##### 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, 2006
  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

20151(Address of principal executive
    offices)

(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. o
  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


17Item 2:

Properties


27Item 3:

Legal
    Proceedings


27Item 4:

Submission of
    Matters to a Vote of Security Holders


27PART IIItem 5:

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


28Item 6:

Selected
    Consolidated Financial Data


29Item 7:

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


30Item 7A:

Quantitative and
    Qualitative Disclosures About Market Risk


45Item 8:

Consolidated
    Financial Statements and Supplementary Data


46Index to Consolidated Financial
    Statements


46Item 9:

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


78Item 9A:

Controls and
    Procedures


78Item 9B:

Other
    Information


79PART IIIItem 10:

Directors and
    Executive Officers of the Company


80Item 11:

Executive
    Compensation


80Item 12:

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


80Item 13:

Certain
    Relationships and Related Transactions


80Item 14:

Principal
    Accountant Fees and Services


80PART IVItem 15:

Exhibits and
    Financial Statement Schedules


80Signatures


83EX-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  Business
    Overview
      
    Banking Services: For more than 2,400 banks, credit
    unions and other depository financial institutions, we provide a
    fully integrated suite of web-based account presentation,
    payment, relationship management and professional services,
    giving clients a single point of accountability, an enhanced
    experience for their users, the marketing processes to drive
    Internet channel adoption, and innovative services that help
    them maintain their competitive position. We enable business and
    consumer end-users to consolidate information from multiple
    accounts and make bill payments to multiple billers or
    merchants, or virtually anyone, via their financial
    institutions web site. We also offer our electronic bill
    payment services to financial institutions on a stand-alone
    basis. Many of the bill payment services we offer use our
    patented payments gateway, which leverages the nations
    real-time electronic funds transfer, also known as EFT,
    infrastructure. By debiting end-users accounts in
    real-time, we are able to improve the speed, cost and quality of
    payments, while eliminating the risk that bills will be paid
    against insufficient funds.
    e-Commerce
    Services: For more than 200 billers, card issuers,
    processors, and other creditors, we provide web-based account
    presentation, payment, relationship management and professional
    services. We enable consumer and business end-users to manage
    their account or make a payment to a single card issuer,
    processor, creditor or biller. Specifically for billers, we
    provide a full suite of payment options, including consolidation
    of incoming payments made by credit cards, signature debit
    cards, ACH and PIN-less debit via multiple access points such as
    online, interactive voice response, or IVR, and call center
    customer service representatives. The suite also includes bill
    presentment, convenience payments, and flexible payment
    scheduling. We obtained these biller services and the
    industrys largest biller network as a result of our
    acquisition of Princeton eCom Corporation
    (Princeton) in July 2006. Specifically for card
    issuers, processors and creditors, we offer account presentation
    and self-service capabilities, as well as a web-based tool that
    improves collections of late and delinquent funds in a private,
    non-confrontational manner. In addition, for payment acquirers
    and very large online billers we provide payment services that
    enable real-time debits for a variety of web-originated consumer
    payments and fund transfers using our patented EFT payments
    gateway, which lowers transaction costs and increases the speed
    and certainty of payments.   4




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##### Table of Contents



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;
    reconciling multiple payment methods and sources in increasingly
    shortened timeframes;
    understanding how to evaluate and enhance channel
    profitability; and
    maximizing the value of the channel by increasing adoption.    Our
    Solution
    Our Technology Infrastructure. one-by-one
   6




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Our Operating and Technical Expertise.
  Our Integrated Marketing Process.
  Our Professional and Support Services.
  Our
    Strategy
    Continue to Grow Our Client Bases.
 7




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##### Table of Contents



Increase Adoption Rates.
    Provide Additional Products and Services to Our Installed
    Client Base.
  e-commerce
  Maintain and Leverage Technological
    Leadership.
    Pursue Strategic Acquisitions.
  Leverage Growth Over Our Relatively Fixed Cost
    Base.
 8




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Our
    Services
   
  and/or
    free-of-charge free-of-charge,
 9




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##### Table of Contents



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
         10




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##### Table of Contents



Relationship Management Services. e-mail
      Professional Services.
  Third-Party Services.
  
    fully integrated bill payment and account retrieval through
    Intuits
    Quicken®;
    check ordering available through Harland, Deluxe, Clarke
    American or Liberty;
    inter-institution funds transfer and account aggregation
    provided by CashEdge;
    check imaging provided by AFS, Bisys, Fiserv, FSI/ Vsoft,
    Empire, Intercept, and Mid-Atlantic; and
    electronic statement through BIT Statement.  Sales and
    Marketing
       11




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##### Table of Contents



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




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




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##### Table of Contents



Proprietary
    Rights
              Competition
      14




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##### Table of Contents



business-to-business
      end-to-end
  
    trust and reliability;
    technical capabilities, scalability, and security;
    speed to market;
    end-user service; 15




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##### Table of Contents




    ability to interface with our clients and their
    technology; and
    operating effectiveness.  Government
    Regulation
    truth-in-lending case-by-case
       16




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##### Table of Contents



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 events referred to below
    occur, our business, financial condition, liquidity and results
    of operations could suffer. In that case, the trading price of
    our common stock could decline, and you may lose all or part of
    your investment.
  Risks
    Related to Our Business
  We
    cannot be sure that we will achieve net income profitability in
    all future periods.
    Our
    clients are concentrated in a small number of industries,
    including the financial services industry, and changes within
    those industries could reduce demand for our products and
    services.
   17




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##### Table of Contents



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




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##### Table of Contents



Consolidation
    of the financial services industry could negatively impact our
    business.
    Our
    failure to compete effectively in our markets would have a
    material adverse effect on our business.
        We may
    have exposure to greater than anticipated tax
    liabilities.
    Our
    quarterly financial results are subject to fluctuations, which
    could have a material adverse effect on the price of our
    stock.
    Our
    limited ability to protect our proprietary technology and other
    rights may adversely affect our ability to
    compete.
   19




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Our
    failure to properly develop, market or sell new products could
    adversely affect our business.
    If we
    are found to infringe the proprietary rights of others, we could
    be required to redesign our products, pay royalties or enter
    into license agreements with third parties.
    
