<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1999
REGISTRATION NO. 333-89181
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
OPTIO SOFTWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
GEORGIA 5045 58-1435435
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
--------------------------
3015 WINDWARD PLAZA
WINDWARD FAIRWAYS II
ALPHARETTA, GEORGIA 30005
(770) 576-3500
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------
C. WAYNE CAPE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OPTIO SOFTWARE, INC.
3015 WINDWARD PLAZA
WINDWARD FAIRWAYS II
ALPHARETTA, GEORGIA 30005
(770) 576-3500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
LARRY W. SHACKELFORD, ESQ. WILLIAM J. GRANT, JR., ESQ.
NEIL H. DICKSON, ESQ. WILLKIE FARR & GALLAGHER
MORRIS, MANNING & MARTIN, L.L.P. 787 SEVENTH AVENUE
1600 ATLANTA FINANCIAL CENTER NEW YORK, NEW YORK 10019
3343 PEACHTREE ROAD, N.E. (212) 728-8000
ATLANTA, GEORGIA 30326 (212) 728-8111 (FAX)
(404) 233-7000
(404) 365-9532 (FAX)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 13, 1999
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
5,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
This is Optio Software, Inc.'s initial public offering of common stock.
We expect the public offering price to be between $8.00 and $10.00 per
share. Currently, no public market exists for the shares. After pricing the
offering, we expect that the common stock will be quoted on the NASDAQ
National Market System under the symbol "OPTO."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
--------------------
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<CAPTION>
PER SHARE TOTAL
--------- ---------
<S> <C> <C>
Public offering price........................................ $ $
Underwriting discount........................................ $ $
Proceeds, before expenses, to Optio.......................... $ $
</TABLE>
The underwriters may also purchase from Optio and some of our
shareholders up to an additional 750,000 shares at the public offering
price, less the underwriting discount, within 30 days from the date of this
prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
The shares will be ready for delivery on or about , 1999.
----------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THE ROBINSON-HUMPHREY COMPANY
------------------
The date of this prospectus is December , 1999.
<PAGE>
DESCRIPTION OF GRAPHICS
OPTIO SOFTWARE, INC.
1) The Evolving Business Continuum
At the bottom center of the graphic is a circle that contains the Optio logo
that contains:
- The word "Optio" printed horizontally with the letters "O - P - T - O" in
plain black type and a stylized "I" that is rendered in red type.
- The word "Optio" is underlined and there is a thin vertical line extending
from the second "O" to the top of the letter.
- To the right of the vertical line is the word "Software" in red sans serif
type oriented vertically.
- Below the underline is the phrase "Optimizing Information" in black sans
serif type. The "I" in the word "Information" is formed by the lower
extension of the stylized "I" that forms the "I" in Optio.
Extending upward from the logo is a fan-shaped image that is made up of 5
smaller fan-shaped sections. There is a labeled arc that crosses the lower half
of the fan that contains the words "Paper-Intensive Commerce" on the left-hand
side and "e-business" on the right-hand side. Across the top of the fan-shaped
image is a second arc that is labeled to correspond with each of the fan-shaped
sections which reads from left to right: "Forms, Dynamic Documents, Process,
Internet, e-Commerce".
Each fan-shaped section has a graphic superimposed on a circle described as:
- Forms -- Stylized to represent two plain sheets of paper or letterhead
laid one over the other with the top sheet offset to the lower left.
- Dynamic Documents -- Stylized to represent three overlaid documents each
with different graphical layouts to represent customized content and
information.
- Process -- Stylized to represent a document with an arrow encircling it in
a counter-clockwise direction.
- Internet -- A stylized sphere with a horizontal ring around its
circumference at the midline. The globe is labeled with the letters "WWW".
- E-Commerce -- Stylized to represent a computer workstation with a monitor.
On the screen of the monitor is a lower case letter "e".
Across the top of the fan-shaped image and conforming to the radius of the
fan are the words "Evolving Business Continuum" in sans serif red type.
The caption at the bottom of the page states that:
"Our software enables organizations to extend their reach from
paper-intensive commerce to e-business by delivering customized information in
real time to a global network of destinations. For example, our software can
take the information contained in an invoice that was originally designed to be
printed and customize it into a form that can be transmitted to an e-commerce
system.
E-business refers to using the Internet to conduct business, and e-commerce,
a subset of e-business, focuses on using the Internet to perform transactions."
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 4
Forward Looking Statements................................................................................. 13
Use of Proceeds............................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Dilution................................................................................................... 15
Selected Financial Data.................................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 29
Management................................................................................................. 43
Certain Transactions....................................................................................... 49
Principal Shareholders..................................................................................... 51
Description of Capital Stock............................................................................... 52
Shares Eligible for Future Sale............................................................................ 54
Underwriting............................................................................................... 56
Legal Matters.............................................................................................. 59
Experts.................................................................................................... 59
Additional Information..................................................................................... 59
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed after that date.
"Optio" and "MedForms" are registered trademarks of Optio Software, Inc.
This prospectus also contains trademarks and registered trademarks of companies
other than Optio Software, Inc.
i
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(This page intentionally left blank)
ii
<PAGE>
SUMMARY
This summary does not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the financial data and related notes, before
making an investment decision. The terms "Optio," "Optio Software" and "we" as
used in this prospectus refer to Optio Software, Inc. Any reference to a fiscal
year refers to our fiscal year ending on January 31 of that calendar year. For
example, "fiscal 1999" refers to our fiscal year ended January 31, 1999.
OPTIO
We are a provider of software that enables organizations to customize and
deliver information to a global network of digital destinations, including
printers, faxes, e-mail and, with the recent release of our e-business software,
the Internet and wireless devices. Our software takes real-time information from
enterprise applications, external databases and files, customizes it to suit
business needs and delivers it to an organization's customers, suppliers and
partners when, where and how they need it. By using our software, organizations
are able to unlock the value of their investments in existing enterprise systems
and extend their operations from paper-intensive commerce to e-business. For
example, organizations use our software to customize their purchase orders
according to business preferences, securely publish reports to the Internet and
send invoices as e-business transactions to other organizations. Importantly,
these functions are performed seamlessly, without modifying the software or the
business processes that created the original information.
Organizations are constantly seeking ways to use information to operate more
productively and cost-effectively. The emergence of e-business has challenged
organizations to gather information from a greater number of sources, tailor it
to more specific requirements and deliver it to a wider array of people and
systems than previously possible. E-business refers to the use of the Internet,
instead of more traditional means such as printers, faxes and e-mail, to conduct
business. This demanding and constantly changing business environment has
created the need for a comprehensive and flexible solution that optimizes the
use of business information and maximizes the power of the Internet. According
to AMR Research, Inc., total revenue of companies that sell software
applications that automate and integrate the business processes of organizations
will grow to $66.6 billion in 2003 from $16.7 billion in 1998. Furthermore,
International Data Corporation estimates that spending for software that
facilitates electronic commerce, a subset of e-business that addresses
transactions performed over the Internet, will grow from $444 million in 1998 to
$13 billion in 2003.
Our objective is to be the leading provider of software that enables
organizations to extend their operations from paper-intensive commerce to
e-business. Key elements of our strategy include continuing to enhance the
e-business capabilities of our software to increasingly enable the exchange of
information, expanding our global sales and marketing efforts, extending our
network of strategic relationships, leveraging our significant customer base and
pursuing strategic acquisitions.
We market and sell our software products primarily through our direct sales
force and a network of certified resellers. As of October 31, 1999 we employed
46 sales personnel and provided distribution through approximately 100
resellers. We also offer our customers consulting services including
implementation and training. Our customers come from a wide variety of
industries including manufacturing, retail, technology and healthcare. We have
developed versions of our software targeted for the healthcare industry. License
revenue from software in our healthcare suite represented 12% of our total
license revenue during the nine month period ended October 31, 1999. As of
October 31, 1999, we had over 3,800 customers worldwide, which we believe makes
us a leading provider of information customization and delivery software
relative to our competitors. Our customers include The Home Depot, Inc., JFK
Medical Center, Reynolds Metals Company and Telxon Corporation. We have
strategic marketing relationships with six major enterprise and healthcare
software vendors, which are Baan Company, N.V., J.D. Edwards & Company, McKesson
HBOC, Inc., Oracle Corporation, QAD Inc. and SAP AG, that provide us valuable
customer referrals and recommendations of our software.
Optio was incorporated in Georgia in 1981 under the name Technology
Marketing, Inc., changed its name to Xpoint Corporation in 1982, and further
changed its name to Optio Software, Inc. in 1997. Our principal executive office
is located at 3015 Windward Plaza, Windward Fairways II, Alpharetta, GA 30005.
Our telephone number is (770) 576-3500. Our Web site is located at
www.optiosoftware.com. Information contained on our Web site does not constitute
a part of this prospectus.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Optio............... 5,000,000 shares
Shares outstanding after the Offering....... 16,918,640 shares
Use of proceeds............................. We intend to use the net proceeds from this
offering for:
- expansion of our business, including sales
and marketing expenditures;
- product development;
- potential future acquisitions;
- repayment of debt; and
- for general corporate purposes, including
working capital.
Risk Factors................................ See "Risk Factors" and the other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in shares of the
common stock.
Proposed Nasdaq National Market Symbol...... "OPTO"
</TABLE>
Unless otherwise noted, all information in the prospectus, including share
and per share information, gives effect to a 5-for-1 split of the common stock
on October 15, 1999, assumes no exercise of the underwriters' overallotment
option and excludes up to 12,500,000 shares reserved for issuance under our
stock incentive plan.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents table summarizes our financial data for the
periods indicated. Our balance sheet data is presented on an actual basis and on
an as adjusted basis giving effect to the sale of the common stock in this
offering and the application of the proceeds from the sale.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JANUARY 31, OCTOBER 31,
------------------------------- --------------------
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees........................................... $ 5,802 $ 9,150 $ 12,014 $ 8,081 $ 11,948
Services, maintenance and other........................ 3,200 4,419 7,525 4,999 11,254
--------- --------- --------- --------- ---------
Total revenue........................................ 9,002 13,569 19,539 13,080 23,202
Gross profit............................................. 6,546 10,267 14,537 9,787 16,791
Total operating expenses................................. 5,852 10,144 13,889 9,036 14,441
Income from operations................................... 694 123 648 751 2,350
Net income............................................... $ 419 $ 22 $ 350 $ 598 $ 1,310
Net income per share--basic.............................. $ 0.03 $ 0.00 $ 0.03 $ 0.05 $ 0.11
Net income per share--diluted............................ $ 0.03 $ 0.00 $ 0.02 $ 0.04 $ 0.07
Weighted average shares outstanding--basic............... 12,380 12,891 12,825 12,928 11,919
Weighted average shares outstanding--diluted............. 15,478 16,424 17,305 16,753 19,347
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 1,286 $ 40,937
Working capital (deficiency)............................................................ (857) 39,461
Total assets............................................................................ 12,460 52,111
Long-term debt, net of current portion.................................................. 578 46
Total shareholders' equity.............................................................. 1,356 42,206
</TABLE>
3
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before making an
investment decision. Our business, operating results or financial condition
could be harmed by any of the following risks. The trading price of our common
stock could decline due to any of these risks, and you may lose all or part of
your investment. You should also refer to the other information set forth in
this prospectus, including our financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS; AS A RESULT, WE
MAY FAIL TO MEET EXPECTATIONS OF INVESTORS AND ANALYSTS AND OUR STOCK PRICE MAY
DECLINE.
Our revenue and operating results may vary from quarter to quarter. As a
result, we may fail to meet expectations of investors and analysts, which may
cause our stock price to decline. These fluctuations may occur as a result of
the following factors:
- variations in market acceptance of and demand for our software;
- the size and timing of our customer orders;
- increased expenses, whether related to sales and marketing, product
development or administration;
- delays in introducing new software or software enhancements;
- new software introductions or changes in pricing policies by our
competitors;
- costs related to acquisitions of technologies or businesses; and
- the amount and timing of expenditures related to expansion of our
operations.
The purchase of our software involves a significant commitment of resources
and recurring expenses and attendant delays frequently associated with approving
capital expenditures and reviewing new technologies that affect key operations.
The decision-making processes of our customers' senior management requires us to
provide a significant level of training to prospective customers regarding the
use and benefits of our software. We may expend substantial funds and management
resources during the sales cycle and fail to consummate the sale. Accordingly,
our results of operations for a particular period may suffer if the sales
forecasted for a particular period are delayed or do not otherwise occur.
WE RELY ON OUR STRATEGIC MARKETING RELATIONSHIPS TO GENERATE CUSTOMER REFERRALS
WHICH ACCOUNT FOR APPROXIMATELY HALF OF OUR REVENUE; IF WE DO NOT SUCCESSFULLY
DEVELOP AND MAINTAIN THESE RELATIONSHIPS, OUR REVENUE WILL DECREASE.
Historically, approximately half of our sales have depended on our strategic
marketing relationships. We expect that revenue from sales of our software and
services based on customer referrals generated through these relationships will
continue to account for a significant portion of our revenue. The loss of a
significant number of these relationships would cause our revenue to decrease.
Most of our revenue from these relationships is derived from strategic marketing
relationships with two types of entities: large software vendors and consulting
firms. Large software vendors, such as Baan, J.D. Edwards, McKesson HBOC,
Oracle, QAD and SAP, often recommend our products to their customers or provide
us with customer referrals. Consulting firms, such as Deloitte Consulting, may
recommend our software to their customers. Some of these organizations receive
referral fees for these sales and others do not. We receive license fees from
the customers in these sales. We expect that a limited number of our strategic
marketing relationships, such as those with McKesson HBOC, will account for a
substantial portion of our customer referrals and, therefore, revenue over time.
Our strategic relationships are generally terminable by either party upon 30 to
90 days notice. Therefore,
4
<PAGE>
the continuation of these relationships is uncertain. Furthermore, software
manufacturers may decide to promote technologies and standards that are not
compatible with our software, or they may lose market share for their products,
which would cause our revenues to decrease.
WE RELY IN PART ON THIRD PARTY RESELLER RELATIONSHIPS TO GENERATE REVENUE; IF WE
DO NOT CONTINUE TO DEVELOP AND MAINTAIN THESE RELATIONSHIPS, OUR REVENUE WILL
DECREASE.
We intend to augment our indirect sales channel through additional
third-party reseller arrangements. As a result, we will likely become more
dependent on this type of relationship. We may not be able to successfully
augment these arrangements, and the expansion of indirect resale methods, even
if successful, may not increase revenue. As a result, we may incur expenses that
do not promote the growth of our business.
WE INTEND TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR MARKETS; IF
WE ARE UNABLE TO DO SO, OUR COMPETITIVE POSITION COULD BE WEAKENED.
Though we have not yet entered into negotiations on any potential
acquisitions, we intend to continuously evaluate our position within our
industry, and we may acquire complementary technologies or businesses in the
future. However, we may not be able to identify suitable acquisition candidates
that are available for sale at reasonable prices. Due to consolidation trends
within the technology industry, failure to adopt and successfully implement a
long-term acquisition strategy could weaken our competitive position. If we are
able to identify suitable acquisition candidates, we may elect to finance future
acquisitions using some or all of the proceeds of this offering. We may also
elect to finance future acquisitions with debt financing, which would increase
our debt service requirements, or through the issuance of additional common or
preferred stock, which could result in dilution to our shareholders. In
addition, we may not be able to arrange adequate financing for any acquisitions
on acceptable terms.
ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE INTO OUR BUSINESS, MAY LIMIT OUR
ABILITY TO MANAGE OUR OPERATIONS AND MAY RESULT IN ADVERSE ACCOUNTING TREATMENT.
