S1 CORP /DE/ - FORM 10-Q - August 4, 2011

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file	filename
EXCEL - IDEA: XBRL DOCUMENT - S1 CORP /DE/	Financial_Report.xls
EX-32.1 - EX-32.1 - S1 CORP /DE/	c18242exv32w1.htm
EX-31.2 - EX-31.2 - S1 CORP /DE/	c18242exv31w2.htm
EX-31.1 - EX-31.1 - S1 CORP /DE/	c18242exv31w1.htm
EX-32.2 - EX-32.2 - S1 CORP /DE/	c18242exv32w2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2011


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

For the Transition Period From to

Commission File Number: 000-24931

S1 CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		58-2395199 (I.R.S. Employer Identification No.)

705 Westech Drive Norcross, Georgia		30092
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (404) 923-3500

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report.)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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


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

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

Shares of common stock outstanding as of July 27, 2011: 54,017,106

S1 CORPORATION

QUARTERLY PERIOD ENDED JUNE 30, 2011

TABLE OF CONTENTS


	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		1

Condensed Consolidated Statements of Operations for the Three Months Ended and Six Months Ended June 30, 2011 and 2010		2

Condensed Consolidated Statements of Cash Flows for the Three Months Ended and Six Months Ended June 30, 2011 and 2010		3

Notes to Condensed Consolidated Financial Statements		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		23

Item 4. Controls and Procedures		23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		24

Item 1A. Risk Factors		24

Item 6. Exhibits		26

Signature		28

EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION


Item 1.		Financial Statements

S1 CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(Unaudited)


	June 30,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	71,720		$	61,917
Accounts receivable, net		54,349			44,370
Prepaid expenses		4,612			4,827
Other current assets		8,759			6,612

Total current assets		139,440			117,726
Property and equipment, net		21,196			22,330
Intangible assets, net		10,411			11,846
Goodwill, net		148,236			147,544
Other assets		7,830			10,207

Total assets	$	327,113		$	309,653


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	11,975		$	9,779
Accrued compensation and benefits		14,249			9,705
Current portion of debt obligation		36			5,046
Accrued restructuring		412			1,528
Income taxes payable		375			1,950
Deferred revenues		50,018			38,022
Other current liabilities		3,281			2,853

Total current liabilities		80,346			68,883
Other liabilities		3,084			3,157

Total liabilities		83,430			72,040


Stockholders’ equity:
Common stock, $0.01 par value per share. Authorized 350,000,000 shares. Issued and outstanding 53,925,731 and 53,317,063 shares at June 30, 2011 and December 31, 2010, respectively		539			533
Additional paid-in-capital		1,805,627			1,802,795
Accumulated deficit		(1,561,628	)		(1,563,817	)
Accumulated other comprehensive loss		(855	)		(1,898	)

Total stockholders’ equity		243,683			237,613

Total liabilities and stockholders’ equity	$	327,113		$	309,653

See accompanying notes to unaudited condensed consolidated financial statements.

S1 CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenue:
Software licenses	$	9,123		$	4,832		$	17,959		$	10,571
Support and maintenance		16,978			15,145			33,108			30,788
Professional services		23,059			17,870			41,826			35,300
Hosting		14,165			13,927			28,272			26,274

Total revenue		63,325			51,774			121,165			102,933


Operating expenses:
Cost of software licenses (1)		525			569			1,124			951
Cost of professional services, support and maintenance (1)		24,943			20,661			48,056			40,075
Cost of hosting (1)		7,031			6,893			14,376			13,561
Selling and marketing		7,208			6,871			14,489			13,555
Product development		8,537			8,753			17,320			17,473
General and administrative		9,546			5,928			16,312			12,975
Depreciation and amortization		2,575			2,635			5,108			5,021

Total operating expenses		60,365			52,310			116,785			103,611


Operating income (loss)		2,960			(536	)		4,380			(678	)

Interest income		66			55			113			111
Interest expense		(54	)		(118	)		(206	)		(238	)
Other non-operating expenses		(746	)		(315	)		(928	)		(472	)

Interest and other expense, net		(734	)		(378	)		(1,021	)		(599	)

Income (loss) before income tax expense		2,226			(914	)		3,359			(1,277	)
Income tax expense		(719	)		(860	)		(1,170	)		(1,553	)

Net income (loss)	$	1,507		$	(1,774	)	$	2,189		$	(2,830	)


Net income (loss) per share:
Basic	$	0.03		$	(0.03	)	$	0.04		$	(0.05	)
Diluted	$	0.03		$	(0.03	)	$	0.04		$	(0.05	)

Weighted average common shares outstanding — basic		53,565,639			51,843,559			53,474,733			51,791,139
Weighted average common shares outstanding — diluted		54,430,596			51,843,559			54,277,418			51,791,139


(1)		Excludes charges for depreciation. Cost of software licenses includes amortization of acquired technology.

See accompanying notes to unaudited condensed consolidated financial statements.

S1 CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(Unaudited)


	Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Net income (loss)	$	2,189		$	(2,830	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		5,692			5,492
Provision for doubtful accounts receivable and billing adjustments		(32	)		928
Deferred income taxes		243			(556	)
Stock-based compensation expense		2,485			1,182
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		(9,595	)		10,698
Decrease (increase) in prepaid expenses and other assets		421			(380	)
Increase in accounts payable and other liabilities		1,555			388
Increase (decrease) in accrued compensation and benefits		4,039			(2,296	)
(Decrease) increase in income taxes payable		(1,668	)		932
Increase in deferred revenue		11,609			9,753

Net cash provided by operating activities		16,938			23,311

Cash flows from investing activities:
Purchases of investment securities		—			(1,117	)
Maturities of investment securities		—			1,071
Acquisitions, net of acquired cash		—			(29,249	)
Purchases of property, equipment and technology		(3,039	)		(3,076	)

Net cash used in investing activities		(3,039	)		(32,371	)

Cash flows from financing activities:
Proceeds (payments) from the exercise of stock awards		847			(148	)
Payments on capital leases and debt obligations		(5,023	)		(667	)

Net cash used in financing activities		(4,176	)		(815	)

Effect of exchange rate changes on cash and cash equivalents		80			(202	)

Net increase (decrease) in cash and cash equivalents		9,803			(10,077	)
Cash and cash equivalents at beginning of period		61,917			61,784

Cash and cash equivalents at end of period	$	71,720		$	51,707

See accompanying notes to unaudited condensed consolidated financial statements.

S1 CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

S1 Corporation is a leading global provider of payments and financial services software solutions. We offer payments solutions for ATM and retail point-of-sale (“POS”) driving, card management, and merchant acquiring, as well as financial services solutions for consumer, small business and corporate online banking, trade finance, mobile banking, voice banking, branch and call center banking. We sell our solutions primarily to banks, credit unions, retailers and transaction processors. We also provide software, custom software development, hosting and other services to State Farm Mutual Automobile Insurance Company (“State Farm”), a relationship that we expect will conclude by the end of 2011. When we use the terms “S1 Corporation”, “S1”, “Company”, “we”, “us” and “our,” we mean S1 Corporation, a Delaware corporation, and its subsidiaries.

We have prepared the accompanying unaudited condensed consolidated financial statements and condensed notes pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not contain all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair statement of our financial position as of June 30, 2011, our results of operations for the three months and six months ended June 30, 2011, and our cash flows for the six months ended June 30, 2011. The data in the condensed consolidated balance sheet as of December 31, 2010 was derived from our audited consolidated balance sheet as of December 31, 2010, as presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The unaudited condensed consolidated financial statements include the accounts of S1 and its wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions. Our operating results for the three months and six months ended June 30, 2011 are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2011 or for any other period.

Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the Financial Accounting Standards Board (“FASB”) amended FASB ASC 605-25 Revenue Recognition: Multiple-Element Arrangements on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence of fair value for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method and additional disclosures on the selling price method. The change was effective January 1, 2011. As most arrangements accounted for under software revenue recognition guidance are excluded from the update, the adoption of this change did not have a material effect on our results of operations.

In October 2009, the FASB amended FASB ASC 985-605 Software: Revenue Recognition to exclude from its scope all tangible products containing both software and non-software components that operate together to deliver the product’s functions. The change was effective January 1, 2011. As this change does not affect revenue arrangements that have no tangible products or contracts that bundle services and software, the adoption of this change did not have a material effect on our results of operations since most of our arrangements have little to no tangible products.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States of America (“U.S. GAAP”) and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance will require prospective application. We do not expect the adoption of this guidance to have a material impact on our consolidated results of operations and financial position.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income which provides new guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance is effective for annual and interim periods beginning on or after December 15, 2011, and is to be applied retrospectively. The adoption of this guidance is a financial presentation change and is not expected to have an impact on our consolidated results of operations.

3. BUSINESS COMBINATION

On June 26, 2011, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Finland Holdings (2011) Ltd. (“Merger Sub”), a company organized under the laws of Israel and a wholly owned direct subsidiary of S1, and Fundtech Ltd., a company organized under the laws of Israel (“Fundtech”). Pursuant to the terms of the Merger Agreement, which have been approved by the boards of directors of S1, Merger Sub and Fundtech, Merger Sub will be merged with and into Fundtech, with Fundtech surviving the merger and becoming a wholly owned subsidiary of S1 (the “Merger”).

