Since incorporation, we have incurred substantial costs to develop and market our technology and to provide professional services. As a result, we have incurred net losses in each quarter of operation since inception and have accumulated a deficit of $64.8 million as of June 30, 2001. As we continue to grow our professional services, sales and marketing and research and development organizations and market our solutions both domestically and internationally, we anticipate that our cost of revenues and operating expenses will increase in future quarters. Our limited operating history makes it difficult to forecast future operating results. As a result of the rapid evolution of our business and our limited operating history, we believe period-to-period comparisons of our results of operations, including our revenues and costs of revenues and operating expenses as a percentage of sales, are not necessarily indicative of our future performance.

             To date, our results of operations are substantially derived from operations in the United States. Customers who individually accounted for more than 10% of our revenue on a consolidated basis represented 18% and 19%, respectively, of our total revenues for the three-month periods ended June 30, 2000 and 2001.

             A key component of our strategy is to increase our international sales.  As of June 30, 2001, we had 37 employees based outside of the United States in offices in Europe, Australia and Asia.

Results of Operations

Revenues

             Revenues increased from $5.7 million and $9.0 million, respectively, for the three and six-month periods ended June 30, 2000, to $15.2 million and $28.9 million, respectively, for the three and six-month periods ended June 30, 2001. The increase in revenues is primarily due to sales to an increased number of customers, an increase in our average transaction size, an increase in the number of end users on our customers’ platforms and an increase in the number of our professional services personnel working on customer projects. We believe that our customer growth resulted from greater market acceptance of our solutions.This increase is also due to increased revenues from our international operations and Corillian Services, Inc., which contributed approximately $3.1 million and $2.2 million, respectively, to our consolidated revenues for the three-month period ended June 30, 2001, and $4.4 million and $5.4 million, respectively, to our consolidated revenues for the six-month period ended June 30, 2001. Our international operations and Corillian Services, Inc. generated no revenue during the three and six-month periods ended June 30, 2000.

Cost of Revenues

             Cost of revenues increased from $4.6 million and $7.5 million, respectively, for the three and six-month periods ended June 30, 2000, to $8.5 million and $16.8 million, respectively, for the three and six-month periods ended June 30, 2001. Gross profit increased as a percentage of revenues from 20% for the three-month period ended June 30, 2000, to 44% for the three-month period ended June 30, 2001.  Gross profit increased as a percentage of revenues from 16% for the six-month period ended June 30, 2000, to 42% for the six-month period ended June 30, 2001.  The increase was primarily due to a reduction in third-party integration expenses as more Corillian Services, Inc. personnel transitioned to our implementations, an increase in higher margin revenue streams such as additional seat license sales, the cessation of our royalty obligation during 2000 and improved margins on professional services and post-contractual customer support.

             We increased the number of our professional services personnel from 76 at June 30, 2000, to 190 at June 30, 2001 as we increased our capacity to service a larger customer base. Although we expanded our internal professional services capacity through our acquisition of Corillian Services, Inc. in November 2000, we anticipate that the growth of our customer base will cause us to continue to use outsourced service providers to perform implementation and customization services on some of our projects.  We expect to continue to rely on a combination of several large contractors and our expanded internal staff to service our growing customer base. The costs associated with outsourced service providers are greater than the costs of our internal staff; therefore, our gross profit is generally less on projects on which we use outsourced service providers rather than our internal staff.

