##### Table of Contents



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, 2005
  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)4795 Meadow Wood Lane,
    Suite 300
    Chantilly, Virginia(Address of principal
    executive offices)

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




---



##### 



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

Business
    Overview


4Item 1A:

Risk Factors


15Item 2:

Properties


23Item 3:

Legal
    Proceedings


23Item 4:

Submission of
    Matters to a Vote of Security Holders


23PART IIItem 5:

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


24Item 6:

Selected
    Consolidated Financial Data


24Item 7:

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


25Item 7A:

Quantitative and
    Qualitative Disclosures About Market Risk


36Item 8:

Consolidated
    Financial Statements and Supplementary Data


37Index to
    Consolidated Financial Statements


37Item 9:

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


60Item 9A:

Controls and
    Procedures


60Item 9B:

Other
    Information


60PART IIIItem 10:

Directors and
    Executive Officers of the Company


61Item 11:

Executive
    Compensation


61Item 12:

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


61Item 13:

Certain
    Relationships and Related Transactions


61Item 14:

Principal
    Accountant Fees and Services


61PART IVItem 15:

Exhibits and
    Financial Statement Schedules


61Signatures


65EX-23EX-31.1EX-31.2EX-32   2




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##### Table of Contents



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




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##### Table of Contents



PART I  Item 1.
    Business
    Overview      
    Our
    Quotiensm
    product line is designed for banks, credit unions and other
    depository financial institutions. We provide a fully integrated
    suite of web-based banking and payment services, giving clients
    a single point of accountability, an enhanced experience for
    their users and the marketing processes to drive Internet
    channel adoption. We also offer our electronic bill payment
    services on a stand-alone basis. Our bill payment service uses
    our patented payments gateway, which leverages the nations
    real-time electronic funds transfer, also known as EFT,
    infrastructure. By debiting end-users accounts in
    real-time, we are able to improve the speed, cost and quality of
    payments, while eliminating the risk that bills will be paid
    against unavailable funds. We process over $15 billion in
    bill payments annually.
    Our
    Incurrentsm
    product line is designed for credit card issuers and processors.
    Cardholders may access their account information, view
    transactions, set up payments and perform other self-service
    functions. Additionally, we offer card issuers a low-cost,
    web-based inquiry service, which allows cardholders to clearly
    identify merchants in disputed card transactions. We also offer
    a web-based tool that improves collections of late and
    delinquent funds in a private, non-confrontational manner.
    Incurrent Solutions, Inc. (Incurrent), which we
    acquired in December 2004, developed our credit card services.
    We plan to adapt and offer our payment and relationship
    management services to credit card issuers and processors as
    well.
    Our
    CertnFundssm
    product line has been recently introduced and is designed for
    e-commerce
    providers, primarily payment acquirers and large online billers.
    These services, which enable real-time debit for a variety of
    web-originated consumer payments and fund transfers, use our
    patented EFT payments gateway. This gateway has operated for
    over 10 years as the backbone for our bank and credit union
    bill payment business. By routing their web-originated consumer
    payments through our CertnFunds platform, payment acquirers and
    billers can lower their transaction costs, and increase the
    speed and certainty of collections.     4




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




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
    managing multiple technology vendors to provide account
    presentation, payments and other services;
    providing integrated end-user support to an increasingly
    sophisticated client base;
    understanding how to evaluate and enhance channel
    profitability; and
    maximizing the value of the channel by increasing adoption.    Our
    Solution
    Our Technology Infrastructure. one-by-one
  Our Operating and Technical Expertise.
  Our Integrated Marketing Process.
  Our Support Services.
 6




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Our
    Strategy
    Grow Our Client Base.
  Increase Adoption Rates.
  Extend Target Markets. CertnFunds sm e-commerce
  Provide Additional Products and Services to Our Installed
    Client Base. Money
    HQ sm
  Maintain and Leverage Technological
    Leadership.
 7




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Pursue Strategic Acquisitions.
  Leverage Growth Over Our Relatively Fixed Cost
    Base.
  Our
    Services
    
   8




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free-of-charge free-of-charge,
  Account Presentation Services.
  
    view transaction histories and account balances;
    review and retrieve current and past statements;
    transfer funds and balances;
    initiate or schedule either one-time or recurring payments;
    access and maintain account information; and
    perform many self-service administrative functions.  Money
    HQ sm person-to-person ®
  Payments Services. Money
    HQ sm
   9




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##### Table of Contents



Relationship Management Services. e-mail
      Custom Solutions Services.
  Third-Party Services.
  
    fully integrated bill payment and account retrieval through
    Intuits
    Quicken®;
    check ordering available through Harland, Deluxe, Clarke
    American or Liberty;
    inter-institution funds transfer and account aggregation
    provided by CashEdge;
    check imaging provided by AFS, Bisys, Fiserv, FSI/ Vsoft,
    Empire, Intercept, and Mid-Atlantic; and
    electronic statement through BIT Statement. 10




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##### Table of Contents



Sales and
    Marketing
          Our
    Technology
    
    front-end servers  proprietary and
    commercial communications software and hardware providing
    Internet and private communications access to our platform for
    end-users;
    middleware  proprietary and commercial
    software and hardware used to integrate end-user and financial
    data and to process financial transactions;
    back-end systems  databases and
    proprietary software which support our account presentation and
    payments services;
    support systems  proprietary and commercial
    systems supporting our end-user service and other support
    services; and
    enabling technology  software enabling
    clients and their end-users to easily access our platform.     11




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##### Table of Contents



Note:
    This diagram is a representation of our gateway and does not
    include all links. Connections depicted are for illustrative
    purposes only.     12




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Proprietary
    Rights
          Competition
         13




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end-to-end
  
    industry trust and reliability;
    technical capabilities, scalability, and security;
    speed to market;
    end-user service;
    ability to interface with financial services providers and their
    technology; and
    operating effectiveness.  Government
    Regulation
          truth-in-lending
 14