Under the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each ordinary share of Fundtech issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into 2.72 shares (the “Exchange Ratio”) of S1’s common stock. Based on the number of outstanding shares of common stock of S1 and ordinary shares of Fundtech, S1’s stockholders immediately prior to the effective time and Fundtech shareholders immediately prior to the effective time are expected to hold approximately 55% and 45%, respectively, of the outstanding shares of the combined company following the Merger.

The Merger Agreement contains customary covenants, representations and warranties of the parties, including, among others, a covenant by each of S1 and Fundtech to conduct its respective business in the ordinary course during the interim period between the execution of the Merger Agreement and consummation of the Merger and not to engage in certain kinds of activities during such period. Each of S1 and Fundtech has agreed not to (i) solicit proposals relating to alternative business combination transactions or (ii) enter into discussions or negotiations or an agreement concerning, or provide confidential information in connection with, any alternative proposals for alternative business combination transactions. Each of these covenants is subject to exceptions as provided in the Merger Agreement.

The Merger is expected to close in the fourth quarter of 2011 and consummation of the Merger is subject to a number of conditions, including, but not limited to (i) the approval by the stockholders of S1 of the issuance of the shares of common stock of S1 to the shareholders of Fundtech in connection with the transaction (the “Share Issuance Approval”); (ii) the approval by the stockholders of S1 of the amendment to the certificate of incorporation of S1 to change S1’s name to “Fundtech Corporation” (the “Certificate Amendment Approval,” and, together with the Share Issuance Approval, the “S1 Stockholder Approval”); (iii) the approval of the Merger Agreement by the shareholders and, if necessary, the creditors of Fundtech; (iv) the receipt of all required regulatory approvals, including approvals from the district court of Tel Aviv-Jaffa (the “Court Approval”) and certain Israeli governmental entities; (v) expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain other regulatory approvals; and (vi) the absence of a material adverse effect on either party.

The Merger Agreement contains certain termination rights and provides that upon the termination of the Merger Agreement under specified circumstances, including a change in the recommendation of Fundtech’s board of directors, Fundtech will pay S1 a cash termination fee of $11.9 million. Similarly, in certain circumstances, including a change in the recommendation of S1’s board of directors, S1 will pay to Fundtech a cash termination fee of $14.6 million. Additionally, if the Court Approval is not obtained in certain circumstances, Fundtech is required to pay $3.0 million to S1. Similarly, if the S1 Stockholder Approval is not obtained in certain circumstances, S1 is required to pay $3.0 million to Fundtech.

Refer to the proxy statement, filed with the SEC by S1 on August 3, 2011, for a more complete description of the Merger and related agreements.

4. FAIR VALUE MEASUREMENTS

U.S. GAAP defines fair value, establishes a framework for measuring fair value, expands disclosures about fair value measurements, and establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 which is defined as observable inputs such as quoted prices in active markets;

•

Level 2 which is defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

•

Level 3 which is defined as unobservable inputs in which little or no market data exists therefore requiring an entity to develop its own assumptions.

The carrying value approximates fair value for our cash and cash equivalents due to the short-term nature of these financial instruments. The fair value of fixed-term deposits, which were included in other current assets, approximates their carrying values as the principal was fixed. Our long-term debt had a fixed interest rate and the fair value was determined by discounting cash flows of future interest accruals at market rates currently offered for borrowings with similar remaining maturities or repricing terms. Deferred compensation consisted of deferred cash fees for members of our Board of Directors that were issued as deferred cash units, the fair value of which is remeasured each period based on our closing stock price and were included in long-term other liabilities.

The liability for deferred compensation below was the only financial instrument that was remeasured on a recurring basis as of the respective reporting dates and we determined that the liability was Level 1 in the fair value hierarchy. The fair value estimates of our financial instruments were as follows (in thousands):


	June 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Assets
Cash and cash equivalents	$	71,720	$	71,720	$	61,917	$	61,917
Restricted fixed term deposit		2,000		2,000		2,000		2,000
Liabilities
Debt obligation, excluding current portion		27		29		35		36
Deferred compensation		408		408		298		298

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):


	June 30,			December 31,
	2011			2010

Billed receivables	$	48,168		$	35,264
Unbilled receivables		9,257			12,415
Allowance for doubtful accounts and billing adjustments		(3,076	)		(3,309	)

Total	$	54,349		$	44,370

Billed accounts receivables that were more than 90 days past due accounted for 11% and 16% of the billed accounts receivable balance, excluding allowance for doubtful accounts and billing adjustments, as of June 30, 2011 and December 31, 2010, respectively. As of June 30, 2011 and December 31, 2010, 42% and 60% of the unbilled receivables, respectively, related to an implementation for an international branch customer. Unbilled receivables generally relate to professional services projects with milestone billings where revenue is recognized as services are rendered and billings are sent to customers in accordance with the terms of the contract, primarily at project milestone dates. We expect to bill and collect these amounts within one year of the balance sheet date.

6. OTHER CURRENT ASSETS

Other current assets consisted of the following (in thousands):


	June 30,		December 31,
	2011		2010

Restricted cash and deposits	$	2,402	$	2,063
Taxes receivable		1,953		1,582
Deferred tax assets, net		2,639		1,859
Other		1,765		1,108

Total	$	8,759	$	6,612

7. GOODWILL AND INTANGIBLE ASSETS

Our goodwill balances below include accumulated impairment losses that were recorded in December 2000 of $212.8 million for our Banking: Large FI segment and $258.1 million for our Banking: Community FI segment. The changes in the carrying value of our goodwill for the six months ended June 30, 2011 were as follows (in thousands):


			Banking:		Banking:
	Payments		Large FI		Community FI			Total

Goodwill, net as of December 31, 2010	$	58,343	$	51,756	$	37,445		$	147,544
Effect of foreign currency translations		390		356		(54	)		692

Goodwill, net as of June 30, 2011	$	58,733	$	52,112	$	37,391		$	148,236

The changes in the net carrying amount of intangible assets during the six months ended June 30, 2011 were due to amortization expense and the impact of changes in foreign exchange rates. Our intangible assets consisted of the following (in thousands):


	As of June 30, 2011
	Gross		Accumulated			Net
	Carrying Value		Amortization			Carrying Value

Trade names	$	121	$	(121	)	$	—
Acquired technology		25,328		(22,230	)		3,098
Customer lists		18,231		(10,918	)		7,313

Total	$	43,680	$	(33,269	)	$	10,411


	As of December 31, 2010
	Gross		Accumulated			Net
	Carrying Value		Amortization			Carrying Value

Trade names	$	121	$	(101	)	$	20
Acquired technology		25,328		(21,646	)		3,682
Customer lists		18,196		(10,052	)		8,144

Total	$	43,645	$	(31,799	)	$	11,846

Amortization expense of acquired technology, included in Cost of software licenses, and amortization expense of customer relationships, included in Depreciation and amortization of other intangible assets, were as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010

Trade names	$	—	$	30	$	20	$	40
Acquired technology		292		292		584		471
Customer lists		432		422		863		745

Total	$	724	$	744	$	1,467	$	1,256

Based upon our current intangible assets, we estimate aggregate amortization expense for the next five calendar years to be as follows (in thousands):


	2011		2012		2013		2014		2015

Payments	$	531	$	531	$	531	$	449	$	40
Banking: Large FI		245		184		—		—		—
Banking: Community FI		2,089		1,493		1,277		1,277		712

Total	$	2,865	$	2,208	$	1,808	$	1,726	$	752

8. INCOME TAXES

FASB ASC 740 Income Taxes and FASB ASC 270 Interim Reporting requires that companies report income taxes on interim periods’ financial statements using an estimated annual effective tax rate. Using this method, income taxes are computed at the end of each interim period based on the best estimate of the effective rate expected to be applicable for the full fiscal year. Income forecasts prepared by us do not reflect the distinct taxable jurisdictions required to utilize this approach. Due to various domestic and foreign jurisdictions in which our business operates, it is difficult to produce accurate income forecasts by jurisdiction and appropriately apply the net operating losses we have in these various jurisdictions in the forecast. Therefore, a reliable annual effective tax rate cannot be estimated for the full year and we use a year-to-date effective tax rate that is updated each quarter as our effective tax rate can vary depending on the jurisdiction in which our income is generated. Since our deferred tax assets in the United States and Thailand are reserved with a valuation allowance, changes in certain temporary items, such as stock-based compensation, can significantly impact our effective tax rate on a quarterly and annual basis. In addition, income tax expense from international jurisdictions and the impact of the valuation allowance with the deferred tax assets in the United States and Thailand may cause significant variations between income tax expense and pre-tax U.S. GAAP income (loss). During the six months ended June 30, 2011, our effective tax rate was 35% which was above the expected statutory tax rate primarily due to the impact of losses in a foreign jurisdiction in which we did not record an income tax benefit.