Operating Expenses

             Sales and Marketing Expenses. Sales and marketing expenses consist of salaries, commissions, and related expenses for personnel involved in marketing, sales and support functions, as well as costs associated with trade shows and other promotional activities. Sales and marketing expenses increased from $3.7 million and $6.4 million, respectively, for the three and six-month periods ended June 30, 2000, to $5.0 million and $10.3 million, respectively, for the three and six-month periods ended June 30, 2001. The increase was primarily attributable to the expansion of our domestic and international sales and marketing organization, and to a lesser extent, increased sales commissions associated with higher revenues and higher expenses associated with increased brand awareness efforts. We increased the number of our sales and marketing personnel from 74 at June 30, 2000, to 106 at June 30, 2001.  We expect to continue to invest in our sales and marketing organizations both domestically and internationally to expand our customer base and increase brand awareness. We also anticipate sales and marketing expenses will fluctuate from period to period in the near term depending on changes in sales and marketing headcount, the timing of new marketing programs and the levels of revenues recognized in each period.  During the three and six-month periods ended June 30, 2001, we incurred direct sales and marketing expenses of $1.6 million and $3.1 million, respectively, attributable to our international operations, as compared with $255,000 for the three and six-month periods ended June 30, 2000.  During the three and six-month periods ended June 30, 2001, we incurred direct sales and marketing expenses of $412,000 and $726,000, respectively, attributable to Corillian Services, Inc. During the three and six-month periods ended June 30, 2000, we incurred no direct sales and marketing expenses attributable to Corillian Services, Inc.

             Research and Development Expenses. Research and development expenses consist primarily of salaries and related expenses for engineering personnel and costs of materials and equipment associated with the design, development and testing of our products.  Research and development expenses decreased from $4.1 million for the three-month period ended June 30, 2000, to $3.6 million for the three-month period ended June 30, 2001. This decrease was mainly attributable to $1.3 million of expenses incurred during the three-month period ended June 30, 2000 related to the acquisition of InterTech Systems, Inc.  Research and development expenses increased from $6.4 million for the six-month period ended June 30, 2000, to $7.4 million for the six-month period ended June 30, 2001. The increase was mainly attributable to the expansion of our research and development organization, increased product development efforts and, to a lesser extent, increased costs of materials and equipment. We increased the number of our research and development personnel from 51 at June 30, 2000, to 72 at June 30, 2001.  We anticipate research and development expenses to increase in the future due to the hiring of additional engineering personnel and funding of the development of next generation products.  This increase will, to a certain extent, be offset by the funding of our research and development activities by portions of customer contracts accounted for under the provisions of SFAS No. 68, Research and Development Arrangements.

             General and Administrative Expenses. General and administrative expenses consist of salaries and related expenses for executive, finance, human resources, legal, information systems management and administration personnel, as well as professional fees, corporate facility expenses and other general corporate expenses.  General and administrative expenses increased from $1.8 million and $3.4 million, respectively, for the three and six-month periods ended June 30, 2000, to $3.7 million and $7.5 million, respectively, for the three and six-month periods ended June 30, 2001. The increase was primarily attributable to the expansion of our general and administrative personnel from 43 at June 30, 2000, to 61 at June 30, 2001, as well as expenses necessary to support growth in our domestic and international operations.  During the three and six-month periods ended June 30, 2001, we incurred direct general and administrative expenses of $550,000 and $1.1 million, respectively, attributable to our international operations, as compared with $37,000 for the three and six-month periods ended June 30, 2000.  During the three and six-month periods ended June 30, 2001, we incurred direct general and administrative expenses of $821,000 and $1.7 million, respectively, attributable to Corillian Services, Inc.  During the three and six-month periods ended June 30, 2000, we incurred no direct general and administrative expenses attributable to Corillian Services, Inc.  In the near term, we expect general and administrative expenses to remain relatively constant in absolute dollars.

             Amortization of Intangible Assets.  Amortization of intangible assets was $2.1 million and $4.1 million, respectively, for the three and six-month periods ended June 30, 2001, reflecting amortization of customer relationships, workforce and goodwill acquired as part of our acquisition of Corillian Services, Inc. in November 2000.

             Amortization of Deferred Stock-based Compensation.  Deferred stock-based compensation represents the difference between the exercise price of stock options granted to employees and the fair value of our common stock at the time of the grants. This amount is being amortized over the respective vesting periods of these options on an accelerated basis. In addition, this amount includes the fair value of stock options granted to non-employees.  Amortization of deferred stock-based compensation decreased from $1.5 million and $3.0 million, respectively, for the three and six-month periods ended June 30, 2000, to $633,000 and $1.4 million, respectively, for the three and six-month periods ended June 30, 2001.We expect amortization of approximately $1.1 million, $1.1 million, $369,000 and $29,000, respectively, for the remainder of 2001, 2002, 2003, and 2004 related to these stock options.