We may be unable to obtain a satisfactory return on our investments in
acquisitions as a result of various factors, including:
- difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company with our
operations;
- the diversion of our management's attention from other business
concerns;
- the impairment of relationships with our employees, affiliates and
organizations with which we have strategic marketing relationships;
- difficulties maintaining uniform standards, controls, procedures and
policies;
- our lack of direct prior experience in the markets of the acquired
company; and
- the loss of key employees of the acquired company.
Future acquisitions may also involve large one-time write-offs and
amortization expenses related to goodwill and other intangible assets.
WE RELY ON OUR ABILITY TO RETAIN OUR EXISTING KEY PERSONNEL AND ATTRACT
ADDITIONAL KEY PERSONNEL; IF WE ARE UNABLE TO DO SO, WE MAY NOT BE ABLE TO
EFFECTIVELY MANAGE AND EXPAND OUR BUSINESS.
Our future performance depends on the continued service of our senior
management, product development and sales personnel. The loss of the services of
one or more of our key personnel could
5
<PAGE>
seriously harm our ability to manage and expand our business. In particular, we
rely on the experience and knowledge of our founder and Chief Executive Officer,
C. Wayne Cape, who has provided Optio with management and leadership since its
inception in 1981. None of these persons, including Mr. Cape, is bound by an
employment agreement. We maintain "key person" life insurance in the amount of
$1 million on Mr. Cape, but this amount likely would be inadequate to compensate
us for the loss of his services.
Our future success also depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled managerial, technical,
sales, marketing and customer support personnel. We are particularly dependent
on hiring additional personnel to increase our direct sales and research and
development efforts. In addition, new hires frequently require extensive
training before they achieve desired levels of productivity. For example, our
first e-business software was introduced for general commercial sale in
September 1999, and our sales force has limited experience selling it. We
estimate that our salespeople will require at least three months to become
effective at selling our e-business software and services. Competition for
qualified personnel is intense and we may fail to retain our key employees or to
attract or retain other highly qualified personnel. If we fail to attract and
retain these personnel, we may not be able to effectively manage and expand our
business.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY; IF WE ARE UNABLE TO COMPETE
SUCCESSFULLY, WE MAY NOT BE ABLE TO SELL OUR SOFTWARE AND SERVICES, WHICH WOULD
HARM OUR OPERATING RESULTS.
If we are unable to satisfy our customers requirements we may lose those
customers to our competitors, which would harm our operating results. The market
for our software and services is intensely competitive, fragmented and
constantly changing. Our customers' requirements and the technology available to
satisfy those requirements continually change. We expect competition to persist
and intensify in the future.
We believe our competitors fit into three segments. The first is custom
software development. The second is comprised of output management solutions
from organizations such as:
- AFP Technology Ltd.;
- Create!print International, Inc.;
- Cypress Corporation;
- Dazel Corporation, which is owned by The Hewlett-Packard Company;
- New Dimension Software Ltd., which is owned by BMC Software, Inc.;
- StreamServe, Inc.; and
- Tivoli, which is owned by IBM Corporation.
The third is comprised of e-business enablement organizations, which we
believe we will compete with increasingly in the future, such as:
- Actuate Software Corporation;
- BlueGill Technologies Inc.;
- BottomLine Technologies Inc.;
- Brio Technology Inc.;
- Extricity Software, Inc.;
- Quest Software, Inc.; and
- webMethods, Inc.
We expect to face increased competition from our current competitors. In
addition, new competitors, alliances among existing and future competitors, or
acquisitions by or consolidations of our competitors may emerge and rapidly gain
significant market share.
6
<PAGE>
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, marketing and other
resources than we do. Many of these companies can also leverage extensive
customer bases and adopt aggressive pricing policies to gain market share. In
addition, it is possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult to acquire and retain clients
and may require us to reduce the price of our software. We cannot be certain
that we will be able to compete successfully with existing or new competitors.
If we fail to compete successfully, our business will be harmed. See
"Business--Competition."
WE ARE CURRENTLY EXPANDING OUR INTERNATIONAL OPERATIONS; IF WE DO NOT
EFFECTIVELY MANAGE THIS EXPANSION, OUR OPERATING RESULTS WILL BE HARMED.
Substantially all of our current international revenue is derived from the
operations of our two wholly-owned subsidiaries in France and Australia. Revenue
from license and services to customers outside of North America were $986,000 in
the year ended January 31, 1999, representing 5% of total revenue, and
approximately $3.1 million in the nine months ended October 31, 1999,
representing 13% of total revenue. Our expanding international operations may
negatively affect our operating results because of the following factors:
- difficulties in staffing and managing foreign operations;
- potential losses or gains from currency fluctuation as a result of
transactions and expenses being denominated in foreign currencies;
- seasonal reductions in business activity in Europe;
- increased financial accounting and reporting burdens and complexities
and potentially adverse tax consequences;
- delays in delivering language-specific versions of our software due to
our limited experience in creating these versions;
- compliance with a wide variety of complex foreign laws and treaties;
- reduced protection for intellectual property rights in some countries;
and
- licenses, tariffs and other trade barriers.
We plan to expand our international operations as part of our business
strategy. The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources and will place additional burdens on our management,
administrative, operational and financial infrastructure. We cannot be certain
that our operations in other countries will produce desired levels of revenue or
profitability.
OUR SOFTWARE MAY SUFFER FROM DEFECTS OR ERRORS, WHICH MAY HARM ITS REPUTATION OR
SUBJECT US TO PRODUCT LIABILITY CLAIMS.
The software we offer is inherently complex. Despite testing and quality
control, current versions, new versions or enhancements of our software may
contain errors after commencement of commercial shipments. Any errors may harm
the reputation of our software or subject us to product liability claims.
Significant technical challenges also arise with our software because our
customers purchase and deploy our software across a variety of computer
platforms and integrate them with a number of third-party software applications
and databases. Any defects or errors that are discovered after commercial
release could result in the loss of revenue or delay in market acceptance of our
software. Moreover, we could face significant product liability claims and
higher development costs if our software contains
7
<PAGE>
undetected errors, if we fail to meet our customers' expectations or if a
customer's system experiences failures following the implementation of our
software, regardless of our responsibility for the failure. Although we maintain
general liability insurance coverage, this coverage may not continue to be
available on reasonable terms or at all, or may be insufficient to cover one or
more large claims. In addition, a product liability claim, whether or not
successful, could harm our business by increasing our costs and distracting our
management.
THE THIRD PARTY SOFTWARE WE RELY ON MAY SUFFER FROM DEFECTS OR ERRORS OR MAY
BECOME OBSOLETE, WHICH WOULD HARM OUR SALES.
Our software contains components developed and maintained by third-party
software vendors, and we expect that we will incorporate software from
third-party vendors in our future software. We may not be able to replace the
functionality provided by this third-party software if it becomes obsolete,
defective or incompatible with future versions of our software or if it is not
adequately maintained or updated. Any significant interruption in the
availability of this third-party software or defects in this software could harm
our sales unless and until we can secure an alternative source. In addition, we
have entered into and plan to continue to enter into strategic relationships
with other companies whereby we license our software for integration with their
software. If the other company's software fails to meet customer expectations or
causes a failure in its customers' systems, the reputation of our software could
be harmed, even if our software performs in accordance with its functional
specifications.
WE MAY EXPERIENCE DELAYS IN ENHANCING EXISTING SOFTWARE AND DEVELOPING NEW
SOFTWARE; THESE DELAYS MAY AFFECT OUR COMPETITIVENESS AND CAUSE US TO LOSE
MARKET SHARE.
Our competitiveness and ability to maintain or increase our market share
will depend, in part, on our ability to develop, test, sell and support
enhancements to our current and new software on a timely basis in response to
changing customer needs, competition, technological developments and emerging
industry standards. Our failure to successfully adapt our software and services
to this rapidly changing market could reduce our revenue and cause our operating
results to suffer. The software industry is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
product and service introductions. These developments could limit the
marketability of our software and services and could render our software and
services obsolete. We may not successfully identify new product opportunities or
develop and bring new and enhanced products and services to the market in a
cost-effective and timely manner. If we fail to release new software and
upgrades on time or if they fail to achieve market acceptance, we may experience
customer dissatisfaction, cancellation of orders and license agreements and loss
of revenue.
WE RELY ON THIRD PARTIES TO PROVIDE PART OF OUR CONSULTING SERVICES; IF THESE
THIRD PARTIES DO NOT PROVIDE SATISFACTORY SERVICE, OUR REPUTATION COULD BE
HARMED AND OUR REVENUE FROM THESE SERVICES COULD DECREASE.
We now contract with, and may increasingly contract with, third party
providers to assist in providing our consulting services. Services provided by
these third parties may include providing assistance to our customers in
installing and implementing our software. If we are unable to continue
contracting with third parties for these consulting services, or if these third
parties do not meet the needs or expectations of our customers, our business and
reputation may be harmed and we will have to perform these functions ourselves.
Providing these services could place a significant strain on our internal
consulting resources, and we may not be able to successfully perform these
services on a timely and cost-effective basis.
8
<PAGE>
WE MAY FAIL TO ESTABLISH A MARKET FOR OUR NEW E-BUSINESS SOFTWARE AND SERVICES,
AND THEREFORE, THEY MAY NOT LEAD TO INCREASED REVENUE.
We are currently developing new software to assist companies in
business-to-business transactions over the Internet. To date, most of our
revenue has been derived from software that was not originally designed to
facilitate e-business, but rather to deliver customized information by fax,
printer and e-mail. If a significant market for e-business software and services
fails to develop, or if we are unable to develop broad market acceptance for our
e-business software, our business in this area may not grow as rapidly as we
anticipate. In addition, our limited operating history in the e-business market
makes it difficult for us to evaluate our future prospects in this market. We
may encounter risks and difficulties associated with our new e-business
initiatives as often is the case with companies that introduce new products and
services into rapidly evolving markets. Internet usage for e-business, and
therefore the acceptance and adoption of our e-business software and services,
may be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- unavailability of cost effective, high-speed access to the Internet;
and
- changes in government regulation of the Internet.
We also believe that awareness of our software and its capabilities within
this evolving market is still developing. While we have devoted significant
resources to promoting awareness of our software and the problems this software
addresses, these efforts may not be sufficient to build market awareness for our
software.
DISPUTES REGARDING OUR INTELLECTUAL PROPERTY COULD NEGATIVELY IMPACT OUR ABILITY
TO SELL OUR SOFTWARE AND SERVICES.
We believe our ability to sell our software and services depends, in part,
on protecting our proprietary intellectual property and favorably resolving
intellectual property claims that may be brought against us. If we fail to do
so, our ability to sell our software and services may be restricted, as a result
of which our operating results would suffer.
We rely on a combination of copyright, trademark and trade secret laws and
contractual provisions to establish and protect our proprietary rights. We have
applied for the federal registration of trademarks for "Optio" and "MedForms."
We have also registered the domain name "optiosoftware.com." We have not filed
any copyrights for our software.
The steps we have taken to protect our proprietary rights may not be
adequate, we may not be able to secure trademark or service mark registrations
for our marks in the United States or in foreign countries and third parties may
infringe upon or misappropriate our copyrights, trademarks, service marks,
domain names and similar proprietary rights. In addition, effective copyright
and trademark protection may be unenforceable or limited in foreign countries.
Also, our competitors or others may adopt product or service names similar to
ours, thereby impeding our ability to build brand identity and possibly leading
to customer confusion. In addition, litigation may be necessary to enforce and
protect our trade secrets, copyrights and other intellectual property rights.
Any litigation would divert management resources, be expensive and may not
effectively protect our intellectual property. Our inability to protect our
marks adequately could harm our business.
We may be subject to litigation for claims of infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Furthermore, adverse determinations
9
<PAGE>
in litigation could result in the loss of proprietary rights, subject us to
significant liabilities, require us to seek licenses from third parties, or
prevent us from selling our services. If we are required to obtain new licenses
from third parties, we may not be able to obtain them on commercially reasonable
terms. Any of these results could reduce the acceptance of the Optio brand,
which would cause our business to suffer.
RISKS RELATED TO OUR INDUSTRY
YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS AND COULD DISRUPT OUR BUSINESS.
Software that records only the last two digits of the calendar year may not
be able to distinguish whether "00" means 1900 or 2000. This may result in our
software failing or creating erroneous results, causing:
- delay or loss of revenue;
- cancellation of customer contracts;
- diversion of development resources;
- damage to our reputation;
- increased customer support and warranty costs; or
- litigation costs.
We believe that based on our assessments to date, material year 2000 issues
that we have identified that are within our control can be corrected. However,
our software is generally used with enterprise systems and third party
applications which may not comply with Year 2000 requirements. As a result,
demand for our software may decrease. We also face risks relating to the
potential year 2000 non-compliance of institutions that provide services to us,
merchants processing electronic transfer of funds, the FedWire system governing
electronic funds transfers and the Federal Reserve system itself.
We cannot assure you that Year 2000 issues will not be discovered in our
software or internal computer systems, or in enterprise systems or third-party
applications with which our software is used. If Year 2000 issues are
discovered, we cannot assure you that our contingency plan will be adequate to
deal with them effectively, or that the costs of making the software and systems
Year 2000 ready will not harm our business. In addition, if Year 2000 issues
arise, we may be subject to complaints by customers, and our reputation and
revenue may suffer. We may also be required to defend our software or services
in litigation or arbitration proceedings, or to negotiate resolutions of claims,
based on Year 2000 issues. The costs of defending and resolving Year
2000-related disputes, regardless of the merits of these disputes, could harm
our business. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Impact of Year 2000 Computer Issues."
A SHIFT IN CUSTOMER FOCUS AND SPENDING TOWARD YEAR 2000 REMEDIATION MAY CAUSE
OUR REVENUE TO DECLINE.
The purchasing patterns of our customers and potential customers based on
Year 2000 issues make it difficult to predict future sales of our software in
the fourth quarter of 1999. Many customers may spend their limited financial and
personnel resources remediating Year 2000 problems, thereby delaying or
foregoing purchases of our software. This trend could reduce our revenue in 1999
and 2000.
10
<PAGE>
WE OPERATE IN AN UNCERTAIN REGULATORY AND LEGAL ENVIRONMENT; NEW LAWS AND
REGULATIONS RELATING TO THE INTERNET COULD HINDER OUR SALES, DELAY OUR
INTRODUCTION OF NEW SOFTWARE AND SERVICES AND INCREASE OUR OPERATING EXPENSES,
WHICH COULD HARM OUR OPERATING RESULTS.
Laws and regulations directly applicable to Internet business transactions
are becoming more prevalent. We cannot predict the impact that any of these laws
will have on our business. If the current approach to, and level of, regulation
of the Internet is materially altered, we may need to adapt our technology
accordingly. Any required adaptation could cause us to spend significant amounts
of time or money, which could be detrimental to our business.
RISKS RELATED TO OUR OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND THE PRICE OF OUR COMMON
STOCK MAY BE VOLATILE.
Prior to this offering, you could not buy or sell our common stock publicly.
While we anticipate that our common stock will trade on the Nasdaq National
Market after the offering, an active public market may not develop or be
sustained. Furthermore, our common stock may not remain eligible to trade on the
Nasdaq National Market, which could result in an illiquid market for our common
stock. In addition, the market price might fall below the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this offering.
The initial public offering price will be determined based on negotiations
between us and the representatives of the underwriters, based on factors that
may not be indicative of future market performance. The market for technology
companies has experienced extreme price and volume volatility that have often
been unrelated or disproportionate to the operating performance of those
companies. These broad market and industry factors may harm our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect relative
valuation levels substantially above historical levels. These trading prices and
relative valuation levels may not be sustained.
OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING; IF IT DOES NOT USE THESE PROCEEDS EFFECTIVELY, OUR FINANCIAL CONDITION
WILL BE HARMED.