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case-by-case
    Employees
    Available
    Information
  www.orcc.com Form 10-K, Form 10-Q Form 8-K
  Item 1A.
    Risk
    Factors  You should carefully consider the following risks before
    investing in our common stock. These are not the only risks that
    we may face. If any of the events referred to below occur, our
    business, financial condition, liquidity and results of
    operations could suffer. In that case, the trading price of our
    common stock could decline, and you may lose all or part of your
    investment.
  Risks
    Related to Our Business
  Prior
    to the third quarter of 2002, we had a history of net losses; we
    have achieved net income profitability for all, but two, fiscal
    quarters since the third quarter of 2002 and cannot be sure that
    we will be profitable in all future periods.
    We are
    dependent on the financial services industry, and changes within
    that industry could reduce demand for our products and
    services.
   15




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The
    failure to retain existing end-users or changes in their
    continued use of our services will adversely affect our
    operating results.
    Any
    failure of our clients to effectively market our services could
    have a material adverse effect on our business.
    Demand
    for low-cost or free online financial services and competition
    may place significant pressure on our pricing structure and
    revenues and may have an adverse effect on our financial
    condition.
    If we
    are unable to expand or adapt our services to support our
    end-users needs, our business may be materially adversely
    affected.
    If we
    lose a material client, our business may be adversely
    impacted.
   16




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Consolidation
    of the financial services industry could negatively impact our
    business.
    Our
    failure to compete effectively in our markets would have a
    material adverse effect on our business.
        We may
    have exposure to greater than anticipated tax
    liabilities.
   17




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Our
    ability to utilize our net operating loss carryforwards in any
    given period may be limited.
    Our
    quarterly financial results are subject to fluctuations, which
    could have a material adverse effect on the price of our
    stock.
    Our
    limited ability to protect our proprietary technology and other
    rights may adversely affect our ability to
    compete.
    Our
    failure to properly develop, market or sell new products could
    adversely affect our business.
    If we
    are found to infringe the proprietary rights of others, we could
    be required to redesign our products, pay royalties or enter
    into license agreements with third parties.
    
    be expensive and time consuming to defend; 18




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##### Table of Contents




    cause us to cease making, licensing or using products that
    incorporate the challenged intellectual property;
    require us to redesign our products, if feasible;
    divert managements attention and resources; and
    require us to pay royalties or enter into licensing agreements
    in order to obtain the right to use necessary technologies.    System
    failures could hurt our business and we could be liable for some
    types of failures the extent or amount of which cannot be
    predicted.
    Security
    breaches could have a material adverse effect on our
    business.
  state-of-the-art
     19




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The
    potential obsolescence of our technology or the offering of new,
    more efficient means of conducting account presentation and
    payments services could negatively impact our
    business.
    We
    rely on internally developed software and systems as well as
    third-party products, any of which may contain errors and
    bugs.
  and/or
  The
    failure to attract or retain our officers and skilled employees
    could have a material adverse effect on our
    business.
    We
    could be sued for contract or product liability claims and
    lawsuits may disrupt our business, divert managements
    attention or have an adverse effect on our financial
    results.
   20




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##### Table of Contents



Government
    regulation could interfere with our business.
        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
    exposed to increased costs and risks associated with complying
    with increasing and new regulation of corporate governance and
    disclosure standards.
     21




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##### Table of Contents



Risks
    Related to Acquisitions
  We may
    face difficulties in integrating acquired
    businesses.
    
    the loss of key employees or end-users;
    the need to coordinate diverse organizations;
    difficulties in integrating administrative and other functions;
    the loss of key members of management following the
    acquisition; and
    the diversion of our managements attention from our
    day-to-day
    operations.    Our
    acquisitions increase the size of our operations and the risks
    described in this annual report.
    We
    made our acquisitions and may make future acquisitions, on the
    basis of available information, and there may be liabilities or
    obligations that were not or will not be adequately
    disclosed.
    Acquired
    companies give us limited warranties and indemnities in
    connection with their businesses, which may give rise to claims
    by us.
    Risks
    Related to Our Capital Structure
  Our
    stock price is volatile.
    
    actual or anticipated variations in quarterly operating results; 22




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
    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.    We
    have a substantial number of shares of common stock, including
    shares that may be issued upon exercise of options under our
    equity compensation plan and issued in connection to certain
    acquisitions that, if sold, could affect the trading price of
    our common stock.
     Item 2.
    Properties     Item 3.
    Legal
    Proceedings     Item 4.
    Submission
    of Matters to a Vote of Security Holders   23




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##### Table of Contents

PART II

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







|                     |  |      |        |  |      |   |        |      |  |   |       |  |  |   |       | 
|-------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ----- |  |  | - | ----- | 
|                     |  | 2005 |        |  | 2004 |  
|Fiscal Quarter Ended |  | High |        |  | Low  |   |        | High |  |   | Low   | 
|                    
|First Quarter        |  | $    | 9.950  |  |      | $ | 7.250  |      |  | $ | 8.280 |  |  | $ | 5.700 | 
|Second Quarter       |  |      | 11.590 |  |      |   | 8.500  |      |  |   | 7.480 |  |  |   | 5.750 | 
|Third Quarter        |  |      | 11.170 |  |      |   | 9.180  |      |  |   | 7.270 |  |  |   | 5.900 | 
|Fourth Quarter       |  |      | 12.160 |  |      |   | 10.500 |      |  |   | 7.530 |  |  |   | 6.700 | 

















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



Form 10-K. Form 10-K.