    be expensive and time consuming to defend;
    cause us to cease making, licensing or using products that
    incorporate the challenged intellectual property;
    require us to redesign our products, if feasible;
    divert managements attention and resources; and
    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.
   20




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##### Table of Contents



Security
    breaches could have a material adverse effect on our
    business.
  state-of-the-art
      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.
   21




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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.
    Government
    regulation could interfere with our business.
       22




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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.
    Increased
    scrutiny of financial disclosure and any resulting restatement
    of earnings could increase our litigation risk, limit our access
    to the capital markets and reduce investor confidence, which may
    adversely affect the market price of our common
    stock.
    Risks
    Related to Acquisitions
  We may
    face difficulties in integrating acquired
    businesses.
    
    the loss of key employees or end-users;
    the need to coordinate diverse organizations; 23




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##### Table of Contents




    difficulties in integrating administrative and other functions;
    the loss of key members of management following the
    acquisition; and
    the diversion of our managements attention from our
    day-to-day
    operations.    We may
    have limited knowledge of, or experience with, the industries
    served and products provided by our acquired
    businesses.
    Our
    acquisitions increase the size of our operations and the risks
    described herein.
    We
    made our acquisitions and may make future acquisitions, on the
    basis of available information, and there may be liabilities or
    obligations that were not or will not be adequately
    disclosed.
    Acquired
    companies give us limited warranties and indemnities in
    connection with their businesses, which may give rise to claims
    by us.
    Goodwill
    recorded on our balance sheet may become impaired, which could
    have a material adverse effect on our operating
    results.
  Goodwill and Intangible Assets
 24




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##### Table of Contents



Risks
    Related to Our Capital Structure
  Our
    stock price is volatile.
    
    actual or anticipated variations in quarterly operating results;
    announcements of technological innovations;
    new products or services offered by us or our competitors;
    changes in financial estimates or ratings by securities analysts;
    conditions or trends in the Internet and online commerce
    industries;
    changes in the economic performance
    and/or
    market valuations of other Internet, online service industries;
    announcements by us of significant acquisitions, strategic
    partnerships, joint ventures or capital commitments;
    additions or departures of key personnel;
    future equity or debt offerings or acquisitions or our
    announcements of these transactions; and
    other events or factors, many of which are beyond our control.    We
    have a substantial number of shares of common and convertible
    preferred stock outstanding, including shares issued in
    connection with certain acquisitions and shares that may be
    issued upon exercise of grants under our equity compensation
    plans that, if sold, could affect the trading price of our
    common stock.
    We
    have a significant amount of debt and redeemable preferred stock
    which will have to be repaid and may adversely affect our
    financial performance.
   25




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##### Table of Contents



Our
    plans to operate and grow may be limited if we are unable to
    obtain sufficient financing.
    Holders
    of our outstanding preferred stock have liquidation and other
    rights that are senior to the rights of the holders of our
    common stock.
  Series A-1 Series A-1 Series A-1
  Holders
    of our
    Series A-1
    preferred stock have voting rights that may restrict or ability
    to take corporate actions.
  Series A-1 Series A-1
  Holders
    of our
    Series A-1
    preferred stock have a redemption right.
  Series A-1
  Future
    offerings of debt, which would be senior to our common stock
    upon liquidation,
    and/or
    preferred equity securities which may be senior to our common
    stock for purposes of dividend distributions or upon
    liquidation, may adversely affect the market price of our common
    stock.
   26




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##### Table of Contents



Series A-1
  If we
    are unable to comply with the covenants in our credit agreement,
    a default under the terms of that agreement could arise thereby
    potentially resulting in an acceleration of the repayment of
    borrowed funds.
    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   27




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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    2006


2005Fiscal Quarter Ended

High


Low


High


LowFirst Quarter

$
13.650


$
11.400


$
9.950


$
7.250Second Quarter


13.890



9.170



11.590



8.500Third Quarter


12.470



9.620



11.170



9.180Fourth Quarter


13.090



9.490



12.160



10.500         Form 10-K.
  Number of securitiesNumber of securities





remaining available forto be issued upon


Weighted-average


future issuance underexercise of


exercise price of


equity compensation plansoutstanding options,


outstanding options,


(excluding securitieswarrants and rights


warrants and rights


reflected in column(a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


1,475,160


$
5.15



1,448,502Equity compensation plans not
    approved by security holders


2,446,170


$
5.21



  28




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data  Form 10-K. Form 10-K.
  Year Ended December 31,(in thousands, except per share amounts)2006


2005


2004


2003


2002Statement of Operations Data:Revenues:Service fees

$
81,573


$
52,383


$
39,202


$
33,607


$
29,603Professional services and other


10,163



8,118



3,083



4,801



2,751Total revenues


91,736



60,501



42,285



38,408



32,354Cost of revenues


41,317



26,057



19,279



16,631



14,846Gross profit


50,419



34,444



23,006



21,777



17,508General and administrative


19,780



13,664



9,586



8,161



6,820Sales and marketing


18,009



8,680



6,263



6,433



5,368Systems and development


7,382



4,204



3,246



3,831



4,345Total expenses

$
45,171


$
26,548


$
19,095


$
18,425


$
16,533Income from operations

$
5,248


$
7,896


$
3,911


$
3,352


$
975Other (expense) income


(3,992
)


1,301



182



(1,234
)


(1,381
)Income (loss) before income tax
    provision (benefit)


1,256



9,197



4,093



2,118



(406
)Income tax provision (benefit)


935



(13,466
)


146



16



Net income (loss)


321



22,663



3,947



2,102



(406
)Preferred stock accretion


(4,309
)














Net (loss) income available to
    common stockholders

$
(3,988
)

$
22,663


$
3,947


$
2,102


$
(406
)Net (loss) income available to
    common stockholders per share:Basic

$
(0.16
)

$
0.97


$
0.22


$
0.14


$
(0.03
)Diluted

$
(0.16
)

$
0.88


$
0.20


$
0.13


$
(0.03
)Shares used in calculation of net
    (loss) income to common stockholders per shareBasic