Our management will have broad discretion in how we use the net proceeds of
this offering. We currently expect to use the net proceeds from this offering to
expand our business, including sales and marketing expenditures, to continue our
product development, for potential future acquisitions, for repayment of debt
and for general corporate purposes, including working capital. Investors will be
relying on the judgment of our management regarding the application of the
proceeds from this offering. A failure by our management to apply these proceeds
effectively would cause our financial condition to suffer and could cause the
market price of our common stock to decline. See "Use of Proceeds."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price of our
common stock. After this offering, 16,918,640 shares of our common stock will be
outstanding. All of the shares sold in this offering will be freely tradable
unless held by affiliates of Optio or by persons subject to other contractual or
legal restrictions on resale. The remaining shares of common stock outstanding
after this offering will be restricted as a result of securities laws or lock-up
agreements signed by the holder and will be available for sale in the public
market as follows:
- approximately 7,556,520 restricted shares will be eligible for sale
180 days after the date of this prospectus upon the expiration of
lock-up agreements with the underwriters, subject to the provisions of
Rule 144; and
- approximately 4,362,120 restricted shares are eligible for sale as of
the date of this prospectus in accordance with the provisions of
Rule 144.
11
<PAGE>
OUR MANAGEMENT AND AFFILIATES WILL CONTROL MORE THAN 56% OF OUR STOCK FOLLOWING
THIS OFFERING AND WILL THEREFORE BE ABLE TO DETERMINE THE OUTCOME OF ANY
SHAREHOLDER VOTE, INCLUDING APPROVAL OF A SALE OF OPTIO.
Over 56% of our stock will be controlled by our management and affiliates
after this offering; as a result, they can determine the outcome of any
shareholder vote. This may discourage a potential acquirer from offering to
purchase or otherwise attempting to obtain control of Optio, which in turn could
reduce our stock price or prevent our shareholders from realizing a premium over
our stock price. Following this offering, our officers, directors and affiliated
persons will beneficially own approximately 11,946,950 shares of our common
stock, including 4,301,300 shares subject to acquisition upon the exercise of
options exercisable within 60 days. C. Wayne Cape, our Chief Executive Officer,
will beneficially own following this offering approximately 9,636,950 shares of
our common stock, including 2,256,300 shares subject to acquisition upon the
exercise of options exercisable within 60 days. As a result, our officers,
directors and affiliated persons will effectively be able to:
- elect, or defeat the election of, our directors;
- amend or prevent amendment of our Articles of Incorporation or Bylaws;
- effect or prevent a merger, sale of assets or other corporate
transaction; and
- control the outcome of any other matter submitted to the shareholders
for vote.
Our public shareholders, for so long as they hold less than 50% of our
common stock, will be unable to control the outcome of these transactions.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION.
The initial public offering price is substantially higher than the as
adjusted net tangible book value per share of our outstanding common stock
immediately after the offering. Accordingly, purchasers of common stock in this
offering will experience immediate and substantial dilution of approximately
$6.53 in net tangible book value per share, or approximately 73% of the offering
price, assuming the offering price is the midpoint of the proposed offering
price range, or $9.00 per share. In contrast, existing shareholders paid an
average price of $0.06 per share. Investors will incur additional dilution upon
the exercise of outstanding stock options and warrants.
OUR ARTICLES OF INCORPORATION AND BYLAWS, AS WELL AS GEORGIA LAW, MAY PREVENT OR
DELAY A FUTURE TAKEOVER, THUS PREVENTING INVESTORS FROM REALIZING A PREMIUM ON
OUR STOCK PRICE.
Our articles of incorporation, bylaws and Georgia law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our shareholders. For example, our articles of incorporation and
bylaws provide, among other things, that:
- our board of directors, without shareholder approval, has the authority
to issue preferred stock with rights superior to the rights of the
holders of common stock;
- shareholders must comply with advance notice provisions contained in
our bylaws to make proposals at shareholder meetings and nominate
candidates for election to our board of directors;
- our board of directors is classified and directors have staggered
terms; and
- the shareholders may call a special meeting only upon request of 50% of
the votes entitled to be cast on each issue to be considered at the
special meeting.
Georgia law also contains "business combination" and "fair price" provisions
that may have the effect of delaying, deterring or preventing a change in
control of Optio. See "Description of Capital Stock--Antitakeover Provisions of
Our Articles of Incorporation, Bylaws and Georgia Law."
12
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:
- our limited operating history in the e-business market and the
uncertainty of our prospects in this area;
- fluctuations in our quarterly operating results;
- delays or losses of sales due to long sales and implementation cycles
for our products;
- the possibility of lower prices, reduced gross margins and loss of
market share due to increased competition; and
- increased demands on our resources due to continued growth.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur. You should not place undue
reliance on forward-looking statements.
USE OF PROCEEDS
The net proceeds to Optio from the sale of the 5,000,000 shares of common
stock offered by us in this offering, assuming the offering price is the
midpoint of the proposed offering range, or $9.00 per share, after deducting
offering expenses of approximately $1 million and the underwriting discounts and
commissions, will be approximately $40.9 million, assuming no exercise of the
underwriters' over-allotment option. The principal purposes of this offering are
to obtain additional capital, to create a public market for our common stock, to
facilitate future access by us to public equity markets and to provide increased
visibility and credibility in a marketplace where many of our current and
potential competitors are or will be publicly-held companies. We expect to use
the net proceeds from the offering to expand our business, including sales and
marketing expenditures, to continue our product development, for potential
future acquisitions, to repay the debt described below and for general corporate
purposes, including working capital. We expect to use approximately $1,198,863
of all net proceeds to repay indebtedness to three former shareholders incurred
in connection with the repurchase of their common stock on December 23, 1998.
This indebtedness bears interest at 7% per annum and matures on July 1, 2001; we
must repay this indebtedness pursuant to its terms and prepayment following the
closing of this offering is mandatory in accordance with the promissory notes.
See "Certain Transactions." As of the date of this prospectus, we cannot specify
with certainty all of the particular uses for the remaining net proceeds we will
have upon completion of the offering. Accordingly, our management will have
broad discretion in the application of the net proceeds.
We may, if the opportunity arises, use an unspecified portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of our business, we
expect to evaluate potential acquisitions of businesses, products or
technologies. However, we have no present understandings, commitments or
agreements with respect to any material acquisition or investment.
Pending use of the net proceeds for the above purposes, we intend to invest
these funds in short-term, interest-bearing, investment-grade securities and use
these funds for general corporate purposes.
DIVIDEND POLICY
Optio has never declared or paid any cash dividends on its capital stock. We
currently intend to retain any future earnings and do not anticipate paying any
cash dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1999.
Our capitalization is presented on an actual basis and on an adjusted basis to
reflect the sale of the shares in this offering and the repayment of
indebtedness to three former shareholders of Optio incurred in connection with
the repurchase of their common stock.
<TABLE>
<CAPTION>
OCTOBER 31, 1999,
---------------------------
AS
ACTUAL ADJUSTED
------------ -------------
<S> <C> <C>
Current portion of notes payable to related parties.................................. $ 840,000 $ 173,000
Notes payable to related parties, less current portion............................... 532,000 --
Capital lease obligations, current and long-term..................................... 93,000 93,000
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, none issued or
outstanding...................................................................... -- --
Common stock, no par value; 100,000,000 shares authorized; 11,918,640 shares issued
and outstanding; 16,918,640 shares issued and outstanding as adjusted............ 1,439,000 42,289,000
Retained earnings.................................................................. 239,000 239,000
Accumulated other comprehensive income............................................. 29,000 29,000
Unamortized stock compensation..................................................... (351,000) (351,000)
------------ -------------
Total shareholders' equity........................................................... 1,356,000 42,206,000
------------ -------------
Total capitalization................................................................. $ 2,821,000 $ 42,472,000
============ =============
</TABLE>
Upon the closing of the offering, our authorized capital will consist of
100,000,000 shares of common stock and 20,000,000 shares of preferred stock. We
expect there to be 16,918,640 shares of common stock outstanding after the
offering, which includes the adjustments described above. The outstanding shares
as of October 31, 1999 exclude 9,599,785 shares of common stock issuable upon
the exercise of outstanding stock options at a weighted average exercise price
of $0.70.
You should read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included in this prospectus.
14
<PAGE>
DILUTION
As of October 31, 1999, Optio had a net tangible book value of approximately
$898,000, or $0.08 per share of common stock. Net tangible book value per share
represents the amount of total tangible assets of Optio reduced by its total
liabilities, divided by the number of shares of common stock outstanding as of
October 31, 1999. Assuming an initial public offering price of $9.00 per share,
after giving effect to the receipt by Optio of the estimated net proceeds from
the sale of the 5 million shares of common stock offered by Optio hereby, the as
adjusted net tangible book value of Optio as of October 31, 1999 would have been
approximately $41.8 million, or $2.47 per share. This represents an immediate
increase in net tangible book value of $2.39 per share to existing shareholders
and an immediate dilution of $6.53 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $ 9.00
Net tangible book value per share as of October 31,
1999.................................................... $ 0.08
Increase per share attributable to new investors.......... 2.39
---------
As adjusted net tangible book value per share after this
offering.................................................... 2.47
---------
Dilution per share to new investors........................... $ 6.53
=========
</TABLE>
The following table sets forth as of October 31, 1999 the differences
between existing shareholders and new investors with respect to the number of
shares of common stock purchased from Optio, the total consideration paid and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 11,918,640 70% $ 717,000 2% $ 0.06
New investors.................. 5,000,000 30% 45,000,000 98% $ 9.00
------------ --------- ------------- ---------
Total........................ 16,918,640 100% $ 45,717,000 100% $ 2.70
============ ========= ============= =========
</TABLE>
Other than as noted above, the foregoing computations assume no exercise of
stock options after October 31, 1999. As of October 31, 1999, options to
purchase 9,599,785 shares of common stock were outstanding, with a weighted
average exercise price of $0.70 per share. To the extent that the outstanding
options to purchase common stock, or any options issued after October 31, 1999,
are exercised, there will be further dilution to new investors.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth our selected financial data. You should read
the selected financial data together with our financial statements and related
notes and the section of the prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
financial data as of and for the years ended January 31, 1995, 1996, 1997, 1998
and 1999 have been derived from the audited financial statements of the Company.
The statement of operations and per share data for the nine months ended
October 31, 1998 and 1999 and the balance sheet data as of October 31, 1999 were
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of results of operations. You should not rely on interim
results as being indicative of results we expect for the full year.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
OCTOBER
FISCAL YEAR ENDED JANUARY 31, 31,
----------------------------------------------------- ---------
1995 1996 1997 1998 1999 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees.......................................... $ 3,367 $ 4,806 $ 5,802 $ 9,150 $ 12,014 $ 8,081
Services, maintenance and other....................... 1,638 1984 3,200 4,419 7,525 4,999
--------- --------- --------- --------- --------- ---------
Total revenue....................................... 5,005 6,790 9,002 13,569 19,539 13,080
Costs of revenue:
License fees.......................................... 469 589 642 1,088 913 574
Services, maintenance and other....................... 815 981 1,814 2,214 4,089 2,719
--------- --------- --------- --------- --------- ---------
Total cost of revenue............................... 1,284 1,570 2,456 3,302 5,002 3,293
--------- --------- --------- --------- --------- ---------
Gross profit............................................ 3,721 5,220 6,546 10,267 14,537 9,787
Operating expenses:
Sales and marketing................................... 2,067 2,470 3,674 5,901 7,534 5,004
Research and development.............................. 586 790 891 1,551 2,530 1,713
General and administrative............................ 727 1,175 1,143 1,886 2,884 1,654
Depreciation and amortization......................... 715 761 144 806 941 665
--------- --------- --------- --------- --------- ---------
Total operating expenses............................ 4,095 5,196 5,852 10,144 13,889 9,036
--------- --------- --------- --------- --------- ---------
Income (loss) from operations........................... (374) 24 694 123 648 751
Other income (expense):
Interest income....................................... 24 76 71 32 104 64
Interest expense...................................... (44) (42) (42) (77) (257) (45)
Other................................................. -- -- -- 8 (46) 9
--------- --------- --------- --------- --------- ---------
20 34 29 (37) (199) 28
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....................... (394) 58 723 86 449 779
Income tax expense (benefit)............................ (203) 48 304 64 99 181
--------- --------- --------- --------- --------- ---------
Net income (loss)....................................... $ (191) $ 10 $ 419 $ 22 $ 350 $ 598
========= ========= ========= ========= ========= =========
Net income (loss) per share--basic...................... $ (0.02) $ 0.00 $ 0.03 $ 0.00 $ 0.03 $ 0.05
Net income (loss) per share--diluted.................... $ (0.02) $ 0.00 $ 0.03 $ 0.00 $ 0.02 $ 0.04
Weighted average shares outstanding--basic.............. 12,095 12,095 12,380 12,891 12,825 12,928
Weighted average shares outstanding--diluted............ 12,095 14,991 15,478 16,424 17,305 16,753
<CAPTION>
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees.......................................... $ 11,948
Services, maintenance and other....................... 11,254
---------
Total revenue....................................... 23,202
Costs of revenue:
License fees.......................................... 648
Services, maintenance and other....................... 5,763
---------
Total cost of revenue............................... 6,411
---------
Gross profit............................................ 16,791
Operating expenses:
Sales and marketing................................... 8,434
Research and development.............................. 2,529
General and administrative............................ 2,586
Depreciation and amortization......................... 892
---------
Total operating expenses............................ 14,441
---------
Income (loss) from operations........................... 2,350
Other income (expense):
Interest income....................................... 86
Interest expense...................................... (96)
Other................................................. (1)
---------
(11)
---------
Income (loss) before income taxes....................... 2,339
Income tax expense (benefit)............................ 1,029
---------
Net income (loss)....................................... $ 1,310
=========
Net income (loss) per share--basic...................... $ 0.11
Net income (loss) per share--diluted.................... $ 0.07
Weighted average shares outstanding--basic.............. 11,919
Weighted average shares outstanding--diluted............ 19,347
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31,
----------------------------------------------------- AS OF OCTOBER 31,
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 421 $ 1,751 $ 1,646 $ 1,507 $ 1,129 $ 1,286
Working capital (deficiency)..................... 609 645 880 (152) (1,650) (857)
Total assets..................................... 2,623 4,226 4,905 6,978 10,738 12,460
Long-term debt, net of current portion........... 364 254 292 246 1,208 578
Total shareholders' equity....................... 692 702 1,320 1,624 9 1,356
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of the factors set
forth in "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We were incorporated in Georgia in 1981 as Technology Marketing, Inc., and
changed our name to Xpoint Corporation in 1982. For most of our operating
history, our primary business consisted of providing software and services that
addressed organizations' need for customized information delivered via print,
fax and e-mail to users of enterprise and healthcare applications. We have been
profitable since 1996. We changed our name to Optio Software, Inc. in 1997. Over
the past year, we have invested in all areas of our business with a particular
emphasis on sales, marketing and research and development. To date, most of our
revenue has been derived from software that was not originally designed to
facilitate e-business, but rather to deliver customized information by fax,
printer and e-mail. From March to May 1999, we began expanding our business plan
to develop new software and services that would help our customers move from
paper-intensive commerce to e-business. In June 1999, we tested our first
e-business product, Optio e.ComPresent, which was then released in September
1999.
We market and sell our software primarily through our direct sales force and
certified resellers. As of October 31, 1999, we had 46 sales personnel and
approximately 100 resellers. We also offer consulting services which provide our
customers with implementation assistance and training. In order to better
service our customers and support the growth of our consulting business, we have
established the Optio Alliance Program. This program certifies independent
consulting companies that help deliver our consulting services to our customer
base. As of October 31, 1999, we had over 3,800 customers worldwide using our
software and services. No single customer accounted for 10% or more of our
revenue for the nine months ended October 31, 1999, or for the years ended
January 31, 1999, 1998 or 1997. Our revenue was $23.2 million for the nine
months ended October 31, 1999, and $19.5 million, $13.6 million and
$9.0 million for the years ended January 31, 1999, 1998 and 1997, respectively.
