate under
high levels of governmental supervision. Our customers must
ensure that our services and related products work within the
extensive and evolving regulatory requirements applicable to
them.

Neither federal depository institution regulators
nor other federal regulators of financial services require us to
obtain any licenses. We are subject to examination by federal
depository institution regulators under the Bank Service Company
Act, the Examination Parity and Year 2000 Readiness for
Financial Institutions Act and the Gramm Leach Bliley Act of
1999. Although we believe we are not subject to direct
supervision by federal and state banking agencies relating to
other regulations, we have from time to time agreed to
examinations of our business and operations by these agencies.
These regulators have broad supervisory authority to remedy any
shortcomings identified in any such examination.

Federal, state or foreign authorities could also
adopt laws, rules or regulations relating to the financial
services industry that affect our business, such as requiring us
or our customers to comply with data, record keeping and
processing and other requirements. It is possible that laws and
regulations may be enacted or modified with respect to the
Internet, covering issues such as end user privacy, pricing,
content, characteristics, taxation and quality of services and
products. If enacted or deemed applicable to us, these laws,
rules or regulations could be imposed on our activities or our
business, thereby rendering our business or operations more
costly, burdensome, less efficient or impossible and requiring
us to modify our current or future products or services.

If we cannot achieve and maintain a
satisfactory rating from the federal depository institution
regulators, we may lose existing clients and have difficulty
attracting new clients.

We are subject to examination by the Federal
Financial Institutions Examination Council, FFIEC, under the
Bank Service Company Act, the Gramm-Leach-Bliley Act of 1999,
and various other federal regulations. In our most recent
examination report, dated as of March 2002, these regulators
noted several opportunities for improvement in our documentation
and operations, and we received a less satisfactory rating than
we had in our previous examination. This examination report has
been distributed, or is available to our client financial
institutions through their regulatory agencies. This less
satisfactory rating increases the obligation of our clients to
monitor our capabilities and performance as a part of their own
compliance process.

We have taken the appropriate steps to mitigate
the regulators concerns, and based on these efforts, it is
our understanding that they do not intend to take any further
actions prior to our next examination, which we expect to occur
during 2003. If we do not improve our rating to at least the
level achieved in our previous examination, our financial
institution clients and prospects may lose confidence in us and
seek alternate providers. This would affect our revenue and
revenue growth and could lower our profit margins.

We have a substantial number of shares of
common stock that may be sold, which could affect the trading
prices of our common stock and the convertible notes.

We have a substantial number of shares of common
stock subject to stock options and warrants and the convertible
notes may be converted into shares of common stock. We cannot
predict the effect, if any, that future sales of shares of
common stock or convertible notes, or the availability of shares
of common stock or

17



---



##### 



convertible notes for future sale, will have on
the market price of our common stock or convertible notes. Sales
of substantial amounts of common stock (including shares issued
upon the exercise of stock options or warrants or the conversion
of the convertible notes), or the perception that such sales
could occur, may adversely affect prevailing market prices for
our common stock and convertible notes.


We may not be able to meet the maintenance
standards for continued listing on The Nasdaq National
Market.

On February 26, 2003, the Company received
notice from the Nasdaq Stock Market that it would be delisted
from the Nasdaq National Market at the opening of business on
March 6, 2003. This notice was received because the Company
did not comply with the continued listing requirements for
inclusion in the National Market. The Company is appealing this
notice on the basis that it expects to be able to regain
compliance within a reasonable time period. If its appeal is
denied, or it cannot regain compliance, the Company will apply
for listing on the Nasdaq SmallCap Market, for which it is
currently, and expects to remain, qualified. Failing to meet the
requirements for inclusion in the National Market will adversely
affect the interests of our shareholders.

Our stockholder rights plan contains
provisions that could discourage a takeover.

On January 15, 2002, we announced that our
Board of Directors has adopted a stockholder rights plan. This
plan along with provisions contained in our Certificate of
Incorporation may discourage or prevent a change of control
through the issuance of additional equity securities that can
substantially dilute the interests of a third party seeking to
gain control over our company in the absence of the approval of
our Board of Directors.

Terrorism and the possibility of further acts
of violence may have a material adverse effect on our
operations.

War, the threat of war, terrorist attacks, such
as the attacks that occurred on September 11, 2001, the
response by the United States and further acts of violence or
war may affect the market on which our common stock will trade,
the markets in which we operate, and our operations and
profitability. Further terrorist attacks against the United
States may occur. The potential near-term and long-term effect
of these attacks on our business, the market for our common
stock and the economy is uncertain. The consequences of any
terrorist attacks, or any armed conflicts that may result, are
unpredictable, and we may not be able to foresee events that
could have an adverse material effect on our business or the
trading price of our common stock.



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

We are headquartered in McLean, Virginia where we
lease approximately 54,000 square feet of office space. The
lease expires July 31, 2004. We believe that all of our
facilities are in good condition and are suitable and adequate
to meet our operations. Additionally, we believe that suitable
additional or alternative space will be available in the future
on commercially reasonable terms as needed.



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

From time to time we may be involved in
litigation arising in the normal course of our business. We are
not a party to any litigation, individually or in the aggregate,
that we believe would have a material adverse effect on our
financial condition or results of operations.



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

No matters were submitted to a vote of security
holders, through the solicitation of proxies or otherwise,
during the fourth quarter of 2002.

18



---



##### 



PART II

Item 5. Market for the
Registrants Common Equity and Related Stockholder
Matters

(a) Market Information

Our common stock began trading on the Nasdaq
National Market on June 4, 1999 under the symbol
ORCC. The following table sets forth the range of
high and low closing sales prices of our common stock for the
periods indicated, as reported by Nasdaq:

|                     |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|                     |  |      |       |     
|                     |  | 2002 |       | 2001
|                     |  |      |       |     
|Fiscal Quarter Ended |  | High |       | Low  |  | High |       | Low
|                     |  |      |       |      |  |      |       |    
|First Quarter        |  | $    | 3.300 |      |  | $    | 2.600 |     |  | $ | 4.000 |  |  | $ | 1.750 | 
|Second Quarter       |  |      | 3.850 |      |  |      | 2.800 |     |  |   | 2.980 |  |  |   | 1.375 | 
|Third Quarter        |  |      | 3.140 |      |  |      | 2.510 |     |  |   | 2.400 |  |  |   | 1.160 | 
|Fourth Quarter       |  |      | 4.640 |      |  |      | 2.700 |     |  |   | 3.730 |  |  |   | 0.970 | 

The market price of our common stock is highly
volatile and fluctuates in response to a wide variety of
factors. See Business  Risk Factors 
Our Stock Price is Volatile.

(b) Holders

On March 27, 2003, we had approximately 270
holders of record of common stock. This does not reflect persons
or entities that hold their stock in nominee or
street name through various brokerage firms.

(c) Dividends

We have not paid any cash dividends on our common
stock. We expect to invest any future earnings to finance
growth, and therefore do not intend to pay dividends in the
foreseeable future. Our board of directors will determine if we
pay any future dividends.

19



---



##### 





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

The following balance sheet data and statements
of operations were derived from our financial statements. You
should read the following selected financial information in
conjunction with our financial statements and related notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations included
elsewhere in this report.

|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ---------------------- | ---------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | - | ----------- | --------- | ---------- | - | ----------- | --------- | --------- | 
|                                                                                                                                 |                                   |                       
|                                                                                                                                 |                                   | Year Ended December 31
|                                                                                                                                 |                                   |                       
|                                                                                                                                 |                                   | 2002                   |            | 2001       |            | 2000 |             | 1999       |            | 1998
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |     
|Statement of Operations Data:                                                                                                    |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Revenues:                                                                                                                        |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|                                                                                                                                 | Service fees                      |                        | $          | 30,049,947 |            |      | $           | 22,108,832 |            |      | $           | 13,311,370 |            |   | $           | 6,378,175 |            |   | $           | 2,866,048 |          
|                                                                                                                                 | Implementation and other revenues |                        |            | 2,304,236  |            |      |             | 2,526,931  |            |      |             | 2,332,940  |            |   |             | 2,067,360 |            |   |             | 1,460,056 |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|                                                                                                                                 |                                   | Total revenues         |            |            | 32,354,183 |      |             |            | 24,635,763 |      |             |            | 15,644,310 |   |             |           | 8,445,535  |   |             |           | 4,326,104 | 
|                                                                                                                                 | Cost of revenues                  |                        |            | 14,627,981 |            |      |             | 14,313,734 |            |      |             | 13,170,656 |            |   |             | 9,081,269 |            |   |             | 6,289,462 |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Gross profit (loss)                                                                                                              |                                   |                        | 17,726,202 |            |            |      | 10,322,029  |            |            |      | 2,473,654   |            |            |   | (635,734    | )         |            |   | (1,963,358  | )        
|                                                                                                                                 | General and administrative        |                        |            | 7,037,884  |            |      |             | 6,930,462  |            |      |             | 6,370,848  |            |   |             | 3,894,475 |            |   |             | 2,705,029 |          
|                                                                                                                                 | Sales and marketing               |                        |            | 5,368,177  |            |      |             | 5,931,222  |            |      |             | 8,972,094  |            |   |             | 5,266,044 |            |   |             | 3,377,728 |          
|                                                                                                                                 | Systems and development           |                        |            | 4,344,765  |            |      |             | 5,854,866  |            |      |             | 6,246,174  |            |   |             | 3,998,936 |            |   |             | 2,444,615 |          
|                                                                                                                                 | Non-recurring charges             |                        |            |           |            |      |             | 209,434    |            |      |             |           |            |   |             |          |            |   |             |          |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|                                                                                                                                 |                                   | Total expenses         |            |            | 16,750,826 |      |             |            | 18,925,984 |      |             |            | 21,589,116 |   |             |           | 13,159,455 |   |             |           | 8,527,372 | 
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Income (loss) from operations                                                                                                    |                                   |                        | 975,376    |            |            |      | (8,603,955  | )          |            |      | (19,115,462 | )          |            |   | (13,795,189 | )         |            |   | (10,490,730 | )        
|Other (expense) income                                                                                                           |                                   |                        | (1,380,959 | )          |            |      | (2,291,756  | )          |            |      | 501,680     |            |            |   | (34,045     | )         |            |   | (1,067,739  | )        
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Loss before extraordinary item and change in
    accounting principle                                                            |                                   |                        | (405,583   | )          |            |      | (10,895,711 | )          |            |      | (18,613,782 | )          |            |   | (13,829,234 | )         |            |   | (11,558,469 | )        
|Extraordinary gain (loss) from
    extinguishment of debt (1)                                                                    |                                   |                        |           |            |            |      | 1,083,153   |            |            |      |            |            |            |   | (885,407    | )         |            |   |            |          
|Change in accounting principle (2)                                                                                               |                                   |                        |           |            |            |      |            |            |            |      | (216,818    | )          |            |   |            |           |            |   |            |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Net loss                                                                                                                         |                                   |                        | (405,583   | )          |            |      | (9,812,558  | )          |            |      | (18,830,600 | )          |            |   | (14,714,641 | )         |            |   | (11,558,469 | )        
|Preferred stock accretion                                                                                                        |                                   |                        |           |            |            |      |            |            |            |      |            |            |            |   | (2,236,716  | )         |            |   | (3,779,169  | )        
|Beneficial return on preferred shares (3)                                                                                        |                                   |                        |           |            |            |      |            |            |            |      |            |            |            |   | (2,668,109  | )         |            |   |            |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Net loss available for common shareholders                                                                                       |                                   | $                      | (405,583   | )          |            | $    | (9,812,558  | )          |            | $    | (18,830,600 | )          |            | $ | (19,619,466 | )         |            | $ | (15,337,638 | )        
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Basic and diluted loss per share                                                                                                 |                                   | $                      | (0.03      | )          |            | $    | (0.82       | )          |            | $    | (1.64       | )          |            | $ | (2.45       | )         |            | $ | (3.83       | )        
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Pro forma, assuming the change in accounting
    principle is accounted for retroactively: (4) Net loss available
    for common |                                   |                        |            |            |            |      |             |            |            | $    | (18,613,782 | )          |            | $ | (19,482,536 | )         |            | $ | (15,349,480 | )        
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Basic and diluted loss per share                                                                                                 |                                   |                        |            |            |            |      |             |            |            | $    | (1.62       | )          |            | $ | (2.43       | )         |            | $ | (3.83       | )        
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          
|Shares used in calculation of basic and diluted
    loss per share                                                               |                                   |                        | 13,520,642 |            |            |      | 12,026,476  |            |            |      | 11,487,192  |            |            |   | 8,010,331   |           |            |   | 4,009,713   |          
|                                                                                                                                 |                                   |                        |            |            |            |      |             |            |            |      |             |            |            |   |             |           |            |   |             |          




|    |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On June 10, 1999, we used $9.4 million
    of the net proceeds from our initial public offering to pay off
    corporate debt, which payment resulted in a one-time charge of
    $885,407. In May 2001, we used $2.2 million of the net
    proceeds from our debt offering to pay off $3.5 million of
    the 8% convertible subordinated notes, which payments resulted
    in a one-time gain of $1,083,153.
|   
|(2) | In the fourth quarter of 2000, we adopted a
    change in accounting principle for implementation fees,
    retroactive to January 1, 2000, as newly pronounced by
    Staff Accounting Bulletin 101 (SAB 101),
    Revenue Recognition in Financial Statements, on a
    cumulative effect basis.                                                                                                            
|   
|(3) | We recorded a deemed beneficial return on the
    Series C preferred stock issued during the first three
    months of 1999, due to these shares being convertible into
    common stock at a discount from fair value at the date of
    issuance.                                                                                                                                                             
|   
|(4) | Pro forma (as if) amounts, assuming retroactive
    application of SAB 101 for period of change and all prior
    periods presented.                                                                                                                                                                                                                                                                            

20



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##### 



|                                                |  |                        |            |      |  |      |            |      |  |      |            |  |  |   |            |  |  |   |             |  
|----------------------------------------------- |  | ---------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- |  |  | - | ----------- | -
|                                                |  |                       
|                                                |  | Year Ended December 31
|                                                |  |                       
|                                                |  | 2002                   |            | 2001 |  | 2000 |            | 1999 |  | 1998
|                                                |  |                        |            |      |  |      |            |      |  |     
|Balance Sheet Data:                             |  |                        |            |      |  |      |            |      |  |      |            |  |  |   |            |  |  |   |             |  
|Cash, cash equivalents and investments          |  | $                      | 6,785,827  |      |  | $    | 7,703,622  |      |  | $    | 21,459,931 |  |  | $ | 21,494,116 |  |  | $ | 3,872,605   |  
|Working capital                                 |  |                        | 8,650,044  |      |  |      | 8,785,201  |      |  |      | 21,338,693 |  |  |   | 20,895,369 |  |  |   | 580,376     |  
|Total assets                                    |  |                        | 21,329,940 |      |  |      | 21,521,614 |      |  |      | 35,128,428 |  |  |   | 29,217,175 |  |  |   | 9,421,428   |  
|Notes payable, less current portion             |  |                        | 12,000,000 |      |  |      | 13,000,000 |      |  |      | 20,000,000 |  |  |   |           |  |  |   | 8,525,467   |  
|Capital lease obligations, less current portion |  |                        | 111,491    |      |  |      | 348,552    |      |  |      | 232,125    |  |  |   | 329,480    |  |  |   | 605,322     |  
|Put option liability                            |  |                        |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   | 362,700     |  
|Other non-current liabilities                   |  |                        | 355,662    |      |  |      | 566,539    |      |  |      | 1,193,404  |  |  |   |           |  |  |   | 193,400     |  
|Total liabilities                               |  |                        | 15,831,810 |      |  |      | 17,183,999 |      |  |      | 25,923,458 |  |  |   | 3,750,141  |  |  |   | 14,833,950  |  
|Redeemable convertible preferred stock          |  |                        |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   | 25,776,254  |  
|Series A convertible preferred stock            |  |                        |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   | 7,950       |  
|Stockholders equity (deficit)                  |  |                        | 5,498,130  |      |  |      | 4,337,615  |      |  |      | 9,204,970  |  |  |   | 25,467,034 |  |  |   | (31,188,776 | )

Supplementary Financial Information

The following is a summary of unaudited quarterly
results of operations for the year ended December 31, 2002
and 2001.