25,546



23,434



18,057



15,141



13,521Diluted


25,546



25,880



20,128



16,686



13,521   29




---



##### Table of Contents



Year Ended December 31,(in thousands)2006


2005


2004


2003


2002Balance Sheet Data:Cash, cash equivalents and
    investments

$
32,154


$
55,864


$
4,641


$
13,038


$
6,786Working capital


41,483



61,688



10,056



14,744



8,650Total assets


286,591



115,596



44,533



26,735



21,330Notes payable, less current portion


85,000















12,000Capital lease obligations, less
    current portion


92











11



111Other non-current liabilities


9,473



5,229



1,998



303



356Total liabilities


111,148



12,560



9,712



4,378



15,832Redeemable convertible preferred
    stock


72,108















Stockholders equity


103,335



103,036



34,771



22,309



5,498   Item 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  CAUTIONARY
    NOTE
    OVERVIEW
      30




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##### Table of Contents



Increase/Period Ended December 31,


(Decrease)2006


2005


Change


%Account presentation users (000s):Banking segment


916



639



277



43
%eCommerce segment


2,375



1,559



816



52
%Enterprise


3,291



2,198



1,093



50
%Payment services users (000s):Banking segment


3,287



934



2,353



252
%eCommerce segment


2,626







2,626



n/aEnterprise


5,913



934



4,979



533
%Total users (000s):Banking segment


4,025



1,425



2,600



182
%eCommerce segment


5,001



1,559



3,442



221
%Enterprise


9,026



2,984



6,042



202
%Payment services transactions
    (000s):Banking segment


104,208



46,212



57,996



125
%eCommerce segment


11,144







11,144



n/aEnterprise


115,352



46,212



69,140



150
%   set-up
    Critical
    Accounting Policies and Estimates
    Revenue Recognition Policy.
   31




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##### Table of Contents



No. 00-21, Revenue Arrangements with Multiple Deliverables No. 00-21). Revenue Recognition in
    Financial Statements
    No. 00-21.
  No. 97-2, Software Revenue Recognition (SOP No. 97-2), SOP No. 98-9, Software Revenue Recognition With Respect to Certain
    Transactions (SOP No. 98-9). SOP No. 97-2, SOP No. 97-2, Long-Term Construction-Type
    Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP No. 81-1), percentage-of-completion percentage-of-completion
 32




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##### Table of Contents



Allowance for Doubtful Accounts.
  Income Taxes.
  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
 33




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##### Table of Contents



Impairment of Goodwill, Intangible Assets and Long-Lived
    Assets. Accounting for the Impairment or
    Disposal of Long-Lived Assets
  Escalation Accrual. Series A-1 Accounting for Derivative Instruments and Hedging Activities Series A-1
  Derivative Instruments and Hedging
    Activities.
  Statement of Cash Flows
  Stock-Based Compensation. Share-Based
    Payment Accounting for Stock Issued to
    Employees Accounting for Stock-Based Compensation
 34




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##### Table of Contents



Staff
    Accounting Bulletin No. 108
  Considering the Effects of Prior Year Misstatements when
    Quantifying Misstatements in Current Year Financial Statements
    Recently Issued Pronouncements.
  Fair Value Measurements ).
   35




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##### Table of Contents



Form 10-K,
  Results
    of Operations
    Year Ended December 31,2006


2005


2004Dollars


%


Dollars


%


Dollars


%Revenues:Banking

$
77,106



84
%

$
52,445



87
%

$
42,285



100
%eCommerce


14,630



16
%


8,056



13
%






0
%Total

$
91,736



100
%

$
60,501



100
%

$
42,285



100
%   Dollars


Margin


Dollars


Margin


Dollars


MarginGross profit:Banking

$
46,756



61
%

$
31,052



59
%

$
23,006



54
%eCommerce


4,843



33
%


3,674



46
%






0
%Unallocated


(1,180
)






(282
)






Total

$
50,419



55
%

$
34,444



57
%

$
23,006



54
%   Dollars


%


Dollars


%


Dollars


%Operating expenses:Banking

$
24,047



53
%

$
17,563



66
%

$
14,024



73
%eCommerce


8,995



20
%


2,942



11
%






0
%Unallocated


12,129



27
%


6,043



23
%


5,071



27
%Total

$
45,171



100
%

$
26,548



100
%

$
19,095



100
%   Dollars


Margin


Dollars


Margin


Dollars


MarginIncome from operations:Banking

$
22,709



29
%

$
13,489



26
%

$
8,982



21
%eCommerce


(4,152
)


−28
%


732



9
%






0
%Unallocated


(13,309
)






(6,325
)






(5,071
)Total

$
5,248



6
%

$
7,896



13
%

$
3,911



9
%   Year
    Ended December 31, 2006 Compared to the Year Ended
    December 31, 2005
  Revenues
    36




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##### Table of Contents



Year Ended December 31,


Change2006


2005


Difference


%Revenues (dollars in millions):Account presentation services

$
8.0


$
8.8


$
(0.8
)


−9
%Payment services


65.5



35.9



29.6



83
%Relationship management services


8.0



7.7



0.3



4
%Professional services and other


10.2



8.1



2.1



25
%Total revenues

$
91.7


$
60.5


$
31.2



52
%Payment metricsPayment services clients(1)


877



790



87



11
%Payment transactions (000s)(1)


58,151



46,212



11,939



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


27.5
%


22.9
%


4.6
%


20
%Payment services 
    Banking(1)(3)


11.5
%


9.6
%


1.9
%


20
%   Notes:
  (1)
    
    Excludes Princeton for the purposes of comparison to prior year(2)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of potential users
    enabled for account presentation services.(3)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of potential users enabled for
    payment services.  Account Presentation Services.
  Payment Services.
  Relationship Management Services.
 37




---



##### Table of Contents



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


Change2006(1)


2005(1)


Difference


%Revenues

$
91.7


$
60.5


$
31.2



52
%Costs of revenues


41.3



26.1



15.2



59
%Gross profit


50.4



34.4



16.0



46
%Gross margin


55
%


57
%


−2
%


−4
%Operating expensesGeneral and administrative


19.8



13.6



6.2



45
%Sales and marketing


18.0



8.7



9.3



107
%Systems and development


7.4



4.2



3.2



76
%Total operating expenses


45.2



26.5



18.7



70
%Income from operations


5.2



7.9



(2.7
)


−34
%Other (expense) income, net


(4.0
)


1.3



(5.3
)


−407
%Income before income tax provision
    (benefit)