9. STOCK-BASED COMPENSATION PLANS

We maintain certain stock-based compensation plans providing for the grant of stock options, restricted stock, stock appreciation rights (“SARs”) and other forms of awards to officers, directors and non-officer employees. Our 2003 Stock Incentive Plan (Amended and Restated effective February 26, 2008) is the only plan that provides for new grants. Awards that are settled in cash do not count against the maximum number of shares in these plans. During the six months ended June 30, 2011, we did not grant any stock-based compensation awards. There was no capitalized stock-based compensation cost as of June 30, 2011. If all outstanding options were exercised, all restricted stock vested, and all available grants were issued and exercised as of June 30, 2011, our stock-based compensation plans would provide for the issuance of common stock as follows (in thousands):


	Number of
	Shares

Grants available under 2003 Stock Incentive Plan		1,307
Stock options outstanding		5,420
Restricted stock outstanding		820

Total		7,547

As of June 30, 2011, all SARs have vested with a liability of $2.6 million based on the Black-Scholes valuation, which uses our outstanding closing stock price, among other factors, as of June 30, 2011. The outstanding SARs are cash-settled awards and, accordingly, we will record changes in fair value until they are settled.

Our stock-based compensation expense relates to our stock options, restricted stock and cash-settled SARs. The SARs expense is recalculated each quarter based on our updated valuation which includes, among other factors, our closing stock price for the period. Therefore, changes in our stock price during a period will cause our SARs expense to change thus impacting our stock-based compensation expense until the SARs are settled. The overall decrease in our stock price during the quarters presented resulted in a decrease of our SARs liability which was reflected in our stock-based compensation expense. The following table shows the stock-based compensation expense included in the condensed consolidated statement of operations (in thousands):


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Operating expenses:
Cost of professional services, support and maintenance	$	37	$	74		$	72		141
Cost of hosting		30		33			60		64
Selling and marketing		420		89			509		13
Product development		188		14			281		(9	)
General and administrative		966		599			1,563		973

Total stock-based compensation expense	$	1,641	$	809		$	2,485	$	1,182


Grant type:
Stock options	$	304	$	412		$	667	$	879
Restricted stock		643		628			1,324		1,226
Stock appreciation rights		694		(231	)		494		(923	)

Total stock-based compensation expense	$	1,641	$	809		$	2,485	$	1,182

10. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following (in thousands):


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010

Net income (loss)	$	1,507	$	(1,774	)	$	2,189	$	(2,830	)
Other comprehensive income (loss):
Currency translation adjustment, net of taxes		469		(1,191	)		1,043		(2,152	)

Total other comprehensive income (loss)		469		(1,191	)		1,043		(2,152	)


Comprehensive income (loss)	$	1,976	$	(2,965	)	$	3,232	$	(4,982	)

11. SEGMENT REPORTING AND MAJOR CUSTOMERS

S1 Corporation is a leading global provider of payments and financial services software solutions. We manage our business in three operating segments: Payments, Banking: Large FI, and Banking: Community FI. We evaluate the performance of our operating segments based on their contribution before Interest and other expense, net and Income tax expense, as reflected in the tables presented below for the three months and six months ended June 30, 2011 and 2010. We do not use any asset-based metrics to measure the operating performance of our segments. The following tables show revenue and operating income (loss) for our reportable segments (in thousands):


	Three Months Ended June 30, 2011									Three Months Ended June 30, 2010
			Banking:		Banking:							Banking:			Banking:
	Payments		Large FI		Community FI			Total		Payments		Large FI			Community FI			Total
Revenue:
Software licenses	$	5,333	$	2,202	$	1,588		$	9,123	$	2,359	$	1,261		$	1,212		$	4,832
Support and maintenance		6,524		5,676		4,778			16,978		5,161		4,934			5,050			15,145
Professional services		6,041		15,418		1,600			23,059		4,614		11,863			1,393			17,870
Hosting		297		5,903		7,965			14,165		263		6,391			7,273			13,927

Total revenue	$	18,195	$	29,199	$	15,931		$	63,325	$	12,397	$	24,449		$	14,928		$	51,774

Operating expenses:
Cost of software licenses		13		262		250			525		7		308			254			569
Cost of professional services, support and maintenance		6,593		13,474		4,876			24,943		4,611		10,356			5,694			20,661
Cost of hosting		208		3,381		3,442			7,031		179		3,680			3,034			6,893
Selling and marketing		3,208		2,355		1,645			7,208		2,779		2,529			1,563			6,871
Product development		1,643		4,196		2,698			8,537		1,419		3,972			3,362			8,753
General and administrative		3,201		3,715		2,630			9,546		1,623		2,733			1,572			5,928
Depreciation and amortization		571		1,133		871			2,575		495		1,129			1,011			2,635

Total operating expenses		15,437		28,516		16,412			60,365		11,113		24,707			16,490			52,310

Operating income (loss)	$	2,758	$	683	$	(481	)	$	2,960	$	1,284	$	(258	)	$	(1,562	)	$	(536	)


	Six Months Ended June 30,2011									Six Months Ended June 30,2010
			Banking:		Banking:							Banking:			Banking:
	Payments		Large FI		Community FI			Total		Payments		Large FI			Community FI			Total
Revenue:
Software licenses	$	10,240	$	3,968	$	3,751		$	17,959	$	5,684	$	1,906		$	2,981		$	10,571
Support and maintenance		12,584		11,107		9,417			33,108		10,462		10,180			10,146			30,788
Professional services		10,738		28,502		2,586			41,826		8,518		24,512			2,270			35,300
Hosting		605		11,658		16,009			28,272		569		12,590			13,115			26,274

Total revenue	$	34,167	$	55,235	$	31,763		$	121,165	$	25,233	$	49,188		$	28,512		$	102,933

Operating expenses:
Cost of software licenses		31		388		705			1,124		121		436			394			951
Cost of professional services, support and maintenance		12,403		25,400		10,253			48,056		8,963		20,257			10,855			40,075
Cost of hosting		583		7,023		6,770			14,376		391		7,400			5,770			13,561
Selling and marketing		6,666		4,509		3,314			14,489		5,761		4,809			2,985			13,555
Product development		3,183		8,384		5,753			17,320		2,874		8,193			6,406			17,473
General and administrative		5,450		6,262		4,600			16,312		3,657		5,908			3,410			12,975
Depreciation and amortization		1,081		2,237		1,790			5,108		962		2,217			1,842			5,021

Total operating expenses		29,397		54,203		33,185			116,785		22,729		49,220			31,662			103,611

Operating income (loss)	$	4,770	$	1,032	$	(1,422	)	$	4,380	$	2,504	$	(32	)	$	(3,150	)	$	(678	)

Major Customer. Currently, we have one major customer (defined as any customer who individually contributes more than 10% of total revenue) in the Banking: Large FI segment. We derived 8% and 13% of our total revenue from State Farm during the three months ended June 30, 2011 and 2010, respectively, and 9% and 14% for the six months ended June 30, 2011 and 2010, respectively. Our Banking: Large FI segment derived 18% and 28% of the segment’s revenue from State Farm during the three months ended June 30, 2011 and 2010, respectively, and 19% and 30% for the six months ended June 30, 2011 and 2010, respectively. We expect our relationship with State Farm to conclude by the end of 2011.

Geography. Our geographic regions are the Americas and International in Europe, Middle East and India (“EMEI”), Asia-Pacific (“APAC”) and Africa. Revenue by geographic region includes intercompany services performed for other regions. Our long-lived assets in the international regions primarily are property and equipment. The following table shows revenue and long-lived assets by geographic region (in thousands):


	Revenue				Revenue				Property and Equipment
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2011		2010		2011		2010		2011		2010

Americas	$	43,552	$	36,793	$	85,610	$	73,987	$	18,775	$	19,685
International:
EMEI		10,423		6,658		19,700		14,080		918		1,013
Africa		3,500		3,209		7,047		6,514		1,272		1,461
APAC		5,850		5,114		8,808		8,352		231		171

Total	$	63,325	$	51,774	$	121,165	$	102,933	$	21,196	$	22,330

12. NET INCOME (LOSS) PER COMMON SHARE

We calculate net income per share by allocating income between the weighted average common shares outstanding and the weighted average outstanding participating securities during periods in which we record net income. For periods in which we record a net loss, we calculate net loss per share as the net loss during the period divided by the weighted average number of common shares outstanding during the period, as the effect of applying the two-class method would be anti-dilutive. Because of our net loss in both the three months and six months ended June 30, 2010, we did not include 0.6 million shares of common stock issuable upon the exercise of stock options as they would have an anti-dilutive effect on our loss per share for those periods. The following table presents the calculation of basic and diluted net income (loss) per share (in thousands except per share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Basic income (loss) per share:
Net income (loss)	$	1,507		$	(1,774	)	$	2,189		$	(2,830	)
Amount allocated to participating restricted stockholders		(30	)		—			(45	)		—

Net income (loss) available to common stockholders	$	1,477		$	(1,774	)	$	2,144		$	(2,830	)


Basic weighted average common shares outstanding		53,566			51,844			53,475			51,791
Basic income (loss) per share	$	0.03		$	(0.03	)	$	0.04		$	(0.05	)

Diluted income (loss) per share:
Net income (loss)	$	1,507		$	(1,774	)	$	2,189		$	(2,830	)
Amount allocated to participating restricted stockholders		(29	)		—			(45	)		—

Net income (loss) available to common stockholders	$	1,478		$	(1,774	)	$	2,144		$	(2,830	)


Basic weighted average common shares outstanding		53,566			51,844			53,475			51,791
Dilutive effect of employee stock options		865			—			802			—

Diluted weighted average common shares outstanding		54,431			51,844			54,277			51,791
Diluted income (loss) per share	$	0.03		$	(0.03	)	$	0.04		$	(0.05	)

13. SUBSEQUENT EVENTS

Other than the subsequent events disclosed below, we determined that there were no other subsequent events required to be disclosed or recorded as of June 30, 2011 in our financial statements.