|                            |  |               |           |          |  |               |           |              |  |   |           |  |  |   |           | 
|--------------------------- |  | ------------- | --------- | -------- |  | ------------- | --------- | ------------ |  | - | --------- |  |  | - | --------- | 
|                            |  |              
|                            |  | Quarter Ended
|                            |  |              
|                            |  | March 31,     |           | June 30, |  | September 30, |           | December 31,
|                            |  | 2002          |           | 2002     |  | 2002          |           | 2002        
|                            |  |               |           |          |  |               |           |             
|Total revenues              |  | $             | 7,827,379 |          |  | $             | 7,878,977 |              |  | $ | 8,151,876 |  |  | $ | 8,495,951 | 
|Gross profit                |  |               | 3,893,627 |          |  |               | 4,205,253 |              |  |   | 4,613,082 |  |  |   | 5,014,240 | 
|Net (loss) income           |  | $             | (806,722  | )        |  | $             | (133,068  | )            |  | $ | 92,593    |  |  | $ | 441,614   | 
|                            |  |               |           |          |  |               |           |              |  |   |           |  |  |   |           | 
|Net (loss) income per share |  | $             | (0.06     | )        |  | $             | (0.01     | )            |  | $ | 0.01      |  |  | $ | 0.03      | 

|                                             |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|-------------------------------------------- |  | ------------- | ---------- | -------- |  | ------------- | ---------- | ------------ |  | - | ---------- | - |  | - | ---------- | -
|                                             |  |              
|                                             |  | Quarter Ended
|                                             |  |              
|                                             |  | March 31,     |            | June 30, |  | September 30, |            | December 31,
|                                             |  | 2001          |            | 2001     |  | 2001          |            | 2001        
|                                             |  |               |            |          |  |               |            |             
|Total revenues                               |  | $             | 5,563,490  |          |  | $             | 6,008,203  |              |  | $ | 6,374,562  |   |  | $ | 6,689,508  |  
|Gross profit                                 |  |               | 1,915,711  |          |  |               | 2,448,695  |              |  |   | 2,812,901  |   |  |   | 3,144,722  |  
|Loss before extraordinary gain               |  |               | (3,361,965 | )        |  |               | (2,692,359 | )            |  |   | (3,108,429 | ) |  |   | (1,732,958 | )
|                                             |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|Net loss                                     |  | $             | (3,361,965 | )        |  | $             | (1,609,206 | )            |  | $ | (3,108,429 | ) |  | $ | (1,732,958 | )
|                                             |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|Net loss per share before extraordinary gain |  | $             | (0.29      | )        |  | $             | (0.23      | )            |  | $ | (0.26      | ) |  | $ | (0.13      | )
|Net loss per share                           |  | $             | (0.29      | )        |  | $             | (0.14      | )            |  | $ | (0.26      | ) |  | $ | (0.13      | )



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

The following discussion should be read in
conjunction with the financial statements and related notes
included elsewhere in this report. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of
factors including, but not limited to, those under
BusinessRisk Factors and elsewhere in this
report.

21



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##### 



Overview

We are a leading outsourcer of Internet banking,
payment and customer contact services to financial institution
clients nationwide. Our services, branded in the clients
name, integrate seamlessly into a single-vendor, end-to-end
solution, supported by 24x7 customer care, targeted consumer
marketing, training and other network and technical professional
products and services.

Registered customers are the major driver of our
revenue. The number of customers using our services increased by
39% in 2002, resulting in a 31% increase in revenue. While we
have seen some reduction in recurring revenue per user, this has
been more than offset by declining costs. In 2002, we held our
cost of revenue flat, driving down our recurring cost per user
by 48% and increasing our gross margin by 13 percentage
points.

We have long-term service contracts with our
financial institution clients. The majority of our revenue is
recurring, though these contracts also provide for
implementation, set-up and other non-recurring fees. Internet
banking services revenue is based either on a monthly license
fee allowing our financial institution client to register an
unlimited number of customers, or on a monthly fee for each
registered customer. Payment services revenue is based on either
a monthly fee for each customer enrolled, a fee per executed
transaction, or a combination of the two. Our financial
institution clients pay all of our fees and then determine if or
how they want to pass these costs on to their customers. They
typically provide Internet banking services to customers free of
charge, as they derive significant potential benefits including
account retention, delivery and paper cost savings, account
consolidation and cross-selling of other products. However,
almost all of our financial institution clients charge their
customers for providing payment services.

As a network-based service provider, we have made
substantial up-front investments in infrastructure, particularly
for our proprietary systems. While we continue to incur ongoing
development and maintenance costs, we believe the infrastructure
we have built provides us with significant operating leverage.
Beginning in 2003, we are undertaking an effort to upgrade and
rewrite certain of our applications infrastructure over a period
of two to three years. We expect that this effort will require
incremental capital expenditures, primarily for additional
development labor, of between $3.0 million and
$5.0 million over that period.

We continue to automate processes and develop
applications that allow us to make only small increases in labor
and other operating costs relative to increases in customers and
transactions. We believe our financial and operating performance
will be based primarily on our ability to leverage additional
users and transactions over this relatively fixed cost base.

Critical Accounting Policies

The policies discussed below are considered by
management to be critical to an understanding of our financial
statements because their application places the most significant
demands on managements judgment, with financial reporting
results relying on estimation about the effect of matters that
are inherently uncertain. Specific risks for these critical
accounting policies are described in the following paragraphs.
For all of these policies, management cautions that future
events rarely develop exactly as forecast, and the best
estimates routinely require adjustment.

The provision for losses on accounts receivable
and allowance for doubtful accounts are recognized based on our
estimate, which considers our historical loss experience,
including the need to adjust for current conditions, and
judgments about the probable effects of relevant observable data
and financial health of specific customers. Our provision for
losses on accounts receivable was approximately $88,000 on
revenues of $32.4 million and we charged $46,000 against
the allowance for doubtful accounts during the year ended
December 31, 2002. At December 31, 2002 the allowance
for doubtful accounts was $77,000, which represents
managements estimate of the probable losses in the
accounts receivable balance at December 31, 2002. While the
allowance for doubtful accounts and the provision for losses on
accounts receivable depend to a large degree on future
conditions, management does not forecast significant adverse
developments in 2003.

Property and equipment, including leasehold
improvements, are recorded at cost. Software and hardware
consisting of central processing systems and terminals represent
the majority of the property and equipment

22



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and is potentially subject to technological
changes and obsolescence. Depreciation is calculated using the
straight-line method over the estimated useful lives of the
related assets, which is generally five years. Equipment
recorded under capital leases is amortized over the estimated
useful life of the asset.


The Company capitalizes the cost of computer
software developed or obtained for internal use in accordance
with Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use. Capitalized computer software costs consist primarily
of payroll-related and consulting costs incurred during the
development stage. The Company expenses costs related to
preliminary project assessments, research and development,
re-engineering, training and application maintenance as they are
incurred. Capitalized software costs are being depreciated on a
straight-line method over a period of three years upon being
placed in service. We periodically evaluate the assets for
recoverability when events or circumstances indicate a potential
impairment.

We generate revenue from service fees,
implementation fees, and other supporting services. Revenue from
service fees and other supporting services are recognized over
the term of the contract as the services are provided.
Termination fees are recognized at the time the service is
discontinued. Implementation revenue is recognized according to
SEC Staff Accounting Bulletin No. 101  Revenue
Recognition in Financial Statements (SAB 101),
which we adopted effective January 1, 2000. Accordingly,
nonrefundable implementation fees for all contracts and the
related incremental direct costs of implementation activities
are recognized over the contract term as the services are
provided, which typically range from one to five years
(generally three years). We periodically assess the
recoverability of the deferred implementation costs and believe
that the future contractual cash flows are sufficient to cover
the carrying amount of the deferred implementation costs. Prior
to 2000, we recognized nonrefundable implementation fees as
revenue under the percentage of completion method as certain
milestone output measures were completed

Also see Note 2, Summary of Significant
Accounting Policies, which discusses accounting policies.

Financial Condition

While we achieved operating profitability and net
income profitability in the second and third quarters of 2002,
respectively, and expect our profitability to be sustainable, we
have historically experienced operating losses and negative cash
flow due to the initial costs of developing our infrastructure
and the early revenues typical of an emerging market segment. As
a result, at December 31, 2002 we had an accumulated
deficit of $85.7 million. We have funded our operations
primarily through the issuance of equity and debt securities,
and ongoing working capital requirements consist primarily of
personnel costs related to providing our services and operating,
enhancing and maintaining our systems.

Cash and investments in securities
available-for-sale were $6.8 and $7.7 million as of
December 31, 2002 and 2001, respectively. The $900,000
decrease in cash and investments resulted primarily from cash
used for capital expenditures of $3.7 million offset by
cash provided by operating activities of $2.7 million.
Total liabilities decreased from $17.2 million as of
December 31, 2001 to $15.8 million as of
December 31, 2002 primarily as a result of the conversion
of $1.0 million of 8% convertible subordinated notes (the
Convertible Notes). Accordingly, as of
December 31, 2002, $12.0 million of the Convertible
Notes, maturing on September 30, 2005, remained outstanding.

During 2002, Citigroup acquired our largest
client, California Federal Bank or Cal Fed, and expects to
convert the Cal Fed customers to the Citigroup banking and bill
payment platform in the first quarter of 2003. We have extended
our full service contract with Cal Fed through the first quarter
of 2003 and terminated a subsequent bill payment only contract
that was to run through 2005. In consideration of this extension
and termination, we will receive a combination of service and
termination fee revenue that will provide us with the expected
profit we would have earned from the bill payment only contract.
We expect that the majority of these fees will be recognized in
the first quarter of 2003, thereby significantly increasing
revenue and profits for that quarter. While there will then be a
subsequent decrease in revenue and profits for the second
quarter of 2003, we expect to remain EBITDA positive for that
quarter and experience continued growth in our non-Cal Fed
business. We also expect to return to net income profitability
in the second half of 2003. For the year ended December 31,
2002, we derived approximately $3.0 million in revenue from
the banking and customer

23



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care portion of services to Cal Fed and
approximately $1.3 million in revenue from the bill payment
portion of services. Cal Fed accounted for $4.8 million or
15% of our revenue for the year ended December 31, 2002.


Additionally, BB&T Corporation has announced
its intention to acquire our second largest customer, First
Virginia Banks, Inc., in the third quarter of 2003. Online
Resources has received no definitive notification from First
Virginia as to the impact of the acquisition, however, the
acquisition may result in the migration of First Virginias
business to a platform utilized by BB&T. Given the expected
timing of this transaction, any First Virginia migration would
likely have little or no effect on expected 2003 financial
performance. For the year ended December 31, 2002, we
derived approximately $1.0 million in revenue from the
banking and customer care portion of services to First Virginia
and approximately $0.6 million in revenue from the bill
payment portion of services. First Virginia accounted for
$1.7 million or 5% of our revenue for the year ended
December 31, 2002.

As with similar service providers, we are
vulnerable to a loss of business associated with the acquisition
of our clients. Though the loss of Cal Fed and the potential
loss of First Virginia may have a temporary impact on our
revenue base, the growth in usage among our remaining clients
and our ability to attract new clients remains unaffected. We
expect the departure of these clients to have little effect on
our long-term growth trends. Additionally, our remaining client
base contains very little concentration of revenues. If Cal Fed
and First Virginia are removed from our client base, no
remaining client accounts for more than 3% of revenue.

Results of Operations

The following table presents certain items
derived from our statements of operations expressed as a
percentage of revenue.

|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |      |       | 
|------------------------------------------------------- | --------------------------------- | ----------------------- | ---- | ---- | ----- | ---- | ----- | ---- | ----- |  | ------ | ---- | ----- | 
|                                                        |                                   |                        
|                                                        |                                   | Year Ended December 31,
|                                                        |                                   |                        
|                                                        |                                   | 2002                    |      | 2001 |       | 2000
|                                                        |                                   |                         |      |      |       |     
|Statement of Operations Data:                           |                                   |                         |      |      |       |      |       |      |       |  |        |     
|Revenues:                                               |                                   |                         |      |      |       |      |       |      |       |  |        |     
|                                                        | Service fees                      |                         |      | 92.9 | %     |      |       | 89.7 | %     |  |        | 85.1 | %    
|                                                        | Implementation and other revenues |                         |      | 7.1  |       |      |       | 10.3 |       |  |        | 14.9 |      
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     
|                                                        |                                   | Total revenues          |      |      | 100.0 |      |       |      | 100.0 |  |        |      | 100.0 | 
|Expenses:                                               |                                   |                         |      |      |       |      |       |      |       |  |        |     
|                                                        | Cost of revenues                  |                         |      | 45.2 |       |      |       | 58.1 |       |  |        | 84.2 |      
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     
|Gross profit                                            |                                   |                         | 54.8 |      |       |      | 41.9  |      |       |  | 15.8   |     
|                                                        | General and administrative        |                         |      | 21.8 |       |      |       | 28.1 |       |  |        | 40.7 |      
|                                                        | Sales and marketing               |                         |      | 16.6 |       |      |       | 24.1 |       |  |        | 57.4 |      
|                                                        | Systems and development           |                         |      | 13.4 |       |      |       | 23.7 |       |  |        | 39.9 |      
|                                                        | Non-recurring charges             |                         |      |     |       |      |       | 0.9  |       |  |        |     |      
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     
|                                                        |                                   | Total expenses          |      |      | 51.8  |      |       |      | 76.8  |  |        |      | 138.0 | 
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     
|Income (loss) from operations                           |                                   |                         | 3.0  |      |       |      | (34.9 | )    |       |  | (122.2 | )   
|Other (expense) income                                  |                                   |                         | (3.6 | )    |       |      | (4.8  | )    |       |  | 3.2    |     
|Debt conversion expense                                 |                                   |                         | (0.7 | )    |       |      | (4.5  | )    |       |  |       |     
|Extraordinary gain from the extinguishment of debt      |                                   |                         |     |      |       |      | 4.4   |      |       |  |       |     
|Cumulative effect of change in accounting
    principle |                                   |                         |     |      |       |      |      |      |       |  | (1.4   | )   
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     
|Net loss                                                |                                   |                         | (1.3 | )%   |       |      | (39.8 | )%   |       |  | (120.4 | )%  
|                                                        |                                   |                         |      |      |       |      |       |      |       |  |        |     

Year Ended December 31, 2002 Compared
to the Year Ended December 31, 2001

Revenue.We generate
revenue from service fees, implementation fees, and other
supporting services. Revenue increased $7.8 million, or
31%, to $32.4 million for the year ended December 31,
2002, from $24.6 million for the same period of 2001. This
increase was primarily attributable to a 36% increase in service
fees, which is primarily composed of three business lines,
Internet banking services, payment services and customer contact
services. During 2002, Internet banking services revenue
increased 7% to $5.9 million, driven

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by a increase of 38% in the number of year-end
banking customers offset by a 25% decrease in the average
monthly fee per banking customer. Payment services revenue
increased 48% to $15.3 million, driven by a 41% increase in
the number of year-end bill pay customers and a 46% increase in
the number of bill payment transactions processed during the
year. Customer contact services revenue increased 42% to
$8.9 million, driven by an increase of 39% in the number of
year-end customers utilizing either banking or bill payment
services.


Additionally, implementation and other revenues
decreased 9% to $2.3 million during 2002, primarily due to
a decrease in implementation fees resulting from a lower number
of new enabled clients. Also included in other revenues was
$0.5 million and $0.3 million from termination
payments during the years ended December 31, 2002 and 2001,
respectively. We signed 100 and enabled 49 financial
institutions for the year ended December 31, 2002,
increasing the total number of financial institutions under
contract at year-end to 534.

Cost of Revenue.Cost of revenue encompasses the direct
expenses associated with providing our services. These expenses
include telecommunications, payment processing, systems
operations, customer service, implementation and related
products. Cost of revenues increased by $0.3 million, or
2%, to $14.6 million for the year ended December 31,
2002, from $14.3 million for the same period in 2001. This
increase was primarily attributable to a $0.3 million
increase in bill payment processing costs, a $0.6 million
increase in implementation costs, a $0.2 million increase
in systems operations support costs offset by a
$0.8 million decrease in customer service costs. The
increases in payment processing costs, systems operations
support costs and implementation costs resulted from increases
in the number of billable customers and transactions and
increases in the cost of supporting our systems. The decrease in
customer service costs was due to reduction in headcount
resulting from technological efficiencies implemented during the
2002 year. Although total cost of revenue increased by 2%
in 2002, the recurring monthly cost per user decreased by 48%,
due to a 39% increase in the number of customers using our
services.