1.2



9.2



(8.0
)


−86
%Income tax provision (benefit)


0.9



(13.5
)


14.4Net income


0.3



22.7



(22.4
)


−99
%Preferred stock accretion


4.3







4.3Net (loss) income available to
    common stockholders

$
(4.0
)

$
22.7


$
(26.7
)


−118
%Net (loss) income available to
    common stockholders per share:Basic

$
(0.16
)

$
0.97


$
(1.13
)


−116
%Diluted

$
(0.16
)

$
0.88


$
(1.04
)


−118
%Shares used in calculation of net
    (loss) income available to common stockholders per share:Basic


25.7



23.4



2.3



10
%Diluted


25.7



25.9



(0.2
)


−1
%   Notes:
  (1)
    
    In millions except for per share information.  Costs of Revenues. SOP No. 98-1
 38




---



##### Table of Contents



Gross Profit.
  General and Administrative.
  Sales and Marketing.
  Systems and Development. SOP No. 98-1.
  Income from Operations.
  Other (Expense) Income, Net. Series A-1 Series A-1)
  Income Tax Provision (Benefit).
 39




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##### Table of Contents



Preferred Stock Accretion. Series A-1 Series A-1 Series A-1 shares Series A-1 shares
  Net (Loss) Income Available to Common
    Stockholders.
  Year
    Ended December 31, 2005 Compared to the Year Ended
    December 31, 2004
  Revenues
    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
%Payment metricsPayment services clients


790



716



74



10
%Payment transactions (000s)


46,212



37,123



9,089



24
%Adoption rates:Account presentation
    services  Banking(1)


22.9
%


21.7
%


1.2
%


6
%Payment services 
    Banking(2)


9.6
%


8.2
%


1.4
%


17
%   Notes:
  (1)
    
    Represents the percentage of users subscribing to our account
    presentation services out of the total number of potential users
    enabled for account presentation services. 40




---



##### Table of Contents



(2)
    
    Represents the percentage of users subscribing to our payment
    services out of the total number of potential users enabled for
    payment services.  Account Presentation Services.
  Payment Services.
  Relationship Management Services.
  Professional Services and Other.
 41




---



##### Table of Contents



Costs and
    Expenses
  Year Ended December 31,


Change2005(1)


2004(1)


Difference(1)


%Revenues

$
60.5


$
42.3


$
18.2



43
%Costs of revenues


26.1



19.3



6.8



35
%Gross profit


34.4



23.0



11.4



50
%Gross margin


57
%


54
%


3
%


6
%Operating expensesGeneral & administrative


13.6



9.6



4.0



43
%Sales & marketing


8.7



6.3



2.4



39
%Systems & development


4.2



3.2



1.0



30
%Total operating expenses


26.5



19.1



7.4



39
%Income from operations


7.9



3.9



4.0



102
%Other income, net


1.3



0.2



1.1



615
%Income before income tax (benefit)
    provision


9.2



4.1



5.1



125
%Income tax (benefit) provision


(13.5
)


0.2



(13.7
)


−9323
%Net income

$
22.7


$
3.9


$
18.8



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.
  General and Administrative.
 42




---



##### Table of Contents



Sales and Marketing.
  Systems and Development. SOP No. 98-1.
  Income from Operations.
  Other Income, Net.
  Tax (Benefit) Provision.
  Net Income.
 43




---



##### Table of Contents



Liquidity
    and Capital Resources
  available-for-sale
    available-for-sale
      Year Ended December 31,Total


2007


2008


2009


2010


2011


ThereafterCapital lease obligations

$
132


$
40


$
37


$
36


$
19


$



$
Operating leases


22,972



4,090



3,896



3,960



2,547



2,614



5,865Notes payable


85,000



















85,000



Total obligations

$
108,104


$
4,130


$
3,933


$
3,996


$
2,566


$
87,614


$
5,865       Series A-1 Series A-1
   44




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk     45




---



##### Table of Contents



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


47Consolidated
    Balance Sheets


50Consolidated
    Statements of Operations


51Consolidated
    Statements of Stockholders Equity


52Consolidated
    Statements of Cash Flows


53Notes to
    Consolidated Financial Statements


54Supplementary Data


80Financial Statement Schedule for
    each of the three years in the period ended December 31,
    2006


80Schedule II 
    Valuation and Qualifying Accounts and Reserves*


82   *
    
    All other schedules prescribed under
    Regulation S-X
    are omitted because they are not applicable or not required. 46




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
    CONTROL OVER FINANCIAL REPORTING    Internal Control  Integrated
    Framework
           47




---



##### Table of Contents



48




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED
    PUBLIC ACCOUNTING FIRM
          Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements Share Based Payment
  Internal Control 
    Integrated Framework
      49




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    BALANCE SHEETS

(in
    thousands, except par value amounts)  December 31,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
31,189


$
55,864Restricted cash


3,919



2,220Short-term investments


965



Accounts receivable (net of
    allowance of $148 and $154, respectively)


14,291



7,262Deferred implementation costs


1,598



609Deferred tax asset, current portion


2,561



2,030Debt issuance costs


890



Prepaid expenses and other current
    assets


2,653



1,034Total current assets


58,066



69,019Property and equipment, net


19,110



15,242Deferred tax asset, less current
    portion


11,635



11,635Deferred implementation costs, less
    current portion


1,015



521Goodwill


168,085



16,322Intangible assets


25,063



2,330Debt issuance costs, less current
    portion


3,116



Other assets


501



527Total assets

$
286,591


$
115,596LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,332


$
1,134Accrued expenses and other current
    liabilities


3,996



1,324Accrued compensation


2,306



2,065Deferred revenues, current portion


4,919



2,638Deferred rent, current portion


304



162Capital lease obligations


38



8Interest payable


2,688



Total current liabilities


16,583



7,331Notes payable, senior secured debt


85,000



Deferred revenues, less current
    portion


3,374



1,213Deferred rent, less current portion


2,144



1,796Other long-term liabilities


4,047



2,220Total liabilities


111,148



12,560Commitments and contingenciesRedeemable convertible preferred
    stock:Series A-1
    convertible preferred stock, $0.01 par value;
    75 shares authorized and issued at December 31, 2006
    and none authorized at December 31, 2005 (Redeemable on
    July 3, 2013 at $128,250)