|                                |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|------------------------------- |  | --------------------------- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- |  |  | ---- | ---------- |  |  | - | ---------- | 
|                                |  | Year Ended
    December 31, |           
|                                |  | 2005                        |            |  | 2004 |   |            | 2003 |  |   | 2002       |  |  | 2001 |           
|                               
|Statement of Operations Data:   |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Revenues:                       |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Service fees                    |  | $                           | 52,382,545 |  |      | $ | 39,202,146 |      |  | $ | 33,606,782 |  |  | $    | 29,603,510 |  |  | $ | 21,679,291 | 
|Professional services and other |  |                             | 8,118,358  |  |      |   | 3,083,306  |      |  |   | 4,800,833  |  |  |      | 2,750,673  |  |  |   | 2,956,472  | 
|                                |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Total revenues                  |  |                             | 60,500,903 |  |      |   | 42,285,452 |      |  |   | 38,407,615 |  |  |      | 32,354,183 |  |  |   | 24,635,763 | 
|Cost of revenues                |  |                             | 24,517,002 |  |      |   | 18,058,726 |      |  |   | 16,630,868 |  |  |      | 14,846,015 |  |  |   | 14,313,734 | 
|                                |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Gross profit                    |  |                             | 35,983,901 |  |      |   | 24,226,726 |      |  |   | 21,776,747 |  |  |      | 17,508,168 |  |  |   | 10,322,029 | 
|General and administrative      |  |                             | 13,125,412 |  |      |   | 9,107,176  |      |  |   | 8,161,018  |  |  |      | 6,819,850  |  |  |   | 6,930,462  | 
|Sales and marketing             |  |                             | 10,174,312 |  |      |   | 7,415,788  |      |  |   | 6,433,211  |  |  |      | 5,368,177  |  |  |   | 5,931,222  | 
|Systems and development         |  |                             | 4,787,994  |  |      |   | 3,792,611  |      |  |   | 3,830,565  |  |  |      | 4,344,765  |  |  |   | 5,854,866  | 
|Non-recurring charges(1)        |  |                             |           |  |      |   |           |      |  |   |           |  |  |      |           |  |  |   | 209,434    | 
|                                |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 
|Total expenses                  |  |                             | 28,087,718 |  |      |   | 20,315,575 |      |  |   | 18,424,794 |  |  |      | 16,532,792 |  |  |   | 18,925,984 | 
|                                |  |                             |            |  |      |   |            |      |  |   |            |  |  |      |            |  |  |   |            | 

24



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##### Table of Contents



Year Ended
    December 31,2005


2004


2003


2002


2001Income (loss) from operations


7,896,183



3,911,151



3,351,953



975,376



(8,603,955
)Other income (expense)


1,301,467



181,901



(1,234,081
)


(1,380,959
)


(2,291,756
)Gain from extinguishment of debt(2)


















1,083,153Income (loss) before income tax
    (benefit) provision


9,197,650



4,093,052



2,117,872



(405,583
)


(9,812,558
)Income tax (benefit) provision


(13,465,640
)


146,000



15,785







Net income (loss)

$
22,663,290


$
3,947,052


$
2,102,087


$
(405,583
)

$
(9,812,558
)Net income (loss) per shareBasic

$
0.97


$
0.22


$
0.14


$
(0.03
)

$
(0.82
)Diluted

$
0.88


$
0.20


$
0.13


$
(0.03
)

$
(0.82
)Shares used in calculation of
    income (loss) per shareBasic


23,433,884



18,057,270



15,140,538



13,520,642



12,026,476Diluted


25,880,338



20,128,093



16,685,602



13,520,642



12,026,476   Notes:
  (1)
    
    We incurred and paid a one-time charge of $209,434, including
    severance and benefits payments, during the year ended
    December 31, 2001 as a result of a staff reduction for 23
    employees, which represented approximately 9% of the total
    employees on January 3, 2001.(2)
    
    In May 2001, we used $2.2 million of our cash to repurchase
    $3.5 million of the 8% convertible subordinated notes,
    which payments resulted in a one-time gain of $1,083,153.  December 31,2005


2004


2003


2002


2001Balance Sheet Data:Cash, cash equivalents and
    investments

$
55,864,265


$
4,640,587


$
13,038,406


$
6,785,827


$
7,703,622Working capital


61,687,695



10,055,658



14,744,093



8,650,044



8,785,201Total assets


115,596,111



44,533,268



26,734,578



21,329,940



21,521,614Notes payable, less current portion














12,000,000



13,000,000Capital lease obligations, less
    current portion










10,521



111,491



348,552Other non-current liabilities


5,228,778



1,998,286



302,535



355,662



566,539Total liabilities


12,559,943



9,711,633



4,378,202



15,831,810



17,183,999Stockholders equity


103,036,168



34,770,656



22,309,237



5,498,130



4,337,615   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations   25




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##### Table of Contents



Overview




end-to-end








set-up












Critical
    Accounting Policies and Estimates








Revenue Recognition Policy. No. 00-21, Revenue Arrangements with Multiple Deliverables No. 00-21). No. 00-21,


26



---



##### Table of Contents













e-financial Revenue
    Recognition in Financial Statements




No. 97-2, Software Revenue Recognition (SOP No. 97-2), SOP No. 98-9, Software Revenue Recognition With Respect to Certain
    Transactions 98-9). Long-Term
    Construction-Type Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP No. 81-1), percentage-of-completion percentage-of-completion










Allowance for Doubtful Accounts.




Income Taxes.






27



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##### Table of Contents



Accounting for Income Taxes
  Cost of Internal Use Software and Computer Software to be
    Sold. SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use (SOP No. 98-1).
  Accounting for the Costs of
    Computer Software to be Sold, Leased or Otherwise Marketed
  Impairment of Goodwill, Intangible Assets and Long-Lived
    Assets. Goodwill
    and Other Intangible Assets Accounting for the Impairment or
    Disposal of Long-Lived Assets
  Recently Issued Pronouncement. Share-Based Payment Statement
    of Cash Flows.
       28




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##### Table of Contents



Form 10-K,
  Results
    of Operations
    Year Ended
    December 31,2005


2004


2003Dollars


%


Dollars


%


Dollars


%Revenues:Banking

$
52,445



87%


$
42,285



100%


$
38,408



100%Card


8,056



13%







0%







0%Total

$
60,501



100%


$
42,285



100%


$
38,408



100%   Dollars


Margin


Dollars


Margin


Dollars


MarginGross profit:Banking

$
32,592



62%


$
24,227



57%


$
21,777



57%Card


3,674



46%







0%







0%Unallocated


(282
)














Total

$
35,984



59%


$
24,227



57%


$
21,777



57%   Dollars


%


Dollars


%


Dollars


%Operating expenses:Banking

$
24,994



90
%

$
20,316



100%


$
18,425



100%Card


2,943



11
%






0%







0%Unallocated


(151
)


(1
)%






0%







0%Total

$
27,786



100
%

$
20,316



100%


$
18,425



100%   Dollars


Margin


Dollars


Margin


Dollars


MarginIncome from operations:Banking

$
7,598



14%


$
3,911



9%


$
3,352



9%Card


731



9%







0%







0%Unallocated


(433
)














Total

$
7,896



13%


$
3,911



9%


$
3,352



9%   Year
    Ended December 31, 2005 Compared to the Year Ended
    December 31, 2004
  Revenues
    29