Gross Profit.Gross
profit increased to $17.7 million for the year ended
December 31, 2002 from $10.3 million for the same
period of 2001. Gross profit as a percentage of revenue improved
to 55% from 42% in the prior year, primarily due to increased
service fees leveraged over our relatively fixed cost of
revenue. Gross profit also improved as a result of improved
efficiency from technology development and cost control
initiatives.

General and Administrative.General and administrative expenses
primarily consist of salaries for executive, administrative and
financial personnel, consulting expenses and facilities costs
such as office leases, insurance, and depreciation. General and
administrative expenses increased $0.1 million, or 2%, to
$7.0 million in 2002, from $6.9 million in 2001. The
increase in general and administrative expenses is primarily
attributable to increased depreciation expenses resulting from
additional capital expenditures of $3.7 million, partially
offset by decreased compensation costs attributable to cost
control initiatives implemented in the fourth quarter of 2001.
General and administrative expenses as a percentage of revenue
decreased to 22% from 28% in the prior year.

Sales and Marketing.Sales and marketing expenses include
salaries and commissions paid to sales and marketing personnel,
consumer marketing costs, public relations costs, and other
costs incurred in marketing our services and products. Sales and
marketing expenses decreased $0.5 million, or 10%, to
$5.4 million in 2002, from $5.9 million in 2001. The
primary reason for the decrease in sales and marketing expenses
was a reduction in staff as a result of consolidating certain
client service responsibilities.

Systems and Development.Systems and development expenses
include salaries of personnel in the systems and development
department, consulting fees and all other expenses incurred in
supporting the research and development of new services and
products, and new technology to enhance existing products.
Systems and development expenses decreased $1.6 million, or
26%, to $4.3 million in 2002, from $5.9 million in
2001. The decrease in our systems and development expenses was
primarily due to a reduction in compensation costs and
consulting fees during the year. Additionally, in 2002 the
Company capitalized $1.1 million of development costs
associated with software developed or obtained for internal use.

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Income (Loss) from Operations.Income from operations increased $9.6
million, or 111%, to $1.0 million for the twelve months
ended December 31, 2002, from an $8.6 million loss in
2001. The significant increase in income from operations was
primarily due to increases in service fee revenue leveraged over
relatively fixed costs, and decreases in various operating
expenditures derived from our expense control initiatives.

Other Income and Expenses.Interest income decreased
$0.5 million, or 79%, to $0.1 million for the twelve
months ended December 31, 2002, from $0.6 million for
the same period of 2001. The decrease was due to the lower
average cash and investment balances and lower interest rates.
Interest and other expense decreased $0.5 million, or 28%,
to $1.3 million in 2002, as compared to $1.8 million
in 2001, as the result of lower interest expense and
amortization of debt issuance costs due to the conversion of
Convertible Notes. The conversion of $1.0 million in
Convertible Notes in March 2002 resulted in a non-cash debt
conversion expense of $0.2 million attributable to the
issuance of 45,031 incremental shares of common stock. Until
September 2005, unless the Convertible Notes are earlier
converted or repurchased, we will continue to incur interest
expense related to the Convertible Notes.

Net Loss and Loss Per Share.Net loss was $0.4 million for the
year ended December 31, 2002, compared to a loss of
$9.8 million for the same period of 2001. Basic and diluted
loss per share was $(0.03) and $(0.82) for the years ended
December 31, 2002 and 2001, respectively.

Year Ended December 31, 2001 Compared
to the Year Ended December 31, 2000

Revenue.We generate
revenue from service fees, implementation fees and other
supporting services. Revenues increased $9.0 million, or
58%, to $24.6 million for the year ended December 31,
2001 from $15.6 million for the same period in 2000. This
increase was primarily attributable to a 66% increase in service
fees, which is primarily composed of three product lines,
Internet banking services, payment services and customer contact
services. During 2001, Internet banking services revenue
increased 32% to $5.5 million, driven by an increase of 53%
in the number of year-end banking customers offset by a 34%
decrease in the average monthly fee per banking customer.
Payment services revenue increased 87% to $10.3 million,
driven by a 51% increase in the number of year-end bill pay
customers and a 92% increase in the number of bill payment
transactions. Customer contact services revenue increased 74% to
$6.3 million driven by an increase of 59% in the number of
year-end customers utilizing either banking or bill payment
services.

Additionally, implementation and other revenues
increased 8% to $2.5 million mainly due to an increase in
implementation revenue resulting from growth in the number of
financial institutions with whom we have contracted and enabled
on our services. Also included in other revenues was
$0.3 million and $0.4 million from termination
payments during the years ended December 31, 2001 and 2000,
respectively. We signed 50 and enabled 66 financial institutions
for the year ended December 31, 2001, increasing the total
number of financial institutions under contract at year-end to
472.

Cost of Revenue.Cost of revenue encompasses the direct
expenses associated with providing our services. These expenses
include telecommunications, payment processing, systems
operations, customer service, implementation and related
products. Cost of revenues increased $1.1 million, or 9%,
to $14.3 million for the year ended December 31, 2001,
from $13.2 million for the same period of 2000. This
increase was primarily attributable to a $0.7 million
increase in bill payment processing costs and a
$0.3 million increase in customer service costs. These
increases resulted from the increased number of billable
customers and transactions.

Gross Profit.Gross
profit increased to $10.3 million for the year ended
December 31, 2000, from $2.5 million for the same
period of 2001. Gross margin as a percentage of revenue improved
to 42% from 16% in the prior year, primarily due to increased
service fees and implementation revenue leveraged over our
relatively fixed cost of revenue. Gross margin for service fees
also improved as a result of improved efficiency from technology
development and cost control initiatives.

General and Administrative.General and administrative expenses
primarily consist of salaries for executive, administrative and
financial personnel, consulting expenses and facilities costs
such as office leases,

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insurance, and depreciation. General and
administrative expenses increased $0.5 million, or 9%, to
$6.9 million in 2001, from $6.4 million in 2000. The
increase in general and administrative expenses is attributable
to higher director and officer insurance premiums and
depreciation expenses resulting from capital expenditures of
$1.8 million. General and administrative expenses as a
percentage of revenue decreased to 28% from 41% in the prior
year.


Sales and Marketing.Sales and marketing expenses include
salaries and commissions paid to sales and marketing personnel,
consumer marketing costs, public relations costs, and other
costs incurred in marketing our services and products. Sales and
marketing expenses decreased $3.1 million, or 34%, to
$5.9 million in 2001, from $9.0 million in 2000. The
primary reasons for the decrease in sales and marketing expenses
were a decline in marketing, commission and advertising expenses
and a reduction in staff as a result of consolidating certain
client service responsibilities.

Systems and Development.Systems and development expenses
include salaries of personnel in the systems and development
department, consulting fees and all other expenses incurred in
supporting the research and development of new services and
products, and new technology to enhance existing products.
Systems and development expenses decreased $0.3 million, or
6%, to $5.9 million in 2001, from $6.2 million in
2000. The decrease in our systems and development expenses was
primarily due to a reduction in consulting fees.

Non-Recurring Charges.As a result of the reduction in staff
of approximately 9% on January 3, 2001, we incurred and
paid a one-time charge of $209,000 including severance costs and
benefit payments. The estimated benefit of the reduction in
staff was approximately $1.7 million for the year ended
December 31, 2001.

Loss from Operations.Loss from operations decreased
$10.5 million, or 55%, to $8.6 million as compared to
$19.1 million for the twelve months ended December 31,
2001 and 2000, respectively. The significant decrease in loss
from operations was primarily due to an increase in services
fees and gross profit driven by growth in our customer base and
decreases in various operating expenditures derived from our
expense control initiatives.

Other Income and Expenses.Interest income decreased
$0.5 million, or 43%, to $0.6 million for the twelve
months ended December 31, 2001, from $1.1 million for
the same period of 2000. The decrease was due to lower average
cash and investment balances and lower interest rates. Interest
and other expense increased $1.2 million, or 207%, to
$1.8 million in 2001, from $0.6 million in 2000, as
the result of the interest expense and amortization of debt
issuance costs in connection with the issuance of the
Convertible Notes. Until September 2005, unless the Convertible
Notes are earlier converted or repurchased, we will continue to
incur interest expense related to the Convertible Notes. The
conversion of $2.5 million and $1.0 million in
Convertible Notes in September and November 2001, respectively,
resulted in a non-cash debt conversion expense of
$1.1 million attributable to the issuance of 702,869
incremental shares of common stock.

Net Loss and Loss Per Share.Net loss was $9.8 million,
including a $1.1 million gain from repurchase of debt, for the
twelve months ended December 31, 2001, compared to a loss
of $18.8 million for the same period of 2000. Basic and
diluted loss per share was $(0.82) and $(1.64) for the years
ended December 31, 2001 and 2000, respectively.

Liquidity and Capital Resources

Since inception, we have primarily financed our
operations through private placements and public offerings of
our common and preferred stock and the issuance of debt. We have
also entered into various capital lease financing agreements.
Cash and investments in available for sale securities were
$6.8 million and $7.7 million as of December 31,
2002 and 2001, respectively. The $900,000 decrease in cash and
investments primarily results from cash used for capital
expenditures in the amount of $3.7 million being offset by
cash provided by operating activities of $2.7 million.

Net cash provided by operating activities was
$2.7 million for the year ended December 31, 2002 as
compared to net cash used of $9.6 million during the year
ended December 31, 2001. Cash provided by

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operating activities during the year ended
December 31, 2002 resulted primarily from income from
operations net of non-cash charges, while cash used in operating
activities in the year ended December 31, 2001 resulted
primarily from a net loss of $9.8 million.


Net cash used in investing activities for the
year ended December 31, 2002 was $2.6 million, which
reflected the net reduction of $1.1 million in securities
available-for-sale offset by $3.7 million in capital
expenditures. For the year ended December 31, 2001, net
cash provided by investing activities was $12.3 million, of
which approximately $14.1 million was provided from sales
of securities available-for-sale net of $1.8 million used
for capital expenditures.

Net cash provided by financing activities was
$3,300 in the year ended December 31, 2002 as compared to
net cash used in financing activities of $2.4 million in
the year ended December 31, 2001. Cash provided by
financing activities for the year ended December 31, 2002
resulted primarily from the issuance $0.3 million of common
stock offset by the repayment of capital lease obligations. For
the year ended December 31, 2001, cash used in financing
activities was primarily the result of the repurchase of
$3.5 million of Convertible Notes for $2.2 million.

We have no material commitments other than our
Convertible Notes and obligations under our operating and
capital leases. Our material commitments under these obligations
are as follows:

|                          |                   |       |            |            |  |      |           |           |  |            |         |         |  |   |            |            |  |   |   |   | 
|------------------------- | ----------------- | ----- | ---------- | ---------- |  | ---- | --------- | --------- |  | ---------- | ------- | ------- |  | - | ---------- | ---------- |  | - | - | - | 
|                          |                   | Total |            | 2003       |  | 2004 |           | 2005      |  | Thereafter
|                          |                   |       |            |            |  |      |           |           |  |           
|Convertible notes         |                   | $     | 12,000,000 |            |  | $    |          |           |  | $          |        |         |  | $ | 12,000,000 |            |  | $ |  |  
|Capital lease obligations |                   |       | 352,748    |            |  |      | 236,645   |           |  |            | 105,087 |         |  |   | 11,016     |            |  |   |  |  
|Operating lease           |                   |       | 1,958,711  |            |  |      | 1,229,253 |           |  |            | 729,458 |         |  |   |           |            |  |   |  |  
|                          |                   |       |            |            |  |      |           |           |  |            |         |         |  |   |            |            |  |   |   |  
|                          | Total obligations |       | $          | 14,311,459 |  |      | $         | 1,465,898 |  |            | $       | 834,545 |  |   | $          | 12,011,016 |  |   | $ |  | 
|                          |                   |       |            |            |  |      |           |           |  |            |         |         |  |   |            |            |  |   |   |  

Future capital requirements will depend upon many
factors, including the timing of research and product
development efforts and the expansion of our marketing effort.
We expect to continue to expend significant amounts on expansion
of facility infrastructure, ongoing research and development,
computer and related equipment, and personnel.

We currently believe that cash on hand and
investments will be sufficient to meet our current anticipated
cash requirements for at least the next twelve months. We expect
to have additional cash requirements over the next two to three
years because of efforts we are undertaking to upgrade and
rewrite certain of our infrastructure applications. We forecast
that all incremental expenses related to this undertaking can be
financed out of cash provided by operating activities.

We currently have $12.0 million of
Convertible Notes outstanding that come due in 2005. Convertible
Notes bear a fixed interest rate of 8.0% and are convertible to
common equity at a price of $4.00. We expect that some or all of
those Convertible Notes will convert to common equity on or
before their due date. If the Convertible Notes do not convert,
we may have to issue new debt or sell common equity in order to
repay these Convertible Notes.

There can be no assurance that additional capital
beyond the amounts currently forecasted by us will not be
required or that any such required additional capital will be
available on reasonable terms, if at all, at such time as
required. We intend to invest our cash in excess of current
operating requirements in marketable government, corporate and
mortgage-backed securities.

New Accounting Standards

The FASB issued Statement No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 rescinds Statement 4, which required all gains
and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related
income tax effect. As a result, the criteria in Opinion 30 will
now be used to classify those gains and losses. SFAS
No. 145 is effective for fiscal years beginning after
May 15, 2002. Provisions related to FASB Statement
No. 13 are effective for transactions occurring after

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May 15, 2002 and all other provisions are
effective for financial statements issued on or after
May 15, 2002. The Company expects that the impact of
adopting SFAS No. 145 will result in reclassifying prior
year extraordinary gains from extinguishment of debt so that
they are reflected as part of ordinary income.


Item 7A.Quantitative
and Qualitative Disclosures About Market Risk

We invest primarily in short-term, investment
grade, marketable government, corporate, and mortgage-backed
debt securities. The Companys interest income is most
sensitive to changes in the general level of U.S. interest
rates. We do not have operations subject to risks of foreign
currency fluctuations, nor do we use derivative financial
instruments in our operations or investment portfolio. We have
classified all of our investments as available-for-sale
financial instruments. The following table provides information
about our available-for-sale investments that are sensitive to
changes in interest rates.

|                                     |                   |                   |           |            |  |               |           |           |  |  |      |   | 
|------------------------------------ | ----------------- | ----------------- | --------- | ---------- |  | ------------- | --------- | --------- |  |  | ---- | - | 
|                                     |                   |                  
|                                     |                   | December 31, 2002
|                                     |                   |                  
|                                     |                   | Amortized Cost    |           | Fair Value |  | Interest Rate
|                                     |                   |                   |           |            |  |              
|U.S. government treasury obligations |                   | $                 | 3,422,947 |            |  | $             | 3,435,111 |           |  |  | 1.20 | %
|Mortgage backed securities           |                   |                   | 415,631   |            |  |               | 417,125   |           |  |  | 1.39 | %
|Commercial obligations               |                   |                   | 641,647   |            |  |               | 642,641   |           |  |  | 2.48 | %
|                                     |                   |                   |           |            |  |               |           |           |  |  |      |  
|                                     | Total investments |                   | $         | 4,480,225  |  |               | $         | 4,494,877 |  |  |      |   | 
|                                     |                   |                   |           |            |  |               |           |           |  |  |      |  

Long-term debt as of December 31, 2002 is
comprised of capital lease obligations with interest rates
ranging from 4% to 13% and Convertible Notes with an 8% fixed
interest rate. Since these Convertible Notes have a fixed
interest rate, we are not exposed to fluctuations in interest
rates in this portion of our long-term debt.