On July 8, 2011, S1 Corporation and its wholly owned subsidiary, S1, Inc. (collectively, the “Company”), entered into a Settlement and License Agreement (the “Agreement”) with Leon Stambler (“Stambler”), which settled all claims brought against the Company arising in the civil action filed on May 28, 2010 in the United States District Court for the Eastern District of Texas (the “Court”) captioned Leon Stambler v. Intuit Inc., et al. (the “Litigation”). The Litigation was originally disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. Pursuant to the terms of the Agreement (i) Stambler agreed to grant the Company a license for the use of certain patents (the “Stambler Patents”), (ii) the Company and Stambler agreed to release each other from any and all claims accruing prior to or as of the effective time of the Agreement related in whole or in part to the Litigation or the Stambler Patents, and (iii) the Company agreed to pay Stambler a one-time payment of $260,000 which we have accrued as of June 30, 2011. On July 11, 2011, the Court dismissed the Company, with prejudice, from the Litigation.

On July 26, 2011, the Company received an unsolicited written proposal from ACI Worldwide, Inc. (“ACI”) to acquire the Company for $9.50 per share in a mix of cash and common stock of ACI. On that date, the company publicly announced that it had received ACI’s unsolicited proposal and that the Company’s board of directors would evaluate the terms of ACI’s proposal in a manner consistent with its obligations under the Merger Agreement and applicable Delaware law. On August 2, 2011, the Company announced that its board of directors, after thorough consideration and consultation with its legal and financial advisors, had rejected ACI’s proposal and affirmed its commitment to the Company’s pending business combination with Fundtech. Later that day, ACI publicly reaffirmed its proposal.

On July 29, 2011, a putative stockholder class action was filed in the Court of Chancery of the State of Delaware by Michael Levitan against the Company and the individual members of the Company’s board of directors. The complaint, which appears to proceed from the erroneous assumption that the Company has entered into an agreement to be acquired by ACI, alleges, among other things, that the Company’s directors breached their fiduciary duties in connection with such a proposed acquisition of the Company by ACI. Among other things, the complaint seeks to enjoin the Company and its directors from completing a transaction with ACI or, alternatively, recission of the transaction proposed by ACI in the event the Company and ACI were able to consummate such a transaction. The Company believes that the claims against the Company set forth in the complaint are without merit, and the Company intends to vigorously defend against such claims once properly served with the complaint. However, at this time, we cannot determine the final resolution of the lawsuit or when it might be resolved. We will continue to assess the potential impact, if any, on our financial condition, results of operations or cash flows.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q and the documents incorporated into this quarterly report by reference contain forward-looking statements and information relating to the Company within the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements with respect to our financial condition, results of operations and business. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “estimates,” “intends” or similar terminology identify forward-looking statements. Forward-looking statements may include projections of our revenue, revenue backlog, expenses, capital expenditures, earnings per share, product development projects, future economic performance or management objectives. These statements are based on the beliefs of management as well as assumptions made using information currently available to management. Because these statements reflect the current views of management concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available.

When we use the terms “S1 Corporation”, “S1”, “Company”, “we”, “us” and “our,” we mean S1 Corporation, a Delaware corporation, and its subsidiaries. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes appearing elsewhere herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. You are urged to read the updated risk factors discussed under Item 1A of Part II of this Form 10-Q and the risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission (“SEC”).

Executive Overview

Background. S1 Corporation is a leading global provider of payments and financial services software solutions. We offer payments solutions for ATM and retail POS driving, card management, and merchant acquiring, as well as financial services solutions for consumer, small business and corporate online banking, trade finance, mobile banking, voice banking, branch and call center banking. We sell our solutions primarily to banks, credit unions, retailers and transaction processors. We also provide software, custom software development, hosting and other services to State Farm, a relationship that we expect will conclude by the end of 2011.

Mergers and acquisitions. On June 26, 2011, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Finland Holdings (2011) Ltd. (“Merger Sub”), a company organized under the laws of Israel and a wholly owned direct subsidiary of S1, and Fundtech Ltd., a company organized under the laws of Israel (“Fundtech”). Pursuant to the terms of the Merger Agreement, which have been approved by the boards of directors of S1, Merger Sub and Fundtech, Merger Sub will be merged with and into Fundtech, with Fundtech surviving the merger and becoming a wholly owned subsidiary of S1 (the “Merger”). Under the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each ordinary share of Fundtech issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into 2.72 shares (the “Exchange Ratio”) of S1’s common stock. Based on the number of outstanding shares of common stock of S1 and ordinary shares of Fundtech, S1’s stockholders immediately prior to the effective time and Fundtech shareholders immediately prior to the effective time are expected to hold approximately 55% and 45%, respectively, of the outstanding shares of the combined company following the Merger. For further information on the Merger, please see Note 3 of our condensed consolidated financial statements.

We anticipate transaction related costs for the Fundtech merger of $6.0 to $7.0 million which are being expensed as incurred. Through June 30, 2011, we have incurred and expensed $1.8 million in transaction related costs for the Fundtech merger.

In March 2010, we acquired PM Systems Corporation (“PMSC”) which provides Internet banking, bill payment and security services to credit unions in the United States. In August 2010, in support of establishing an office in Latin America, we acquired certain assets and employees from a company that resold our products in Latin America (the “Reseller”). Our results of operations reflect the performance of PMSC and the Reseller since their respective dates of acquisition

Summary financial results. Our revenue was $63.3 million for the three months ended June 30, 2011 which was an increase of $11.6 million, or 22%, as compared to the same period in 2010 due primarily to higher Software licenses, Professional services, and Support and maintenance revenue in our Payments and Banking: Large FI segments. For the three months ended June 30, 2011, our net operating income of $3.0 million was an increase of $3.5 million as compared to an operating loss in the same period in 2010 primarily as a result of this revenue growth, partially offset by an increase in professional services costs to accommodate project and customer support growth and transaction related costs for the Fundtech merger. For the three months ended June 30, 2011, we reported net income of $1.5 million as compared to a net loss of $1.8 million in the same period in 2010.

Our revenue was $121.2 million for the six months ended June 30, 2011 which was an increase of $18.2 million, or 18%, as compared to the same period in 2010 due primarily to higher Software licenses, Professional services, and Support and maintenance revenue in our Payments and Banking: Large FI segments and higher Hosting revenue in our Banking: Community FI segment primarily due to the PMSC credit union business that was acquired in March 2010. For the six months ended June 30, 2011, our operating income of $4.4 million was an increase of $5.1 million as compared to an operating loss in the same period in 2010 primarily as a result of this revenue growth, partially offset by an increase in professional services costs to accommodate project and customer support growth and transaction related costs for the Fundtech merger. For the six months ended June 30, 2011, we reported net income of $2.2 million as compared to a net loss of $2.8 million in the same period in 2010.

During the six months ended June 30, 2011, we generated $16.9 million in cash provided by operating activities primarily from earnings adjusted for the effect of non-cash expenses and an increase in accrued compensation and benefits. In February 2011, we paid in full the note payable relating to our corporate headquarters of $5.0 million less the return of $1.6 million held as collateral deposit. During the six months ended June 30, 2011, we incurred $3.0 million of capital expenditures primarily related to computer equipment.

Historically, Software licenses for a majority of our Payments solutions and for some of our Banking: Large FI solutions were generally recognized upon delivery of the software provided all other revenue recognition criteria were met. However, as our Payments business expands to serve larger customers and our Banking: Large FI business provides greater levels of customization and integration, specifically for our corporate online banking solutions, implementation projects have been increasing in size, complexity and length. Accordingly, we expect a greater percentage of Software licenses to be recognized over the implementation period as Software licenses revenue is recognized over the implementation period when professional services are considered essential to the functionality of the software. While this shift negatively impacted our financial results in 2010 and early 2011, we believe it will provide greater long-term revenue visibility. Software licenses and professional services revenue recognized under the percentage of completion method can vary from quarter to quarter due to the number and size of professional services projects, project scope changes, changes in estimates to completion, and project delays and cancellations.

In February 2011, we amended certain agreements (collectively, the “Amendments”) with an international branch customer to (i) reduce the scope of the project with this customer, and (ii) revise billing milestones. In exchange for these contract modifications, we granted the customer licenses to certain of our software products (the “Licensed Products”). Pursuant to the Amendments, this customer is entitled to normal and customary upgrades and enhancements related to the Licensed Products for up to seven years at no additional cost. Consequently, we allocated a portion of the revenue from this project to the fair value of this obligation which, when netted against the favorable impact of the reduction in project scope, reduced our revenue in the first quarter of 2011 by approximately $1.3 million.