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##### Table of Contents



Year Ended
    December 31,


Change2005


2004


Difference


%Revenues (dollars in millions):Account presentation services

$
8.8


$
3.0


$
5.8



191
%Payment services


35.9



28.3



7.6



27
%Relationship management services


7.7



7.9



(0.2
)


(2
)%Professional services and other


8.1



3.1



5.0



163
%Total revenues

$
60.5


$
42.3


$
18.2



43
%Users and transactions (000s):(1)Account presentation users


638



485



153



32
%Payment services users


984



776



208



27
%All services users


1,475



1,125



350



31
%Payment transactions


46,212



37,123



9,089



24
%Adoption rates:(2)Account presentation services(1)


29.0
%


22.4
%


6.6
%


29
%Payment services(3)


9.6
%


8.2
%


1.4
%


17
%   Notes:
  (1)
    
    Excludes card segment users.(2)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of checking
    accounts enabled for account presentation services.(3)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of checking accounts enabled
    for payment services.  Account Presentation Services.
  Payment Services.
  Relationship Management Services.
 30




---



##### Table of Contents



Professional Services and Other.
  Costs and
    Expenses
  Year Ended
    December 31,


Change2005(1)


2004(1)


Difference(1)


%Revenues

$
60.5


$
42.3


$
18.2



43%Costs of revenues


24.5



18.1



6.4



36%Gross profit


36.0



24.2



11.8



49%Gross margin


59
%


57
%


2
%


4%Operating expensesGeneral & administrative


13.1



9.1



4.0



44%Sales & marketing


10.2



7.4



2.8



37%Systems & development


4.8



3.8



1.0



26%Total operating expenses


28.1



20.3



7.8



38%Income from operations


7.9



3.9



4.0



102%Other income, net


1.3



0.1



1.2



615%Income before tax (benefit)
    provision


9.2



4.0



5.2



125%Tax (benefit) provision


(13.5
)


0.1



13.6Net income

$
22.7


$
3.9


$
16.8



474%Net income per share:Basic

$
0.97


$
0.22


$
0.75



341%Diluted

$
0.88


$
0.20


$
0.68



340%Shares used in calculation of net
    income per share:Basic


23.4



18.1



5.3



30%Diluted


25.9



20.1



5.8



29%   Notes:
  (1)
    
    In millions except for per share information.  Costs of Revenues. SOP No. 98-1.
  Gross Profit.
 31




---



##### Table of Contents



General and Administrative.
  Sales and Marketing.
  Systems and Development. SOP No. 98-1.
  Income from Operations.
  Other Income, Net.
  Tax (Benefit) Provision.
  Net Income.
 32




---



##### Table of Contents



Year
    Ended December 31, 2004 Compared to the Year Ended
    December 31, 2003
  Revenues
    Year Ended
    December 31,


Change2004


2003


Difference


%Revenues (dollars in millions):Account presentation services

$
3.0


$
4.1


$
(1.1
)


(25
)%Payment services


28.3



21.0



7.3



34
%Relationship management services


7.9



8.5



(0.6
)


(7
)%Professional services and other


3.1



4.8



(1.7
)


(36
)%Total revenues

$
42.3


$
38.4


$
3.9



10
%Users and transactions (000s):(1)Account presentation users


485



416



69



17
%Payment services users


776



528



248



47
%All services users


1,125



841



284



34
%Payment transactions


37,123



24,825



12,298



50
%Adoption rates:(1)Account presentation services(2)


22.4
%


16.8
%


5.6
%


33
%Payment services(3)


8.2
%


5.1
%


3.1
%


61
%   Notes:
  (1)
    
    Excludes card segment users.(2)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of checking
    accounts enabled for account presentation services.(3)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of checking accounts enabled
    for payment services.  Account Presentation Services.
  Payment Services.
 33




---



##### Table of Contents



Relationship Management Services.
  Professional Services and Other.
  Costs and
    Expenses
  Year Ended
    December 31,


Change2004(1)


2003(1)


Difference(1)


%Revenues

$
42.3


$
38.4


$
3.9



10
%Costs of revenues


18.1



16.6



1.5



9
%Gross profit


24.2



21.8



2.4



11
%Gross margin


57
%


57
%


0
%


0
%Operating expensesGeneral & administrative


9.1



8.2



0.9



12
%Sales & marketing


7.4



6.4



1.0



15
%Systems & development


3.8



3.8







(1
)%Total operating expenses


20.3



18.4



1.9



10
%Income from operations


3.9



3.4



0.5



17
%Other expense, net






(1.2
)


1.2Net income

$
3.9


$
2.2


$
1.7



88
%Net income per share:Basic

$
0.22


$
0.14


$
0.08



57
%Diluted

$
0.20


$
0.13


$
0.07



54
%Shares used in calculation of net
    income per share:Basic


18.1



15.1



3.0



19
%Diluted


20.1



16.7



3.4



21
%   Notes:
  (1)
    
    In millions except for per share information.  Costs of Revenues.
 34




---



##### Table of Contents



SOP No. 98-1,
  Gross Profit.
  General and Administrative.
  Sales and Marketing.
  Systems and Development. SOP No. 98-1.
  Income from Operations.
  Other Expense, Net.
  Net Income.
  Liquidity
    and Capital Resources
  available-for-sale available-for-sale
 35




---



##### Table of Contents



available-for-sale.
      Year Ended
    December 31,Total


2006


2007


2008


2009


2010


ThereafterCapital lease obligations

$
8,268


$
8,268


$



$



$



$



$
Operating leases


19,231,134



2,747,749



2,253,359



2,017,509



2,071,740



2,127,435



8,013,342Purchase obligations


1,084,160



657,080



427,080















Total obligations

$
20,323,562


$
3,413,097


$
2,680,439


$
2,017,509


$
2,071,740


$
2,127,435


$
8,013,342           Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   36




---



##### Table of Contents



Item 8.
    Consolidated
    Financial Statements and Supplementary Data INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS  Managements
    Report on Internal Control Over Financial Reporting


38Reports of
    Independent Registered Accounting Firm


39Consolidated
    Balance Sheets


41Consolidated
    Statements of Operations


42Consolidated
    Statements of Stockholders Equity


43Consolidated
    Statements of Cash Flows


44Notes to
    Consolidated Financial Statements


45  37




---



##### Table of Contents



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING          Form 10-K.
 38




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     39




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 40




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  CONSOLIDATED BALANCE SHEETS
  December 31,2005