Item 8.     Financial
Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                      |  |   
|----------------------------------------------------- |  | --
|Report of Ernst & Young LLP, Independent
    Auditors |  | 30
|Balance Sheets                                        |  | 31
|Statements of Operations                              |  | 32
|Statements of Stockholders Equity                    |  | 33
|Statements of Cash Flows                              |  | 34
|Notes to Financial Statements                         |  | 35

29



---



##### 



REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Shareholders and Board of Directors

Online Resources Corporation


We have audited the accompanying balance sheets
of Online Resources Corporation as of December 31, 2002 and
2001, and the related statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2002. 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.
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. 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 Online Resources Corporation at December 31,
2002 and 2001, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 3 to the financial
statements, in 2000 the Company changed its methods of revenue
recognition for implementation revenue.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

McLean, Virginia

February 11, 2003, except for Note 15,


as to which the date is February 26, 2003


30



---



##### 



ONLINE RESOURCES CORPORATION

BALANCE SHEETS

|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |             |            | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ----------- | ---------- |  | ---------- | ----------- | ---------- | 
|                                                        |                                                                                                                                                                                                                                  |                                           
|                                                        |                                                                                                                                                                                                                                  | December 31,                              
|                                                        |                                                                                                                                                                                                                                  |                                           
|                                                        |                                                                                                                                                                                                                                  | 2002                                       |            | 2001       
|                                                        |                                                                                                                                                                                                                                  |                                            |            |            
|Assets                                                  |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|Current assets:                                         |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        | Cash and cash equivalents                                                                                                                                                                                                        |                                            | $          | 2,290,950   |            |  | $          | 2,120,252   |           
|                                                        | Investments                                                                                                                                                                                                                      |                                            |            | 4,494,877   |            |  |            | 5,583,370   |           
|                                                        | Accounts receivable (net of allowance of $77,000
    and $35,000 at December 31, 2002 and 2001, respectively)                                                                                                                    |                                            |            | 3,825,801   |            |  |            | 2,635,738   |           
|                                                        | Deferred implementation costs                                                                                                                                                                                                    |                                            |            | 631,087     |            |  |            | 965,552     |           
|                                                        | Prepaid expenses and other current assets                                                                                                                                                                                        |                                            |            | 771,986     |            |  |            | 749,197     |           
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total current assets                       |            |             | 12,014,701 |  |            |             | 12,054,109 | 
|Property and equipment, net                             |                                                                                                                                                                                                                                  |                                            | 7,804,229  |             |            |  | 6,813,123  |            
|Deferred implementation costs, less current
    portion |                                                                                                                                                                                                                                  |                                            | 401,051    |             |            |  | 707,960    |            
|Debt issuance costs                                     |                                                                                                                                                                                                                                  |                                            | 659,879    |             |            |  | 983,248    |            
|Other assets                                            |                                                                                                                                                                                                                                  |                                            | 450,080    |             |            |  | 963,174    |            
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total assets                               |            | $           | 21,329,940 |  |            | $           | 21,521,614 | 
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|Liabilities and stockholders
    equity                |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|Current liabilities:                                    |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        | Accounts payable                                                                                                                                                                                                                 |                                            | $          | 891,313     |            |  | $          | 724,684     |           
|                                                        | Accrued expenses and other current liabilities                                                                                                                                                                                   |                                            |            | 984,535     |            |  |            | 739,358     |           
|                                                        | Accrued compensation                                                                                                                                                                                                             |                                            |            | 743,107     |            |  |            | 613,848     |           
|                                                        | Deferred revenues                                                                                                                                                                                                                |                                            |            | 531,789     |            |  |            | 880,380     |           
|                                                        | Current portion of capital lease obligation                                                                                                                                                                                      |                                            |            | 213,913     |            |  |            | 310,638     |           
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total current liabilities                  |            |             | 3,364,657  |  |            |             | 3,268,908  | 
|Capital lease obligation, less current maturities       |                                                                                                                                                                                                                                  |                                            | 111,491    |             |            |  | 348,552    |            
|Deferred revenues, less current portion                 |                                                                                                                                                                                                                                  |                                            | 355,662    |             |            |  | 566,539    |            
|Notes payable                                           |                                                                                                                                                                                                                                  |                                            | 12,000,000 |             |            |  | 13,000,000 |            
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total liabilities                          |            |             | 15,831,810 |  |            |             | 17,183,999 | 
|Commitments                                             |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|Stockholders equity                                    |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        | Series A convertible preferred stock, $.01
    par value; 1,000,000 shares authorized, none issued at
    December 31, 2002 and 2001.                                                                                            |                                            |            |            |            |  |            |            |           
|                                                        | Series B junior participating preferred
    stock, $.01 par value; 297,500 shares authorized, none issued at
    December 31, 2002 and 2001.                                                                                     |                                            |            |            |            |  |            |            |           
|                                                        | Common stock, $.0001 par value; 35,000,000 shares
    authorized, 13,781,946 issued and 13,706,421 outstanding at
    December 31, 2002; and 13,293,238 issued and 13,248,390
    outstanding at December 31, 2001, respectively |                                            |            | 1,370       |            |  |            | 1,325       |           
|                                                        | Additional paid-in capital                                                                                                                                                                                                       |                                            |            | 91,410,356  |            |  |            | 89,937,671  |           
|                                                        | Accumulated deficit                                                                                                                                                                                                              |                                            |            | (85,700,448 | )          |  |            | (85,294,865 | )         
|                                                        | Deferred stock compensation                                                                                                                                                                                                      |                                            |            |            |            |  |            | (60,924     | )         
|                                                        | Treasury stock, 75,525 shares and 44,848 shares
    at December 31, 2002 and December 31, 2001,
    respectively                                                                                                                 |                                            |            | (227,800    | )          |  |            | (148,581    | )         
|                                                        | Accumulated other comprehensive income                                                                                                                                                                                           |                                            |            | 14,652      |            |  |            | 25,370      |           
|                                                        | Receivable from the sale of common stock                                                                                                                                                                                         |                                            |            |            |            |  |            | (122,381    | )         
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total stockholders equity                 |            |             | 5,498,130  |  |            |             | 4,337,615  | 
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            
|                                                        |                                                                                                                                                                                                                                  | Total liabilities and stockholders equity |            | $           | 21,329,940 |  |            | $           | 21,521,614 | 
|                                                        |                                                                                                                                                                                                                                  |                                            |            |             |            |  |            |            

See notes to financial statements.

31



---



##### 



ONLINE RESOURCES CORPORATION

STATEMENTS OF OPERATIONS

|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |             |            |            | 
|------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------------------------- | ---------- | ---------- | ---------- | ----------- | ---------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | 
|                                                                                           |                                                                                                                            |                        
|                                                                                           |                                                                                                                            | Year ended December 31,
|                                                                                           |                                                                                                                            |                        
|                                                                                           |                                                                                                                            | 2002                    |                              | 2001       |            | 2000      
|                                                                                           |                                                                                                                            |                         |                              |            |            |           
|Revenues:                                                                                  |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Service fees                                                                                                               |                         | $                            | 30,049,947 |            |            | $           | 22,108,832 |            |            | $           | 13,311,370  |           
|                                                                                           | Implementation and other revenues                                                                                          |                         |                              | 2,304,236  |            |            |             | 2,526,931  |            |            |             | 2,332,940   |           
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           |                                                                                                                            |                         | Total revenues               |            |            | 32,354,183 |             |            |            | 24,635,763 |             |             |            | 15,644,310 | 
|Costs and expenses:                                                                        |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Service costs                                                                                                              |                         |                              | 13,244,837 |            |            |             | 12,826,124 |            |            |             | 11,989,766  |           
|                                                                                           | Implementation and other costs                                                                                             |                         |                              | 1,383,144  |            |            |             | 1,487,610  |            |            |             | 1,180,890   |           
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           |                                                                                                                            | Costs of revenues       |                              |            | 14,627,981 |            |             |            | 14,313,734 |            |             |             | 13,170,656 |           
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           |                                                                                                                            | Gross profit            |                              |            | 17,726,202 |            |             |            | 10,322,029 |            |             |             | 2,473,654  |           
|                                                                                           | General and administrative                                                                                                 |                         |                              | 7,037,884  |            |            |             | 6,930,462  |            |            |             | 6,370,848   |           
|                                                                                           | Sales and marketing                                                                                                        |                         |                              | 5,368,177  |            |            |             | 5,931,222  |            |            |             | 8,972,094   |           
|                                                                                           | Systems and development                                                                                                    |                         |                              | 4,344,765  |            |            |             | 5,854,866  |            |            |             | 6,246,174   |           
|                                                                                           | Non-recurring charges                                                                                                      |                         |                              |           |            |            |             | 209,434    |            |            |             |            |           
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           |                                                                                                                            |                         | Total expenses               |            |            | 16,750,826 |             |            |            | 18,925,984 |             |             |            | 21,589,116 | 
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|Income (loss) from operations                                                              |                                                                                                                            |                         | 975,376                      |            |            |            | (8,603,955  | )          |            |            | (19,115,462 | )          
|Other (expense) income:                                                                    |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Interest income                                                                                                            |                         |                              | 126,876    |            |            |             | 613,487    |            |            |             | 1,084,196   |           
|                                                                                           | Interest expense                                                                                                           |                         |                              | (1,260,209 | )          |            |             | (1,788,520 | )          |            |             | (582,516    | )         
|                                                                                           | Other                                                                                                                      |                         |                              | (35,072    | )          |            |             | (1,141     | )          |            |             |            |           
|                                                                                           | Debt conversion expense                                                                                                    |                         |                              | (212,554   | )          |            |             | (1,115,582 | )          |            |             |            |           
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           |                                                                                                                            |                         | Total other (expense) income |            |            | (1,380,959 | )           |            |            | (2,291,756 | )           |             |            | 501,680    | 
|Loss before extraordinary gain and cumulative
    effect of change in accounting principle |                                                                                                                            |                         | (405,583                     | )          |            |            | (10,895,711 | )          |            |            | (18,613,782 | )          
|Extraordinary gain from the extinguishment of debt                                         |                                                                                                                            |                         |                             |            |            |            | 1,083,153   |            |            |            |            |            
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|Loss before cumulative effect of change in
    accounting principle                        |                                                                                                                            |                         | (405,583                     | )          |            |            | (9,812,558  | )          |            |            | (18,613,782 | )          
|Cumulative effect of change in accounting
    principle                                    |                                                                                                                            |                         |                             |            |            |            |            |            |            |            | (216,818    | )          
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|Net loss                                                                                   |                                                                                                                            | $                       | (405,583                     | )          |            | $          | (9,812,558  | )          |            | $          | (18,830,600 | )          
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|Loss per share:                                                                            |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Basic and diluted loss per share before
    extraordinary gain and cumulative effect of change in accounting
    principle |                         | $                            | (0.03      | )          |            | $           | (0.91      | )          |            | $           | (1.62       | )         
|                                                                                           | Extraordinary gain from the extinguishment of debt                                                                         |                         |                              |           |            |            |             | 0.09       |            |            |             |            |           
|                                                                                           | Cumulative effect of change in accounting
    principle                                                                    |                         |                              |           |            |            |             |           |            |            |             | (0.02       | )         
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Basic and diluted loss per share                                                                                           |                         | $                            | (0.03      | )          |            | $           | (0.82      | )          |            | $           | (1.64       | )         
|                                                                                           |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|Pro forma amounts assuming the accounting change
    is applied retroactively:             |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Net loss                                                                                                                   |                         |                              |            |            |            |             |            |            |            | $           | (18,613,782 | )         
|                                                                                           | Basic and diluted loss per share                                                                                           |                         |                              |            |            |            |             |            |            |            | $           | (1.62       | )         
|Shares used in calculation of loss per share:                                              |                                                                                                                            |                         |                              |            |            |            |             |            |            |            |             |            
|                                                                                           | Basic and diluted                                                                                                          |                         |                              | 13,520,642 |            |            |             | 12,026,476 |            |            |             | 11,487,192  |           

See notes to financial statements.

32



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##### 



ONLINE RESOURCES CORPORATION

STATEMENTS OF STOCKHOLDERS
EQUITY

|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |             |  
|----------------------------- | -------------------------------------------------------------- | ------------ | ---------- | ---------- | - | ----------- | ----- | -------- | - | ------------ | ---------- | ------------- | - | -------- | ----------- | ------------- | - | ------ | -------- | ------- |  | - | -------- | -------- | - | - | ------ | ------- | - | - | -------- | ------- | - | - | ---------- | ----------- | -
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             | Receivable    |   |       
|                              |                                                                |              |            |            |   |             |       |          |   |              |            | Accumulated   |   | From the |             |              
|                              |                                                                | Common Stock |            | Additional |   |             |       | Deferred |   |              |            | Other         |   | Sale of  |             | Total        
|                              |                                                                |              |            | Paid-in    |   | Accumulated |       | Stock    |   | Treasury     |            | Comprehensive |   | Common   |             | Stockholders
|                              |                                                                | Shares       |            | Amount     |   | Capital     |       | Deficit  |   | Compensation |            | Stock         |   | Income   |             | Stock         |   | Equity
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |       
|Balance at December 31, 1999. |                                                                |              | 11,050,456 |            |   | $           | 1,105 |          |   | $            | 83,035,825 |               |   | $        | (56,651,707 | )             |   | $      | (267,949 | )       |  | $ |         |          |   | $ |       |         |   | $ | (650,240 | )       |   | $ | 25,467,034 |            
|                              | Comprehensive income (loss):                                   |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |             |  
|                              | Net loss                                                       |              |            |           |   |             |       |         |   |              |            |              |   |          |             | (18,830,600   | ) |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | (18,830,600 | )
|                              | Unrealized gain on available-for-sale securities               |              |            |           |   |             |       |         |   |              |            |              |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        | 56,075  |   |   |          |        |   |   |            | 56,075      |  
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|                              | Comprehensive loss                                             |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            | (18,774,525 | )
|                              | Exercise of common stock options                               |              |            | 169,200    |   |             |       | 17       |   |              |            | 879,992       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          | (87,000 | ) |   |            | 793,009     |  
|                              | Exercise of common stock warrants                              |              |            | 389,378    |   |             |       | 39       |   |              |            | 594,501       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 594,540     |  
|                              | Issuance of common stock warrants                              |              |            |           |   |             |       |         |   |              |            | 589,900       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 589,900     |  
|                              | Issuance of common stock options                               |              |            |           |   |             |       |         |   |              |            | 11,732        |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 11,732      |  
|                              | Issuance of common stock                                       |              |            | 7,615      |   |             |       | 1        |   |              |            | 41,667        |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 41,668      |  
|                              | Amortization of deferred stock compensation                    |              |            |           |   |             |       |         |   |              |            | 84,921        |   |          |             |              |   |        |          | 82,055  |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 166,976     |  
|                              | Repayment of stock subscription                                |              |            |           |   |             |       |         |   |              |            |              |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          | 314,636 |   |   |            | 314,636     |  
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|Balance at December 31, 2000. |                                                                |              | 11,616,649 |            |   |             | 1,162 |          |   |              | 85,238,538 |               |   |          | (75,482,307 | )             |   |        | (185,894 | )       |  |   |         |          |   |   | 56,075 |         |   |   | (422,604 | )       |   |   | 9,204,970  |            
|                              | Comprehensive income (loss):                                   |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |             |  
|                              | Net loss                                                       |              |            |           |   |             |       |         |   |              |            |              |   |          |             | (9,812,558    | ) |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | (9,812,558  | )
|                              | Unrealized loss on available-for-sale securities               |              |            |           |   |             |       |         |   |              |            |              |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        | (30,705 | ) |   |          |        |   |   |            | (30,705     | )
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|                              | Comprehensive loss                                             |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            | (9,843,263  | )
|                              | Exercise of common stock options                               |              |            | 6,488      |   |             |       |         |   |              |            | 26,148        |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 26,148      |  
|                              | Exercise of common stock warrants                              |              |            | 21,385     |   |             |       | 2        |   |              |            | 149,998       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 150,000     |  
|                              | Conversion of notes payable                                    |              |            | 1,577,869  |   |             |       | 158      |   |              |            | 4,406,297     |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 4,406,455   |  
|                              | Issuance of common stock options                               |              |            |           |   |             |       |         |   |              |            | 20,303        |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 20,303      |  
|                              | Issuance of common stock                                       |              |            | 70,847     |   |             |       | 7        |   |              |            | 123,458       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 123,465     |  
|                              | Reclassification of stock subscription to notes
    receivable |              |            |           |   |             |       |         |   |              |            |              |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          | 148,254 |   |   |            | 148,254     |  
|                              | Amortization of deferred stock compensation                    |              |            |           |   |             |       |         |   |              |            | (60,564       | ) |          |             |              |   |        |          | 124,970 |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 64,406      |  
|                              | Surrender of stock subscription receivable                     |              |            | (44,848    | ) |             |       | (4       | ) |              |            | 33,493        |   |          |             |              |   |        |          |        |  |   |          | (148,581 | ) |   |        |        |   |   |          | 151,969 |   |   |            | 36,877      |  
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|Balance at December 31, 2001. |                                                                |              | 13,248,390 |            |   |             | 1,325 |          |   |              | 89,937,671 |               |   |          | (85,294,865 | )             |   |        | (60,924  | )       |  |   | (148,581 | )        |   |   | 25,370 |         |   |   | (122,381 | )       |   |   | 4,337,615  |            
|                              | Comprehensive income (loss):                                   |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |             |  
|                              | Net loss                                                       |              |            |           |   |             |       |         |   |              |            |              |   |          |             | (405,583      | ) |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | (405,583    | )
|                              | Unrealized loss on available-for-sale securities               |              |            |           |   |             |       |         |   |              |            |              |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        | (10,718 | ) |   |          |        |   |   |            | (10,718     | )
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|                              | Comprehensive loss                                             |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            | (416,301    | )
|                              | Exercise of common stock options                               |              |            | 189,955    |   |             |       | 19       |   |              |            | 291,150       |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 291,169     |  
|                              | Conversion of notes payable                                    |              |            | 295,031    |   |             |       | 30       |   |              |            | 1,141,818     |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 1,141,848   |  
|                              | Issuance of common stock                                       |              |            | 29,395     |   |             |       | 2        |   |              |            | 45,906        |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 45,908      |  
|                              | Cancellation of over-issued shares                             |              |            | (25,673    | ) |             |       | (3       | ) |              |            | 3             |   |          |             |              |   |        |          |        |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            |            |  
|                              | Amortization of deferred stock compensation                    |              |            |           |   |             |       |         |   |              |            | (6,195        | ) |          |             |              |   |        |          | 60,924  |  |   |          |         |   |   |        |        |   |   |          |        |   |   |            | 54,729      |  
|                              | Surrender of stock subscription receivable                     |              |            | (30,677    | ) |             |       | (3       | ) |              |            | 3             |   |          |             |              |   |        |          |        |  |   |          | (79,219  | ) |   |        |        |   |   |          | 122,381 |   |   |            | 43,162      |  
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            
|Balance at December 31, 2002. |                                                                |              | 13,706,421 |            |   | $           | 1,370 |          |   | $            | 91,410,356 |               |   | $        | (85,700,448 | )             |   | $      |         |         |  | $ | (227,800 | )        |   | $ | 14,652 |         |   | $ |         |         |   | $ | 5,498,130  |            
|                              |                                                                |              |            |            |   |             |       |          |   |              |            |               |   |          |             |               |   |        |          |         |  |   |          |          |   |   |        |         |   |   |          |         |   |   |            |            