Our growth has, in part, been supplemented by acquisitions. On February 28,
1997 we acquired the assets of Devcom Mid-America, Inc. This acquisition
strengthened our software offerings by providing us with a server-based fax
solution. On August 26, 1998 we acquired the stock of Competence Software Europe
S.A., which prior to the acquisition was a distributor of our software. This
acquisition provided us entry into European markets. Both acquisitions were
accounted for using the purchase method of accounting and the associated
goodwill from these acquisitions is being amortized over three years. In May
1999 we entered the Asia Pacific market by establishing a subsidiary in
Australia. By opening this office and acquiring Competence Software Europe,
S.A., we further enhanced our presence in the worldwide marketplace.
REVENUE RECOGNITION. We derive our revenue from the sales of software
licenses, services and maintenance. We typically recognize license fee revenue
on delivery of our software when:
- we have a signed, noncancellable license agreement with the customer;
- the license fee is fixed and determinable;
- we can objectively allocate the total fee among all elements of the
arrangement; and
- the collection of the license fee is probable.
Revenue from services, maintenance and other includes fees for consulting,
implementation, training and technical support. We recognize revenue from
services as they are performed. We
17
<PAGE>
recognize revenue from maintenance ratably over the term of our contract with
the customer, typically one year.
COSTS OF REVENUE. Costs of revenue from license fees consist of costs
relating to the manufacturing, packaging and distribution of software and
related documentation and third party license and referral fees. Costs of
revenue from services, maintenance and other consists of personnel and direct
expenses relating to the cost of providing consulting, implementation, training,
technical support and allocable overhead. Costs of revenue from services,
maintenance and other will vary depending on the mix of services we provide
among consulting, implementation, training and support.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
sales and marketing personnel compensation and benefits, direct expenditures
such as travel, trade shows, direct mail, online marketing, advertising and
promotion and allocable overhead.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries, benefits, equipment and allocable overhead for software
engineers, pre-production quality assurance personnel, program managers and
technical writers. Research and development expenses also include expenses
associated with independent contractors we use to augment our research and
development efforts. Research and development expenses relate to activities
performed prior to commercial production of a product. To date we have not
capitalized any development costs because our short development cycle has
historically resulted in only immaterial amounts of development costs that were
eligible for capitalization.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and human resource functions. General and administrative expenses
also include legal, other professional fees and allocable overhead.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist of depreciation of our property and equipment and amortization of
intangible assets related to acquisitions.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded deferred
compensation of $406,000 during the nine months ended October 31, 1999 in
connection with grants of employee share purchase options with exercise prices
lower than the deemed fair market value of our common shares on the date of
grant. We are amortizing this amount over the period in which the options vest,
generally three to four years. We recognized $55,000 in compensation expense in
the nine months ended October 31, 1999 and currently expect to recognize
$86,000, $125,000, $125,000, $65,000 and $5,000 in the years ending January 31,
2000, 2001, 2002, 2003 and 2004, respectively.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from our statements of
operations as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------------- ------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
License fees................................................ 64% 67% 61% 62% 52%
Services, maintenance and other............................. 36 33 39 38 48
--------- --------- --------- --------- ---------
Total revenue........................................... 100 100 100 100 100
Costs of revenue:
License fees................................................ 7 8 5 4 3
Services, maintenance and other............................. 20 16 21 21 25
--------- --------- --------- --------- ---------
Total cost of revenue................................... 27 24 26 25 28
--------- --------- --------- --------- ---------
Gross profit.................................................... 73 76 74 75 72
Operating expenses:
Sales and marketing......................................... 41 44 38 38 36
Research and development.................................... 10 11 13 13 11
General and administrative.................................. 13 14 15 13 11
Depreciation and amortization............................... 1 6 5 5 4
--------- --------- --------- --------- ---------
Total operating expenses................................ 65 75 71 69 62
--------- --------- --------- --------- ---------
Income from operations.......................................... 8 1 3 6 10
Interest and other income....................................... -- -- (1) -- --
--------- --------- --------- --------- ---------
Income before income taxes...................................... 8 1 2 6 10
Income taxes.................................................... 3 1 -- 2 4
--------- --------- --------- --------- ---------
Net income...................................................... 5% --% 2% 4% 6%
========= ========= ========= ========= =========
</TABLE>
NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998
REVENUE
Total revenue increased 77% to $23.2 million for the nine months ended
October 31, 1999 from $13.1 million for the nine months ended October 31, 1998.
License fee revenue increased 48% to $11.9 million for the nine months ended
October 31, 1999 from $8.1 million for the nine months ended October 31, 1998.
The increase in license fee revenue was due to growing market acceptance of our
software. Revenue from international operations was $3.1 million and
approximately $411,000 for the nine months ended October 31, 1999 and 1998,
respectively. License fee revenue represented 52% and 62% of total revenue for
the nine months ended October 31, 1999 and 1998, respectively.
Revenue from services, maintenance and other increased 125% to
$11.3 million for the nine months ended October 31, 1999 from $5.0 million for
the nine months ended October 31, 1998. This increase was due to an increase of
$5.3 million in revenue from service engagements and an increase of $1.0 million
in revenue from maintenance contracts. The increase in services and maintenance
was due to increased sales of software licenses to our customers. Services
revenue constituted 33% and 18% of total revenue for the nine month periods
ended October 31, 1999, and 1998, respectively. The increase in services revenue
as a percentage of total revenue in the nine months ended October 31, 1999 was
due to an increased focus by management on the marketing of services.
Maintenance revenue
19
<PAGE>
constituted 15% and 20% of total revenue for the nine month periods ended
October 31, 1999, and 1998, respectively.
COSTS OF REVENUE
Total costs of revenue increased 95% to $6.4 million for the nine months
ended October 31, 1999 from $3.3 million for the nine months ended October 31,
1998. Total costs of revenue was 28% and 25% of total revenue for the nine
months ended October 31, 1999 and 1998, respectively.
Costs of revenue from license fees increased 13% to $648,000 for the nine
months ended October 31, 1999 from $574,000 for the nine months ended
October 31, 1998. This increase was primarily due to referral fees paid to third
party vendors which was $440,000 and $363,000 for the nine months ended
October 31, 1999 and 1998, respectively. Costs of revenue from license fees
decreased as a percentage of revenue from license fees to 5% for the nine months
ended October 31, 1999 from 7% for the nine months ended October 31, 1998.
Costs of revenue from services and maintenance increased 112% to
$5.8 million for the nine months October 31, 1999 from $2.7 million for the nine
months ended October 31, 1998. The increase in cost of service, maintenance and
other revenue was due to an increase in the number of personnel providing
consulting, implementation, training and technical support to customers. Costs
of revenue from services and maintenance decreased as a percentage of revenue
from services and maintenance to 51% for the nine months ended October 31, 1999
from 54% for the nine months ended October 31, 1998.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 69% to
$8.4 million for the nine months ended October 31, 1999 from $5.0 million for
the nine months ended October 31, 1998. The growth in sales and marketing
expenses was due to additional hiring as we expanded both our North American and
international operations. Sales and marketing expenses decreased as a percentage
of revenue to 36% for the nine months ended October 31, 1999 from 38% for the
nine months ended October 31, 1998. We expect that sales and marketing expenses
will continue to increase in absolute dollars as we continue to expand these
operations.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 48%
to $2.5 million for the nine months ended October 31, 1999 from $1.7 million for
the nine months ended October 31, 1998. The growth in research and development
expenses was due to additional hiring of research and development personnel to
support our e-business software development efforts. Research and development
expenses decreased as a percentage of total revenue to 11% for the nine months
ended October 31, 1999 from 13% for the nine months ended October 31, 1998. We
expect to continue to significantly increase research and development
expenditures with a particular emphasis on projects related to expanding our
e-business effort.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
56% to $2.6 million from $1.7 million for the nine months ended October 31, 1999
and 1998, respectively. The growth in general and administrative expenses was
the result of increased costs associated with the growth of our business,
including increased hiring of administrative personnel. General and
administrative expenses decreased as a percentage of total revenue to 11% for
the nine months ended October 31, 1999 from 13% for the nine months ended
October 31, 1998. We expect general and administrative expenses will increase in
absolute dollars as we continue to expand our business and begin to increase our
administrative capability domestically as well as internationally.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 34% to $892,000 for the nine months ended October 31, 1999 from
$665,000 for the nine months ended
20
<PAGE>
October 31, 1998. Depreciation and amortization expenses increased principally
due to additional intangible asset amortization of $68,000 from the acquisition
of Competence Software, S.A. and additional depreciation of $159,000 from
capital expenditures. Depreciation and amortization decreased as a percentage of
total revenue to 4% for the nine months ended October 31, 1999 from 5% for the
nine months ended October 31, 1998.
INTEREST AND OTHER INCOME (LOSS)
Interest and other income (loss) consists of earnings on cash and cash
equivalents net of interest expense, foreign exchange gains and losses, and
gains and losses on sale of property and equipment. Interest and other income
(loss) declined to a loss of $11,000 for the nine months ended October 31, 1999
from income of $28,000 for the nine months ended October 31, 1998. This decline
was due primarily to interest expense of $74,000 related to debt financing of
$3.3 million on a stock repurchase in December 1998. We paid $1.7 million on
January 5, 1999 and with a remaining balance to be paid over ten quarters
beginning April 1999. The balance of this indebtedness will be repaid with a
portion of the proceeds of this offering. See "Use of Proceeds."
INCOME TAXES
Income tax expense increased to $1,029,000 for the nine months ended
October 31, 1999 from $181,000 for the nine months ended October 31, 1998. The
effective tax rates for the nine months ended October 31, 1999 and 1998 were 44%
and 23%, respectively. Income taxes for the nine months ended October 31, 1999
have been calculated at the estimated effective tax rate for the year ending
January 31, 2000. The 23% effective tax rate for the nine months ended
October 31, 1998 is principally the result of the benefit of a relatively high
level of research and development credits compared to the level of pretax
income.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
REVENUE
Total revenue increased 44% to $19.5 million in 1999 from $13.6 million in
1998, and 51% to $13.6 million in 1998 from $9.0 million in 1997.
License fee revenue increased 31% to $12.0 million in 1999 from
$9.2 million in 1998, and 58% to $9.2 million in 1998 from $5.8 million in 1997.
License fee revenue grew significantly due to growing market acceptance of our
software, continued expansion of our sales and marketing organization, the
introduction of our fax software and our expansion into international markets
through acquisitions. License fee revenue constituted 61%, 67% and 64% of total
revenue in 1999, 1998, and 1997, respectively.
Revenue from services, maintenance and other increased 70% to $7.5 million
in 1999 from $4.4 million in 1998, and 38% to $4.4 million in 1998 from
$3.2 million in 1997. The increase in revenues from service, maintenance and
other is due to increased sales of software licenses to our customers. Services
revenue constituted 19%, 16% and 15% of total revenue in 1999, 1998 and 1997,
respectively. Maintenance revenue constituted 19%, 15% and 17% of total revenue
in 1999, 1998, and 1997, respectively.
COSTS OF REVENUE
Costs of revenue from license fees decreased 16% to $913,000 in 1999 from
$1.1 million in 1998, and increased 69% to $1.1 million in 1998 from $642,000 in
1997. The decrease in costs of revenue from license fees during 1999 is
primarily attributable to a decrease in the total referral fees paid to third
party vendors to $602,000 in 1999 from $642,000 in 1998, as we received a higher
percentage of referrals from third party vendors entitled to referral fees at
lower rates. We do not believe the
21
<PAGE>
decrease in cost of revenues in 1999 is a continuing trend. The growth in costs
of revenue from license fees during 1998 is primarily attributable to increases
in the total referral fees paid to third party vendors in the amount of $826,000
in 1998 from $541,000 in 1997. Costs of revenue from license fees represented 8%
of total license revenue in 1999, 12% in 1998 and 11% in 1997.
Costs of revenue from services and maintenance increased 85% to
$4.1 million in 1999 from $2.2 million in 1998, and increased 22% to
$2.2 million in 1998 from $1.8 million in 1997. The increase was due to the
increase in the number of personnel providing consulting, training and technical
support to customers. Costs of revenue from services and maintenance represented
54%, 50% and 57% of total service and maintenance revenue in 1999, 1998 and
1997, respectively.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 28% to
$7.5 million in 1999 from $5.9 million in 1998, and increased 61% to
$5.9 million in 1998 from $3.7 million in 1997. This increase in sales and
marketing expenses in 1999 was due to additional hiring as we expanded our sales
and marketing operations. The increase in sales and marketing expenses in 1998
was principally due to an increase of $765,000 in compensation expenses, an
increase of $456,000 in sales commissions and an increase of $413,000 in
advertising expenditures. The associated headcount in sales and marketing was
60, 46 and 43 for the years 1999, 1998 and 1997, respectively. Sales and
marketing expenses represented 38% of total revenue in 1999, 44% in 1998 and 41%
in 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 63%
to $2.5 million in 1999 from $1.6 million in 1998, and increased 74% to
$1.6 million in 1998 from $891,000 in 1997. The growth in research and
development expenses was due to additional hiring of research and development
personnel. Research and development expenses represented 13%, 11% and 10% of
total revenue in 1999, 1998 and 1997, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
53% to $2.9 million in 1999 from $1.9 million in 1998, and increased 65% to
$1.9 million in 1998 from $1.1 million in 1997. The increase in general and
administrative expenses was the result of increased costs associated with the
growth of our business during these periods, including increased hiring of
administrative personnel, as well as a $700,000 non-recurring charge in 1999 due
to a stock repurchase. General and administrative expenses represented 15%, 14%
and 13% of total revenue in 1999, 1998 and 1997, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 17% to $941,000 in 1999 from $806,000 in 1998, and increased 460% to
$806,000 in 1998 from $144,000 in 1997. The increase was principally due to an
increase of $49,000 in 1999 and $435,000 in 1998 in the amortization of
intangible assets from acquisitions and an increase of $86,000 in 1999 and
$227,000 in 1998 in depreciation due to increased capital expenditures.
Depreciation and amortization expenses represented 5%, 6% and 1% of total
revenue in 1999, 1998 and 1997, respectively.
INTEREST AND OTHER INCOME (LOSS)
Interest and other income declined to a loss of $199,000 in 1999 from a loss
of $37,000 in 1998 which declined from a net gain of $29,000 in 1997. The
principal reason for the decline was $173,000 of additional interest expense
associated with indebtedness relating to our stock repurchase in January 1999.
INCOME TAXES
Income tax expense increased 55% to $99,000 in 1999 from $64,000 in 1998,
and decreased 79% to $64,000 in 1998 from $304,000 in 1997. The effective tax
rates for the years ended 1999, 1998 and 1997 were 22%, 74% and 42%,
respectively. The 22% effective tax rate for fiscal 1999 is principally the
result of the benefit of a relatively high level of research and development
credits compared to the level of pretax income. The 74% effective tax rate for
fiscal 1998 is principally the result of the impact of non-deductible expenses
in relation to the low level of pretax income.
22
<PAGE>
QUARTERLY FINANCIAL RESULTS
The following tables set forth the unaudited consolidated statements of
operations data for the seven most recent quarters, as well as this data
expressed as a percentage of total revenue for the quarters indicated. This data
has been derived from unaudited interim consolidated financial statements that,
in our opinion, have been prepared on a basis consistent with the Consolidated
Financial Statements contained elsewhere in this prospectus. We believe that
these statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with the Consolidated Financial Statements and the related notes.