2004ASSETSCurrent assets:Cash and cash equivalents

$
55,864,265


$
3,341,678Restricted cash


2,219,675



1,650,723Short-term investments






1,298,909Accounts receivable (net of
    allowance of approximately $154,000 and $152,000 at
    December 31, 2005 and 2004, respectively)


7,262,565



8,433,113Deferred implementation costs


608,598



460,600Deferred tax asset, current portion


2,029,731



Prepaid expenses and other current
    assets


1,034,026



2,634,961Total current assets


69,018,860



17,819,984Property and equipment, net


15,241,718



13,099,829Deferred tax asset, less current
    portion


11,635,269



Deferred implementation costs, less
    current portion


520,768



420,035Goodwill


16,322,659



11,272,463Intangible assets


2,329,846



1,569,800Other assets


526,991



351,157Total assets

$
115,596,111


$
44,533,268LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,133,692


$
1,654,650Accrued expenses and other current
    liabilities


1,324,319



3,159,743Accrued compensation


2,065,388



1,808,233Deferred revenues, current portion


2,638,015



972,890Deferred rent, current portion


161,483



158,237Capital lease obligations


8,268



10,573Total current liabilities


7,331,165



7,764,326Deferred revenues, less current
    portion


1,213,542



379,036Deferred rent, less current portion


1,795,561



1,524,828Other long-term liabilities


2,219,675



94,422Total liabilities


12,559,943



9,762,612Commitments and contingencies






Stockholders equity:Series A convertible preferred
    stock, $0.01 par value; none authorized at
    December 31, 2005; 1,000,000 authorized and none issued at
    December 31, 2004






Series B junior participating
    preferred stock, $0.01 par value; 297,500 shares
    authorized; none issued at December 31, 2005 and 2004






Common stock, $0.0001 par
    value; 35,000,000 shares authorized; 25,288,886 issued and
    25,213,361 outstanding at December 31, 2005; and 19,340,222
    issued and 19,264,697 outstanding at December 31, 2004


2,521



1,926Additional paid-in capital


160,249,466



114,647,954Accumulated deficit


(56,988,019
)


(79,651,309
)Treasury stock, 75,525 shares
    at December 31, 2005 and 2004


(227,800
)


(227,800
)Accumulated other comprehensive loss






(115
)Total stockholders equity


103,036,168



34,770,656Total liabilities and
    stockholders equity

$
115,596,111


$
44,533,268    41




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2005


2004


2003Revenues:Account presentation services

$
8,825,894


$
3,029,527


$
4,064,083Payment services


35,840,725



28,277,468



21,041,685Relationship management services


7,715,926



7,895,151



8,501,014Professional services and other


8,118,358



3,083,306



4,800,833Total revenues


60,500,903



42,285,452



38,407,615Costs and expenses:Service costs


19,845,854



16,751,394



15,148,318Implementation and other costs


4,671,148



1,307,332



1,482,550Costs of revenues


24,517,002



18,058,726



16,630,868Gross profit


35,983,901



24,226,726



21,776,747General and administrative


13,125,412



9,107,176



8,161,018Sales and marketing


10,174,312



7,415,788



6,433,211Systems and development


4,787,994



3,792,611



3,830,565Total expenses


28,087,718



20,315,575



18,424,794Income from operations


7,896,183



3,911,151



3,351,953Other income (expense):Interest income


1,303,248



147,185



79,090Interest expense


(4,639
)


(3,391
)


(817,603
)Other income (expense)


2,858



38,107



(455
)Debt repurchase/conversion expense










(495,113
)Total other income (expense)


1,301,467



181,901



(1,234,081
)Income before income tax (benefit)
    provision


9,197,650



4,093,052



2,117,872Income tax (benefit) provision


(13,465,640
)


146,000



15,785Net income

$
22,663,290


$
3,947,052


$
2,102,087Net income per share:Basic

$
0.97


$
0.22


$
0.14Diluted

$
0.88


$
0.20


$
0.13Shares used in calculation of net
    income per share:Basic


23,433,884



18,057,270



15,140,538Diluted


25,880,338



20,128,093



16,685,602    42




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY
  AccumulatedAdditional








Other


TotalCommon Stock


Paid-In


Accumulated


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Deficit


Stock


(Loss) Income


EquityBalance at December 31, 2002


13,706,421


$
1,370


$
91,410,356


$
(85,700,448
)

$
(227,800
)

$
14,652


$
5,498,130Comprehensive income:Net income














2,102,087











2,102,087Unrealized loss on
    available-for-sale
    securities






















(9,325
)


(9,325
)Comprehensive income


























2,092,762Exercise of common stock options


746,911



75



2,167,806















2,167,881Issuance of common stock


1,357,556



136



4,450,328















4,450,464Conversion of notes payable


2,001,314



200



8,099,800















8,100,000Balance at December 31, 2003


17,812,202



1,781



106,128,290



(83,598,361
)


(227,800
)


5,327



22,309,237Comprehensive income:Net income














3,947,052











3,947,052Unrealized loss on
    available-for-sale
    securities






















(5,442
)


(5,442
)Comprehensive income


























3,941,610Exercise of common stock options


424,434



42



1,072,572















1,072,614Issuance of common stock


28,047



3



157,090















157,093Issuance of common stock in
    connection with Incurrent acquisition


1,000,014



100



7,290,002















7,290,102Balance at December 31, 2004


19,264,697



1,926



114,647,954



(79,651,309
)


(227,800
)


(115
)


34,770,656Comprehensive income:Net income














22,663,290











22,663,290Unrealized gain on
    available-for-sale
    securities






















115



115Comprehensive income


























22,663,405Exercise of common stock options


515,831



52



2,991,674















2,991,726Tax benefit from the exercise of
    employee stock options










47,013















47,013Issuance of common stock


130,991



13



339,465















339,478Issuance of common stock in
    connection with follow-on offering, net of costs


5,120,734



512



40,224,146















40,224,658Issuance of common stock in
    connection with IDS acquisition


181,108



18



1,999,214















1,999,232Balance at December 31, 2005


25,213,361


$
2,521


$
160,249,466


$
(56,988,019
)

$
(227,800
)