33



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##### 



ONLINE RESOURCES CORPORATION

STATEMENTS OF CASH FLOWS

|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |         |           |            |  
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | --------- | --------- | ---------- | ----------- | --------- | ---------- | -------- | ----------- | ------- | --------- | ---------- | -
|                                                                                              |                                                            |                                                         
|                                                                                              |                                                            | Year ended December 31,                                 
|                                                                                              |                                                            |                                                         
|                                                                                              |                                                            | 2002                                                     |                                           | 2001      |           | 2000      
|                                                                                              |                                                            |                                                          |                                           |           |           |           
|Operating activities                                                                          |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net loss                                                                                      |                                                            | $                                                        | (405,583                                  | )         |           | $          | (9,812,558  | )         |            | $        | (18,830,600 | )      
|Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|                                                                                              |                                                            | Extraordinary (gain) from the extinguishment
    of debt |                                           |           |          |            |             |           | (1,083,153 | )        |             |         |          |           
|                                                                                              |                                                            | Debt conversion expense                                  |                                           |           | 212,554   |            |             |           | 1,115,582  |          |             |         |          |           
|                                                                                              |                                                            | Depreciation and amortization                            |                                           |           | 2,679,727 |            |             |           | 2,108,046  |          |             |         | 1,736,261 |           
|                                                                                              |                                                            | Amortization of debt issuance costs                      |                                           |           | 252,663   |            |             |           | 320,847    |          |             |         | 95,036    |           
|                                                                                              |                                                            | Stock compensation                                       |                                           |           | 97,891    |            |             |           | 144,011    |          |             |         | 178,708   |           
|                                                                                              |                                                            | Cumulative effect of change in accounting
    principle  |                                           |           |          |            |             |           |           |          |             |         | 216,818   |           
|                                                                                              |                                                            | Provision for losses on accounts receivable              |                                           |           | 88,000    |            |             |           | 239,564    |          |             |         | 213,245   |           
|                                                                                              |                                                            | Net realized gain on investments                         |                                           |           | (10,035   | )          |             |           | (73,288    | )        |             |         | (23,251   | )         
|                                                                                              |                                                            | Amortization of bond discount                            |                                           |           | (6,892    | )          |             |           | (15,946    | )        |             |         | (230,273  | )         
|                                                                                              |                                                            | Changes in assets and liabilities:                       |                                           |           |           |            |             |           |            |          |             |         |           |           
|                                                                                              |                                                            |                                                          | Accounts receivable                       |           |           | (1,278,063 | )           |           |            | 150,708  |             |         |           | (1,363,548 | )
|                                                                                              |                                                            |                                                          | Prepaid expenses and other current assets |           |           | (22,789    | )           |           |            | (255,084 | )           |         |           | 405,427    |  
|                                                                                              |                                                            |                                                          | Deferred implementation costs             |           |           | 641,374    |             |           |            | (104,116 | )           |         |           | (368,592   | )
|                                                                                              |                                                            |                                                          | Other assets                              |           |           | 513,094    |             |           |            | (510,943 | )           |         |           | (19,505    | )
|                                                                                              |                                                            |                                                          | Accounts payable                          |           |           | 166,629    |             |           |            | (134,297 | )           |         |           | 46,898     |  
|                                                                                              |                                                            |                                                          | Accrued expenses                          |           |           | 374,436    |             |           |            | (863,250 | )           |         |           | 774,770    |  
|                                                                                              |                                                            |                                                          | Deferred revenues                         |           |           | (559,468   | )           |           |            | (850,450 | )           |         |           | 508,487    |  
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net cash provided by (used in) operating
    activities                                       |                                                            |                                                          | 2,743,538                                 |           |           |            | (9,624,327  | )         |            |          | (16,660,119 | )      
|Investing activities                                                                          |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Purchases of property and equipment                                                           |                                                            |                                                          | (3,670,833                                | )         |           |            | (1,836,180  | )         |            |          | (3,488,731  | )      
|Purchases of available-for-sale securities                                                    |                                                            |                                                          | (6,117,950                                | )         |           |            | (20,427,641 | )         |            |          | (46,216,917 | )      
|Sales of available-for-sale securities                                                        |                                                            |                                                          | 7,212,652                                 |           |           |            | 34,591,254  |           |            |          | 46,743,991  |        
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net cash (used in) provided by investing
    activities                                       |                                                            |                                                          | (2,576,131                                | )         |           |            | 12,327,433  |           |            |          | (2,961,657  | )      
|Financing activities                                                                          |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net proceeds from issuance of common stock                                                    |                                                            |                                                          | 337,077                                   |           |           |            | 277,188     |           |            |          | 1,429,217   |        
|Net proceeds from repayment of stock subscription                                             |                                                            |                                                          |                                          |           |           |            |            |           |            |          | 314,636     |        
|Net proceeds from issuance of long-term debt                                                  |                                                            |                                                          |                                          |           |           |            |            |           |            |          | 18,744,768  |        
|Repayment of capital lease obligations                                                        |                                                            |                                                          | (333,786                                  | )         |           |            | (411,658    | )         |            |          | (683,555    | )      
|Payment of financing costs                                                                    |                                                            |                                                          |                                          |           |           |            | (52,472     | )         |            |          |            |        
|Repurchase of notes payable                                                                   |                                                            |                                                          |                                          |           |           |            | (2,167,389  | )         |            |          |            |        
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net cash provided by (used in) financing
    activities                                       |                                                            |                                                          | 3,291                                     |           |           |            | (2,354,331  | )         |            |          | 19,805,066  |        
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Net increase in cash and cash equivalents                                                     |                                                            |                                                          | 170,698                                   |           |           |            | 348,775     |           |            |          | 183,290     |        
|Cash and cash equivalents at beginning of period                                              |                                                            |                                                          | 2,120,252                                 |           |           |            | 1,771,477   |           |            |          | 1,588,187   |        
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Cash and cash equivalents at end of period                                                    |                                                            | $                                                        | 2,290,950                                 |           |           | $          | 2,120,252   |           |            | $        | 1,771,477   |        
|                                                                                              |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|Supplemental information to statement of cash
    flows:                                      |                                                            |                                                          |                                           |           |           |            |             |           |            |          |             |        
|                                                                                              | Cash paid for interest                                     |                                                          | $                                         | 1,061,917 |           |            | $           | 1,611,000 |            |          | $           | 84,000  |          
|                                                                                              | Issuance of warrants                                       |                                                          |                                           |          |           |            |             |          |            |          |             | 589,900 |          
|                                                                                              | Issuance of stock subscriptions receivable                 |                                                          |                                           |          |           |            |             |          |            |          |             | 87,000  |          
|                                                                                              | Acquisition of property and equipment by capital
    lease |                                                          |                                           |          |           |            |             | 560,085   |            |          |             | 155,762 |          
|                                                                                              | Conversion of notes payable                                |                                                          |                                           | 1,000,000 |           |            |             | 3,500,000 |            |          |             |        |          
|                                                                                              | Net unrealized (loss) gain on investments                  |                                                          |                                           | (10,718   | )         |            |             | (30,705   | )          |          |             | 56,075  |          

See notes to financial statements.

34



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Online Resources Corporation

Notes to Financial Statements


1.  Organization

Online Resources Corporation (the
Company) is a leading outsourcer of Internet
banking, payment and customer contact services to financial
institution clients nationwide. The Company offers services,
branded in the clients name, that integrate seamlessly
into a single-vendor, end-to-end solution, supported by 24x7
customer care, targeted consumer marketing, training and other
network and technical professional products and services. The
Company operates in one business segment.

2.  Summary of Significant
Accounting Policies

Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States 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. Actual
results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid
instruments purchased with an original maturity of three months
or less to be cash equivalents. Cash held for bill payments in
process is immediately disbursed on behalf of users and no net
cash balance is reflected on the Companys financial
statements.

Revenue Recognition

The Company generates revenues from service fees,
implementation fees, and other revenues. Revenues from service
fees include account access fees, transaction fees, customer
service, new user setup, communications and other services.
Service fees and other revenues are recognized over the term of
the contract as the services are provided. Service fees are
primarily composed of three business lines, Internet banking
services, payment services and customer contact services.
Implementation and other revenues are generated from the linking
of the Companys financial institution clients to the
Companys QuotienSM e-financial suite through
various networks and the Companys gateways and the sale of
software used to access the e-financial suite. Other revenue
also includes termination fees which are recognized upon
termination of a contract. Implementation revenue and related
direct implementation costs are recognized on a straight line
basis over the contract term. During the year ended
December 31, 2000, the Company adopted SEC Staff Accounting
Bulletin No. 101  Revenue Recognition in Financial
Statements (SAB 101), effective January 1,
2000, see Note 3 for further discussion. Although the Company
operates in only one business segment, it has begun to analyze
the service fee portion of our revenue by three business lines,
Internet banking services, payment services and customer contact
services. The Company currently does not track costs and
expenses at the business line level. The table below presents
the Companys revenue based on these business lines.

|          |                                   |                           |                    |           |            |            |            |           |            |            |            |           |           |            | 
|--------- | --------------------------------- | ------------------------- | ------------------ | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | --------- | ---------- | 
|          |                                   |                          
|          |                                   | Year Ended December 31,  
|          |                                   |                          
|          |                                   | 2002                      |                    | 2001      |            | 2000      
|          |                                   |                           |                    |           |            |           
|Revenues: |                                   |                           |                    |           |            |            |            |           |            |            |            |          
|          | Service fees                      |                           |                    |           |            |            |            |           |            |            |            |           |          
|          |                                   | Banking service           |                    | $         | 5,901,515  |            |            | $         | 5,504,778  |            |            | $         | 4,183,283 |           
|          |                                   | Payment services          |                    |           | 15,253,963 |            |            |           | 10,328,305 |            |            |           | 5,526,700 |           
|          |                                   | Customer contact services |                    |           | 8,894,469  |            |            |           | 6,275,749  |            |            |           | 3,601,387 |           
|          |                                   |                           |                    |           |            |            |            |           |            |            |            |          
|          |                                   |                           | Total service fees |           |            | 30,049,947 |            |           |            | 22,108,832 |            |           |           | 13,311,370 | 
|          | Implementation and other revenues |                           |                    | 2,304,236 |            |            |            | 2,526,931 |            |            |            | 2,332,940 |          
|          |                                   |                           |                    |           |            |            |            |           |            |            |            |          
|          |                                   | $                         | 32,354,183         |           |            | $          | 24,635,763 |           |            | $          | 15,644,310 |          
|          |                                   |                           |                    |           |            |            |            |           |            |            |            |          

35



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##### 



2.  Summary of Significant
Accounting Policies (continued)


Systems and Development

The Company capitalizes the cost of computer
software developed or obtained for internal use in accordance
with Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use. Capitalized computer software costs consist primarily
of payroll-related and consulting costs incurred during the
development stage. The Company expenses costs related to
preliminary project assessments, research and development,
re-engineering, training and application maintenance as they are
incurred. Capitalized software costs are being depreciated on
the straight-line method over a period of three years upon being
placed in service.

Property and Equipment

Property and equipment, including leasehold
improvements, are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives
of the related assets, which is generally five years. Equipment
recorded under capital leases is also amortized over the lease
term or the estimated useful life of the asset. Depreciation and
amortization expense was $2.7 million, $2.1 million
and $1.7 million for the years ended December 31,
2002, 2001 and 2000, respectively.

Fair Value of Financial Instruments

At December 31, 2002, the carrying value of
the following financial instruments: cash and cash equivalents,
investments in available-for-sale securities, accounts
receivable, accounts payable and accrued liabilities
approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature. The
carrying value of capital lease obligations approximates fair
value based on the market interest rates available to the
Company for debt of similar risk and maturities. The notes
payable are not publicly traded. Management estimates the market
value of the notes payable to be 100% of the carrying value at
December 31, 2002.

Stock-Based Compensation

The Company has elected to follow the accounting
provisions of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to
Employees, for stock-based compensation and to furnish the pro
forma disclosures required under SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and
Disclosure. In electing to continue to follow APB No. 25
for expense recognition purposes, the Company has provided below
the expanded disclosures required under SFAS No. 148 for
stock-based compensation granted, including, if materially
different from reported results, disclosure of pro forma net
earnings or losses and earnings or losses per share had
compensation expense relating to grants been measured under the
fair value recognition provisions of SFAS No. 123.

The weighted-average fair values at date of grant
for options granted during 2002, 2001 and 2000 were $2.25,
$1.77, and $7.34, respectively, and were estimated using the
Black-Scholes option valuation model with the following
weighted-average assumptions:

|                        |  |                         |      |      |  |      |       |   |  |  |       |  
|----------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2002                    |      | 2001 |  | 2000
|                        |  |                         |      |      |  |     
|Dividend yield          |  |                         |     |      |  |      |      |   |  |  |      |  
|Expected volatility     |  |                         | 104  | %    |  |      | 104   | % |  |  | 107   | %
|Risk-free interest rate |  |                         | 4.91 | %    |  |      | 4.254 | % |  |  | 5.870 | %
|Expected life in years  |  |                         | 6.6  |      |  |      | 5     |   |  |  | 5     |  

A reconciliation of the Companys net loss
to pro forma net loss, and the related basic and diluted pro
forma loss per share amounts, for the years ended
December 31, 2002, 2001 and 2000, is provided below. For
purposes of pro forma disclosure, stock-based compensation
expense is recognized in accordance with the provisions of SFAS
No. 123. Further, pro forma stock-based compensation
expense is amortized to expense on a straight-line basis over
the vesting period.

36



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##### 



2.  Summary of Significant
Accounting Policies (continued)


|                                               |                                            |                         |            |            |   |      |             |            |   |   |             |            |  
|---------------------------------------------- | ------------------------------------------ | ----------------------- | ---------- | ---------- | - | ---- | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                               |                                            |                        
|                                               |                                            | Year Ended December 31,
|                                               |                                            |                        
|                                               |                                            | 2002                    |            | 2001       |   | 2000
|                                               |                                            |                         |            |            |   |     
|Net loss                                       |                                            | $                       | (405,583   | )          |   | $    | (9,812,558  | )          |   | $ | (18,830,600 | )         
|Adjustment to net loss for:                    |                                            |                         |            |            |   |      |             |            |   |   |             |           
|                                               | Pro forma stock-based compensation expense |                         |            | (4,567,065 | ) |      |             | (4,307,921 | ) |   |             | (3,428,123 | )
|                                               |                                            |                         |            |            |   |      |             |            |   |   |             |           
|Pro forma net loss                             |                                            | $                       | (4,972,648 | )          |   | $    | (14,120,479 | )          |   | $ | (22,258,723 | )         
|                                               |                                            |                         |            |            |   |      |             |            |   |   |             |           
|Basic and diluted pro forma net loss per share |                                            | $                       | (0.37      | )          |   | $    | (1.17       | )          |   | $ | (1.94       | )         
|                                               |                                            |                         |            |            |   |      |             |            |   |   |             |           

Concentration of Credit Risk

The Company performs ongoing credit evaluations
of its customers financial condition and limits the amount
of credit extended when deemed necessary, but generally does not
require collateral. Management believes that any risk of loss is
significantly reduced due to the nature of the customers being
financial institutions and credit unions as well as the number
of its customers and geographic areas. The Company maintains an
allowance for doubtful accounts to provide for probable losses
in accounts receivable.

Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily
of cash and cash equivalents and investments in
available-for-sale securities. The Company has cash in financial
institutions that is insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per institution.
At December 31, 2002 and 2001, the Company had cash and
cash equivalent accounts in excess of the FDIC insured limits.
Investments in available-for-sale securities are limited to
investment-grade securities. The fair value of the
Companys financial instruments is substantially equivalent
to their carrying value and, although there is some credit risk
associated with theses instruments, the Company believes this
risk to be insignificant.

Earnings (Loss) Per Share

Net loss per share is computed by dividing the
net loss for the period by the weighted average number of common
shares outstanding. Shares associated with stock options,
warrants and convertible securities are not included to the
extent they are anti-dilutive.

Advertising Costs

The Company expenses advertising costs as
incurred. The Company incurred $250, $200 and $385,400 in
advertising costs for the years ended December 31, 2002,
2001 and 2000, respectively.

Impairment of Long-Lived Assets

The Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS 144) in 2002. In
accordance with SFAS 144, the Company periodically
evaluates the recoverability of long-lived assets, including
deferred implementation costs and property and equipment,
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The adoption of
SFAS 144 had no impact on the financial statements.

Major Customer

One of the Companys financial institution
clients, California Federal Bank or Cal Fed, accounted for
approximately $4.8, $3.2 and $2.2 million or 15%, 13% and
14%, of the Companys revenue, for the years ended
December 31, 2002, 2001 and 2000, respectively. During
2002, Citigroup acquired Cal Fed, and expects to convert the Cal
Fed customers to the Citigroup banking and bill payment platform
in the first quarter of 2003. The Company has extended its full
service contract with Cal Fed through the first quarter of 2003
and terminated a subsequent bill payment only contract that was
to run through 2005. In consideration of this extension and
termination, the Company expects to receive a combination of
service and termination fee revenue that will be recognized in
the first quarter of 2003.

37



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##### 



2.  Summary of Significant
Accounting Policies (continued)


Reclassification

Certain amounts reported in prior periods have
been reclassified to conform to the 2002 presentation.

Recent Pronouncements

The FASB issued Statement No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS No. 145). SFAS
No. 145 rescinds Statement 4, which required all gains
and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related
income tax effect. As a result, those gains and losses will now
be classified in operating income or expense. SFAS No. 145
is effective for fiscal years beginning after May 15, 2002.
Provisions related to FASB Statement No. 13 are effective
for transactions occurring after May 15, 2002 and all other
provisions are effective for financial statements issued on or
after May 15, 2002. The Company expects that the impact of
adopting SFAS No. 145 in 2003 will result in reclassifying
prior year extraordinary gains from extinguishment of debt so
that they are reflected as part of operating income.

3.  Change in Revenue Recognition
for Implementation Revenue

Prior to January 2000, the Company recognized
nonrefundable implementation fees as revenue under the
percentage of completion method as certain milestone output
measures were completed. During the year ended December 31,
2000, the Company adopted SEC Staff Accounting Bulletin
No. 101  Revenue Recognition in Financial
Statements (SAB 101), effective January 1,
2000, and changed its method of accounting for nonrefundable
implementation fees for all contracts to recognize such fees and
the related incremental direct costs of implementation
activities over the contract term as the services are provided,
which typically range from one to five years (generally three
years). The Company believes the change in accounting principle
was preferable based on guidance provided in SAB 101. The
cumulative effect of the accounting change as of January 1,
2000 was $217,000 ($1,371,000 of revenue less direct incremental
costs of $1,154,000) and was recognized in the 2000 statement of
operations. The effect of the accounting change on the year
ended December 31, 2000 was to increase the net loss before
the cumulative effect of the accounting change by $301,000. Due
to the adoption of SAB 101, $1,371,000 of revenue that was
previously recognized under the Companys prior revenue
recognition policy will be recognized under the Companys
revised revenue recognition policy through periods up to 2004
because some contract periods extend through 2004. During the
years ended December 31, 2002, 2001 and 2000, the Company
recognized revenue of $275,000, $541,000 and $512,000,
respectively, and related direct incremental costs that were
included in the cumulative effect adjustment at January 1,
2000. The pro forma amounts included in the 2000 statement of
operations have been adjusted to reflect the retroactive
application of SAB 101.

4.  Investments

The Company classifies its investments as
available-for-sale. Investments in securities that are
classified as available-for-sale and have readily determinable
fair values are measured at fair market value in the balance
sheets. Fair market value is based on quoted market value. Any
unrealized gains or losses are reported as a separate component
of stockholders equity. Realized gains and losses are
included in investment income. Interest and dividends also are
included in investment income. The net realized gain on
investments for the years ended December 31, 2002, 2001 and
2000 were approximately $10,000, $73,000 and $23,000,
respectively. For purposes of determining gross realized gains
and losses, the cost of securities sold is based on the average
cost method. As of December 31, 2002 and 2001, the
unrealized gain on investments was $14,652 and $25,370,
respectively.

38



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##### 



4.  Investments
(continued)


The following is a summary of the Companys
available-for-sale securities:

|                                   |  |                   |           |                   |  |                |           |            |  |   |           |  |  |   |           | 
|---------------------------------- |  | ----------------- | --------- | ----------------- |  | -------------- | --------- | ---------- |  | - | --------- |  |  | - | --------- | 
|                                   |  |                   |           |                  
|                                   |  | December 31, 2002 |           | December 31, 2001
|                                   |  |                   |           |                  
|                                   |  | Amortized Cost    |           | Fair Value        |  | Amortized Cost |           | Fair Value
|                                   |  |                   |           |                   |  |                |           |           
|US Government treasury obligations |  | $                 | 3,422,947 |                   |  | $              | 3,435,111 |            |  | $ | 1,776,429 |  |  | $ | 1,782,818 | 
|Mortgage backed securities         |  |                   | 415,631   |                   |  |                | 417,125   |            |  |   |          |  |  |   |          | 
|Corporate obligations              |  |                   | 641,647   |                   |  |                | 642,641   |            |  |   | 3,781,571 |  |  |   | 3,800,552 | 
|                                   |  |                   |           |                   |  |                |           |            |  |   |           |  |  |   |           | 
|                                   |  | $                 | 4,480,225 |                   |  | $              | 4,494,877 |            |  | $ | 5,558,000 |  |  | $ | 5,583,370 | 
|                                   |  |                   |           |                   |  |                |           |            |  |   |           |  |  |   |           | 

At December 31, 2002, contractual maturities
of available-for-sale securities were as follows:

|          |  |                |           |            |  |   |           | 
|--------- |  | -------------- | --------- | ---------- |  | - | --------- | 
|Due in    |  | Amortized Cost |           | Fair Value
|          |  |                |           |           
|2003      |  | $              | 3,794,571 |            |  | $ | 3,806,179 | 
|20042006 |  |                | 685,654   |            |  |   | 688,698   | 

5.     Property and
Equipment

Property and equipment consists of the following:

|                                                                  |  |              |            |      |  |   |            | 
|----------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                                                                  |  |             
|                                                                  |  | December 31,
|                                                                  |  |             
|                                                                  |  | 2002         |            | 2001
|                                                                  |  |              |            |     
|Central processing systems and terminals                          |  | $            | 13,668,910 |      |  | $ | 10,140,308 | 
|Office furniture and equipment                                    |  |              | 1,762,768  |      |  |   | 1,750,415  | 
|Central processing systems and terminals under
    capital leases |  |              | 500,532    |      |  |   | 500,532    | 
|Office furniture and equipment under capital
    leases           |  |              | 572,117    |      |  |   | 572,117    | 
|Leasehold improvements                                            |  |              | 1,119,130  |      |  |   | 1,093,115  | 
|                                                                  |  |              |            |      |  |   |            | 
|                                                                  |  |              | 17,623,457 |      |  |   | 14,056,487 | 
|Less accumulated depreciation                                     |  |              | 9,199,646  |      |  |   | 6,815,075  | 
|Less accumulated depreciation under capital leases                |  |              | 619,582    |      |  |   | 428,289    | 
|                                                                  |  |              |            |      |  |   |            | 
|                                                                  |  | $            | 7,804,229  |      |  | $ | 6,813,123  | 
|                                                                  |  |              |            |      |  |   |            | 

6.     Long Term
Notes Payable

On September 28, 2000, the Company completed
the private placement of $20 million in convertible subordinated
notes (the Convertible Notes) to a group of
accredited investors. The Company received proceeds of
$18.7 million net of debt issuance costs of
$1.3 million including commission of $917,200. The
Convertible Notes carry an 8% coupon. Interest payment dates are
April 1 and October 1, commencing April 1, 2001. The
Convertible Notes were initially convertible at a price of
$4.75 per share but are subject to an annual reset under
certain circumstances. In no event will the price be less than
$4.00 per share. Subject to certain conditions, the Company
may redeem all or part of the Convertible Notes prior to
maturity. Jefferies & Company, Inc., one of the underwriters
of the placement, also obtained 200,000 warrants that expire on
September 30, 2005 that are exercisable at the same price
as the conversion price under the Convertible Notes (see
Note 10).

On May 22, 2001 and May 24, 2001, the
Company paid $2.2 million to repurchase $3,000,000 and
$500,000, respectively, of the Convertible Notes in privately
negotiated transactions. After $289,000 of debt issuance costs
was written off, the Company recognized an extraordinary gain of
$1.1 million as a result of the transactions.

On September 28, 2001, November 2, 2001
and March 27, 2002, the Company induced conversion of
$2.5 million, $1.0 million and $1.0 million of
the Convertible Notes at $2.00, $3.05 and $3.39 per common
share, respectively, instead of the $4.00 conversion price that
otherwise existed under the Convertible Notes. These induced
conversions resulted in the issuance of 1,250,000, 327,869 and
295,031 shares or 625,000, 77,869 and 45,031 additional shares,
respectively, had the Convertible Notes been converted at the
$4.00 per

39



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##### 



6.  Long Term Notes Payable
(continued)


common share conversion price. The Company
recognized $731,250, $175,205 and $141,848 non-cash debt
conversion expense and wrote off $157,157, $51,970 and $70,706
of related debt issuance costs in September 2001, November 2001
and March 2002, respectively, in connection with the
transactions. Accordingly, as of December 31, 2002,
$12.0 million of the Convertible Notes remains outstanding
and matures on September 30, 2005. Based on the established
$4.00 conversion price, the Convertible Notes would be
exchanged for three million shares of the Companys common
stock at December 31, 2002.

Interest expense related to the Convertible Notes
was approximately $980,000, $1,680,000 and $498,000 in 2002,
2001 and 2000, respectively. As of December 31, 2002 and
2001, accrued interest on notes payable totaled approximately
$240,000 and $260,000, respectively.

7.     Commitments

Office Space

The Company leases office space and equipment
under operating leases expiring in 2004. The office leases
provide for escalating rent over the respective lease term. Rent
expense under the operating leases and sublease rentals received
by the Company for the years ended December 31, 2002, 2001
and 2000, are as follows:

|     |  |      |           |          |  |   |        | 
|---- |  | ---- | --------- | -------- |  | - | ------ | 
|     |  |      |           | Sublease
|     |  | Rent |           | Income  
|     |  |      |           |         
|2000 |  | $    | 1,031,000 |          |  | $ |       | 
|2001 |  |      | 1,121,000 |          |  |   | 26,000 | 
|2002 |  |      | 1,179,000 |          |  |   |       | 

The sublease agreement was fully expired as of
December 31, 2001.

Equipment

The Company also leases equipment under capital
leases. In 2002 and 2001, the Company incurred capital lease
obligations of $0 and $560,000, respectively, for the purchase
of equipment. Amortization of assets held under capital leases
is included in depreciation and amortization in the statements
of cash flows.

Future minimum lease payments on operating and
capital leases are as follows:

|                                            |                              |              |           |              |  |   |         |         | 
|------------------------------------------- | ---------------------------- | ------------ | --------- | ------------ |  | - | ------- | ------- | 
|                                            |                              | Operating    |           | Capital     
|                                            |                              |              |           |             
|                                            |                              | December 31, |           | December 31,
|                                            |                              | 2002         |           | 2002        
|                                            |                              |              |           |             
|2003                                        |                              | $            | 1,229,253 |              |  | $ | 236,645 |        
|2004                                        |                              |              | 729,458   |              |  |   | 105,087 |        
|2005                                        |                              |              |          |              |  |   | 11,016  |        
|                                            |                              |              |           |              |  |   |         |        
|                                            | Total minimum lease payments |              | $         | 1,958,711    |  |   |         | 352,748 | 
|                                            |                              |              |           |              |  |   |         |        
|Less amount representing interest           |                              |              |           |              |  |   | (27,344 | )      
|                                            |                              |              |           |              |  |   |         |        
|Present value of minimum lease payments     |                              |              |           |              |  |   | 325,404 |        
|Less current portion                        |                              |              |           |              |  |   | 213,913 |        
|                                            |                              |              |           |              |  |   |         |        
|Long-term portion of minimum lease payments |                              |              |           |              |  | $ | 111,491 |        
|                                            |                              |              |           |              |  |   |         |        

8.     Income
Taxes

The Company has not paid income taxes during
2002, 2001 or 2000 due to its net operating loss position.

At December 31, 2002, the Company has net
operating loss carryforwards of approximately $88.3 million
that expire at varying dates from 2010 to 2022. Of that
$88.3 million, approximately $3.5 million relates to
the exercise of stock options. The timing and manner in which
the operating loss carryforwards may be utilized by the Company
will be limited to the Companys ability to generate future
taxable income. The use of these losses may also be subject to
significant limitations due to ownership changes pursuant to
Section 382 of the

40



---



##### 



8.     Income Taxes
(continued)


Internal Revenue Code resulting from prior
issuances of Preferred and Common Stock. As the Company has not
generated earnings and no assurance can be made of future
earnings needed to utilize these net operating losses, a
valuation allowance in the amount of the deferred tax assets has
been recorded.