Revenue from Significant Customers

Revenue from State Farm was 8% and 13% of our total revenue and 18% and 28% of our Banking: Large FI segment’s revenue during the three months ended June 30, 2011 and 2010, respectively. Revenue from State Farm was 9% and 14% of our total revenue and 19% and 30% of our Banking: Large FI segment’s revenue during the six months ended June 30, 2011 and 2010, respectively. In 2008, we announced that we expected our relationship with State Farm to conclude by the end of 2011. We expect to generate approximately $16 — $17 million in revenue in 2011 from this customer.

Revenue Backlog

Our estimated revenue backlog includes revenue for Software licenses including term licenses, Professional services, and Hosting services, as specified in executed contracts that we believe will be recognized in revenue over the next twelve months. Revenue backlog associated with the State Farm business, the custom development for an international branch customer, and our Banking: Community FI segment is excluded from the revenue backlog totals. As of June 30, 2011 and December 31, 2010, our estimate of revenue backlog was $65.3 million and $62.8 million, respectively. We believe that presenting this estimate provides supplemental information and an alternative presentation useful to investors understanding trends in our business including the shift we are experiencing toward recognizing more software license revenue using the percentage of completion method. However, our estimated revenue backlog is based on a number of assumptions and is subject to a number of factors, many of which are completely outside of our control. Please see Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 for further discussion.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth our statement of operations for the specified periods (in thousands, except for per share and percentage data):


	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2011			2010			Change			2011			2010			Change
Revenue:
Software licenses	$	9,123		$	4,832			89	%	$	17,959		$	10,571			70	%
Support and maintenance		16,978			15,145			12	%		33,108			30,788			8	%
Professional services		23,059			17,870			29	%		41,826			35,300			18	%
Hosting		14,165			13,927			2	%		28,272			26,274			8	%

Total revenue		63,325			51,774			22	%		121,165			102,933			18	%


Operating Expenses:
Cost of software licenses (1)		525			569			-8	%		1,124			951			18	%
Cost of professional services, support and maintenance (1)		24,943			20,661			21	%		48,056			40,075			20	%
Cost of hosting (1)		7,031			6,893			2	%		14,376			13,561			6	%
Selling and marketing		7,208			6,871			5	%		14,489			13,555			7	%
Product development		8,537			8,753			-2	%		17,320			17,473			-1	%
General and administrative		9,546			5,928			61	%		16,312			12,975			26	%
Depreciation and amortization		2,575			2,635			-2	%		5,108			5,021			2	%

Total operating expenses		60,365			52,310			15	%		116,785			103,611			13	%


Operating income (loss)		2,960			(536	)		652	%		4,380			(678	)		-746	%
Interest and other expense, net		(734	)		(378	)		94	%		(1,021	)		(599	)		70	%


Income (loss) before income tax expense		2,226			(914	)		344	%		3,359			(1,277	)		-363	%
Income tax expense		(719	)		(860	)		-16	%		(1,170	)		(1,553	)		-25	%


Net income (loss)	$	1,507		$	(1,774	)		185	%	$	2,189		$	(2,830	)		-177	%


Net income (loss) per share:
Basic	$	0.03		$	(0.03	)				$	0.04		$	(0.05	)
Diluted	$	0.03		$	(0.03	)				$	0.04		$	(0.05	)

Effective tax rate		32	%		-94	%					35	%		-122	%

Operating expenses as a percent of revenue:
Cost of software licenses (2)		6	%		12	%					6	%		9	%
Cost of professional services, support and maintenance (2)		62	%		63	%					64	%		61	%
Cost of hosting (2)		50	%		49	%					51	%		52	%
Selling and marketing		11	%		13	%					12	%		13	%
Product development		13	%		17	%					14	%		17	%
General and administrative		15	%		11	%					13	%		13	%
Depreciation and amortization		4	%		5	%					4	%		5	%

Operating income (loss)		5	%		-1	%					4	%		-1	%


Net income (loss)		2	%		-3	%					2	%		-3	%


(1)		The Cost of software licenses, professional services, support and maintenance, and hosting excludes charges for depreciation. The Cost of software licenses includes amortization of acquired technology.

(2)		Each cost of revenue is a percentage of the applicable revenue type for the periods presented.

SEGMENTS RESULTS OF OPERATIONS

The following tables show revenue and operating income (loss) for our reportable segments (in thousands, except for percentage data):


	Payments							Banking: Large FI								Banking: Community FI
	Three Months Ended June 30,							Three Months Ended June 30,								Three Months Ended June 30,
	2011		2010		Change			2011		2010			Change			2011			2010			Change
Revenue:
Software licenses	$	5,333	$	2,359		126	%	$	2,202	$	1,261			75	%	$	1,588		$	1,212			31	%
Support and maintenance		6,524		5,161		26	%		5,676		4,934			15	%		4,778			5,050			-5	%
Professional services		6,041		4,614		31	%		15,418		11,863			30	%		1,600			1,393			15	%
Hosting		297		263		13	%		5,903		6,391			-8	%		7,965			7,273			10	%

Total revenue		18,195		12,397		47	%		29,199		24,449			19	%		15,931			14,928			7	%


Operating Expenses:
Cost of software licenses		13		7		86	%		262		308			-15	%		250			254			-2	%
Cost of professional services, support and maintenance		6,593		4,611		43	%		13,474		10,356			30	%		4,876			5,694			-14	%
Cost of hosting		208		179		16	%		3,381		3,680			-8	%		3,442			3,034			13	%
Selling and marketing		3,208		2,779		15	%		2,355		2,529			-7	%		1,645			1,563			5	%
Product development		1,643		1,419		16	%		4,196		3,972			6	%		2,698			3,362			-20	%
General and administrative		3,201		1,623		97	%		3,715		2,733			36	%		2,630			1,572			67	%
Depreciation and amortization		571		495		15	%		1,133		1,129			0	%		871			1,011			-14	%

Total operating expenses		15,437		11,113		39	%		28,516		24,707			15	%		16,412			16,490			0	%


Operating income (loss)		2,758		1,284		115	%		683		(258	)		365	%		(481	)		(1,562	)		69	%


	Payments							Banking: Large FI								Banking: Community FI
	Six Months Ended June 30,							Six Months Ended June 30,								Six Months Ended June 30,
	2011		2010		Change			2011		2010			Change			2011			2010			Change
Revenue:
Software licenses	$	10,240	$	5,684		80	%	$	3,968	$	1,906			108	%	$	3,751		$	2,981			26	%
Support and maintenance		12,584		10,462		20	%		11,107		10,180			9	%		9,417			10,146			-7	%
Professional services		10,738		8,518		26	%		28,502		24,512			16	%		2,586			2,270			14	%
Hosting		605		569		6	%		11,658		12,590			-7	%		16,009			13,115			22	%

Total revenue		34,167		25,233		35	%		55,235		49,188			12	%		31,763			28,512			11	%


Operating Expenses:
Cost of software licenses		31		121		-74	%		388		436			-11	%		705			394			79	%
Cost of professional services, support and maintenance		12,403		8,963		38	%		25,400		20,257			25	%		10,253			10,855			-6	%
Cost of hosting		583		391		49	%		7,023		7,400			-5	%		6,770			5,770			17	%
Selling and marketing		6,666		5,761		16	%		4,509		4,809			-6	%		3,314			2,985			11	%
Product development		3,183		2,874		11	%		8,384		8,193			2	%		5,753			6,406			-10	%
General and administrative		5,450		3,657		49	%		6,262		5,908			6	%		4,600			3,410			35	%
Depreciation and amortization		1,081		962		12	%		2,237		2,217			1	%		1,790			1,842			-3	%

Total operating expenses		29,397		22,729		29	%		54,203		49,220			10	%		33,185			31,662			5	%


Operating income (loss)		4,770		2,504		90	%		1,032		(32	)		3325	%		(1,422	)		(3,150	)		55	%

RESULTS OF OPERATIONS — COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010

Revenue. Our revenue for the three months ended June 30, 2011 increased $11.6 million, or 22%, as compared to the same period in 2010 primarily due to growth in Software licenses, Professional services, and Support and maintenance revenue in our Payments and Banking: Large FI segments. Banking: Large FI segment’s revenue included a decline from State Farm of $1.5 million and a decline from an international branch customer of $0.6 million. Revenue was favorably impacted in the second quarter of 2011 as a result of changes in foreign exchange rates by approximately $1.2 million primarily for operations in Europe, South Africa and southeast Asia in the Payments and Banking: Large FI segments.

Payments segment revenue increased $5.8 million, or 47%, for the three months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue increased primarily due to growth in the number of licenses recognized over the implementation period of $1.2 million, higher license volume upgrades of $0.9 million, and an increase in licenses recognized upon delivery of $0.6 million. The increase in Support and maintenance revenue in this segment reflects the growth in Software licensing activity. Professional services revenue increased in this segment during 2011 from project growth due to increased sales. Additionally, Professional services revenue was negatively impacted in the same period in 2010 as a result of increases in the size and complexity of certain projects.