This data may assist you in assessing the trends, including seasonality,
affecting our operating results and the historical quarterly fluctuations of
those results. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1998 1998 1998 1999 1999 1999 1999
----------- --------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenue:
License fees.............................. $ 2,409 $ 2,825 $ 2,847 $ 3,933 $ 3,358 $ 4,351 $ 4,239
Services, maintenance and other........... 1,279 1,607 2,113 2,526 3,026 3,822 4,406
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................... 3,688 4,432 4,960 6,459 6,384 8,173 8,645
--------- --------- --------- --------- --------- --------- ---------
Costs of revenue:
License fees.............................. 204 222 148 339 195 261 192
Services, maintenance and other........... 821 869 1,029 1,370 1,524 1,996 2,243
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue....................... 1,025 1,091 1,177 1,709 1,719 2,257 2,435
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 2,663 3,341 3,783 4,750 4,665 5,916 6,210
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing....................... 1,511 1,603 1,890 2,530 2,465 2,778 3,191
Research and development.................. 497 520 696 817 826 819 884
General and administrative................ 545 573 536 1,230 900 845 841
Depreciation and amortization............. 208 209 248 276 287 297 308
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................ 2,761 2,905 3,370 4,853 4,478 4,739 5,224
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............... (98) 436 413 (103) 187 1,177 986
Other income (expense), net................. 8 -- 20 (227) (6) (9) 4
Income tax expense (benefit)................ (22) 105 98 (82) 68 508 453
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ (68) $ 331 $ 335 $ (248) $ 113 $ 660 $ 537
========= ========= ========= ========= ========= ========= =========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1998 1998 1998 1999 1999 1999
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUE:
Revenue:
License fees............................... 65% 64% 57% 61% 53% 53%
Services, maintenance and other............ 35 36 43 39 47 47
--------- --------- --------- --------- --------- ---------
Total revenue............................ 100 100 100 100 100 100
Costs of revenue:
License fees............................... 6 5 3 5 3 3
Services, maintenance and other............ 22 20 21 21 24 25
--------- --------- --------- --------- --------- ---------
Total cost of revenue........................ 28 25 24 26 27 28
--------- --------- --------- --------- --------- ---------
Gross profit................................. 72 75 76 74 73 72
Operating expenses:
Sales and marketing........................ 41 36 38 39 38 34
Research and development................... 13 11 14 13 13 10
General and administrative................. 15 13 11 19 14 10
Depreciation and amortization.............. 6 5 5 4 5 4
--------- --------- --------- --------- --------- ---------
Total operating expenses................. 75 65 68 75 70 58
--------- --------- --------- --------- --------- ---------
Income (loss) from operations................ (3) 10 8 (1) 3 14
Other income (expense), net.................. -- -- -- (3) -- --
Income tax expense (benefit)................. (1) 2 2 (1) 1 6
--------- --------- --------- --------- --------- ---------
Net income (loss)............................ (2)% 8% 6% (3)% 2% 8%
========= ========= ========= ========= ========= =========
<CAPTION>
OCTOBER 31,
1999
---------------
<S> <C>
PERCENTAGE OF TOTAL REVENUE:
Revenue:
License fees............................... 49%
Services, maintenance and other............ 51
---------
Total revenue............................ 100
Costs of revenue:
License fees............................... 2
Services, maintenance and other............ 26
---------
Total cost of revenue........................ 28
---------
Gross profit................................. 72
Operating expenses:
Sales and marketing........................ 37
Research and development................... 10
General and administrative................. 10
Depreciation and amortization.............. 4
---------
Total operating expenses................. 61
---------
Income (loss) from operations................ 11
Other income (expense), net.................. --
Income tax expense (benefit)................. 5
---------
Net income (loss)............................ 6%
=========
</TABLE>
We have experienced year to year revenue growth with seasonal fluctuations
in quarterly revenue. During our fourth fiscal quarter ended January 31, our
revenue has typically increased as customers on a calendar fiscal year complete
their capital spending plans and as our sales personnel pursue their annual
revenue quotas. As a result of this seasonal peak in revenues in our fourth
quarter, our revenues generally decline in the subsequent quarter ended
April 30.
Our quarterly operating results have fluctuated in the past, and will
continue to fluctuate in the future, as a result of a number of factors, many of
which are outside our control. Some of these factors include:
- variations in market acceptance of and demand for our software;
- the size and timing of our customer orders;
- increased expenses, whether related to sales and marketing, product
development or administration;
- delays in introducing new software or software enhancements;
- new software introductions or changes in pricing policies by our
competitors;
- costs related to acquisitions of technologies or businesses;
- the timing of releases of new versions of third-party software products
that our products support; and
- the amount and timing of expenditures related to expansion of our
operations.
Revenues increased during the quarter ended January 31, 1999 due to the
Company's typical fourth quarter revenue increase, as described above. The
increase in general and administrative expenses during the quarter ended
January 31, 1999 is due to a $700,000 non-recurring charge that resulted from a
stock repurchase. The increase in interest expense during the quarter ended
January 31, 1999 is due to a $173,000 charge that also resulted from the stock
repurchase.
24
<PAGE>
We expect that the quarterly fluctuations we have experienced in the past
will continue in the future. See "Risk Factors--Our quarterly operating results
may fluctuate in future periods; as a result, we may fail to meet expectations
of investors and analysts and our stock price may decline."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have primarily financed our operations and met our
capital expenditure requirements through cash flows from operations and short
and long-term borrowings. At October 31, 1999 and 1998 we had $1.3 million and
$2.2 million, respectively, of cash and cash equivalents. For the years ended
January 31, 1999, 1998 and 1997 the cash and cash equivalents were
$1.1 million, $1.5 million and $1.6 million.
Cash flows provided by operating activities were $1.4 million and
$2.0 million for the nine months ended October 31, 1999 and 1998, respectively.
The decrease for the nine months ended October 31, 1999 was due to a return of
accounts receivable balances to levels closer to historical levels after an
unusual level of collections and prepayments during the nine months ended
October 31, 1998. Cash flows provided by operating activities were
$3.1 million, $1.1 million and $209,000 for the years ended January 31, 1999,
1998 and 1997, respectively. The increases year to year resulted from the
significant increases in total revenue during these periods.
Cash flows used in investing activities for the nine months ended
October 31, 1999 and 1998 were $576,000 and $1.1 million, respectively. Cash
flows used in investing activities for the fiscal years ended January 31, 1999,
1998 and 1997 were $1.5 million, $578,000 and $419,000, respectively. These
capital expenditures related primarily to the acquisition of computer software
and equipment as well as furniture and fixtures used to support our growing
employee base and the purchase and sale of marketable securities.
For the nine months ended October 31, 1999 and 1998, the net cash used in
financing activities was $700,000 and $188,000 respectively. Net cash used in
financing activities for the years ended January 31, 1999 and 1998 was
$2.0 million and $710,000, respectively, principally to repurchase stock and
repay indebtedness. In the year ended January 31, 1997, net cash provided from
financing activities was $105,000.
We have notes payable to related parties as of October 31, 1999 amounting to
$1,372,000, of which $840,000 is payable by October 31, 2000 and the remaining
$532,000 is payable by August 31, 2001. The notes bear interest at rates ranging
from 5% to 10%.
We have a $2,000,000 line of credit from Premier Lending Corporation at a
rate of prime plus 1% if the average daily loan balance during the month is
greater than $1 million, and prime plus 2% if the average daily loan balance
during the month is less than $1 million. At October 31, 1999, there was no
outstanding balance under this line of credit. None of our credit agreements
contain any material restrictions on our ability to make expenditures or
dividends or require us to maintain any material financial ratios.
We signed a lease for a new principal facility in March 1999. Lease payments
under the agreement commence in November 1999 and continue for eighty-six
months, resulting in aggregate lease expenses of approximately $300,000 per
quarter. We have commitments for capital expenditures in 1999 of less than
$100,000 related to the establishment of this facility, which we moved into in
November 1999.
As of October 31, 1999, future operating lease commitments for office space
and equipment, excluding the lease of our principal facility, were $102,000 in
the remainder of fiscal 2000, $384,000 in fiscal 2001, $276,000 in fiscal 2002,
$103,000 in fiscal 2003, $101,000 in fiscal 2004 and $75,000 in fiscal 2005.
As of October 31, 1999, future capital lease commitments for office
equipment were $16,000 in the remainder of fiscal 2000, $53,000 in fiscal 2001,
and $38,000 in fiscal 2002.
We believe that our existing liquidity and capital resources, including the
proceeds resulting from the sale of our common stock in this offering, together
with cash generated from operations during
25
<PAGE>
fiscal 1999, will be sufficient to satisfy our cash requirements for at least
the next twelve months. To the extent that these amounts are insufficient, we
will be required to raise additional funds through equity or debt financing.
There can be no assurance that we will be able to raise additional funds on
favorable terms, or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
Prior to February 1, 1998, we recognized revenue in accordance with the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 91-1, SOFTWARE REVENUE RECOGNITION ("SOP 91-1"). In October 1997 the
AICPA issued Statement of Position 97-2, SOFTWARE REVENUE RECOGNITION ("SOP
97-2"), which superseded SOP 91-1, to clarify guidance on applying generally
accepted accounting principles to software transactions and to provide guidance
on when revenue should be recognized and in what amounts for licensing, selling,
leasing, or otherwise marketing computer software. Effective February 1, 1998,
we adopted SOP 97-2, as amended by Statement of Position 98-4, "Deferral of the
Effective Date of Certain Provisions of SOP 97-2. The adoption of this standard
did not have a material effect on our methods of recognizing revenue.
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," which
delayed for one year the effective date of the provisions within SOP 97-2 that
set forth the definition of "vendor-specific objective evidence" of fair value.
In December 1998, the AICPA issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 extended the effective date to apply the definition of
"vendor-specific objective evidence" of fair value under SOP 97-2 through fiscal
years beginning on or before March 15, 1999 and introduced the requirement to
recognize revenue using the "residual method" to value delivered elements of
multiple-element contracts under certain circumstances. The provisions of
SOP 98-9 will be adopted by Optio effective February 1, 2000. We are currently
evaluating the impact of adopting SOP 98-9 but does not expect the adoption of
this standard to have a material effect on the Company's methods of recognizing
revenue.
As of February 1, 1998, we adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME ("SFAS 130"). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on our net income or shareholders' equity
(deficit). SFAS 130 requires unrealized gains or losses on our
available-for-sale securities and the foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity
(deficit), to be included in other comprehensive income. The consolidated
financial statements for the years ended January 31, 1997 and 1998 have been
reclassified to conform to the requirements of SFAS 130.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
("SFAS 131"). We adopted SFAS 131 effective February 1, 1998. We have made the
financial statement disclosures necessary to conform to SFAS 131, which has had
no impact on our financial position or results of operations.
In 1998, the AICPA issued Statement of Position 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPMENT OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). We adopted SOP 98-1 effective February 1, 1999. The adoption of this
standard did not have a material effect on our financial position or results of
operations.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), which
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure these instruments
at fair value. SFAS 133 is expected to be effective for our fiscal year
beginning February 1, 2001. We are is currently evaluating what impact, if any,
SFAS 133 may have on its future consolidated financial statements.
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IMPACT OF YEAR 2000 COMPUTER ISSUES
Software that records only the last two digits of the calendar year may not
be able to distinguish whether "00" means 1900 or 2000. This may result in
software failures or the creation of erroneous results. Year 2000-related errors
or defects that affect the operation of our software could result in:
- delay or loss of revenue;
- cancellation of customer contracts;
- diversion of development resources;
- damage to our reputation;
- increased customer support and warranty costs; and
- litigation costs.
We also face risks relating to the potential year 2000 non-compliance with
institutions that provide services to us, merchants processing electronic
transfer of funds, the FedWire system governing electronic funds transfers and
the Federal Reserve system itself. We believe that based on our assessments to
date, material year 2000 issues that we have identified that are within our
control can be corrected. The failure of Optio or third party hardware or
software that is used by Optio or in conjunction with our products to be year
2000 compliant could harm Optio's financial position and results of operations.
OPTIO'S SOFTWARE.
We designed our software to be year 2000 compliant. Year 2000 remediation
efforts to Optio's software were minor due to Optio's awareness of year 2000
issues when our products were updated in October 1998. We tested our software in
test environments intended to emulate a year 2000 environment. Testing was
performed on the century date change as well as other critical date rollovers
such as leap year using significant dates both before and after January 1, 2000.
No significant problems were detected as a result of this testing.
Success of our Year 2000 compliance efforts may also depend on the success
of our customers in dealing with their Year 2000 issues. Our software is
generally integrated into enterprise systems involving sophisticated hardware
and complex software products, which may not be Year 2000 compliant. In
addition, third party applications in which our software is embedded, or for
which our software is separately licensed, may not comply with Year 2000
requirements, which may have an adverse impact on demand for our software. In
some cases even earlier Year 2000 compliant versions of our software, while
compatible with earlier, non-Year 2000 compliant versions of other software
products with which our software is integrated, are not compatible with more
recent Year 2000 compliant versions of other software products with which our
software is integrated. While we do not believe we have any obligation under
these circumstances because the older versions of our software were Year 2000
compliant, given that these customers are using older versions of our software,
we can not assure you that we will not be subject to claims or complaints by our
customers.
YEAR 2000 INTERNAL EFFORTS AND ISSUES.
Our year 2000 project team has completed corporate-wide inventory of Optio
internal applications and system software and of our computers. We have upgraded
hardware and software deemed vital to our on-going business by the year 2000
project team to versions or releases identified by their vendors as year 2000
ready or compliant; implemented computer code changes for non-critical issues
not affecting year 2000 compliance; and completed remediation of identified year
2000 issues in "mission critical" systems or systems that are vital to
successful continuance of core business activities. We have not incurred
significant incremental costs in order to comply with Year 2000 requirements for
our products or internal systems, and we do not believe that we will incur
significant incremental costs in the foreseeable future.
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We have completed our assessment of all relevant systems and remediation for
all mission critical and core business systems. We also believe that third
parties that integrate our products with theirs have addressed any material Year
2000 issues which might harm our business, but we cannot assure you of this
fact. However we believe that it is not possible to determine with complete
certainty that all year 2000 problems will occur or the severity, duration or
financial consequences of these failures. As a result we expect that the
following worst case scenarios could occur:
- A significant number of operational inconveniences and inefficiencies
for Optio, our services and our clients may divert our time and
attention and financial and human resources from our ordinary business
activities; and
- A number of serious system failures that may require significant
efforts by us to prevent or alleviate material business disruptions.
CONTINGENCY AND BUSINESS CONTINUITY PLANNING.
We have identified the mission critical functions for our internal systems
and have completed a contingency plan for unanticipated Year 2000 problems that
arise with respect to those functions. This contingency plan includes the
following components.
- Our internal information technology staff will be on alert during the
critical period of December 1999 and January 2000 to address any Year
2000 issues we encounter.
- We intend to coordinate with our principal hardware and software
vendors so we will know where to get help if our internal systems
experience Year 2000 problems we cannot handle ourselves.
- We plan to be prepared to shift to manual processing if key automated
systems, such as our financial and accounting systems, should fail.
- We will be continuing to test our internal systems for Year 2000 issues
and expect to update our contingency plan to reflect the results of
these tests.
Despite the measures we are taking, we cannot assure you that Year 2000
issues will not be discovered in our software or internal software systems. If
Year 2000 issues are discovered, we cannot assure you that our contingency plan
will be adequate to deal with them effectively, or that the costs of making our
software and systems Year 2000 ready will not have a material adverse effect on
our business, operating results and financial condition. Although we have not
been a party to any litigation or arbitration proceeding to date involving our
software or services and related to Year 2000 compliance issues, there can be no
assurance that we will not in the future be required to defend our software or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, would harm our business.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our services to customers primarily in the United States and, to
a lesser extent, in Europe and elsewhere throughout the world. As a result, our
financial results could be affected by factors, such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. All
sales are currently made in both U.S. dollars and local currencies. A
strengthening of the U.S. dollar or the weakening of these local currencies
could make our products less competitive in foreign markets. Our interest income
and expense is sensitive to changes in the general level of U.S. interest rates.