72,108



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






Common stock, $0.0001 par
    value; 70,000 shares authorized; 25,865 issued and 25,789
    outstanding at December 31, 2006 and 25,289 issued and
    25,213 outstanding at December 31, 2005


3



3Additional paid-in capital


166,355



160,249Accumulated deficit


(62,388
)


(56,988
)Treasury stock, 76 shares


(228
)


(228
)Accumulated other comprehensive loss


(407
)


Total stockholders equity


103,335



103,036Total liabilities and
    stockholders equity

$
286,591


$
115,596    50




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF OPERATIONS

(in
    thousands, except per share amounts)  Year Ended December 31,2006


2005


2004Revenues:Account presentation services

$
8,051


$
8,826


$
3,030Payment services


65,500



35,841



28,277Relationship management services


8,022



7,716



7,895Professional services and other


10,163



8,118



3,083Total revenues


91,736



60,501



42,285Costs and expenses:Service costs


34,623



21,386



17,972Implementation and other costs


6,694



4,671



1,307Costs of revenues


41,317



26,057



19,279Gross profit


50,419



34,444



23,006General and administrative


19,780



13,664



9,586Sales and marketing


18,009



8,680



6,263Systems and development


7,382



4,204



3,246Total expenses


45,171



26,548



19,095Income from operations


5,248



7,896



3,911Other (expense) income:Interest income


1,961



1,303



147Interest expense


(5,506
)


(5
)


(3
)Other (expense) income


(447
)


3



38Total other (expense) income


(3,992
)


1,301



182Income before income tax provision
    (benefit)


1,256



9,197



4,093Income tax provision (benefit)


935



(13,466
)


146Net income


321



22,663



3,947Preferred stock accretion


(4,309
)






Net (loss) income available to
    common stockholders

$
(3,988
)

$
22,663


$
3,947Net (loss) income available to
    common stockholders per share:Basic

$
(0.16
)

$
0.97


$
0.22Diluted

$
(0.16
)

$
0.88


$
0.20Shares used in calculation of net
    (loss) income available to common stockholders per share:Basic


25,546



23,434



18,057Diluted


25,546



25,880



20,128    51




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

(in
    thousands)  AccumulatedAdditional








Other


TotalCommon Stock


Paid-In


Accumulated


Treasury


Comprehensive


StockholdersShares


Amount


Capital


Deficit


Stock


Income (Loss)


EquityBalance at December 31, 2003


17,812


$
2


$
106,128


$
(83,598
)

$
(228
)

$
5


$
22,309Comprehensive income:Net income














3,947











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






















(5
)


(5
)Comprehensive income


























3,942Exercise of common stock options


425







1,073















1,073Issuance of common stock


28







157















157Issuance of common stock in
    connection with Incurrent Solutions, Inc. acquisition


1,000







7,290















7,290Balance at December 31, 2004


19,265



2



114,648



(79,651
)


(228
)






34,771Comprehensive income:Net income














22,663











22,663Comprehensive income


























22,663Exercise of common stock options


516







2,992















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










47















47Issuance of common stock


131







339















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


5,120



1



40,224















40,225Issuance of common stock in
    connection with Integrated Data Systems, Inc. acquisition


181







1,999















1,999Balance at December 31, 2005


25,213



3



160,249



(56,988
)


(228
)






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














(1,412
)










(1,412
)Comprehensive loss:Net income














321











321Unrealized loss on hedging
    instrument






















(407
)


(407
)Comprehensive loss


























(86
)Preferred stock accretion














(4,309
)










(4,309
)Equity compensation cost










2,512















2,512Exercise of common stock options


541







3,288















3,288Issuance of common stock


35







306















306Balance at December 31, 2006


25,789


$
3


$
166,355


$
(62,388
)

$
(228
)

$
(407
)

$
103,335    52




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

(in
    thousands)  Year Ended December 31,2006


2005


2004Operating activitiesNet income

$
321


$
22,663


$
3,947Adjustments to reconcile net income
    to net cash provided by operating activities:Deferred tax benefit






(13,665
)


Depreciation and amortization


12,772



5,856



3,665Equity compensation expense


2,512







Amortization of debt issuance costs


445







Loss on disposal of assets


1



104



38(Benefit) provision for losses on
    accounts receivable


(21
)


2



Net realized loss on investments










13Amortization of bond discount






(1
)


(38
)Loss on preferred stock derivative
    security


158







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


(1,699
)


(569
)


(1,102
)Accounts receivable


(1,486
)


1,327



(1,998
)Prepaid expenses and other current
    assets


467



1,603



(1,593
)Deferred implementation costs


(1,484
)


(249
)


30Deferred tax asset


(531
)






Other assets


179



(150
)


(79
)Accounts payable


58



(565
)


1,008Accrued expenses and other current
    liabilities


309



(1,888
)


1,675Interest payable


2,688







Deferred revenues


2,905



1,578



464Deferred rent


4



274



1,683Other long-term liabilities


(588
)


2,125



94Net cash provided by operating
    activities


17,010



18,445



7,807Investing activitiesPurchases of property and equipment


(9,823
)


(7,481
)


(9,158
)Purchase of short-term investments


(965
)






Purchases of
    available-for-sale
    securities






(3,100
)


(11,483
)Sales of
    available-for-sale
    securities






4,400



16,187Acquisition of Princeton, net of
    cash acquired


(184,362
)






Acquisition of Incurrent Solutions,
    Inc., net of cash acquired










(8,199
)Acquisition of Integrated Data
    Systems, Inc., net of cash acquired






(3,317
)


Net cash used in investing
    activities


(195,150
)


(9,498
)


(12,653
)Financing activitiesNet proceeds from issuance of
    common stock


3,486



3,378



1,230Net proceeds from issuance of
    common stock in follow-on offering






40,224



Net proceeds from issuance of
    redeemable convertible preferred stock


69,912







Net proceeds from issuance of
    long-term debt


80,549







Purchase of derivative


(455
)






Repayment of capital lease
    obligations


(27
)


(27
)


(97
)Net cash provided by financing
    activities


153,465



43,575



1,133Net (decrease) increase in cash and
    cash equivalents


(24,675
)