Significant components of the Companys net
deferred tax assets are as follows:

|                                                |                                  |                                |             |            |            |   |             |            |            |  
|----------------------------------------------- | -------------------------------- | ------------------------------ | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                                                |                                  |                               
|                                                |                                  | December 31,                  
|                                                |                                  |                               
|                                                |                                  | 2002                           |             | 2001      
|                                                |                                  |                                |             |           
|Deferred tax assets:                            |                                  |                                |             |            |            |   |             |           
|                                                | Net operating loss carryforwards |                                | $           | 35,269,000 |            |   | $           | 35,348,000 |           
|                                                | Deferred wages                   |                                |             | 169,000    |            |   |             | 144,000    |           
|                                                | Other deferred tax assets        |                                |             | 123,000    |            |   |             | 84,000     |           
|                                                |                                  |                                |             |            |            |   |             |           
|                                                |                                  | Total deferred tax assets      |             |            | 35,561,000 |   |             |            | 35,576,000 |  
|Deferred liabilities:                           |                                  |                                |             |            |            |   |             |           
|                                                | Depreciation                     |                                |             | (346,000   | )          |   |             | (493,000   | )         
|                                                |                                  |                                |             |            |            |   |             |           
|                                                |                                  | Total deferred tax liabilities |             |            | (346,000   | ) |             |            | (493,000   | )
|Valuation allowance for net deferred tax assets |                                  |                                | (35,215,000 | )          |            |   | (35,083,000 | )         
|                                                |                                  |                                |             |            |            |   |             |           
|Net deferred tax assets                         |                                  | $                              |            |            |            | $ |            |           
|                                                |                                  |                                |             |            |            |   |             |           

The following is a summary of the items that
caused the income tax expense to differ from taxes computed
using the statutory federal income tax rate for the years ended
December 31, 2002, 2001 and 2000:

|                                                    |                                      |                         |          |         |   |      |            |           |   |   |            |           |  
|--------------------------------------------------- | ------------------------------------ | ----------------------- | -------- | ------- | - | ---- | ---------- | --------- | - | - | ---------- | --------- | -
|                                                    |                                      |                        
|                                                    |                                      | Year Ended December 31,
|                                                    |                                      |                        
|                                                    |                                      | 2002                    |          | 2001    |   | 2000
|                                                    |                                      |                         |          |         |   |     
|Tax expense (benefit) at statutory Federal
    rate |                                      | $                       | (138,000 | )       |   | $    | (3,336,000 | )         |   | $ | (6,402,000 | )        
|Effect of:                                          |                                      |                         |          |         |   |      |            |           |   |   |            |          
|                                                    | State income tax, net                |                         |          | (20,000 | ) |      |            | (562,000  | ) |   |            |          |  
|                                                    | Non-statutory stock options exercise |                         |          |        |   |      |            |          |   |   |            | (264,000  | )
|                                                    | Other                                |                         |          | 26,000  |   |      |            | 150,000   |   |   |            | 21,000    |  
|                                                    | Increase in valuation allowance      |                         |          | 132,000 |   |      |            | 3,748,000 |   |   |            | 6,645,000 |  
|                                                    |                                      |                         |          |         |   |      |            |           |   |   |            |          
|Income tax expense                                  |                                      | $                       |         |         |   | $    |           |           |   | $ |           |          
|                                                    |                                      |                         |          |         |   |      |            |           |   |   |            |          

9.     Preferred
Stock

Of the 3,000,000 authorized preferred shares of
the Company, 1,000,000 shares have been designated as
Series A convertible Preferred Stock (Series A
Preferred Stock). Holders of Series A Preferred Stock
shares are entitled to receive dividends at the same rate as
holders of common stock and have voting rights equal to their
common stock equivalent on an as if converted basis.
Additionally, each Series A Preferred Stock holder is
entitled to a liquidation preference equal to $1.00 plus
declared but unpaid dividends. There were no shares of
Series A Preferred Stock outstanding at December 31,
2002 and 2001.

In anticipation of the adoption of a stockholders
rights plan that was implemented on January 11, 2002, the
Company, through a certificate of designation that became
effective on December 24, 2001, authorized 297,500 shares
of Series B Junior Participating Preferred Stock
(Series B Preferred Stock). Under the
stockholders right plan, which is intended to protect the
Companys stockholders from unsolicited attempts to acquire
or gain control of the Company, each holder of record on
January 11, 2002 of a share of common stock received a
right to purchase a unit of 1/100th of a share of Series B
Preferred Stock at a price, subject to adjustment, of $115 per
unit. The right is not exercisable until an attempt occurs to
acquire or gain control of the Company that is unsolicited and
does not have the approval of the Companys board of
directors. Upon exercise of a right, each holder of a right will
be entitled to receive 1/100th of a share of Series B
Preferred Stock or, in lieu thereof, a number of shares of
common stock equal to the exercise price of the right divided by
one-half of the current market price of the Companys
common stock. Until exercise of a right for 1/100th of a share
of Series B Preferred Stock, no shares of Series B
Preferred Stock will be issued. Holders of a share

41



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##### 



9.  Preferred Stock
(continued)


of Series B Preferred Stock are entitled to
receive cumulative quarterly dividends equal to the greater of
$1.00 per share or 100 times any dividend declared on the
Companys common stock and have voting rights equal to 100
votes per share. Additionally, each holder of a share of
Series B Preferred Stock is entitled to a liquidation
preference equal to $100 plus accrued and unpaid dividends
thereon, whether or not declared.

10.     Warrants

The companys warrant activity is as follows:

|                             |                                                          |          |           |          |  
|---------------------------- | -------------------------------------------------------- | -------- | --------- | -------- | -
|                             |                                                          | Warrants
|                             |                                                          |         
|Balance at December 31, 1999 |                                                          |          | 2,096,699 |         
|                             | Exercise of warrants during 2000.                        |          |           | (549,579 | )
|                             | Cancellation of warrants during 2000                     |          |           | (10,723  | )
|                             | Warrants issued in connection with Convertible
    Notes |          |           | 200,000  |  
|                             |                                                          |          |           |         
|Balance at December 31, 2000 |                                                          |          | 1,736,397 |         
|                             | Exercise of warrants during 2001                         |          |           | (21,385  | )
|                             | Cancellation of warrants during 2001                     |          |           | (272,830 | )
|                             |                                                          |          |           |         
|Balance at December 31, 2001 |                                                          |          | 1,442,182 |         
|                             | Exercise of warrants during 2002                         |          |           |         |  
|                             | Cancellation of warrants during 2002                     |          |           | (630,736 | )
|                             |                                                          |          |           |         
|Balance at December 31, 2002 |                                                          |          | 811,446   |         
|                             |                                                          |          |           |         

Outstanding warrants primarily relate to warrants
received in connection with Preferred Stock outstanding prior to
the IPO in 1999. The Company issued 200,000 warrants with an
exercise price of $4.00 and an expiration date of
September 30, 2005 in 2000 in connection with the
Convertible Notes. Of the warrants outstanding at
December 31, 2002, approximately 611,000 warrants expire
during the year ended December 31, 2003. These warrants
have an exercise price ranging between $7.01 and $8.42.

11.     Net Loss Per
Share

The following table sets forth the computation of
basic and diluted net loss per share:

|                                         |                   |                          |            |       |   |      |            |       |   |   |             |       |  
|---------------------------------------- | ----------------- | ------------------------ | ---------- | ----- | - | ---- | ---------- | ----- | - | - | ----------- | ----- | -
|                                         |                   |                         
|                                         |                   | Years Ended December 31,
|                                         |                   |                         
|                                         |                   | 2002                     |            | 2001  |   | 2000
|                                         |                   |                          |            |       |   |     
|Net loss                                 |                   | $                        | (405,583   | )     |   | $    | (9,812,558 | )     |   | $ | (18,830,600 | )    
|Weighted average number of common shares |                   |                          | 13,520,642 |       |   |      | 12,026,476 |       |   |   | 11,487,192  |      
|Loss per share:                          |                   |                          |            |       |   |      |            |       |   |   |             |      
|                                         | Basic and diluted |                          | $          | (0.03 | ) |      | $          | (0.82 | ) |   | $           | (1.64 | )

Due to their antidilutive effects, outstanding
shares from the conversion of the Convertible Notes, stock
options and warrants to purchase 9,736,686, 9,221,262 and
9,082,735 shares of common stock at December 31, 2002, 2001
and 2000, respectively, were excluded from the computation of
diluted earnings per share.

12.     Employee
Benefit Plans

Employee Savings and Retirement Plan

The Company has a 401(k) plan that allows
eligible employees to contribute up to 15% of their salary. The
Company has total discretion about whether to make an employer
contribution to the plan and the amount of the employer
contribution. The Company has historically not chosen to match
the employee contributions and, therefore, has not incurred any
contribution expense.

Stock Options

In February 1989, the Company adopted an
Incentive Stock Option Plan (the Plan). During June
1997, the Companys Board of Directors authorized an
increase of 124,747 shares of common stock that can

42



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##### 



12.  Employee Benefit Plans
(continued)


be issued under the Plan. During 1998, the
Companys Board of Directors increased the number of shares
of common stock that can be issued under the plan to 2,316,730.
The option price under the Plan will not be less than fair
market value of the Companys common stock on the date of
grant. The vesting period of the options is determined by the
Board of Directors and is generally four years. Outstanding
options expire after ten years.

During 1999, the Company adopted the 1999 Stock
Option Plan (the 1999 Plan). The 1999 Plan permits
the granting of both incentive stock options and nonqualified
stock options to employees, directors and consultants. The
aggregate number of shares that can be granted under the 1999
Plan is 757,708. During 2000, the Companys Board of
Directors increased the number of shares of common stock that
can be issued under the plan to 1,457,708. In 2001, the Board of
Directors further increased the number of shares of common stock
that can be issued under the plan to 4,756,331. The option
exercise price under the 1999 Plan will not be less than fair
market value of the Companys common stock on the date of
grant. The vesting period of the options is determined by the
Board of Directors and is generally four years. Outstanding
options expire after seven to ten years.

Additional information with respect to stock
option activity under the stock option plans is summarized as
follows:

|                                     |  |                         |           |           |  |        |      |           |  |        |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|------------------------------------ |  | ----------------------- | --------- | --------- |  | ------ | ---- | --------- |  | ------ | --------- | --------- |  | - | ---- |  |  |  | --------- | - |  | - | ---- | 
|                                     |  |                        
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  |                         |           |           |  |       
|                                     |  | 2002                    |           | 2001      |  | 2000  
|                                     |  |                         |           |           |  |       
|                                     |  |                         |           | Weighted- |  |        |      | Weighted- |  |        |           | Weighted-
|                                     |  |                         |           | Average   |  |        |      | Average   |  |        |           | Average  
|                                     |  |                         |           | Exercise  |  |        |      | Exercise  |  |        |           | Exercise 
|                                     |  | Shares                  |           | Price     |  | Shares |      | Price     |  | Shares |           | Price    
|                                     |  |                         |           |           |  |        |      |           |  |        |           |          
|Outstanding at beginning of period   |  |                         | 4,529,080 |           |  | $      | 6.69 |           |  |        | 3,135,812 |           |  | $ | 9.55 |  |  |  | 2,445,076 |   |  | $ | 9.74 | 
|Options granted                      |  |                         | 2,316,821 |           |  |        | 2.70 |           |  |        | 1,885,501 |           |  |   | 2.17 |  |  |  | 1,100,445 |   |  |   | 8.56 | 
|Options exercised                    |  |                         | (189,955  | )         |  |        | 1.54 |           |  |        | (6,488    | )         |  |   | 1.50 |  |  |  | (169,200  | ) |  |   | 5.30 | 
|Options canceled or expired          |  |                         | (730,706  | )         |  |        | 6.79 |           |  |        | (485,745  | )         |  |   | 7.66 |  |  |  | (240,509  | ) |  |   | 9.90 | 
|                                     |  |                         |           |           |  |        |      |           |  |        |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|Outstanding at end of period         |  |                         | 5,925,240 |           |  | $      | 5.30 |           |  |        | 4,529,080 |           |  | $ | 6.69 |  |  |  | 3,135,812 |   |  | $ | 9.55 | 
|                                     |  |                         |           |           |  |        |      |           |  |        |           |           |  |   |      |  |  |  |           |   |  |   |      | 
|Options exercisable at end of period |  |                         | 3,721,302 |           |  | $      | 5.70 |           |  |        | 2,508,584 |           |  | $ | 7.22 |  |  |  | 1,481,869 |   |  | $ | 8.59 | 
|                                     |  |                         |           |           |  |        |      |           |  |        |           |           |  |   |      |  |  |  |           |   |  |   |      | 

The following table summarizes information about
stock options outstanding at December 31, 2002.

|                 |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | --------- | ---- | ----------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |  |                     |           |                     |  |          
|                 |  | Options Outstanding |           |                    
|                 |  |                     |           | Options Exercisable
|                 |  |                     |           | Weighted-           |  |           |      |            
|                 |  |                     |           | Average             |  | Weighted- |      |             |  | Weighted-
|                 |  |                     |           | Remaining           |  | Average   |      |             |  | Average  
|                 |  | Number              |           | Contractual Life    |  | Exercise  |      | Number      |  | Exercise 
|                 |  | Outstanding         |           | (In Years)          |  | Price     |      | Exercisable |  | Price    
|                 |  |                     |           |                     |  |           |      |             |  |          
|$0.06 to $2.30.  |  |                     | 1,622,202 |                     |  |           | 7.38 |             |  | $         | 1.93  |  |  |  | 1,388,364 |  |  | $ | 1.91  | 
|$2.31 to $2.86.  |  |                     | 993,464   |                     |  |           | 8.82 |             |  |           | 2.79  |  |  |  | 95,085    |  |  |   | 2.44  | 
|$2.88 to $3.81.  |  |                     | 1,147,398 |                     |  |           | 7.54 |             |  |           | 3.17  |  |  |  | 554,685   |  |  |   | 3.24  | 
|$3.88 to $8.40.  |  |                     | 1,185,845 |                     |  |           | 3.32 |             |  |           | 7.43  |  |  |  | 1,007,790 |  |  |   | 7.64  | 
|$8.42 to $20.19. |  |                     | 974,725   |                     |  |           | 4.16 |             |  |           | 13.35 |  |  |  | 674,572   |  |  |   | 13.05 | 
|$21.50 to $21.50 |  |                     | 1,606     |                     |  |           | 4.20 |             |  |           | 21.50 |  |  |  | 806       |  |  |   | 21.50 | 
|                 |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|                 |  |                     | 5,925,240 |                     |  |           | 6.31 |             |  | $         | 5.31  |  |  |  | 3,721,302 |  |  | $ | 5.70  | 
|                 |  |                     |           |                     |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 

Employee Stock Purchase Plan

The Company has an employee stock purchase plan
for all eligible employees to purchase shares of common stock at
85% of the lower of the fair market value on the first or the
last day of each six-month

43



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##### 



12.  Employee Benefit Plans
(continued)


offering period. Employees may authorize the
Company to withhold up to 10% of their compensation during any
offering period, subject to certain limitations. The employee
stock purchase plan authorizes up to 400,000 shares to be
granted. During the year ended December 31, 2002 and 2001,
shares totaling 29,395 and 70,847 were issued under the plan at
an average price of $2.20 and 1.74 per share, respectively. At
December 31, 2002, 292,143 shares were reserved for future
issuance.

13.     Related Party
Transactions

During 2001, the Company surrendered the recourse
right under the stock subscription receivables for two former
employees in the amount of $151,969 and the related collateral
of 43,484 shares was held by the Company. As a result, the
Company accounted for the conversion as the repurchase of shares
previously exercised as a treasury stock transaction. The fair
value of the collateral shares on the conversion date was
$126,159, and was recorded as treasury stock. The shares under
the new non-recourse notes were accounted for as the grant of
new stock compensation arrangement and are accounted for, as a
variable award pursuant to the terms in EITF issue 95-16,
Accounting for Stock Compensation Arrangement with
Employer Loan Features. Stock compensation expense in the
amount of $59,300 was recognized during the year ended
December 31, 2001, since the original recourse notes
exceeded the fair value of the shares on the conversion date.

During 2002, the Company surrendered the recourse
right under the stock subscription receivables for two employees
in the amount of $122,381 and the related collateral of 30,677
shares was held by the Company. As a result, the Company
accounted for the conversion as the repurchase of shares
previously exercised as a treasury stock transaction. The fair
value of the collateral shares on the conversion date was
$79,219, and was recorded as treasury stock.

The Company recognized approximately $860,000,
$623,000, and $303,000 in revenue for services rendered to a
financial institution during the years ended December 31,
2002, 2001 and 2000, respectively. One of our directors is
Chairman and Chief Executive Officer of the financial
institution. The financial institution owed $163,000 and
$176,000 to the Company at December 31, 2002 and 2001,
respectively. Such amounts are included in Accounts
Receivable on the balance sheets.

14.     Non-Recurring
Charges

The Company incurred and paid a one-time charge
of $209,434 including severance and benefit payments during the
twelve months ended December 31, 2001 as a result of the
staff reduction of 23 employees, approximately 9% of the total
employees, on January 3, 2001.

15.     Subsequent
Events

On February 26, 2003, the Company received
notice from the Nasdaq Stock Market that it would be delisted
from the Nasdaq National Market at the opening of business on
March 6, 2003. This notice was received because the Company
did not comply with the continued listing requirements for
inclusion in the National Market. The Company is appealing this
notice on the basis that it expects to be able regain compliance
within a reasonable time period. If its appeal is denied, or it
cannot regain compliance, the Company will apply for listing on
the Nasdaq SmallCap Market, for which it is currently, and
expects to remain, qualified.