Based on our cash equivalents balance and the nature of our outstanding debt, we
believe our exposure to interest rate risk is not material. The Company's
available for sale marketable securities are carried at fair value and subject
to the risks of general market fluctuations.
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BUSINESS
OVERVIEW
We are a provider of software that customizes and delivers information to
meet the business needs of an organization. Historically, our software delivered
this customized information by fax, printer and e-mail. Recently, we released
our e-business software, which helps organizations move beyond the inherent
limitations of paper-intensive commerce such as high cost, inflexibility and
limited delivery options and take advantage of the connective power of the
Internet to conduct business more effectively. Using the Internet to conduct
business is also known as e-business and includes the ability to publish
business information to the Internet or exchange it with customers and suppliers
over the Internet to automate the buying and selling of goods and services.
Neither of these abilities are generally possible using faxes, printers or
e-mail. Information from a wide range of enterprise applications, databases and
files is monitored and analyzed by our software in real-time, customized
according to the business needs of an organization's customers, suppliers and
partners and then delivered to the appropriate destination. These destinations
support a variety of business purposes and range from the Internet, wireless
devices and other information systems to printers, faxes and e-mail. Our
software provides a comprehensive, cost-effective solution for organizations
that need to enhance the benefits of their investments in existing information
systems while taking advantage of the opportunities presented by e-business.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ELECTRONIC BUSINESS
Organizations are constantly seeking ways to use information to operate more
productively and cost-effectively. To achieve these objectives, organizations
must deliver focused, business ready information derived from a multitude of
sources across the extended enterprise which includes employees, customers,
suppliers and strategic partners. Competitive pressures have created a need for
increasingly sophisticated and time-sensitive methods of information delivery
both inside and outside of the enterprise. A growing number of organizations are
using the Internet to compete more effectively and conduct business
electronically. As a result, e-business has become critical for nearly every
organization seeking to establish and maintain a competitive advantage.
In embracing e-business, organizations are attempting to maximize the value
of their business processes by using the Internet to conduct business
electronically and reach a large number of geographically dispersed users across
the extended enterprise. Some examples of e-business applications include the
electronic distribution of information related to the procurement of goods and
services, presentation of bills and collection of payments over the Internet and
the viewing of reports and other company information utilizing web browsers.
According to a report by International Data Corporation, or IDC, first published
in June 1999, worldwide e-commerce alone represented a $50 billion market in
1998 and is expected to grow to $1.3 trillion by 2003. IDC estimates the market
for e-commerce applications will grow from $444 million in 1998 to $13 billion
in 2003.
The growing business use of the Internet has provided enterprises with new
opportunities and expanded requirements to move beyond the limitations of
current paper-intensive processes. With the emergence of e-business, enterprises
can leverage the convenience and economy of the Internet to achieve substantial
efficiencies in their operations. At the same time, they are challenged to
manage their transition from a paper-based to an e-business environment.
Information now needs to be aggregated from a greater number of disparate
sources, customized to satisfy a richer set of business objectives and delivered
to a broader array of destinations through a variety of media. Sources of
information include e-business applications, enterprise, legacy and custom
applications, external databases and files; destinations include all members of
the extended enterprise; and delivery media alternatives include the Internet,
e-mail, printers, faxes and wireless devices.
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TRADITIONAL APPROACHES TO MANAGING BUSINESS INFORMATION
Over the past few decades, organizations have made significant investments
in information systems to automate their business processes and efficiently
manage information. Many organizations have invested in solutions like
enterprise resource planning systems. Enterprise resource planning, or ERP,
systems are information systems that automate and integrate the business
processes of the departments within an organization. For example, ERP systems
from vendors such as J.D. Edwards, Oracle, SAP and others now automate the
financial, manufacturing and human resource functions of organizations. ERP
installations require significant investments to license and maintain the
software, install the appropriate infrastructure, re-engineer core business
processes, transition legacy data, train employees and make necessary
adjustments to the system to attain acceptable levels of operating efficiency.
Despite the significant investments required, an increasing number of
organizations are expected to install and enhance ERP systems in the future.
According to a report by AMR Research entitled "Enterprise Resource Planning
Software Report, 1998-2003," total ERP company revenues are expected to grow to
$66.6 billion in 2003 from $16.7 billion in 1998, maintaining a compounded
annual growth rate of 32%. We believe that ERP vendors are also increasingly
enhancing their systems to facilitate e-business.
These applications generate substantial amounts of information created by
ongoing business transactions. As the volume of this information grows,
organizations are challenged by the need to consolidate, customize and deliver
this information by fax, printer and e-mail to their employees, customers,
suppliers and strategic partners in a timely fashion to drive revenue growth and
profitability. Furthermore, when coupled with the challenge of leveraging the
Internet and wireless devices as media for information delivery and supporting
new e-business initiatives that leverage their investments in ERP and other
information systems, organizations will require increasingly sophisticated and
comprehensive solutions to meet their needs.
CURRENT METHODS FOR ACCESSING, CUSTOMIZING AND DELIVERING BUSINESS INFORMATION
Currently, businesses address their increasingly complex information
customization and delivery requirements primarily through the following
solutions:
- Custom software development, which provides a solution that is specific
to the applications and information formats of a single organization.
This approach requires significant investments of capital, time and
human resources. It also tends to only focus on an organization's
existing needs and, therefore, is highly inflexible and does not
readily adapt to changes in the application, technology infrastructure
or business processes.
- Output management systems that generally address the delivery of
documents or allow for a limited amount of customization, but fail to
adequately leverage the connective power and universal access provided
by the Internet.
- E-business enabling solutions, which take advantage of the Internet as
a platform for either delivering, viewing or exchanging information.
These systems often focus on retrieving information from static
databases which produces information that is less timely and dynamic.
They may also provide limited support for more traditional delivery
methods such as printed documents, fax and e-mail as dictated by the
requirements of their customers, suppliers and partners or focus solely
on report generation and distribution.
OPPORTUNITY FOR AN INTERNET-ENABLED INFORMATION ACCESS, CUSTOMIZATION AND
DELIVERY SOLUTION
The effectiveness of an organization's use of information is dependent on
its ability to effectively meet the challenges of today's e-business
environment. The requirements of the e-business model have exposed the
shortcomings of relying on paper-intensive manual processes, ERP systems and
other
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traditional software applications to manage the organization and delivery of
customized information. This e-business environment has created the need for a
comprehensive solution that maximizes the power of the Internet and
- gathers information on a real-time basis from multiple sources,
including e-business, enterprise, legacy and custom applications,
external databases and files;
- evaluates the information to determine its suitability for business
purposes;
- customizes and formats the information to meet business objectives; and
- provides timely delivery of the information to the appropriate
destination.
THE OPTIO SOLUTION
Organizations use our software to improve their communications with
employees, customers, suppliers and partners. These communications include the
viewing of business documents and reports over the Internet, e-business
transactions, printed documents, faxes and e-mail. Organizations using our
software can increase the efficiency of their procurement, purchasing,
inventory, shipping and payment functions by integrating them into a single
business process and producing customized information as required by its
recipients. Applications that produce this information do not require
modifications to interact with our software. As a result, our consulting
services group can rapidly deploy our software and train our customers in its
productive use.
Our solutions benefit our customers by:
EXTENDING THE REACH OF INFORMATION. Our software is designed to empower
users by providing relevant, flexible information more quickly and
cost-effectively than previously possible. For example, with our solution, an
enterprise can aggregate real-time billing information from separate ERP and
legacy systems in a single business process. This information can then be
delivered in one or more forms such as printed documents or high volume fax. It
can also be delivered as Electronic Data Interchange, or EDI, or as Extensible
Markup Language, or XML, to other enterprise applications and systems. EDI is a
predefined format used to exchange data and documents electronically and XML is
a flexible language that allows organizations to define data and documents that
are transmitted over the Internet. Information is delivered to enterprise
information portals where people can securely view summary reports over the
Internet and receive e-mail notifications of significant transactions. Our
software can also format this information in ways suitable for delivery to
wireless devices, including alphanumeric pagers and, in the future, personal
digital assistants, or PDAs.
MAXIMIZING EXISTING AND NEW TECHNOLOGY INVESTMENTS. Our software and
services enable organizations to leverage the benefits of their investments in
existing information technology infrastructure. By using our software,
organizations are able to utilize information from existing enterprise and
legacy applications throughout the extended enterprise without requiring
extensive re-engineering. By leveraging these existing applications, our
software offers an attractive value proposition. We believe that as enterprises
increasingly embrace e-business initiatives and applications, our software will
facilitate and optimize their efforts.
ENABLING RAPID DEPLOYMENT AND USE. Our software can be installed quickly by
our consultants or other third parties with whom we have implementation
relationships without the need for extended on-site visits. The implementation
time for our software at a customer site is typically two weeks. Our software is
designed to recognize, interpret and utilize information from many applications
including Baan, J.D. Edwards, McKesson HBOC, Oracle, QAD and SAP. This
interoperability enables rapid deployment in these environments and reduces
ongoing maintenance and training costs.
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OFFERING SCALABLE ARCHITECTURE. We design our software to scale effectively
when implemented in geographically dispersed enterprise-wide deployments while
maintaining system performance and availability. Our software supports networks
composed of multiple operating systems including Windows NT, UNIX, OS/400 and a
variety of applications, databases and services. Our software manages large
quantities of information and supports thousands of users while at the same time
minimizing the usage of network and computing resources. Our browser and Java
user interfaces effectively leverage the power of the Internet, significantly
reducing the need for client-side management and administration.
STRATEGY
Our objective is to be the leading provider of software and services that
help transition organizations from paper-intensive commerce to e-business. To
achieve our objective, we intend to:
ENHANCE PRODUCT OFFERINGS. We will continue to invest in research and
development to improve and enhance our existing software offerings and introduce
new software products designed to solve a greater range of problems for our
customers. In particular, we intend to enhance and expand our software offerings
to address the challenges and needs of e-business and to develop new software
that solves problems associated with gathering, customizing, delivering and
exchanging business information. We believe that maintaining and enhancing our
software is important to our ability to expand our market share, retain existing
customers and acquire new customers.
EXPAND CUSTOMER AWARENESS THROUGH INCREASED MARKETING. We intend to devote
significant resources to marketing efforts to increase customer and industry
awareness of our software and services. These increased marketing efforts will
include hiring additional marketing personnel, increasing brand awareness
through advertising, launching a focused press and industry analyst campaign and
expanding participation in related industry events. Through our marketing
efforts, we intend to demonstrate the value of our software and services to
enterprises and thereby increase our market share.
EXTEND NETWORK OF STRATEGIC RELATIONSHIPS. We plan to extend our existing
strategic network and develop new relationships with leading global systems
integrators who specialize in implementing software solutions that support
e-business, ERP and healthcare applications. We currently have over 20 strategic
relationships. These include organizations that install the software purchased
by our customers and provide services that address specific customer needs. Our
relationships have allowed us to focus on our core competencies while leveraging
their strengths to provide our customers with a complete information
customization and delivery solution. We believe that these relationships will
also continue to generate additional product sales opportunities.
EXPAND WORLDWIDE SALES. We believe that international markets represent a
significant growth opportunity as organizations seek global e-business
solutions. We currently have a direct sales presence in North America, the
United Kingdom, France, Australia and Singapore. We plan to continue to invest
in our worldwide distribution capacity to increase market share and penetration.
This investment will include expanding our direct sales force and establishing
sales offices in other countries in Europe. In addition, we plan to engage local
resellers and system integrators and establish joint marketing agreements with
software companies in Japan and the balance of the Asia Pacific region.
LEVERAGE OUR SIGNIFICANT CUSTOMER BASE. We believe our base of over 3,800
customers provides us with a significant opportunity for additional sales of
current and future software, as well as ongoing maintenance revenue. A majority
of our customers have not yet purchased our full suite of software or currently
only use our software in specific business units or locations. We believe that
we can sell more deeply into this customer base by expanding these partial
deployments into enterprise-wide implementations as well as by cross-selling
additional software and services.
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PURSUE STRATEGIC ACQUISITIONS. Our previous acquisitions have enhanced our
business by expanding our product offerings and international presence. We
intend to continue pursuing strategic acquisitions that would provide additional
product or service offerings, additional industry expertise, a broader customer
base or an expanded geographic presence. We currently have no definitive plans
for any acquisition.
EXTEND TECHNOLOGICAL LEADERSHIP. Optio's software architecture provides the
foundation for us to develop new and innovative software and allows our
applications to be easily adapted to new standards, protocols and platforms.
This architecture enables us to interface with multiple operating systems,
applications, business processes and data sources in a non-disruptive manner. We
believe that our product capabilities significantly differentiate us from our
competitors. We intend to advance our technological leadership by investing
significantly in research and development and by acquiring and integrating
complementary software and technologies.
SOFTWARE
We provide suites of software products that enhance the performance and
reliability of our customers' e-business, enterprise, legacy and custom
applications. Our software enables the cost-effective, efficient delivery of
highly customized information across the extended enterprise. Our software is
divided into two suites: the Optio Enterprise Suite and the Optio Healthcare
Suite.
The Optio Enterprise Suite is designed to meet the needs of the general
business marketplace. The Optio Healthcare suite is tailored to the special
needs of the Healthcare marketplace.
In each case our customers may purchase the entire suite or may purchase one
or more of the software products that make up the suite. Typically, our
customers buy either Optio DCS or Optio MedForms, as well as one or more other
components of the applicable suite. These other components may include Optio
e.ComPresent, our e-business software. Most of the revenue derived from the
Enterprise Suite is attributable to Optio DCS, and most of the revenue derived
from the Healthcare Suite is attributable to MedForms. License revenue from the
Enterprise Suite and the Healthcare Suite accounted for 88% and 12% of license
revenue during the nine months ended October 31, 1999 and 82% and 18% of license
revenue during the fiscal year ended January 31, 1999.
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<TABLE>
<CAPTION>
<S> <C>
THE OPTIO ENTERPRISE SUITE
- --------------------------------------------------------------------------------------------
OPTIODCS OptioDCS is software that forms the foundation of the
Optio Enterprise Suite. It captures information from
enterprise, legacy and other applications by monitoring
transactions and output such as print streams. It then
performs calculations and other data transformations,
formats business information or e-commerce transactions
and delivers them to printers, fax servers, e-mail
servers, web servers, document archives and e-commerce
servers.
OPTIO E.COMPRESENT E-business software that provides secure, browser-based
presentation of customized information. Information can be
grouped in pre-defined or user-specified folders for easy
access. All information is fully indexed and supports
familiar Internet search techniques. Users are alerted to
the publication of new or updated information with
subscription-based notifications that arrive via e-mail,
pager, fax or printer. e.ComPresent facilitates the
delivery of customized information to support e-business
initiatives like report distribution, information portals,
online bill presentment and self-service applications.
OPTIO DESIGNSTUDIO Windows based software that allows users to map, create,
model from applications, databases and files, and create
business rules and conditional logic to automate
processing of the information and model the network of
destinations to which the information is delivered. The
design files it creates are then processed, in
real time, by OptioDCS.
OPTIOFAX Software that transmits and receives information using
electronic fax standards and protocols to support business
requirements for distributing enterprise information.
OPTIO CHECKBOOK An application targeted to the financial payment needs of
the enterprise. Optio Checkbook facilitates the layout of
laser
checks, eliminates the need for pre-printed check stock
and provides positive pay reports to improve accuracy and
reduce fraud.
OPTIO ENTERPRISE PROCESSPACKS Templates facilitating the design of the information
customization
and delivery requirements for popular ERP applications
like Baan, J.D. Edwards, Oracle, QAD and SAP.