Banking: Large FI segment revenue increased $4.8 million, or 19%, for the three months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue increased primarily due to increased licenses internationally. The increase in Support and maintenance revenue in this segment reflects the growth in Software licensing activity partially offset by a decline in business from State Farm of $0.2 million. Professional services revenue in this segment increased mainly from project growth due to increased sales partially offset by the decline in business with State Farm of $0.6 million and with an international branch customer of $0.6 million. Banking: Large FI segment’s Hosting revenue decreased primarily due to the decline in business with State Farm of $0.7 million.

Banking: Community FI segment revenue increased $1.0 million, or 7%, for the three months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue growth in this segment included the addition of a new branch customer in the second quarter of 2011. Banking: Community FI segment’s Hosting revenue primarily reflects the growth in our PMSC credit union business of $1.0 million. The migration of Banking: Community FI’s customers to this segment’s new platform negatively impacted revenue growth in 2011 as this migration effort impacted our ability to add new customers. We expect that this migration effort will continue to impact revenue growth in this segment for the remainder of 2011.

Operating income (loss). Our operating income reflects an increase of $3.5 million in the second quarter of 2011 as compared to an operating loss in the same period in 2010 due primarily to our revenue growth partially offset by higher professional services and support costs, transaction related costs for the Fundtech merger and higher variable cash incentives. The Payments and Banking: Large FI segments incurred growth in professional services and support costs for personnel to accommodate customer and project growth. Our sales and marketing expenses increased primarily due to higher stock-based compensation expenses of $0.3 million. Our product development expenses reflect increases in our Payments and Banking: Large FI segments offset by reductions in our Banking: Community FI segment for expenses that were associated with developing this segment’s new platform. Our general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $1.8 million, higher legal and other professional fees of $0.4 million and higher stock-based compensation expense of $0.4 million. Our operating expenses included higher variable cash incentives of $2.0 million primarily in general and administrative expenses of $1.0 million and the rest spread over our other functional operating expenses. The impact on operating income from changes in foreign exchange rates in the second quarter of 2011 was approximately $0.3 million as most of our foreign operations are naturally hedged.

Payments segment operating income increased $1.5 million for the second quarter of 2011 as compared to the same period in 2010. Payments segment incurred growth in professional services and support costs for personnel to accommodate customer and project growth and higher variable cash incentives of $0.2 million. Payments segment’s sales and marketing expenses increased primarily due to increased sales personnel to drive revenue growth and higher variable cash incentives of $0.2 million. While the Payments segment’s product development expenses increased, they declined as a percentage of revenue as compared to the prior year’s quarter. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.6 million and higher variable cash incentives of $0.4 million. This segment’s operating expenses also included higher stock-based compensation expense of $0.3 million primarily in general and administrative expenses.

Banking: Large FI segment operating income reflects an increase of $0.9 million for the second quarter of 2011 as compared to a loss in the same period in 2010. Banking: Large FI segment incurred growth in professional services and support costs for personnel to accommodate customer and project growth and higher variable cash incentives of $0.2 million. Banking: Large FI segment’s sales and marketing expenses declined primarily due to reduced sales personnel and marketing expenses partially offset by higher stock-based compensation expense of $0.2 million. Banking: Large FI segment’s product development expenses increased primarily from higher variable cash incentives of $0.3 million. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.7 million and higher variable cash incentives of $0.3 million.

Banking: Community FI segment operating loss decreased $1.1 million for the second quarter of 2011 as compared to the same period in 2010. Banking: Community FI segment’s professional services and support costs declined $0.4 million due to reduced costs associated with migrating customers to this segment’s new platform and declined $0.3 million due to reduced professional services projects in this segment’s branch business. Banking: Community FI segment’s hosting costs increased in-line with the PMSC credit union business. Banking: Community FI segment’s product development expenses declined primarily due to reduced development for this segment’s new platform of $0.7 million. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.5 million and higher variable cash incentives of $0.2 million. This segment had higher stock-based compensation expense of $0.2 million primarily in sales and general and administrative expenses.

Interest and other expense, net. Interest and other expense, net was primarily impacted by the increase in net foreign exchange losses of $0.4 million.

Income tax expense. During the three months ended June 30, 2011, we had income tax expense of $0.7 million primarily from income tax expense in certain foreign jurisdictions where we do not have net operating loss carryforwards to offset income. Our effective tax rate of 32% for the three months ended June 30, 2011 was impacted by net loss in foreign jurisdictions where we did not record an income tax benefit.

RESULTS OF OPERATIONS — COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

Revenue. Our revenue for the six months ended June 30, 2011 increased $18.2 million, or 18%, as compared to the same period in 2010 primarily due to growth in Software licenses, Professional services, and Support and maintenance revenue in our Payments and Banking: Large FI segments and higher Hosting revenue in our Banking: Community FI segment due to the PMSC credit union business that was acquired in March 2010. Banking: Large FI segment’s revenue included a decline from State Farm of $4.0 million and a decline from an international branch customer of $2.1 million. Revenue was favorably impacted in the first six months of 2011 as a result of changes in foreign exchange rates by approximately $1.6 million primarily for operations in Europe, South Africa and southeast Asia in the Payments and Banking: Large FI segments.

Payments segment revenue increased $8.9 million, or 35%, for the six months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue increased primarily due to growth in the number of licenses recognized over the implementation period of $2.1 million, higher license volume upgrades of $1.7 million and an increase in licenses recognized upon delivery of $0.8 million. The increase in Support and maintenance revenue in this segment reflects the growth in Software licensing activity. Professional services revenue increased in this segment during the first half of 2011 from project growth due to increased sales. Additionally, Professional services revenue was negatively impacted in the first half of 2010 as a result of increases in the size and complexity of certain projects.

Banking: Large FI segment revenue increased $6.0 million, or 12%, for the six months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue increased as the number of licenses recognized over the implementation period increased $1.3 million and as a result of increased licenses internationally. The increase in Support and maintenance revenue in this segment reflects the growth in Software licensing activity partially offset by a decline in business from State Farm of $0.4 million. Professional services revenue in this segment increased mainly from project growth due to increased sales partially offset by the decline in business with State Farm of $2.3 million and with an international branch customer of $2.1 million. Professional services revenue for the international branch customer included a reduction of approximately $1.3 million in revenue in the first quarter of 2011 as we netted the allocation of a portion of revenue for upgrade and enhancement obligations against the favorable impact of the reduction in project scope resulting from the Amendments entered into in the first quarter of 2011. Banking: Large FI segment’s Hosting revenue decreased due to the decline in business with State Farm of $1.3 million partially offset by growth in this segment’s hosted business in the United States.

Banking: Community FI segment revenue increased $3.3 million, or 11%, for the six months ended June 30, 2011 as compared to the same period in 2010. Software licenses revenue growth in this segment included the addition of a new branch customer in the second quarter of 2011. Banking: Community FI segment’s Hosting revenue increase primarily reflects the contribution of $3.3 million due to the acquisition of the PMSC credit union business and the continued growth in this business. The migration of Banking: Community FI’s customers to this segment’s new platform negatively impacted revenue growth in 2011 as this migration effort impacted our ability to add new customers. We expect that this migration effort will continue to impact revenue growth in this segment for the remainder of 2011.

Operating income (loss). Our operating income reflects an increase of $5.1 million for the six months ended June 30, 2011 as compared to an operating loss in the same period in 2010 due primarily to our revenue growth partially offset by higher professional services and support costs, transaction related costs for the Fundtech merger and higher variable cash incentives. Our professional services and support costs grew as a result of an increase in personnel to accommodate customer and project growth and higher variable cash incentives of $0.7 million. Our sales and marketing expenses increased primarily due to higher stock-based compensation expense of $0.5 million and higher variable cash incentives of $0.5 million. Our product development expenses reflect increases in our Payments and Banking: Large FI segments offset by reductions in our Banking: community FI segment for expenses that were associated with developing this segment’s new platform. Our general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $1.8 million, higher variable cash incentives of $1.4 million and higher stock-based compensation expense of $0.6 million. The impact on operating income from changes in foreign exchange rates for first the six months of 2011 was approximately $0.6 million as most of our foreign operations are naturally hedged.

Payments segment operating income increased $2.3 million for the six months ended June 30, 2011 as compared to the same period in 2010. The Payments segment had growth in professional services and support costs for additional personnel to accommodate customer and project growth and higher variable cash incentives of $0.3 million. Payments segment’s sales and marketing expenses increased primarily due to increased sales incentives to drive revenue growth and higher variable cash incentives of $0.4 million. While the Payments segment’s product development expenses increased, they declined as a percentage of revenue as compared to the prior year’s period. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.6 million and higher variable cash incentives of $0.5 million. This segment had higher stock-based compensation expense of $0.4 million primarily in sales and general and administrative expenses.

Banking: Large FI segment operating income reflects an increase of $1.1 million for the six months ended June 30, 2011 as compared to an operating loss in the same period in 2010. The Banking: Large FI segment had growth in professional services and support personnel to accommodate customer and project growth and higher variable cash incentives of $0.5 million. Banking: Large FI segment’s sales and marketing expenses declined primarily due to reduced sales personnel and marketing expenses partially offset by higher stock-based compensation expense of $0.4 million. Banking: Large FI segment’s product development expenses increased primarily due to higher variable cash incentives of $0.4 million. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.7 million and higher variable cash incentives of $0.5 million.