52,522



(3,713
)Cash and cash equivalents at
    beginning of year


55,864



3,342



7,055Cash and cash equivalents at end of
    year

$
31,189


$
55,864


$
3,342Supplemental information to
    statement of cash flows:Cash paid for interest

$
2,665


$
4


$
10Income taxes paid

$
77


$
282


$
37Net unrealized (loss) gain on hedge
    and investments

$
(407
)

$



$
(5
)Common stock issued in connection
    with Incurrent acquisition

$



$



$
7,290Common stock issued in connection
    with IDS earnout and acquisition

$
119


$
1,999


$
Issuance of equity award liabilities

$
(11
)

$



$
     53




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    ORGANIZATION    2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Use of
    Estimates
    Principles
    of Consolidation
    Cash
    and Cash Equivalents
    Restricted
    Cash
    Fair
    Value of Financial Instruments
   54




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Concentration
    of Credit Risk
    Revenue
    Recognition
    No. 00-21 Revenue Arrangements with Multiple Deliverables No. 00-21). Revenue Recognition in
    Financial Statements
    No. 00-21.
 55




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   No. 97-2, Software Revenue Recognition (SOP 97-2) SOP No. 98-9, Software Revenue Recognition With Respect to Certain
    Transactions (SOP No. 98-9). SOP No. 97-2, SOP No. 97-2, Long-Term
    Construction-Type Contracts SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1), percentage-of-completion percentage-of-completion
    Deferred
    Income Taxes
    Allowance
    for Doubtful Accounts
   56




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Property
    and Equipment
    Capitalized
    Software Costs
  SOP No. 98-1, Accounting for Costs of Computer Software Developed or
    Obtained for Internal Use (SOP No. 98-1).
  Accounting for the Costs of
    Computer Software to be Sold, Leased or Otherwise Marketed
    Goodwill
    and Intangible Assets
  Business
    Combinations Goodwill and
    Intangible Assets
  Impairment
    of Long-Lived Assets
  Accounting for
    Impairment or Disposal of Long-Lived Assets
 57




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Escalation
    Accrual
  Series A-1 Accounting for Derivative Instruments and Hedging Activities Series A-1
  Accounting
    Policy for Derivative Instruments
    Statement of Cash Flows
  Reclassification
    Net
    (Loss) Income Available to Common Stockholders Per
    Share
   58




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Comprehensive
    (Loss) Income
  Reporting Comprehensive Income
  Stock-Based
    Compensation
  Share-Based Payment Accounting for
    Stock-Based Compensation
  Accounting for Stock Issued to
    Employees
    Twelve Months Ended December 31,2005


2004(In thousands, except per share amounts)Net income, as reported

$
22,663


$
3,947Adjustment to net income for:Pro forma stock-based compensation
    expense


(2,783
)


(2,245
)Pro forma net income

$
19,880


$
1,702Basic net income per shareAs reported

$
0.97


$
0.22Pro forma

$
0.85


$
0.09Diluted net income per shareAs reported

$
0.88


$
0.20Pro forma

$
0.77


$
0.08    59




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Staff
    Accounting Bulletin No. 108
  Considering the Effects of Prior Year Misstatements when
    Quantifying Misstatements in Current Year Financial Statements
  set-up
  Recently
    Issued Pronouncements
  Accounting for Uncertainty in
    Income Taxes
  Fair Value Measurements
    3.
    ACQUISITIONS  Princeton
   60




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Series A-1 Series A-1 Series A-1 Series A-1
           61




---



##### Table of Contents



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


2005Revenues

$
111,924


$
92,587Net (loss) income

$
(8,640
)

$
159Net loss available to common
    stockholders

$
(17,267
)

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

$
(0.68
)

$
(0.36
)Diluted

$
(0.68
)

$
(0.36
)     At July 3,2006Current assets

$
13,697Property, plant and equipment


1,836Other assets


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


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


9,36143,374Goodwill


151,406Total assets acquired


194,780Current liabilities


(3,915
)Long-term liabilities


(503
)Total liabilities assumed


(4,418
)Net assets acquired

$
190,362   IDS
   62




---



##### Table of Contents



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


eCommerce


Expenses (1)


TotalYear ended December 31, 2006:Revenue:Account presentation services

$
2,751


$
5,300


$



$
8,051Payment services


59,277



6,224







65,501Relationship management services


7,988



34







8,022Professional services and other


7,090



3,072







10,162Total Revenues


77,106



14,630







91,736Costs of revenues


30,350



9,787



1,180



41,317Gross profit


46,756



4,843



(1,180
)


50,419Operating expenses


24,047



8,995



12,129



45,171Income from operations

$
22,709


$
(4,152
)

$
(13,309
)

$
5,248 63




---



##### Table of Contents



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


eCommerce


Expenses (1)


TotalYear ended December 31, 2005:Account presentation services

$
2,939


$
5,887


$



$
8,826Payment services


35,765



76







35,841Relationship management services


7,716











7,716Professional services and other


6,025



2,093







8,118Revenues


52,445



8,056







60,501Costs of revenues


21,393



4,382



282



26,057Gross profit


31,052



3,674



(282
)


34,444Operating expenses


17,563



2,942



6,043



26,548Income from operations

$
13,489


$
732


$
(6,325
)

$
7,896Year ended December 31, 2004:Account presentation services

$
3,030


$



$



$
3,030Payment services


28,277











28,277Relationship management services


7,895











7,895Professional services and other


3,083











3,083Revenues


42,285











42,285Costs of revenues


19,279











19,279Gross profit


23,006











23,006Operating expenses


14,024







5,071



19,095Income from operations

$
8,982


$



$
(5,071
)

$
3,911     (1)
    
    Unallocated expenses are comprised of general corporate overhead
    expenses and intangible asset amortization that is not included
    in the measure of segment profit or loss used internally to
    evaluate the segments.  5.
    INVESTMENTS  Accounting for Certain Investments in Debt and Equity
    Securities
 64




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    PROPERTY
    AND EQUIPMENT AND CAPITALIZED SOFTWARE COSTS    December 31,2006


2005Central processing systems and
    terminals

$
25,752


$
20,195Office furniture and equipment


2,903



2,722Central processing systems and
    terminals under capital leases


1,197



509Office furniture and equipment
    under capital leases


572



572Internal use software


14,862



9,767Leasehold improvements


2,425



2,34447,711



36,109Less accumulated depreciation and
    amortization


(21,957
)