</TABLE>
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<TABLE>
<CAPTION>
THE OPTIO HEALTHCARE SUITE
- --------------------------------------------------------------------------------------------
<S> <C>
OPTIO MEDFORMS Optio MedForms, which forms the foundation of the Optio
Healthcare Suite, is targeted to meet the specialized
requirements of healthcare enterprises. It captures
information from healthcare information systems by
monitoring transactions and output such as print streams.
It then performs calculations and other data
transformations, formats patient, clinical, diagnostic and
business information and delivers it to printers, fax
servers, e-mail servers, web servers and document
archives.
OPTIO MEDFORMSDR Optio MedFormsDR provides routing, reorganization and
reproduction of healthcare information on demand, allowing
users throughout an enterprise to quickly and easily
generate patient documents without expensive embossers or
preprinted labels. Optio MedFormsDR's temporary data store
provides access to vital patient information if the
primary server is interrupted, which protects data
integrity.
OPTIO HL7/CONNECT Optio MedForms HL7/Connect enhances Optio MedForms by
(GENERALLY AVAILABLE DECEMBER adding the capability to detect, process, and customize
1999) HL7 messages. HL7 is a health care industry standard that
allows health care information systems to exchange data.
HL7/Connect
provides intelligent support for healthcare organizations
that have implemented the global HL7 industry standard for
interoperability between Healthcare information systems.
OPTIO E.COMPRESENT, OPTIOFAX, Equivalent in functionality to that listed for the Optio
OPTIO CHECKBOOK Enterprise Suite, including Optio e.ComPresent, our
e-business software,
but targeted for the healthcare market.
OPTIO HEALTHCARE PROCESSPACKS Templates facilitating the design of the information
customization and delivery requirements for specific areas
of healthcare operations such as Admissions, Discharge and
Transfer, Patient Accounting and Business Office and
Diagnostic Clinic.
</TABLE>
SERVICES
CONSULTING. Our consulting services provide our customers with expertise
and assistance in evaluating, planning and implementing our solutions. To ensure
a successful implementation of our software, consultants assist customers with
the evaluation, planning and design process, the initial installation of a
system, the integration of our software with the customer's existing enterprise
computing applications and ongoing training and upgrades. We believe that our
consulting services enable rapid implementation of our software, ensure success
with our solution, strengthen the customer relationship and add to our
industry-specific knowledge base.
While our consulting services are optional, substantially all of our
customers utilize these services to facilitate the rapid implementation of our
software. These services are billed on an hourly basis that varies based on the
type of service provided. We plan to continue to increase the number of
consultants to support anticipated growth in product implementations and
upgrades.
As of October 31, 1999, our consulting services group consists of 34
employees comprised of business consultants, systems analysts and technical
personnel devoted to assisting customers in all
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phases of systems implementation including evaluation, planning and design,
customer-specific configuring of modules and on-site implementation or
conversion from existing systems. We may increasingly use third party
consultants, such as those from major systems integrators, to assist in certain
implementations.
MAINTENANCE. We offer a comprehensive maintenance program which provides
our customers with timely software upgrades offering increased functionality and
technology advances that incorporate emerging e-business and other industry
initiatives. We offer customer telephone support during normal business hours
for 18% of the current software license fee per annum and 24 hour maintenance
for 25% percent of the current software license fee per annum. As of
October 31, 1999, a majority of our customers had subscribed to our
comprehensive maintenance support program.
TECHNOLOGY
Optio's software architecture provides the foundation for us to develop new
and innovative software and allows our applications to be easily adapted to new
standards, protocols and platforms. This architecture enables us to interface
with multiple operating systems, applications, business processes and data
sources in a non-disruptive manner. Our architecture also maximizes the benefit
of today's complex enterprise networking environments, including the Internet
and e-business applications.
Our software utilizes visual design features that enable our customers to
specify business rules that capture and manipulate information from their
applications, create documents from that information and distribute these
documents to the desired destinations. These capabilities provide our customers
with the ability to deploy these and associated business rules to multiple
application servers across their internal networks or to remote sites across the
Internet.
Business rules are specified in our Optio Document Customization Language, a
special purpose programming language designed to solve the unique problem of
information gathering and document customization and delivery. Our OptioDCS
software is highly optimized to execute programs written using these business
rules, giving it the ability to process large volumes of information. Its
advanced design allows these business rules to control not only the flow of
information through the system but to dynamically change which business rules
are executed based on the information itself. This provides users with a high
degree of control over the automatic creation, formatting and delivery of
documents on a global basis.
The software contains components for:
- communicating with our visual design software;
- collecting information from other enterprise application programs or
databases;
- performing calculations and other types of data transformations;
- formatting the information into human-readable documents, e-business
documents or database transactions;
- distributing information to a wide variety of digital destinations
including web servers, fax servers, e-mail servers, alphanumeric
pagers, printers, document archives and e-commerce application servers;
- maintaining and executing recipient specified rules for information
notification and document delivery; and
- securely controlling the distribution and processing of information
between multiple computers within the same network and over the
Internet.
Our software supports many industry standards for document formats, document
delivery and data access from enterprise databases and other data sources. Our
software also supports many of the proprietary formats of documents and
information produced by the software of third parties with whom we have
strategic relationships and other enterprise application software vendors.
The software generates human-readable documents that include a variety of
graphical design elements. E-business documents are generated as Electronic Data
Interchange files or as any of the commercial document standard formats that use
XML. Our XML support enables our software to work with existing or future
e-business applications.
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TECHNICAL ADVANTAGES
Optio's technology provides our users with the following advantages:
- TRANSPARENCY. Optio's technology works with the existing business
processes of an enterprise and is completely transparent to the user.
- PRESERVATION OF APPLICATION BUSINESS LOGIC. Enterprise applications use
many business rules to validate and control business information. Our
software works directly with the information produced by the execution
of these business rules, which preserves the value and integrity of the
original application business logic and security and maintains the
consistency of the information.
- ABILITY TO WORK WITH TIME SENSITIVE DATA. Our software works with
business data as it is generated, not only after it has been stored in
a database. Applications can therefore process time sensitive
information much more effectively, getting the right information to the
right person at the right time.
- POWERFUL LANGUAGE. Optio's Document Customization Language enables our
software to address many complicated business information processing
problems requiring large volumes of data. This same language allows our
software to address many problems in the areas of e-business and
information delivery that other programming languages and application
servers cannot.
- EASE OF USE. The visual design approach used by Optio DesignStudio
harnesses the power of Optio's Document Customization Language and puts
it into the hands of less technical users without limiting access to
the power of our technology.
- SCOPE OF SOLUTION. The ability of our software to handle a wide variety
of information sources, document formats and digital destinations,
without requiring third party software.
- SECURE INTERNET ARCHITECTURE. Our software utilizes a proprietary
technology built on industry standards which allow our software to
securely distribute and control the processing of information on the
Internet.
SALES AND MARKETING
To date, approximately 80% of our revenue has been generated through our
direct sales force. As of October 31, 1999 we had 41 domestic sales
representatives that are divided into teams that:
- directly market to potential customers based on the ERP system that they
are implementing or have implemented;
- directly market to potential customers in the healthcare industry; and
- sell to resellers and distributors.
The domestic sales force is split between our East Coast and West Coast
offices. As of October 31, 1999 our international sales organization, focused on
Europe and the Asia Pacific region, was comprised of five sales representatives.
Important resellers or distributors of our products include Epicor Software
Corporation, NxTrend Technology, Inc. and Ross Systems Inc. We also benefit from
sales referred to us under commercial relationships with Baan and McKesson HBOC.
We plan to continue to invest significantly in expanding our sales, support,
services and marketing organizations.
The sales cycle typically begins with the generation of a sales lead or the
receipt of a request for proposal from a prospective customer. The sales lead or
request for proposal is followed by the qualification of the lead or prospect,
an assessment of the customer's requirements, a formal response to any request
for proposal, presentations and product demonstrations and contract negotiation.
The
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sales cycle can vary substantially from customer to customer but can require as
few as 30 to 40 days with customers that are currently implementing ERP systems
or as long as 90 to 120 days with customers that have existing ERP systems that
are looking to customize and optimize their information.
Our marketing programs are focused on creating awareness as well as lead
generation and customer references for our software. We conduct a comprehensive
marketing program that includes advertising, public relations and direct
marketing efforts focused on key executives, decision-makers and influencers,
industry analysts and users. We regularly participate in joint marketing
programs with vendors and consultants such as trade shows, user groups,
newsletters and industry publications. We seek to jointly educate and inform
their customers and sales force and leverage these relationships with new
customers through their logo programs. We intend to continue to pursue
additional strategic marketing programs.
STRATEGIC RELATIONSHIPS
We have strategic relationships with third parties that help us market,
sell, implement, support and enhance our solutions that include:
RESELLER RELATIONSHIPS. We have relationships with approximately 100
resellers who market and resell our software as a component of their own
solutions and to provide software related education, implementation and
customization services as well. These resellers have their own software
solutions that typically address a specific market sector and they utilize our
software to enhance the functionality of their own solution. Our software may be
sold along with their own solutions under the original Optio brand name or
embedded within the reseller's software and relabeled with their own name.
Because resellers who embed our products within their solutions provide
substantially all of the sales and marketing efforts and the initial support
services with respect to this embedded software, they receive price discounts on
our software.
IMPLEMENTATION RELATIONSHIPS. We have relationships with 15 consulting
organizations to provide value added services that assist our customers in
implementing our software. We train and test these organizations' consultants to
install and use our software and certify them once they have demonstrated their
proficiency in delivering complete solutions that meet the needs of our
customers. Once the solution is implemented they will also train their customers
in its proper use.
REFERRAL RELATIONSHIPS. We have relationships with Baan and McKesson HBOC
to refer prospects to us that may have an interest in licensing our solution. As
part of a defined process, we validate that we are not currently working with
that prospect and if we secure a licensing agreement with that prospect within a
fixed period of time, we will pay a referral compensation. Referral fees are
typically in the range of 10-20% of the license fee. In the past, these referral
relationships have resulted in significant revenues and we expect that they will
continue to do so in the foreseeable future.
VENDOR RELATIONSHIPS. We have relationships with six major ERP and
healthcare software vendors, which are Baan, J.D. Edwards, McKesson HBOC,
Oracle, QAD and SAP, whereby we have demonstrated that our solutions are
compatible with their applications and provide complimentary functionality. As a
result these vendors will include descriptions of our products' key features and
benefits in their directories which are published periodically and on their web
site. We can also feature their logos in our advertising and promotional
materials, participate in vendor sponsored trade shows, marketing programs and
other events. In the past, these vendor relationships have resulted in
significant revenues and we expect that they will continue to do so in the
foreseeable future.
CUSTOMERS
Our customers consist of enterprises across a broad spectrum of industries,
and include a number of organizations focused on the medical and healthcare
industry. As of October 31, 1999, we licensed
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our products for use by more than 3,800 customers, which we believe makes us a
leading provider of information customization and delivery software relative to
our competitors.
The following table sets forth a representative list of our current
customers that have purchased at least $70,000 in products and services from us
since July 1, 1996:
ENTERPRISE
<TABLE>
<S> <C>
American Management Association Indianapolis Power & Light
American Red Cross Matsushita Avionics
Cam Car Textron Corporation Mylex
Champion International QAD
Cummins Engine Reynolds Metals
Dekalb Genetics Schlumberger
Dresser Rand SCO
Florida Rock Sealand Services
Fore Systems TCI Cable Management Corporation
Hoechst Celanese Tyson Foods
Home Depot
</TABLE>
HEALTHCARE
<TABLE>
<S> <C>
Bethania Regional Health Care O'Conner Hospital
Carolinas Healthcare System Somerset Medical Center
Citizens Medical Center Spartanburg County Health
John F Kennedy Medical Center St. Peters University Hospital
Lourdes Hospital Tallahassee Memorial Medical
Medical College of Ohio Texas Childrens' Hospital
Mercer Medical Center Unity Health Systems
Merit Care Health Systems University of Pittsburgh Medical Center
New Britain General Hospital West Tennessee Healthcare
</TABLE>
No single customer accounted for 10% or more of our total revenue during the
nine months ended October 31, 1999 or any of the fiscal years in the three year
period ended January 31, 1999. Billings to our top five customers in the
aggregate accounted for 5.5%, 6.6% and 12.8% of our total billings in the nine
months ended October 31, 1999 and each of fiscal years ended January 31, 1999
and 1998, respectively.
The following case studies illustrate how customers may use our software and
services to address their information access, customization and delivery
requirements.
PORT HURON HOSPITAL. With approximately 1,200 employees and 173,000
outpatient visits annually, Port Huron Hospital, a 186-bed hospital with four
off-campus community centers in St. Clair county Michigan, required the use of
several forms and documents to operate the facility and record patient
information. The hospital implemented our healthcare solution to ensure
enterprise-wide document standardization; lower costs by eliminating pre-printed
forms; and increase flexibility to respond to constantly changing requirements
for patient information. Equally important to them was Optio's seamless
integration to their McKesson HBO & Company STAR applications and their need for
a solution that automatically distributed information throughout the facility.
Within the first year of using our software, the hospital has realized a savings
in excess of $80,000 by automating their accounting department to create
customized AP and payroll checks, payroll advices and other documents. Due to
the savings, the hospital will be implementing our solution in several other
departments and projects annual savings as much as $250,000.
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SCHLUMBERGER, LTD. The Resource Management Services group of
Schlumberger Ltd., a Fortune 500 international technical products and services
company, provides business analysis and consulting, system integration, product
design and manufacturing. With more than 15,000 employees in over 30 countries,
the company wanted to integrate its enterprise applications with a single-vendor
solution that customized and distributed purchase order, request for quotation,
invoicing and payment information. The objective was to ensure worldwide
standardization of business information, while improving business processes to
aid in its future growth. Our solution, implemented in 38 sites throughout 14
countries, allows Schlumberger to take information generated by its enterprise
applications and deliver customized business-critical documents and reports to a
variety of digital destinations, including laser and thermal printers and fax
servers. Benefits include improved response times to customer, supplier and
vendor requests, improved utilization of current information technology
infrastructure and worldwide coverage for all implementations.
THE HOME DEPOT, INC. Founded in 1978 in Atlanta, Georgia, The Home Depot is
North America's largest home improvement retailer, with 860 stores in the United
States and Canada and with plans to operate over 1,300 stores by the end of
fiscal 2001. The Home Depot is credited as being the leading innovator in the
home improvement industry, and has been ranked by Fortune magazine as America's
Most Admired Retailer for four consecutive years. In a company-wide initiative
to improve customer service, The Home Depot wanted to decrease customer
transaction time and ensure customer satisfaction through the delivery of
accurate, legible special order documents while focusing on internal process
improvements by eliminating manual procedures for gathering and entering key
information. Our solutions are being used in over 800 stores in the United
States and Latin America to produce customized special order information,
eliminating handwritten orders. As a result, the company has improved its
internal efficiencies by streamlining processes; lowering costs by eliminating
the need for pre-printed special order forms; improving customer service with
decreased customer transaction time; leveraging existing hardware technology and
streamlining migration to internationalized systems.
COMPETITION
The market for our software and services is intensely competitive, quickly
evolving and subject to rapid technological change. We expect competition to
intensify in the future. Our potential competitors vary in size and in the scope
and breadth of the products and services offered. We see our competitors fitting
into three separate areas. The first is custom software development. The second
is comprised of output management solutions from organizations such as:
- AFP Technology;
- Create!print;
- Cypress;
- Dazel, which is owned by Hewlett-Packard;
- New Dimension, which is owned by BMC;
- StreamServe; and
- Tivoli, which is owned by IBM.
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The third is comprised of e-business enablement organizations, which we believe
we will compete with increasingly in the future, such as:
- Actuate Software;
- BlueGill Technologies;
- BottomLine Technologies;
- Brio Technology;
- Extricity Software;
- Quest Software; and
- webMethods.