$



$
103,036,168    43




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2005


2004


2003Operating activitiesNet income

$
22,663,290


$
3,947,052


$
2,102,087Adjustments to reconcile net
    income to net cash provided by operating activities:Deferred tax benefit


(13,665,000
)






Debt conversion expense










495,113Depreciation and amortization


5,855,497



3,665,074



3,137,072Amortization of debt issuance costs










164,766Loss on disposal of assets


103,967



38,014



Provision for losses on accounts
    receivable


2,091







(10,000
)Net realized loss (gain) on
    investments






12,939



(6,867
)Amortization of bond (discount)
    premium


(976
)


(37,590
)


1,366Changes in assets and liabilities,
    net of acquisitions:Restricted cash


(568,952
)


(1,102,342
)


(595,520
)Accounts receivable


1,327,062



(1,997,625
)


17,669Prepaid expenses and other current
    assets


1,603,102



(1,592,810
)


(138,645
)Deferred implementation costs


(248,731
)


29,572



121,931Other assets


(150,100
)


(78,645
)


332,568Accounts payable


(565,321
)


1,008,119



(244,782
)Accrued expenses and other current
    liabilities


(1,887,750
)


1,674,427



1,055,277Deferred revenues


1,577,905



463,587



888Deferred rent


273,979



1,683,065



Other long-term liabilities


2,125,253



94,422



Net cash provided by operating
    activities


18,445,316



7,807,259



6,432,923Investing activitiesPurchases of property and equipment


(7,481,561
)


(9,158,494
)


(2,677,013
)Purchases of
    available-for-sale
    securities


(3,100,000
)


(11,482,953
)


(12,658,680
)Sales of
    available-for-sale
    securities


4,400,000



16,187,121



11,165,864Acquisition of Incurrent, net of
    cash acquired






(8,198,520
)


Acquisition of IDS, net of cash
    acquired


(3,316,655
)






Net cash used in investing
    activities


(9,498,216
)


(12,652,846
)


(4,169,829
)Financing activitiesNet proceeds from issuance of
    common stock


3,378,152



1,229,707



6,618,345Net proceeds from issue of common
    stock in follow-on offering


40,224,146







Repayment of capital lease
    obligations


(26,811
)


(96,979
)


(217,852
)Repurchase of notes payable










(3,900,000
)Net cash provided by financing
    activities


43,575,487



1,132,728



2,500,493Net increase (decrease) in cash
    and cash equivalents


52,522,587



(3,712,859
)


4,763,587Cash and cash equivalents at
    beginning of year


3,341,678



7,054,537



2,290,950Cash and cash equivalents at end
    of year

$
55,864,265


$
3,341,678


$
7,054,537Supplemental information to
    statement of cash flows:Cash paid for interest

$
3,789


$
10,403


$
830,170Income taxes paid

$
281,550


$
37,274


$
48,500Conversion of notes payable

$



$



$
8,100,000Net unrealized gain (loss) on
    investments

$
115


$
(5,442
)

$
(9,325
)Common stock issued in connection
    with Incurrent acquisition

$



$
7,290,102


$
Common stock issued in connection
    with IDS acquisition

$
1,999,214


$



$
    44




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    ORGANIZATION  end-to-end
  2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Use of
    Estimates
    Principles
    of Consolidation
    Cash
    and Cash Equivalents
    Restricted
    Cash
    Fair
    Value of Financial Instruments
    Concentration
    of Credit Risk
  available-for-sale available-for-sale
 45




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue
    Recognition
  00-21, Revenue Arrangements with Multiple Deliverables No. 00-21). No. 00-21,
      sm e-financial Revenue
    Recognition in Financial Statements No. 97-2, Software Revenue Recognition (SOP No. 97-2), 98-9, Software Revenue Recognition With Respect to Certain
    Transactions (SOP No. 98-9). Long-Term
    Construction-Type Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP No. 81-1), percentage-of-completion percentage-of-completion
   46




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Deferred
    Income Taxes
    Allowance
    for Doubtful Accounts
    Property
    and Equipment
    Capitalized
    Software Costs
  SOP No. 98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use 98-1).
  Accounting for the Costs of
    Computer Software to be Sold, Leased or Otherwise Marketed
    Goodwill
    and Intangible Assets
  Business Combinations Goodwill and Other Intangible Assets
 47




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Impairment
    of Long-Lived Assets
  Accounting for the
    Impairment or Disposal of Long-Lived Asset
  Reclassification
    Net
    Income Per Share
    Comprehensive
    Income
  Reporting Comprehensive Income
  Stock-Based
    Compensation
  Accounting for Stock Issued to
    Employees Accounting for Stock-Based
    Compensation  Transition and Disclosure Accounting for Stock-Based
    Compensation
   48




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended
    December 31,2005


2004


2003Dividend yield










Expected volatility


74
%


82
%


91
%Risk-free interest rate


3.87
%


3.42
%


2.97
%Expected life in years


5.1



5.2



5.2     Year Ended
    December 31,2005


2004


2003Net income as reported

$
22,663,290


$
3,947,052


$
2,102,087Adjustment to net income for:Pro forma stock-based compensation
    expense


(2,782,944
)


(2,244,518
)


(2,558,313
)Pro forma net income (loss)

$
19,880,346


$
1,702,534


$
(456,226
)Basic net income (loss) per shareAs reported

$
0.97


$
0.22


$
0.14Pro forma

$
0.85


$
0.09


$
(0.03
)Diluted net income (loss) per shareAs reported

$
0.88


$
0.20


$
0.13Pro forma

$
0.77


$
0.08


$
(0.03
)   Recently
    Issued Pronouncements
  Share-Based Payment Statement
    of Cash Flows
     49




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      3.
    ACQUISITIONS  IDS
       50




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    At June 30,2005(In thousands)Current assets

$
145Property, plant and equipment


82Other assets


26Identifiable Intangible Assets
    (five year weighted-average useful life):Purchased technology (five year
    weighted-average useful life)


823Non-compete agreements (five year
    useful life)


32Customer list (five year
    weighted-average useful life)


3381,1931,446Goodwill


4,815Total assets acquired


6,261Current liabilities


(960
)Total liabilities assumed


(960
)Net assets acquired

$
5,301           For the Year Ended
    December 312005


2004Revenues

$
61,905,650


$
45,105,883Net income

$
21,749,185


$
2,953,128   Incurrent
   51




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    REPORTABLE
    SEGMENTS      UnallocatedBanking