(16,845
)Less accumulated amortization of
    internal use software


(1,182
)


(2,941
)Less accumulated depreciation on
    assets held under capital leases


(5,462
)


(1,081
)$
19,110


$
15,242   7.
    GOODWILL
    AND INTANGIBLE ASSETS    Banking


eCommerceSegment


Segment


TotalBalance at December 31, 2005

$
4,736


$
11,587


$
16,323Goodwill acquired (Princeton eCom
    acquisition)


86,302



65,105



151,407Adjustments


378



(23
)


355Balance at December 31, 2006

$
91,416


$
76,669


$
168,085     December 31,2006


2005Gross carrying amount:Purchased technology

$
11,183


$
1,883Customer lists


19,263



908Non-compete agreements


33



33Total gross carrying amount


30,479



2,824Accumulated amortization:Less accumulated amortization of
    purchased technology


(1,475
)


(283
)Less accumulated amortization of
    customer lists


(3,931
)


(148
)Less accumulated amortization of
    non-compete agreements


(10
)


(3
)Total accumulated amortization


(5,416
)


(434
)Total intangible assets

$
25,063


$
2,390  65




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      8.
    COMMITMENTS    2006

$
3,6712005

$
2,0502004

$
1,636       Operating


Capital2007

$
4,090


$
522008


3,896



452009


3,960



402010


2,547



202011


2,614



Thereafter


5,865



Total minimum lease payments

$
22,972



157Less amount representing interest






(25
)Present value of minimum lease
    payments






132Less current portion






(40
)Long-term portion of minimum lease
    payments





$
92   9.
    INCOME
    TAXES   66




---



##### Table of Contents



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


2005Deferred tax assets:Net operating loss carryforwards

$
87,848


$
30,649Deferred wages


1,450



127Deferred revenue


1,719



Deferred rent


947



742Other deferred tax assets


286



587Total deferred tax assets


92,250



32,105Deferred liabilities:Acquired intangible assets


(9,692
)


(884
)Depreciation


(141
)


(488
)Other






(626
)Total deferred tax liabilities


(9,833
)


(1,998
)Valuation allowance for net
    deferred tax assets


(68,221
)


(16,442
)Net deferred tax assets

$
14,196


$
13,665    67




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2006


2005


2004Tax expense at statutory Federal
    rate

$
427


$
3,127


$
1,743Effect of:State income tax, net


113



380



197Permanent differences


392



34



112Alternative minimum tax






187



105Increase (decrease) in valuation
    allowance


3



(17,194
)


(2,011
)Income tax expense

$
935


$
(13,466
)

$
146   10.
    FINANCIAL
    INSTRUMENTS  Derivatives
    Instruments and Hedging Activities
  Cash Flow
    Hedging Strategy
       68




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Liability
    for the Embedded Derivative
  Series A-1 Series A-1
  Series A-1
    Preferred Stock
  Series A-1 Series A-1
  11.
    SENIOR
    SECURED NOTES  360-day
    December 31,


December 31,2006


2005Carrying





CarryingAmount


Fair Value


Amount


Fair ValueLong-term debt

$
85,000


$
85,000







     Year

Maturing Amounts(In thousands)2007

$
2008

$
2009

$
2010

$
2011

$
85,000  69




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    PREFERRED
    STOCK  Series A-1
    Redeemable Convertible Preferred Stock
  Series A-1.
  Series A-1 (Series A-1 Series A-1 Series A-1 Series A-1 Series A-1 Series A-1
  Series A-1 Series A-1 Series A-1 Series A-1 Series A-1
  Series A-1 Classification and Measurement and
    of Redeemable Securities,
  Series A-1 Series A-1 Series A-1
 70




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series B
    Preferred Stock
    13.
    NET
    (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS PER
    SHARE    Year Ended December 31,2006


2005


2004Net (loss) income available to
    stockholders

$
(3,988
)

$
22,663


$
3,947Weighted average shares
    outstanding used in calculation of net (loss) income available
    to common stockholders per share:Basic


25,546



23,434



18,057Dilutive warrants










63Dilutive options






2,446



2,008Diluted


25,546



25,880



20,128Net (loss) income available to
    common stockholders per share:Basic

$
(0.16
)

$
0.97


$
0.22Diluted

$
(0.16
)

$
0.88


$
0.20     14.
    EMPLOYEE
    BENEFIT PLANS  Employee
    Savings and Retirement Plan
   71




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee
    Stock Purchase Plan
    15.
    EQUITY
    COMPENSATION PLANS     SOP No. 98-1
   72




---



##### Table of Contents



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


2004(In thousands, except per share data)Net income as reported

$
22,663


$
3,947Adjustment to net income for:Pro forma stock-based compensation
    expense


(2,783
)


(2,245
)Pro forma net income

$
19,880


$
1,702Basic net income per shareAs reported

$
0.97


$
0.22Pro forma

$
0.85


$
0.09Diluted net income per shareAs reported

$
0.88


$
0.20Pro forma

$
0.77


$
0.08   Restricted
    Stock and Option Plans
       73




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Stock
    Options
    Year Ended December 31,2006


2005


2004Dividend yield










Expected volatility


65
%


74
%


82
%Risk-free interest rate


4.57
%


3.87
%


3.42
%Expected life in years


5.2



5.1



5.2   Dividend Yield.
  Expected Volatility.
  Risk-Free Interest Rate.
  Expected Life of Option Term.
  Forfeiture Rate.
    Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contract


IntrinsicShares


Price


Term


ValueOutstanding at January 1, 2006


4,796


$
6.04Granted


130


$
11.09Exercised


(541
)

$
6.10Forfeited or expired


(589
)

$
11.45Outstanding at December 31,
    2006


3,796


$
5.36



4.3


$
19,749Vested or expected to vest at
    December 31, 2006


3,688


$
5.36



4.3


$
19,385Exercisable at December 31,
    2006


2,851


$
5.05



3.9


$
15,827    74




---



##### Table of Contents



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


Fair ValueNon-vested at January 1, 2006





$
Granted


130


$
11.09Vested





$
Forfeited


(4
)