Banking: Community FI segment operating loss decreased $1.7 million for the six months ended June 30, 2011 as compared to the same period in 2010 due mainly to revenue growth in the PMSC credit union business that was acquired in March 2010 and reduced professional services, support and product development expenses. Banking: Community FI segment’s professional services and support costs declined primarily from a reduction in costs associated with migrating customers to this segment’s new platform of $0.5 million. Banking: Community FI segment’s hosting costs increased in line with the PMSC credit union business. Banking: Community FI segment’s product development expenses declined primarily due to reduced expenses associated with developing this segment’s new platform of $0.9 million. This segment’s general and administrative expenses increased primarily due to transaction related costs for the Fundtech merger of $0.5 million and higher variable cash incentives of $0.4 million. This segment had higher stock-based compensation expense of $0.4 million primarily in product development and general and administrative expenses.

Interest and other expense, net. Interest and other expense, net was primarily impacted by the increase in net foreign exchange losses of $0.4 million.

Income tax expense. During the six months ended June 30, 2011, we had income tax expense of $1.2 million primarily from income tax expense in certain foreign jurisdictions where we do not have net operating loss carryforwards to offset income. Our effective tax rate of 35% for the six months ended June 30, 2011 was impacted by net loss in foreign jurisdictions where we did not record an income tax benefit.

Liquidity and Capital Resources

Our primary source of cash is cash collections from our customers following the purchase of software licenses, support and maintenance, professional services and hosting services. Payments from customers for support and maintenance and software subscription agreements are generally billed annually in advance. Our primary uses of cash are for personnel, facilities and capital expenditures. The following tables show selected information about our cash flows during the six months ended June 30, 2011 and 2010 and selected balance sheet data as of June 30, 2011 and December 31, 2010 (in thousands):


	Six Months ended June 30,
	2011			2010
Net cash provided by operating activities before changes in operating assets and liabilities	$	10,577		$	4,216
Change in operating assets and liabilities		6,361			19,095

Net cash provided by operating activities		16,938			23,311
Net cash used in investing activities		(3,039	)		(32,371	)
Net cash used in financing activities		(4,176	)		(815	)
Effect of exchange rates on cash and cash equivalents		80			(202	)

Net increase (decrease) in cash and cash equivalents	$	9,803		$	(10,077	)


	June 30,		December 31,
	2011		2010

Cash and cash equivalents	$	71,720	$	61,917
Working capital (1)		59,094		48,843
Total assets		327,113		309,653
Total stockholders’ equity		243,683		237,613


(1)		Working capital includes deferred revenue of $50.0 million and $38.0 million as of June 30, 2011 and December 31, 2010, respectively.

Operating Activities. For the six months ended June 30, 2011, cash provided by operating activities increased primarily due to cash generated from our earnings adjusted for the effect of non-cash expenses. Our earnings adjusted for the effect of non-cash expenses of $10.6 million reflects the improvement in our results of operations as total revenue and operating profit margins improved during the first half of 2011. Our accrued compensation and benefits increased primarily reflecting the increase for accrued variable cash incentives. Our operating cash flows from changes in accounts receivable declined $9.6 million primarily due to billings in advance of professional services and software licenses recognized over the implementation period and annual support which increased deferred revenue by $11.6 million. Our days sales outstanding increased from 55 days to 64 days during the six months ended June 30, 2011. Our accounts payables and other liabilities increased primarily for the accrual of transaction related costs for the Fundtech merger of $1.8 million. During 2011, we paid foreign income taxes of $1.6 million related to prior years.

Investing Activities. For the six months ended June 30, 2011, cash used in investing activities was for capital expenditures of $3.0 million primarily related to computer equipment.

Financing Activities. For the six months ended June 30, 2011, cash used in financing activities was $4.2 million due to the payment of approximately $5.0 million for our notes payable relating to our corporate headquarters in February 2011, which was funded from our cash reserves in the United States, less cash received for the exercise of employee stock options of $0.8 million.

Capital requirements. We believe that our expected cash flows from operations together with our existing cash will be sufficient to meet our anticipated cash needs for working capital, debt obligations, and capital expenditures for at least the next 12 months. We also believe that we have adequate cash and cash equivalents to fund our operations in the United States as approximately 60 percent of our total cash and cash equivalents were held in the United States as of June 30, 2011. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity, issue debt securities or establish a credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. The addition of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure that financing will be available in amounts or on terms acceptable to us, if at all.

Contractual Obligations and Off-Balance Sheet Arrangements. We generally do not engage in off balance sheet arrangements in the normal course of business, but we enter into operating lease arrangements and purchase commitments in the normal course of business. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2010 for a more complete discussion of our operating lease arrangements and purchase commitments.

Recent Accounting Pronouncements

In October 2009, the FASB amended FASB ASC 985-605 Software: Revenue Recognition to exclude from its scope all tangible products containing both software and non-software components that operate together to deliver the product’s functions. The change is effective January 1, 2011. As this change does not affect revenue arrangements that have no tangible products or contracts that bundle services and software, the adoption of this change did not have a material effect on our results of operations since most of our arrangements have little to no tangible products.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States of America (“U.S. GAAP”) and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011, with early adoption prohibited. The new guidance will require prospective application. We do not expect the adoption of this guidance to have a material impact on our consolidated results of operations and financial position.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under other assumptions or conditions. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial position and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. To see further discussion of all the accounting policies and related disclosures, please read our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the SEC. Our critical accounting policies and estimates include those related to:

•

revenue recognition;

•

estimation of our allowance for doubtful accounts and billing adjustments;

•

valuation and recoverability of long-lived assets, including goodwill;

•

determination of the fair value of stock-based compensation; and

•

income taxes.

Effects of Foreign Currencies

Our revenue and net income were impacted by foreign exchange rate fluctuations mainly for transactions in the British Pound, South African Rand, Indian Rupee and the European Euro. Generally, expenses are denominated in the same currency as our revenue and the exposure to rate changes is naturally hedged for transactions in the British Pound and European Euro which minimizes the impact to net income. However, our development center in India is not naturally hedged as their costs are in the local currency but are funded in U.S. Dollars and British Pounds. Additionally, our South African operations are mostly naturally hedged as some of the development and professional services performed are funded in U.S. Dollars and British Pounds. Please refer to Item 7A of Part II, “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for our fiscal year ended December 31, 2010 for a further discussion of potential foreign currency risks. The estimated effect on our condensed consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as follows (in thousands, except per share data):


	Three Months Ended June 30, 2011							Six Months Ended June 30, 2011
	At Prior Year							At Prior Year
	Exchange		Exchange Rate					Exchange		Exchange
	Rates (1)		Effect			As reported		Rates (1)		Rate Effect			As reported

Revenue	$	62,135	$	1,190		$	63,325	$	119,535	$	1,630		$	121,165
Operating expenses		58,845		1,520			60,365		114,605		2,180			116,785

Operating income		3,290		(330	)		2,960		4,930		(550	)		4,380
Net income		1,727		(220	)		1,507		2,619		(430	)		2,189

Diluted net income per share	$	0.03	$	—		$	0.03	$	0.05	$	(0.01	)	$	0.04

Current year results translated into U.S. Dollars using prior year’s period average exchange rates.

Stock-based Compensation

Our stock-based compensation expense relates to our stock options, restricted stock and cash-settled SARs. The SARs expense (benefit) is recalculated each quarter based on an updated valuation which includes, among other factors, our closing stock price for the period. Therefore, changes in our stock price during a period will cause our SARs expense (benefit) to change thus impacting our stock-based compensation expense until the SARs are settled. The overall increase in our stock price during the quarterly and year-to-date results presented resulted in an increase in our SARs liability which was reflected in our stock-based compensation expense. We have a cash liability of approximately $2.6 million related to SARs granted in November 2006 that are vested and exercisable at the discretion of the employees holding such awards. These estimates are based on the Black-Scholes valuation, which uses our closing stock price, among other factors, as of June 30, 2011.

The following table shows the stock-based compensation expense included in the condensed consolidated statement of operations (in thousands):


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Operating expenses:
Cost of professional services, support and maintenance	$	37	$	74		$	72		141
Cost of hosting		30		33			60		64
Selling and marketing		420		89			509		13
Product development		188		14			281		(9	)
General and administrative		966		599			1,563		973

Total stock-based compensation expense	$	1,641	$	809		$	2,485	$	1,182


Grant type:
Stock options	$	304	$	412		$	667	$	879
Restricted stock		643		628			1,324		1,226
Stock appreciation rights		694		(231	)		494		(923	)

Total stock-based compensation expense	$	1,641	$	809		$	2,485	$	1,182


Item 3.		Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposures include the effect of foreign currency fluctuations, interest rate changes, and changes in the market values of our investments. During the six months ended June 30, 2011, there were no material changes to our quantitative and qualitative disclosures about market risk. Please refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2010 for a more complete discussion of the market risks we encounter.


Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of June 30, 2011, the end of the period covered by this quarterly report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2011 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Additionally, our disclosure controls and procedures were also effective as of June 30, 2011 in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2011, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings

Except as noted below, there are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries is a party or of which our or any of our subsidiaries’ property is subject.