Card


Expenses(1)


TotalYear ended December 31, 2005:Revenues

$
52,444,884


$
8,056,019


$



$
60,500,903Costs of revenues


19,853,127



4,381,595



282,280



24,517,002Gross profit


32,591,757



3,674,424



(282,280
)


35,983,901Operating expenses


24,994,222



2,942,482



151,014



28,087,718Income from operations

$
7,597,535


$
731,942


$
(433,294
)

$
7,896,183Year ended December 31, 2004:Revenues

$
42,285,452


$



$



$
42,285,452Costs of revenues


18,058,726











18,058,726Gross profit


24,226,726











24,226,726Operating expenses


20,315,575











20,315,575Income from operations

$
3,911,151


$



$



$
3,911,151Year ended December 31, 2003:Revenues

$
38,407,615


$



$



$
38,407,615Costs of revenues


16,630,868











16,630,868Gross profit


21,776,747











21,776,747Operating expenses


18,424,794











18,424,794Income from operations

$
3,351,953


$



$



$
3,351,953     (1)
    
    Unallocated expenses are comprised of intangible asset
    amortization that is not included in the measure of segment
    profit or loss used internally to evaluate the segments.  5.
    INVESTMENTS  available-for-sale. available-for-sale
 52




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.
    PROPERTY
    AND EQUIPMENT AND CAPITALIZED SOFTWARE COSTS    December 31,2005


2004Central processing systems and
    terminals

$
20,195,175


$
17,596,603Office furniture and equipment


2,721,409



2,634,148Central processing systems and
    terminals under capital leases


508,701



500,532Office furniture and equipment
    under capital leases


572,117



572,117Internal use software


9,767,427



5,286,918Leasehold improvements


2,343,571



2,215,95836,108,400



28,806,276Less accumulated depreciation and
    amortization


(16,845,288
)


(13,183,900
)Less accumulated amortization of
    internal use software


(2,940,576
)


(1,449,898
)Less accumulated depreciation on
    assets held under capital leases


(1,080,818
)


(1,072,649
)$
15,241,718


$
13,099,829   7.
    GOODWILL
    AND INTANGIBLE ASSETS    BankingSegment


Card Segment


TotalBalance at December 31, 2004






11,272,463



11,272,463Goodwill acquired (IDS acquisition)


4,735,871







4,735,871Adjustments






314,325



314,325Balance at December 31, 2005

$
4,735,871


$
11,586,788


$
16,322,659     December 31,2005


2004Purchased technology

$
1,882,800


$
1,000,000Customer lists


907,740



569,800Non-compete agreements


32,600



Less accumulated amortization of
    purchased technology


(282,280
)


Less accumulated amortization of
    customer lists


(147,754
)


Less accumulated amortization of
    non-compete agreements


(3,260
)


$
2,389,846


$
1,569,800  53




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     8.
    COMMITMENTS    2005

$
2,050,0002004

$
1,636,0002003

$
1,312,000       Operating


Capital2006


2,747,749



9,4952007


2,253,359



2008


2,017,509



2009


2,071,740



2010


2,127,435



Thereafter


8,013,342



Total minimum lease payments

$
19,231,134



9,495Less amount representing interest






(1,227
)Present value of minimum lease
    payments






8,268Less current portion






8,268Long-term portion of minimum lease
    payments





$
   9. INCOME
    TAXES
     54




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          December 31,2005


2004Deferred tax assets:Net operating loss carryforwards

$
30,649,000


$
35,842,000Deferred wages


127,000



107,000Deferred rent


742,000



Other deferred tax assets


587,000



255,000Total deferred tax assets


32,105,000



36,204,000Deferred liabilities:Acquired intangible assets


(884,000
)


(568,000
)Depreciation


(488,000
)


(268,000
)Other


(626,000
)


Total deferred tax liabilities


(1,998,000
)


(836,000
)Valuation allowance for net
    deferred tax assets


(16,442,000
)


(35,368,000
)Net deferred tax assets

$
13,665,000


$
    55




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December
    31,2005


2004


2003Tax expense at statutory Federal
    rate

$
3,127,000


$
1,743,000


$
945,000Effect of:State income tax, net


380,000



197,000



35,000Other


34,000



112,000



20,000Alternative minimum tax


187,360



105,000



16,000Decrease in valuation allowance


(17,194,000
)


(2,011,000
)


(1,000,000
)Income tax expense

$
(13,465,640
)

$
146,000


$
16,000   10.
    PREFERRED
    STOCK      11.
    STOCKHOLDERS
    EQUITY  Stock
    Options
   56




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               Year Ended
    December 31,2005


2004


2003Weighted-





Weighted-





Weighted-Average





Average





AverageShares


Exercise Price


Shares


Exercise Price


Shares


Exercise PriceOutstanding at beginning of year


5,128,591


$
5.67



5,357,563


$
5.38



5,918,376


$
5.13Options
    granted  exercise price equal to market price


518,271


$
10.29



456,497


$
6.89



438,677


$
4.87Options
    granted  exercise price greater than market price





$




36,300


$
8.59






$
Options exercised


(540,514
)

$
6.00



(424,434
)

$
2.53



(746,911
)

$
2.86Options canceled or expired


(316,482
)

$
7.13



(297,335
)

$
7.23



(252,579
)

$
6.16Outstanding at end of year


4,789,866


$
6.03



5,128,591


$
5.67



5,357,563


$
5.38Options exercisable at end of year


3,433,451


$
6.03



3,241,761


$
6.63



3,377,085


$
6.12  57




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31, 2005Options Outstanding


Options ExercisableWeighted-AverageRemainingNumber


Contractual Life


Weighted-Average


Number


Weighted-AverageOutstanding


(In Years)


Exercise Price


Exercisable


Exercise Price$ 0.06 to $ 2.30


831,310



4.63


$
2.01



798,056


$
2.00$ 2.38 to $ 2.86


805,671



5.86


$
2.81



568,021


$
2.81$ 2.90 to $ 3.20


702,085



5.05


$
3.08



421,191


$
3.08$ 3.27 to $ 6.81


711,053



5.04


$
5.42



457,492


$
5.45$ 6.85 to $ 9.80


698,564



4.42


$
8.10



402,179


$
8.15$ 9.82 to $14.06


921,617



3.51


$
12.34



666,946


$
12.81$14.13 to $21.50


119,566



1.44


$
16.04



119,566


$
16.044,789,866



4.63


$
6.03



3,433,451


$
6.03   Warrants
    12.
    NET
    INCOME PER SHARE    Year Ended
    December 31,2005