$
11.62Non-vested at December 31,
    2006


126


$
11.07        75




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   16.
    SUMMARIZED
    QUARTERLY DATA (UNAUDITED)    Quarter EndedMarch 31, 2006


June 30, 2006


September 30, 2006


December 31, 2006(Restated) (A)Total revenues

$
16,717


$
17,359


$
28,266


$
29,394Gross profit

$
9,056


$
9,768


$
15,317


$
16,278Net income

$
757


$
1,397


$
(1,271
)

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

$
757


$
1,397


$
(3,429
)

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

$
0.03


$
0.05


$
(0.13
)

$
(0.11
)Diluted

$
0.03


$
0.05


$
(0.13
)

$
(0.11
)   Quarter EndedMarch 31, 2005


June 30, 2005


September 30, 2005


December 31, 2005Total revenues

$
15,112


$
14,329


$
15,292


$
15,767Gross profit

$
9,187


$
8,250


$
9,220


$
9,327Net income

$
2,208


$
1,564


$
2,363


$
16,528Net income per share:Basic

$
0.11


$
0.06


$
0.09


$
0.66Diluted

$
0.10


$
0.06


$
0.09


$
0.60     (A)
    
    See discussion of restatement below.  Series A-1 Series A-1
  Series A-1 Series A-1
  Series A-1 Series A-1
 76




---



##### Table of Contents



ONLINE
    RESOURCES CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series A-1
      Three Months Ended September 30, 2006


Nine Months Ended September 30, 2006(unaudited)


(unaudited)Change








ChangeAs Previously


Increase





As Previously


IncreaseReported


(Decrease)


As Restated


Reported


(Decrease)


As RestatedConsolidated Statement of
    Operations:Interest expense

$
2,852



103


$
2,955


$
2,853



103


$
2,956Net (loss) income

$
(1,168
)


(103
)

$
(1,271
)

$
986



(103
)

$
883Preferred stock accretion

$
1,680



478


$
2,158


$
1,680



478


$
2,158Net loss available to common
    stockholders

$
(2,848
)


(581
)

$
(3,429
)

$
(694
)


(581
)

$
(1,275
)     As of September 30, 2006(unaudited)ChangeAs Previously


IncreaseReported


(Decrease)


As RestatedBalance Sheet:Other long-tern liabilities

$
1,660



2,235


$
3,895Total liabilities

$
105,459



2,235


$
107,694Redeemable convertible preferred
    stock

$
71,634



(1,654
)

$
69,980Accumulated deficit

$
(57,682
)


(581
)

$
(58,263
)   17.
    SUBSEQUENT
    EVENTS  Debt
    Refinancing
   77




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Effectiveness
    of Disclosure Controls and Procedures
  Rules 13a-15(f)
  Rule 13a-15
  Changes
    in Internal Control Over Financial Reporting
    MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
       78




---



##### Table of Contents



Series A-1 Form 10-K. Form 10-K.
    Form 10-K.
  REMEDIATION
    MEASURES FOR MATERIAL WEAKNESS
      Item 9B.
    Other
    Information   79




---



##### 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.
   80




---



##### Table of Contents



List of Exhibits.
  2
.1

Agreement and Plan of Merger dated
    May 5, 2006 among the Company, its acquisition subsidiary
    and Princeton (filed as Ex. 2.1 to our
    Form 8-K
    filed on May 5, 2006)3
.1

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

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

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

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

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

Specimen of Common stock
    Certificate of the Company (incorporated by reference from our
    registration statement on
    Form S-1;
    Registration
    No. 333-74777)4
.2

Rights Agreement dated as of
    January 11, 2002, between the Company and American Stock
    Transfer & Trust Company (filed as Exhibit 4.1 to
    our
    Form 8-K
    filed on January 15, 2002)4
.3

Credit Agreement dated
    July 3, 2006 between the Company and Obsidiain, LLC as
    agent (filed as Ex. 10.2 to our
    Form 8-K
    filed on July 3, 2006)4
.4

Form of Senior Secured Floating
    Rate Note due 2011 (filed as Ex. 10.3 to our
    Form 8-K
    filed on July 3, 2006)4
.5

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

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

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

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

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

Lease Agreement to premises at
    4796 Meadow Wood Lane, Chantilly, Virginia (filed as an exhibit
    to our
    form 10-Q
    for the quarter ended September 30, 2004 filed on
    November 5, 2004)10
.6

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

Equity Purchase Agreement by and
    among the Company and the purchasers of its
    Series A-1
    Convertible Preferred Stock (filed as Ex. 10.1 to our
    Form 8-K
    filed on July 3, 2006)23
.

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

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

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

Certificate of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002  81




---



##### 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, 2004

$
67


$
100
(3)

$
14
(1)

$
152Year ended December 31, 2005

$
152


$
10


$
8
(1)

$
154Year ended December 31, 2006

$
154


$
42


$
48
(1)

$
148Allowance for deferred tax asset:Year ended December 31, 2004

$
43,398


$



$
4,093
(4)

$
39,305Year ended December 31, 2005

$
39,305


$



$
22,863
(5)

$
16,443Year ended December 31, 2006

$
16,443


$



$
2,247
(4)

$
14,196    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. 82




---



##### 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, 2007/s/  CATHERINE
    A. GRAHAMCatherine
    A. Graham

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

March 16, 2007/s/  WILLIAM
    J.
    NEWMAN, IIIWilliam
    J. Newman, III

Director of Finance and Corporate
    Controller (Principal Accounting Officer)

March 16, 2007/s/  WILLIAM
    H. WASHECKAWilliam
    H. Washecka

Director

March 16, 2007/s/  JOSEPH
    J. SPALLUTOJoseph
    J. Spalluto

Director

March 16, 2007/s/  STEPHEN
    S. COLEStephen
    S. Cole

Director

March 16, 2007/s/  ERVIN
    R. SHAMESErvin
    R. Shames

Director

March 16, 2007/s/  EDWARD
    E. FURASHEdward
    E. Furash

Director

March 16, 2007/s/  MICHAEL
    E. LEITNERMichael
    E. Leitner

Director

March 16, 2007/s/  BARRY
    D. WESSLERBarry
    D. Wessler

Director

March 16, 2007/s/  MICHAEL
    H. HEATHMichael
    H. Heath

Director

March 16, 2007  83