44



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##### 



16.     Summarized
Quarterly Data (Unaudited)

The following financial information reflects all
normal recurring adjustments that are, in the opinion of
management, necessary for a fair statement of the results of the
interim periods. Summarized quarterly data for the years 2002
and 2001 is as follows:

|                            |  |               |           |          |  |               |           |              |  |   |           |  |  |   |           | 
|--------------------------- |  | ------------- | --------- | -------- |  | ------------- | --------- | ------------ |  | - | --------- |  |  | - | --------- | 
|                            |  |              
|                            |  | Quarter Ended
|                            |  |              
|                            |  | March 31,     |           | June 30, |  | September 30, |           | December 31,
|                            |  | 2002          |           | 2002     |  | 2002          |           | 2002        
|                            |  |               |           |          |  |               |           |             
|Total revenues              |  | $             | 7,827,379 |          |  | $             | 7,878,977 |              |  | $ | 8,151,876 |  |  | $ | 8,495,951 | 
|Gross profit                |  |               | 3,893,627 |          |  |               | 4,205,253 |              |  |   | 4,613,082 |  |  |   | 5,014,240 | 
|Net (loss) income           |  | $             | (806,722  | )        |  | $             | (133,068  | )            |  | $ | 92,593    |  |  | $ | 441,614   | 
|                            |  |               |           |          |  |               |           |              |  |   |           |  |  |   |           | 
|Net (loss) income per share |  | $             | (0.06     | )        |  | $             | (0.01     | )            |  | $ | 0.01      |  |  | $ | 0.03      | 

|                                         |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|---------------------------------------- |  | ------------- | ---------- | -------- |  | ------------- | ---------- | ------------ |  | - | ---------- | - |  | - | ---------- | -
|                                         |  |              
|                                         |  | Quarter Ended
|                                         |  |              
|                                         |  | March 31,     |            | June 30, |  | September 30, |            | December 31,
|                                         |  | 2001          |            | 2001     |  | 2001          |            | 2001        
|                                         |  |               |            |          |  |               |            |             
|Total revenues                           |  | $             | 5,563,490  |          |  | $             | 6,008,203  |              |  | $ | 6,374,562  |   |  | $ | 6,689,508  |  
|Gross profit                             |  |               | 1,915,711  |          |  |               | 2,448,695  |              |  |   | 2,812,901  |   |  |   | 3,144,722  |  
|Loss before extraordinary gain           |  |               | (3,361,965 | )        |  |               | (2,692,359 | )            |  |   | (3,108,429 | ) |  |   | (1,732,958 | )
|                                         |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|Net loss                                 |  | $             | (3,361,965 | )        |  | $             | (1,609,206 | )            |  | $ | (3,108,429 | ) |  | $ | (1,732,958 | )
|                                         |  |               |            |          |  |               |            |              |  |   |            |   |  |   |            |  
|Loss per share before extraordinary gain |  | $             | (0.29      | )        |  | $             | (0.23      | )            |  | $ | (0.26      | ) |  | $ | (0.13      | )
|Net loss per share                       |  | $             | (0.29      | )        |  | $             | (0.14      | )            |  | $ | (0.26      | ) |  | $ | (0.13      | )

45



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##### 



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

No changes in or disagreements with accountants
on accounting and financial disclosure have occurred during the
two most recent fiscal years.

PART III

Item 10.     Directors
and Executive Officers of the Company

The information required by this item is
incorporated by reference to the sections and subsections
entitled (i) Proposal One, Election of
Directors, (ii) Executive Compensation
and (iii) Section 16(a) Beneficial Ownership
Reporting Compliance contained in our Proxy Statement for
the 2003 Annual Meeting of Stockholders to be filed with the SEC
pursuant to Regulation 14A.

Item 11.     Executive
Compensation

The information required by this item is
incorporated by reference to the section entitled
Executive Compensation contained in our Proxy
Statement for the 2003 Annual Meeting of Stockholders to be
filed with the SEC pursuant to Regulation 14A.

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

Except as set forth below, the information
required by this item is incorporated by reference to the
section entitled Security Ownership of Certain Beneficial
Owners contained in our Proxy Statement for the 2003
Annual Meeting of Stockholders to be filed with the SEC pursuant
to Regulation 14A.

Securities Authorized for Issuance Under
Equity Compensation Plans

The following table summarizes information about
our equity compensation plans as of December 31, 2002.

|                                                               |       |                      |           |                     |  |                         |      |      |  |  |         |         | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ------------------- |  | ----------------------- | ---- | ---- |  |  | ------- | ------- | 
|                                                               |       |                      |           |                     |  | Number of securities   
|                                                               |       |                      |           |                     |  | remaining available for
|                                                               |       |                      |           |                     |  | future issuance under  
|                                                               |       |                      |           |                     |  | equity compensation    
|                                                               |       | Number of securities |           |                     |  | plans (excluding       
|                                                               |       | to be issued upon    |           | Weighted-average    |  | securities reflected in
|                                                               |       | exercise of          |           | exercise price of   |  | the second column of   
|Plan category                                                  |       | outstanding options  |           | outstanding options |  | this table)            
|                                                               |       |                      |           |                     |  |                        
|Equity compensation plans approved by security
    holders     |       |                      | 2,850,222 | (1)                 |  | $                       | 8.28 |      |  |  | 515,265 | (2)(3) 
|Equity compensation plans not approved by
    security holders |       |                      | 3,075,018 |                     |  |                         | 2.53 |      |  |  | 454,272 |        
|                                                               |       |                      |           |                     |  |                         |      |      |  |  |         |        
|                                                               | Total |                      |           | 5,925,240           |  |                         | $    | 5.30 |  |  |         | 969,537 | 
|                                                               |       |                      |           |                     |  |                         |      |      |  |  |         |        




|    |                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 1,050,472 shares of our common stock to
    be issued upon exercise of outstanding options granted under the
    Online Resources 1989 Stock Option Plan and 4,874,768 shares of
    our common stock to be issued upon exercise of outstanding
    options granted under the Online Resources 1999 Stock Option
    Plan.              
|(2) | Represents shares of our common stock reserved
    under the Online Resources 1999 Stock Option Plan. Excluding
    1,050,472 shares of our common stock to be issued upon exercise
    of outstanding options, there are no longer any shares remaining
    available for future issuance under the Online Resources 1989
    Stock Option Plan.
|(3) | Includes 292,143 shares of our common stock
    reserved under the Online Resources Employee Stock Purchase Plan.                                                                                                                                                                                                                                

Item 13.     Certain
Relationships and Related Transactions

The information required by this item is
incorporated by reference to the section entitled Certain
Transactions contained in our Proxy Statement for the 2003
Annual Meeting of Stockholders to be filed with the SEC pursuant
to Regulation 14A.

Item 14.     Controls
and Procedures

Evaluation of disclosure controls and
procedures.Within the 90 days
prior to the date of this report, we carried out an evaluation
of the effectiveness of the design and operation of our
disclosure controls and

46



---



##### 



procedures (as defined in the Exchange Act
Rules 13a-14c and 15d-14c) under the supervision and with
the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer. Based upon
that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and
procedures are effective.


Changes in our
controls.Subsequent to the date of
the evaluation of our disclosure controls and procedures, there
have been no significant changes in our internal controls or any
other factors that could significantly affect our internal
controls, nor were any corrective actions required with regard
to significant deficiencies and material weaknesses.

PART IV

Item 15.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K

(a) Exhibits
and Financial Statements and Schedules.

(1) Financial Statements. The Companys
financial statements are included in Part II, Item 8 of
this report on Form 10-K.

(2) Schedule II  Valuation
and Qualifying Accounts.

(3) List of Exhibits.

| |      |  |  |                                                                                                                                                                                                                                                                  
| | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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                                                                                                                                                                        
| | 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)                                                                                                  
| | 4.2  |  |  | Form of warrants issued in 1995 in conjunction
    with bridge notes (Incorporated by reference from our
    registration statement on Form S-1; Registration
    No. 333-74777)                                                                                 
| | 4.3  |  |  | Form of warrants issued in 1995 and 1996 to
    purchasers of notes due December 31, 1997 (Incorporated by
    reference from our registration statement on Form S-1;
    Registration No. 333-74777)                                                            
| | 4.4  |  |  | Form of warrants issued to purchasers of senior
    notes due June 30, 1999 (Incorporated by reference from our
    registration statement on Form S-1; Registration
    No. 333-74777)                                                                          
| | 4.5  |  |  | Form of warrants issued to purchasers of
    Series C preferred stock in 1997 (Incorporated by reference
    from our registration statement on Form S-1; Registration
    No. 333-74777)                                                                        
| | 4.6  |  |  | Form of warrants issued to Dominion Fund IV
    (Incorporated by reference from our registration statement on
    Form S-1; Registration No. 333-74777)                                                                                                          
| | 4.7  |  |  | Form of warrants issued in 1998 to Sirrom Capital
    Corporation (Incorporated by reference from our registration
    statement on Form S-1; Registration No. 333-74777)                                                                                        
| | 4.8  |  |  | Form of warrants issued to purchasers of
    Series C preferred stock in 1998 and 1999 (Incorporated by
    reference from our registration statement on Form S-1;
    Registration No. 333-74777)                                                               
| | 4.9  |  |  | Form of warrants issued to placement agents
    (Incorporated by reference from our registration statement on
    Form S-1; Registration No. 333-74777)                                                                                                          
| | 4.10 |  |  | Registration Rights Agreement for purchasers of
    Series C preferred stock and Sirrom Capital Corporation
    (Incorporated by reference from our registration statement on
    Form S-1; Registration No. 333-74777)                                          
| | 4.11 |  |  | Indenture dated September 28, 2000 between
    the registrant and Bankers Trust Company, as trustee. (Filed as
    Exhibit 4.1 to our Form 10-Q for the quarter ended
    September 30, 2000 filed on November 14, 2000 and
    incorporated herein by reference)
| | 4.12 |  |  | Form of warrants issued to placement agent (Filed
    as Exhibit 4.3 to our Form 10-Q for the quarter ended
    September 30, 2000 filed on November 14, 2000 and
    incorporated herein by reference)                                                          

47



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##### 



| |      |  |  |                                                                                                                                                                                                                                                                                                      
| | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.13 |  |  | Registration Rights Agreement dated
    September 28, 2000 among the Registrant and Jefferies &
    Company, Inc. as the placement agent (Filed as Exhibit 4.2
    to our Form 10-Q for the quarter ended September 30,
    2000 filed on November 14, 2000 and incorporated herein by
    reference)
| | 4.14 |  |  | Rights Agreement dated as of January 11,
    2002, between the registrant and American Stock
    Transfer & Trust Company (filed as Exhibit 4.1 to
    our Form 8-K filed on January 15, 2002 and
    incorporated herein by reference.                                                              
| | 10.1 |  |  | 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. 333-74777)                                                                                                                                                                   
| | 10.4 |  |  | Employee Stock Purchase Plan (Incorporated by
    reference from our registration statement on Form S-8;
    Registration No. 333-40674)                                                                                                                                                             
| | 23.1 |  |  | Consent of Ernst & Young LLP (See Exhibit
    attached to this Report)                                                                                                                                                                                                                               

(b) Reports on
Form 8-K.

The registrant has filed no Forms 8-K during the
quarter ended December 31, 2002.

48



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##### 



REPORT OF INDEPENDENT AUDITORS ON FINANCIAL
STATEMENT SCHEDULE

We have audited the financial statements of
Online Resources Corporation as of December 31, 2002 and
2001, and for each of the three years in the period ended
December 31, 2002, and have issued our report thereon dated
February 11, 2003, except for Note 15, as to which the
date is February 26, 2003, (included elsewhere in the
Annual Report on Form 10-K). Our audits also included the
financial statement schedule listed in Item 14(a)(2) of the
Form 10-K. This schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion based on our audits.

In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

McLean, Virginia

February 11, 2003


49



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##### 



Schedule II  Valuation
and Qualifying Account and Reserve

|                                 |                              |            |   |           |  |            |   |            |  |  |   |         |  |  |   |         | 
|-------------------------------- | ---------------------------- | ---------- | - | --------- |  | ---------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                                 |                              | Balance at |   |           |  |            |   |           
|                                 |                              | Beginning  |   |           |  |            |   | Balance at
|                                 |                              | of         |   |           |  |            |   | End of    
|Classification                   |                              | Period     |   | Additions |  | Deductions |   | Period    
|                                 |                              |            |   |           |  |            |   |           
|Allowance for doubtful accounts: |                              |            |   |           |  |            |   |            |  |  |   |         |  |  |   |        
|                                 | Year ended December 31, 2000 |            | $ | 151,435   |  |            | $ | 213,245    |  |  | $ | 247,370 |  |  | $ | 117,310 | 
|                                 | Year ended December 31, 2001 |            | $ | 117,310   |  |            | $ | 239,564    |  |  | $ | 321,874 |  |  | $ | 35,000  | 
|                                 | Year ended December 31, 2002 |            | $ | 35,000    |  |            | $ | 88,000     |  |  | $ | 46,095  |  |  | $ | 76,905  | 

All other schedules set forth in the applicable
accounting regulations of the Securities and Exchange Commission
either are not required under the related instructions or are
not applicable and, therefore, have been omitted.

50



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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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.



| |                             
| | ----------------------------
| | ONLINE RESOURCES CORPORATION

Date: March 28, 2003

| |     |                                                                                            
| | --- | -------------------------------------------------------------------------------------------
| | By: | /s/ MATTHEW P. LAWLOR 
     _______________________________________ 
     Matthew P. Lawlor

| |                        
| | -----------------------
| | Chairman and           
| | Chief 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 on behalf of the registrant and
in the capacities and on the date indicated.

|                                           |  |                                                                                        |  |               
|------------------------------------------ |  | -------------------------------------------------------------------------------------- |  | --------------
|Signature                                  |  | Title                                                                                  |  | Date          
|                                           |  |                                                                                        |  |               
|/s/ MATTHEW P. LAWLORMatthew P. Lawlor     |  | Chairman and Chief Executive Officer                                                   |  | March 31, 2003
|                                          
|/s/ CATHERINE A. GRAHAMCatherine A. Graham |  | Executive Vice President and Chief Financial
    Officer (Principal Financial Officer) |  | March 31, 2003
|                                          
|/s/ MICHAEL R. HOMONMichael R. Homon       |  | Controller (Controller and Principal Accounting
    Officer)                           |  | March 31, 2003
|                                          
|/s/ THOMAS S. JOHNSONThomas S. Johnson     |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ JOSEPH J. SPALLUTOJoseph J. Spalluto   |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ DAVID A. OCONNORDavid A. OConnor     |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ ERVIN R. SHAMESErvin R. Shames         |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ GEORGE M. MIDDLEMASGeorge M. Middlemas |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ BARRY D. WESSLERBarry D. Wessler       |  | Director                                                                               |  | March 31, 2003
|                                          
|/s/ MICHAEL H. HEATHMichael H. Heath       |  | Director                                                                               |  | March 31, 2003

51



---



##### 



Certification under Section 906

Of the Sarbanes-Oxley Act of 2002


Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, each of the undersigned certifies
that this report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in this report fairly
presents, in all material respects, the financial condition and
results of operations of Online Resources Corporation.



| |     |                   
| | --- | ------------------
| | By: | /s/ MATTHEW LAWLOR

| |                          
| | -------------------------
| |                          
| | Name:   Matthew P. Lawlor

| |        |                                                       
| | ------ | ------------------------------------------------------
| | Title: | Chairman of the Board, and Chief Executive
    Officer



| |     |                     
| | --- | --------------------
| | By: | /s/ CATHERINE GRAHAM

| |                             
| | ----------------------------
| |                             
| | Name:   Catherine A. Graham,

| |        |                          
| | ------ | -------------------------
| | Title: | Executive Vice President,

| |                                                                               
| | ------------------------------------------------------------------------------
| | and Chief Financial Officer 
                    (Principal Financial Officer)

52



---



##### 



CERTIFICATIONS

I, Matthew Lawlor, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Online Resources
    Corporation                                                                                                                                                                                                                                                         
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly presents in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                      
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of registrants board of
    directors (or persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal control; and                                                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |     |                   
| | --- | ------------------
| | By: | /s/ MATTHEW LAWLOR

| |                          
| | -------------------------
| |                          
| | Name:   Matthew P. Lawlor

| |        |                                                                                     
| | ------ | ------------------------------------------------------------------------------------
| | Title: | Chairman of the Board, and Chief Executive
    Officer (Principal Executive Officer)

Date: March 31, 2003

53



---



##### 



CERTIFICATIONS

I, Catherine Graham, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Online Resources
    Corporation                                                                                                                                                                                                                                                         
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly presents in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                      
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                           



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of registrants board of
    directors (or persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal control; and                                                                                                                                                      



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |     |                     
| | --- | --------------------
| | By: | /s/ CATHERINE GRAHAM

| |                             
| | ----------------------------
| |                             
| | Name:   Catherine A. Graham,

| |        |                          
| | ------ | -------------------------
| | Title: | Executive Vice President,

| |                                                                              
| | -----------------------------------------------------------------------------
| | and Chief Financial Officer 
                   (Principal Financial Officer)

Date: March 31, 2003

54