Other Income, Net

             Other income, net, consists primarily of interest earned on cash and cash equivalents and short-term investments, gains and losses recognized upon sale of our assets, interest expense, our share of earnings and losses in joint venture investments, and other miscellaneous items. Other income, net, decreased from $759,000 and $972,000, respectively, for the three and six-month periods ended June 30, 2000, to ($9,000) and $267,000, respectively, for the three and six-month periods ended June 30, 2001. This decrease was mainly as a result of reduced interest income earned due to lower interest rates and decreased cash and cash equivalents balances as funds raised in Corillian’s initial public offering in April 2000 continue to fund the Company’s operations.

Income Taxes

             No provision for federal and state income taxes was recorded in the three and six-month periods ended June 30, 2000 and 2001, as we incurred net operating losses in each of these periods and expect to continue to generate net operating losses throughout the remainder of 2001.

Liquidity and Capital Resources

             At June 30, 2001, we had $25.9 million in cash and cash equivalents consisting of cash, commercial paper and taxable municipal bonds with original maturities less than 90 days. In January 2000, we obtained a $3.0 million equipment line of credit with a financial institution of which $1.9 million was outstanding at June 30, 2001. In November 2000, we obtained a $5.0 million equipment line of credit with a financial institution of which $4.5 million was outstanding at June 30, 2001.

             Net cash used in operating activities was $9.2 million and $18.7 million, respectively, for the six-month periods ended June 30, 2000 and 2001. Cash used in operations for the six-month period ended June 30, 2001 resulted primarily from losses net of non-cash expenses including depreciation and amortization of deferred stock-based compensation and intangible assets, increases in our accounts receivable and revenue in excess of billing, as well as decreases in accounts payable and accrued liabilities.

             Net cash provided by investing activities was $4.8 million for the six-month period ended June 30, 2000. Net cash used in investing activities was $5.7 million for the six-month period ended June 30, 2001. Net cash used in investing activities for the six-month period ended June 30, 2001 was attributable to capital expenditures of $5.7 million relating to our move into our new corporate campus and international facilities.  In the third quarter of 2001, we expect to contribute an additional $1.0 million to e-Banc LLC, a company in which we invested in June 2000.  We expect that, in the future, any cash in excess of current requirements will be invested in short-term, investment-grade securities.

             Net cash provided by financing activities was $57.9 million and $1.2 million, respectively, for the six-month periods ended June 30, 2000 and 2001. This decrease was primarily due to $54.7 million received in April 2000 from the issuance of common stock in our initial public offering, the private placement that occurred concurrently with the closing of our initial public offering and the issuance of a warrant to purchase 250,000 shares of common stock concurrently with the closing of our initial public offering.  Net cash provided by financing activities for the six-month period ended June 30, 2001, consisted primarily of the proceeds of $1.2 million from borrowings under our long-term borrowing arrangements. Additionally, we received proceeds of $1.1 million from the issuance of common shares under stock options and the employee stock purchase plan and made principal payments of $1.1 million on long-term borrowings and capital lease obligations.

             We have no material financing commitments other than obligations under our line of credit facilities and operating and capital leases. Future capital requirements will depend on many factors, including the timing of research and development efforts and the expansion of our operations, both domestically and internationally. We believe our current cash and cash equivalents will be sufficient to meet our working capital requirements for at least the next 12 months. Thereafter, we may find it necessary to obtain additional equity or debt financing. If additional financing is required, we may not be able to raise it on acceptable terms or at all. Additional financing could result in dilution to our shareholders. If we are unable to obtain additional financing, we may be required to reduce the scope of our planned research and development and sales and marketing efforts, as well as the further development of our infrastructure.