2004


2003Net income

$
22,663,290


$
3,947,052


$
2,102,087Weighted average shares
    outstanding used in calculation of income per share:Basic


23,433,884



18,057,270



15,140,538Dilutive warrants






62,525



38,073Dilutive options


2,446,455



2,008,298



1,506,991Diluted


25,880,339



20,128,093



16,685,602Net income per share:Basic

$
0.97


$
0.22


$
0.14Diluted

$
0.88


$
0.20


$
0.13     13.
    EMPLOYEE
    BENEFIT PLANS  Employee
    Savings and Retirement Plan
   58




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee
    Stock Purchase Plan
    14.
    SUMMARIZED
    QUARTERLY DATA (UNAUDITED)    Quarter EndedMarch 31, 2005


June 30, 2005


September 30,
    2005


December 31, 2005Total revenues

$
15,111,540


$
14,329,447


$
15,292,492


$
15,767,424Gross profit

$
9,187,056


$
8,250,176


$
9,219,776


$
9,326,893Net income

$
2,207,942


$
1,563,525


$
2,363,403


$
16,528,420Net income per share:Basic

$
0.11


$
0.06


$
0.09


$
0.66Diluted

$
0.10


$
0.06


$
0.09


$
0.60   Quarter EndedMarch 31, 2004


June 30, 2004


September 30,
    2004


December 31, 2004Total revenues

$
9,767,367


$
10,068,458


$
11,046,654


$
11,402,973Gross profit

$
5,122,888


$
5,716,319


$
6,650,366


$
6,737,153Net income

$
224,333


$
983,208


$
1,810,657


$
928,854Net income per share:Basic

$
0.01


$
0.05


$
0.10


$
0.05Diluted

$
0.01


$
0.05


$
0.09


$
0.05  59




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures    Rule 13a-15
      Rules 13a-15(f) 15d-15(f)
  Form 10-K.
      Form 10-K.
     Item 9B.Other
    Information   60




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Company    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  (
  Consolidated Financial
    Statements. Form 10-K.
              Schedule II  Valuation and
    Qualifying Accounts.
   61




---



##### Table of Contents



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
    (Filed as Exhibit 3.3 to our
    Form 10-K
    for the year ended December 31, 2002 filed on
    March 31, 2003 and incorporated herein by reference)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

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
.3

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.)1
0.1

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)1
0.2

Online Resources &
    Communications Corporation 1989 Stock Option Plan (Incorporated
    by reference from our registration statement on
    Form S-1;
    Registration
    No. 333-74777)1
0.3

1999 Stock Option Plan
    (Incorporated by reference from our registration statement on
    Form S-1;
    Registration
    No. 333-74777)1
0.4

Employee Stock Purchase Plan
    (Incorporated by reference from our registration statement on
    Form S-8;
    Registration
    No. 333-40674)1
0.5

Lease Agreement for premises at
    4795 Meadow Wood Lane, Chantilly, Virginia (filed as an exhibit
    to our
    Form 10-Q
    for the quarter ended September 30, 2004 filed on
    November 5, 2004 and incorporated herein by reference.)1
0.6

2005 Restricted Stock and Option
    Plan (Incorporated by reference from our Definitive Proxy
    Statement filed on April 5, 2005)23


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

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

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


Certification of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    1350, as adopted pursuant to Section 906 of the
    Sabanes-Oxley Act of 2002  62




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
 FINANCIAL STATEMENT SCHEDULE
  Form 10-K.
    ERNST &
    YOUNG LLP
    63




---



##### Table of Contents



Schedule II
     Valuation and Qualifying Accounts:
   Balance atBeginning of








Balance at EndClassification

Period


Additions


Deductions


of PeriodAllowance for doubtful accounts:Year ended December 31, 2003

$
76,905


$



$
10,000
(2)

$
66,905Year ended December 31, 2004

$
66,905


$
99,685
(3)

$
14,275
(1)

$
152,315Year ended December 31, 2005

$
152,315


$
10,091


$
8,000
(1)

$
154,406Allowance for deferred tax asset:Year ended December 31, 2003

$
45,516,168


$



$
2,117,872
(4)

$
43,398,296Year ended December 31, 2004

$
43,398,296


$



$
4,093,052
(4)

$
39,305,244Year ended December 31, 2005

$
39,305,244


$



$
22,862,650
(5)

$
16,442,594      Notes:
  (1)
    
    Uncollectible accounts written off.(2)
    
    Reversal of previously reserved amounts that were collected.(3)
    
    $85,410 related to the acquisition of Incurrent Solutions, Inc.(4)
    
    Income before income tax provision(5)
    
    Income before income tax provision and release of deferred tax
    asset of $13.7 million 64




---



##### Table of Contents



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

Title

Date/s/  MATTHEW
    P. LAWLORMatthew
    P. Lawlor

Chairman and Chief Executive
    Officer (Principal Executive Officer)

March 16, 2006/s/  CATHERINE
    A. GRAHAMCatherine
    A. Graham

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

March 16, 2006/s/  WILLIAM
    J. NEWMAN, IIIWilliam
    J. Newman, III

Director of Finance and Corporate
    Controller (Principal Accounting Officer)

March 16, 2006/s/  WILLIAM
    H. WASHECKAWilliam
    H. Washecka

Director

March 16, 2006/s/  JOSEPH
    J. SPALLUTOJoseph
    J. Spalluto

Director

March 16, 2006/s/  STEPHEN
    S. COLEStephen
    S. Cole

Director

March 16, 2006/s/  ERVIN
    R. SHAMESErvin
    R. Shames

Director

March 16, 2006/s/  EDWARD
    E. FURASHEdward
    E. Furash

Director

March 16, 2006/s/  BARRY
    D. WESSLERBarry
    D. Wessler

Director

March 16, 2006/s/  MICHAEL
    H. HEATHMichael
    H. Heath

Director

March 16, 2006  65