On July 8, 2011, S1 Corporation and its wholly owned subsidiary, S1, Inc. (collectively, the “Company”), entered into a Settlement and License Agreement (the “Agreement”) with Leon Stambler (“Stambler”), which settled all claims brought against the Company arising in the civil action filed on May 28, 2010 in the United States District Court for the Eastern District of Texas (the “Court”) captioned Leon Stambler v. Intuit Inc., et al. (the “Litigation”). The Litigation was originally disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. Pursuant to the terms of the Agreement (i) Stambler agreed to grant the Company a license for the use of certain patents (the “Stambler Patents”), (ii) the Company and Stambler agreed to release each other from any and all claims accruing prior to or as of the effective time of the Agreement related in whole or in part to the Litigation or the Stambler Patents, and (iii) the Company agreed to pay Stambler a one-time payment of $260,000. On July 11, 2011, the Court dismissed the Company, with prejudice, from the Litigation.

On July 29, 2011, a putative stockholder class action was filed in the Court of Chancery of the State of Delaware by Michael Levitan against the Company and the individual members of the Company’s board of directors. The complaint, which appears to proceed from the erroneous assumption that the company has entered into an agreement to be acquired by ACI Worldwide, Inc. (“ACI”), alleges, among other things, that the Company’s directors breached their fiduciary duties in connection with such a proposed acquisition of the company by the ACI. Among other things, the complaint seeks to enjoin the Company and its directors from completing a transaction with ACI, or alternatively, recission of the transaction proposed by ACI in the event the Company and ACI were able to consummate such a transaction. The Company believes that the claims against the Company set forth in the complaint are without merit, and the Company intends to vigorously defend against such claims once properly served with the complaint. However, at this time, we cannot determine the final resolution of the lawsuit or when it might be resolved. We will continue to assess the potential impact, if any, on our financial condition, results of operations or cash flows.


Item 1A.		Risk Factors

Except as noted below, during the six months ended June 30, 2011, there were no material changes to the Risk Factors relevant to our operations which are set forth in Item 1A to Part 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

You should consider carefully the Risk Factors. If any of these risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could decline, and you may lose all or a part of the money you paid to buy our common stock.

Failure to complete the Merger could negatively impact our stock price, business, financial condition, results of operations or prospects

The Merger is subject to the satisfaction or waiver of certain closing conditions. Such conditions must be satisfied or waived before the Merger can be completed, including, without limitation, obtaining the requisite approval of our stockholders with respect to our proposed issuance of common stock in the Merger to Fundtech shareholders. We cannot assure you that each of the conditions will be satisfied. If the conditions are not satisfied or waived in a timely manner and the Merger is delayed, we may lose some or all of the intended or perceived benefits of the Merger, which could cause our stock price to decline and harm our business.

If the Merger is not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we will be subject to a number of risks, including the following:

•

we may be required to pay Fundtech a termination fee if the Merger is terminated under certain circumstances;

•

we will be required to pay certain costs relating to the Merger, including substantial legal and accounting fees, whether or not the Merger is completed;

•

our stock price may decline to the extent that the current market price reflects a market assumption that the Merger will be completed;

	•		under the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Merger that may affect our ability to execute certain of our business strategies; and

	•		matters relating to the Merger, including integration planning, may require substantial commitments of time and resources by our management, which could otherwise have been devoted to other opportunities that may have been beneficial to us as an independent company.

We also could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If the Merger is not completed, these risks may materialize and may adversely affect our stock price, business, financial condition, results of operations or prospects.

We may fail to realize some or all of the anticipated benefits of the proposed Merger, which may adversely affect the value of our common stock

The success of the Merger will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining the Company and Fundtech. However, to realize these anticipated benefits and cost savings, the businesses of the Company and Fundtech must be successfully combined and the two companies’ respective operations, technologies and personnel must be integrated following the closing of the Merger. If we are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits and cost savings of the Merger may not be realized fully or at all or may take longer to realize than expected and the value of the Company’s common stock may be adversely affected. In addition, the overall integration of the businesses is a complex, time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt our operations following closing.

We have operated and, until the closing, will continue to operate independently of Fundtech. It is possible that the integration process could result in the loss of key employees and other senior management, the disruption of our business or adversely affect our ability to maintain our research and development operations, or otherwise achieve the anticipated benefits of the Merger.

Specifically, risks in integrating Fundtech into our operations to realize the anticipated benefits of the Merger include, among other things, failure to:

•

effectively coordinate efforts to communicate our capabilities and products following closing;

•

compete effectively for the additional opportunities expected to be available to us following closing;

•

integrate and harmonize financial reporting and information technology systems of the Company and Fundtech;

•

retain the Company’s and Fundtech’s relationships with other companies;

•

integrate the Company and Fundtech senior management teams and to successfully integrate members onto the board of directors of the post-closing company;

•

retain and integrate key Company and Fundtech employees;

•

coordinate operations across time zones, continents and cultures;

•

manage the diversion of management’s attention from business matters to integration issues;

•

retain customers of the Company and Fundtech;

•

transition all facilities to a common information technology environment; and

•

combine our business culture with the business culture of Fundtech.

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than anticipated. If we are not able to adequately address these challenges, we may be unable to successfully integrate our operations with Fundtech’s operations, or to realize the anticipated benefits of the integration following the closing. The anticipated benefits and synergies assume a successful integration and are based on projections, which are inherently uncertain, and other assumptions. Even if integration is successful, anticipated benefits and synergies may not be achieved. An inability to realize the full extent of, or any of, the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which may affect the value of the shares of our common stock after the closing.

Our obligation to pay a termination fee under certain circumstances and the restrictions on our ability to solicit or engage in negotiations with respect to other acquisition proposals may discourage other transactions that may be favorable to our stockholders

Until the Merger is completed or the Merger Agreement is terminated, with limited exceptions, the Merger Agreement prohibits us from entering into, soliciting or engaging in negotiations with respect to acquisition proposals or other business combinations with a party other than Fundtech. We have agreed to pay Fundtech a termination fee of up to $14.6 million under specified circumstances, including in connection with a change in recommendation to our stockholders regarding our issuance of common stock in the Merger to Fundtech shareholders or the adoption of a certificate of amendment to our certificate of incorporation to change the Company’s name to “Fundtech Corporation.” These provisions could discourage other companies from proposing alternative transactions that may be more favorable to our stockholders than the Merger.

If the Merger is not consummated by the termination date set forth in the Merger Agreement, either the Company or Fundtech may, in certain circumstances, choose not to proceed with the Merger

Either the Company or Fundtech may terminate the Merger Agreement if, in certain circumstances, the Merger has not been completed by March 31, 2012, or, in certain circumstances, June 30, 2012, unless the failure of the Merger to be completed has resulted from or was principally caused by the failure of the party seeking to terminate the Merger Agreement to perform its obligations.


Item 6.		Exhibits


Exhibit No.		Exhibit Description

	2.1	Agreement and Plan of Merger and Reorganization, dated as of June 26, 2011, by and among S1 Corporation, Finland Holdings (2011) Ltd., and Fundtech Ltd. (filed as Exhibit 2.1 to S1’s Current Report on Form 8-K filed with the SEC on June 28, 2011 and incorporated herein by reference).

	3.1	Amended and Restated Certificate of Incorporation of S1 (filed as Exhibit 1 to S1’s Registration Statement on Form 8-A (File No. 000-24931) filed with the SEC on September 30, 1998 and incorporated herein by reference).

	3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated June 3, 1999 (filed as Exhibit 4.2 to S1’s Registration Statement on Form S-8 (File No. 333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).

	3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated November 10, 1999 (filed as Exhibit 3.3 to S1’s Annual Report on Form 10-K filed with the SEC on March 30, 2000 and incorporated herein by reference).

	3.4	Certificate of Designation for S1’s Series B Redeemable Convertible Preferred Stock (filed as Exhibit 2 to S1’s Registration Statement on Form 8-A (File No. 000-24931) filed with the SEC on September 30, 1998 and incorporated herein by reference.

	3.5	Amended and Restated Bylaws of S1, as amended (filed as Exhibit 3.6 to S1’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and incorporated herein by reference).

	4.1	Specimen certificate for S1’s common stock (filed as Exhibit 4 to S1’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference).

	10.1	2011 Management Incentive Plan (filed as Exhibit 10.1 to S1’s Current Report on Form 8-K filed with the SEC on May 26, 2011 and incorporated herein by reference).


Exhibit No.		Exhibit Description

	10.2	Voting Agreement, dated as of June 26, 2011, by and between S1 Corporation and Clal Industries and Investments Ltd. (filed as Exhibit 10.1 to S1’s Current Report on Form 8-K filed with the SEC on June 28, 2011 and incorporated herein by reference).

	31.1	Certification of Chief Executive Officer.

	31.2	Certification of Chief Financial Officer.

	32.1	Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002.

	101	The following financial information from the Quarterly Report on Form 10-Q of S1 for the quarter ended June 30, 2011, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*


*		In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of August 4, 2011.

S1 CORPORATION

/s/ PAUL M. PARRISH

Paul M. Parrish Chief Financial Officer

(Principal Financial Officer and

Principal Accounting Officer)