In addition, some of the companies with which we currently have strategic
relationships could become competitors in the future, such as J.D. Edwards,
McKesson HBOC, Oracle and SAP.
We believe that we are differentiated relative to our competitors due to our
software's ability to combine information customization capabilities, output
management capabilities and e-business enablement capabilities in one solution.
We believe that none of our competitors provide all of this functionality in a
single solution. We believe that we also compete on the basis of our software's
ability to operate across multiple operating systems. With respect to the Optio
Healthcare Suite, we believe that we compare favorably to our competitors
because we offer a vertically-oriented solution to address the needs of the
healthcare marketplace.
We believe that the principal competitive factors present in our market
include:
- a significant base of reference customers;
- a breadth and depth of product functionality;
- cost of solution;
- product quality; and
- performance, customer service, core technology, product features, ease
of implementation and extent of value derived from solution.
Although we believe that our products and services currently compete
favorably with respect to each of these factors, our market is evolving rapidly.
We may not be able to maintain our competitive position against current and
potential competitors.
Many of our competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than us, significantly greater name recognition and a larger current
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. In the past, we have lost potential customers to
competitors for various reasons, including price and related discounts. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share.
INTELLECTUAL PROPERTY
We distribute our products under software license agreements, which
generally grant our clients perpetual licenses to use, rather than own, our
products. These licenses contain various provisions protecting our ownership and
the confidentiality of the underlying technology. The software is protected from
unauthorized use through electronic activation keys tied to the system on which
the software is licensed to operate. Our source code, or the intellectual
property underlying our software, is
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protected as a trade secret and as unpublished copyrighted work. We have
registered "Optio" and "MedForms" as trademarks in the United States.
We protect our proprietary rights by relying on copyright, trade secret,
trademark, confidentiality procedures and contractual provisions. Some of our
software, documentation and other written materials are protected under the
federal copyright law. We also rely on trade secret laws of the state of Georgia
and the states in which we do business to protect our software designs and other
proprietary information. In addition, non-disclosure agreements contained in our
employment contracts protect our proprietary information from disclosure by
current and former employees.
We have not applied for any U.S. patents. It is possible that any patent
applications we file in the future will not result in the issuance of patents
and that any patents issued may later be successfully challenged. It is also
possible that we may not develop proprietary products or technologies that are
patentable, that any patent issued to us may not provide us with any competitive
advantages, or that the patents of others will seriously harm our ability to do
business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of e-commerce solutions will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could seriously
harm our business.
EMPLOYEES
As of October 31, 1999, we had 165 employees in the United States, comprised
of 33 in research and development, 65 in sales and marketing, 53 in consulting
and other services, and 14 in finance and administration. We also have 15
employees in Europe and 4 in Australia. We have never had a work stoppage and
none of our employees are represented under collective bargaining agreements. We
consider our employee relations to be good.
FACILITIES
We currently occupy 62,000 square feet of office space in our Alpharetta,
Georgia headquarters. Offices are also located in California, France and the UK,
providing us with an additional 11,000 square feet.
LEGAL PROCEEDINGS
Optio is not a party to any material legal proceeding.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth information about the executive officers and
directors of Optio:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- ---------------------------------------------------------------
<S> <C> <C>
C. Wayne Cape............................. 45 Chairman of the Board of Directors, Chief Executive Officer and
President
G. Robert Beck............................ 41 Senior Vice President, Sales and Client Services
F. Barron Hughes.......................... 41 Chief Financial Officer, Secretary and Treasurer
Daryl G. Hatton........................... 37 Chief Technology Officer
Steven E. Kaye............................ 47 Vice President, Strategic Marketing
John L. Kopcke............................ 44 Vice President, Development
Mark White................................ 38 Vice President, Information Systems
David Dunn-Rankin(1)(2)................... 41 Director
Mitchel J. Laskey(1)(2)................... 49 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
C. WAYNE CAPE, the founder of Optio, has served as Chief Executive Officer
and President of Optio since its inception in 1981. Mr. Cape became Chairman of
the Board on September 1999. Prior to launching Optio, Mr. Cape was an employee
at Digital Communication Associates from 1974 to 1981 where he served in a
variety of technical, sales and regional sales management positions.
G. ROBERT BECK has served as Senior Vice President, Sales and Client
Services of Optio since April 1996. From January 1996 to April 1996, Mr. Beck
worked as an independent consultant for Sales Builders, Inc., an Atlanta based
sales and consulting management organization. From 1992 to December 1995,
Mr. Beck also served as President of U.S. Operations for Cray Systems, a UK
based provider of application software for tour operators, and from 1989 to
1992, Mr. Beck served as Vice President of Sales for Computron
Technologies, Inc., a leading provider of financial workflow solutions, which is
now a publicly traded company.
F. BARRON HUGHES has served as Chief Financial Officer and Secretary of
Optio since September 1994. Prior to joining Optio, Mr. Hughes served as Chief
Financial Officer of Millennium Healthcare, Inc. from 1991 to September 1994 and
served as Chief Financial Officer of HealthQuest, Inc., a subsidiary of HBO &
Co. which provides health information solutions, from 1985 to 1991.
DARYL G. HATTON has served as Chief Technology Officer for Optio since
February 1997. From October 1993 to February 1997, he served as Director of
Research for Optio. From 1988 through 1993, Mr. Hatton was a co-founder and
president of Pacific Genesys Development, Inc., a Canadian corporation in the
electronic forms software development industry, which was acquired by Optio in
1993. Prior to that, Mr. Hatton was Vice President of Product Development for
Modatech Systems, Inc., a publicly traded software developer of sales force
automation solutions.
STEVEN E. KAYE is Vice President of Strategic Marketing for Optio. Mr. Kaye
joined Optio in May 1999. Prior to joining Optio, Mr. Kaye served as Vice
President of Marketing at Softlab, Inc., a BMW AG company, from February 1998 to
April 1999. Softlab is a vendor of application development strategies and a
provider of knowledge based solutions. From June 1996 to February 1998,
Mr. Kaye served as Senior Vice President of Business Development for
KnowledgeX, Inc., a provider of knowledge management software solutions, which
was acquired by IBM in 1998. From December 1994 to April 1996, Mr. Kaye served
as Vice President of Products and Technology for Deloitte Consulting's SAP
practice and was also Vice President of ISV/OEM Sales for KnowledgeWare, Inc.
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JOHN L. KOPCKE is Vice President of Development for Optio. Mr. Kopcke joined
Optio in March 1999. Mr. Kopcke is responsible for our product development
organization, including managing and overseeing all future product development
for existing solutions and research and development for new product
introductions. Prior to joining Optio, Mr. Kopcke was Chief Technology Officer
at Softlab, Inc. from January 1996 to March 1999. Prior to that, Mr. Kopcke
served as Chief Technology Officer for Pilot Software, Inc. from June 1991 to
January 1996. From 1987 to 1991, Mr. Kopcke served as President and founder of
Kopcke and Associates, a software development company specializing in
specification implementation of software for software companies. Kopcke and
Associates was acquired by Pilot Software, Inc. in October 1996.
MARK WHITE has served as Vice President of Information Systems of Optio
since February 1998. From March 1993 to February 1998, Mr. White served as the
Director of Development for Optio. From September 1990 to March 1993, Mr. White
served as Vice President of Operations for Millard Wayne, Inc., a physician
practice software company.
DAVID DUNN-RANKIN has served as a Director and a member of the Compensation
and Audit Committees of Optio since October 1999. He has served as Chief
Executive Officer for The UniLink Group, LLC since October 1997. From June 1995
to September 1997, he served as a partner at Bridges & Dunn-Rankin, a certified
public accounting and consulting firm.
MITCHEL J. LASKEY has served as a Director and a member of the Compensation
and Audit Committees of Optio since October 1999. He has served as President and
Chief Executive Officer of Dynamic Healthcare Technologies, Inc. since May 1996.
From August 1994 to May 1996, he served as President and Chief Operating Officer
of Dynamic Healthcare Technologies, Inc. From 1992 to 1994, he served as
Chairman and Chief Executive Officer of Dynamic Technical Resources, Inc., a
healthcare information services and consulting firm.
JAMES J. FELCYN, JR., age 57, has served as Vice President, Chief Financial
Officer and Treasurer of Citrix Systems, Inc. since July 1994. Mr. Felcyn serves
as a director of Smith Gardner and Associates, Inc., a provider of application
solutions for e-commerce and mail order transactions, and Equinox
Systems, Inc., a provider of connectivity solutions for remote access and
multi-user applications. We intend to add Mr. Felcyn to our board of directors
within 90 days after the date of this prospectus. It will be necessary for us to
appoint Mr. Felcyn or another independent director within the 90 day time period
in order to maintain our listing on the Nasdaq Stock Market. Our failure to
appoint this director could result in the delisting of our common stock.
TERMS OF DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors consists of three directors, C. Wayne Cape, David
Dunn-Rankin and Mitchel J. Laskey. At each annual meeting of shareholders,
directors will be elected for a three-year term to succeed the directors whose
terms are then expiring. There are no family relationships between any of our
directors or executive officers. The executive officers serve at the pleasure of
our board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The members of our audit committee are David Dunn-Rankin and Mitchel J.
Laskey. The audit committee reviews the scope and timing of our audit services
and any other services our independent auditors are asked to perform, the
auditor's report on our financial statements following completion of their audit
and their policies and procedures with respect to internal accounting and
financial control. In addition, the audit committee makes annual recommendations
to the board of directors for the appointment of independent auditors for the
following year.
The members of our compensation committee are David Dunn-Rankin and Mitchel
J. Laskey. The compensation committee reviews and evaluates the compensation and
benefits of all our officers, reviews general policy matters relating to
compensation and benefits of employees of Optio and makes
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recommendations concerning these matters to our board of directors. The
compensation committee also administers our stock option plans.
COMPENSATION OF DIRECTORS
Non-employee directors receive a fee of $1,000 per meeting for their service
as directors. Employee directors are not compensated for their service as
directors. We reimburse each director for reasonable out-of-pocket expenses
incurred in attending meetings of our board of directors and any of our
committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1999, C. Wayne Cape, the founder and CEO, discharged the
duties customarily performed by a compensation committee. In setting his
compensation during fiscal year 1999, Mr. Cape considered Optio's achievement of
its revenue growth goals for the prior fiscal year.
We loaned $48,800 to C. Wayne Cape on a non-interest basis in ten advances
from October 15, 1986 to May 9, 1995. This loan is due and payable upon demand
and is unsecured. Mr. Cape has made no payments on this loan.
On December 31, 1988, we loaned $30,000 to C. Wayne Cape, pursuant to a
promissory note. This note bears interest at 10% per annum and it is unsecured.
The principal and interest under the note were due and payable on December 30,
1990; however, we have not requested payment. To date, Mr. Cape has made no
payments pursuant to the note and the outstanding balance of principal plus
interest as of October 31, 1999 was $62,500.
Mr. Cape has agreed to repay each of these loans with the proceeds he
receives, if any, from selling shares of common stock pursuant to the
underwriters' over-allotment option or, if these proceeds are insufficient, then
within one year from the date of closing of this offering.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
The following table sets forth for fiscal 1999 all compensation received for
services rendered to Optio in all capacities by our chief executive officer and
each of the other four most highly compensated executive officers whose salary
and bonus exceeded $100,000 in fiscal 1999. These officers are referred to in
this prospectus as the named executive officers. No individual who would
otherwise have been includable in this table on the basis of salary and bonus
earned during fiscal 1999 has resigned or otherwise terminated his employment
during fiscal 1999. The compensation table excludes other compensation in the
form of perquisites and other personal benefits that constitutes the lesser of
$50,000 or 10% of the total annual salary and bonus earned by each of the named
executive officers in fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- -------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
C. Wayne Cape
Chairman of the Board, Chief Executive Officer and President............ $ 210,000 $ 36,750 $ 73,658
G. Robert Beck
Senior Vice-President, Sales and Client Services........................ 156,250 30,625 103,957
F. Barron Hughes
Chief Financial Officer, Secretary and Treasurer........................ 105,312 20,000 --
</TABLE>
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options during
the year ended January 31, 1999, to each of the named executive officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OR BASE OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ------------------------- ---------- ------------------- ----------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Wayne Cape............ 2,000,000 49.0% $ .80 February 9, 2008 $ 11,320,103 $ 28,687,364
G. Robert Beck........... 500,000 12.0% $ .80 February 9, 2008 2,830,026 7,171,841
F. Barron Hughes......... 400,000 9.8% $ .80 February 9, 2008 2,264,021 5,737,473
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on the midpoint of the range of the initial public offering price
($9.00) instead of the fair market value for accounting purposes and assumed
rates of stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date. These
assumptions are mandated by the rules of the Securities and Exchange
Commission and are not intended to forecast future appreciation of Optio's
stock price. The potential realizable value computation is net of the
applicable exercise price, but does not take into account federal or state
income tax consequences and other expenses of option exercises or sales of
appreciated stock. Actual gains, if any, are dependent upon the timing of
such exercise and the future performance of Optio's common stock. The rates
of appreciation in this table may not be achieved. This table does not take
into account any appreciation in the price of the common stock to date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
No named executive officer exercised any stock option during fiscal 1999.
The following table summarizes the value of the outstanding options held by the
named executive officers at January 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END YEAR-END(1)
------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
C. Wayne Cape........................................... 2,000,000 1,000,000 $ 17,174,000 $ 8,200,000
G. Robert Beck.......................................... 375,000 875,000 $ 3,150,000 $ 7,250,000
F. Barron Hughes........................................ 400,000 500,000 $ 3,520,000 $ 4,160,000
</TABLE>
- ------------------------
(1) Based on the estimated fair market value of Optio's common stock of $9.00
per share, the mid-range of the initial public offering price, less the
exercise price payable upon exercise of these options.
STOCK OPTION AND OTHER COMPENSATION PLANS
STOCK INCENTIVE PLAN. Our stock incentive plan was adopted by our board of
directors on January 1, 1997 and approved by our shareholders on December 23,
1997. The aggregate number of shares of our common stock reserved for issuance
under the stock incentive plan was increased effective November 17, 1997 and is
currently 12,500,000. The purpose of the stock incentive plan is to provide
incentives for key employees, officers, consultants and directors to promote our
success and to enhance our ability to attract and retain the services of such
persons. Options granted under the stock incentive plan may be either options
intended to qualify as "incentive stock options" under Section 422
46
<PAGE>
of the Internal Revenue Code of 1986 or nonqualified stock options. The stock
incentive plan also provides for the grant of stock appreciation rights and
restricted stock awards.
The stock incentive plan is administered by our board of directors, which
has the authority to interpret the stock incentive plan and take other action as
it deems equitable. Our board of directors has absolute discretion under the
stock incentive plan to determine to which employees and key persons stock
incentives shall be granted, when these grants shall be made, and the number of
shares of common stock subject to these grants.
Our board of directors determines, at the time of the grant, when options
issued under the plan can be exercised. The board of directors also determines
the exercise price for options issued under the plan. Options issued under the
plan expire ten years after the date of grant, unless our board of directors
sets an earlier date.
Exercise prices for incentive stock options may not be less than the fair
market value per share of common stock on the date of grant, or 110% of the fair
market value in the case of incentive stock options granted to any person who
owns our stock possessing 10% or more of the total voting power of all of our
capital stock. Exercise prices for non-qualified stock options may be less than
the fair market value per share, but must be at least $0.01 per share. Until
there is an established market for our common stock, the board of directors, at
its discretion, determines the fair market value of a share of common stock.
In the event of change of control, our board of directors has absolute
discretion to accelerate the vesting of all options that have not vested as of
the date of change in control or to arrange for the successor entity to assume
all of the rights and obligations under the plan. If an option holder's
employment is terminated for cause following the exercise of his options, Optio
has the right to repurchase the shares at the exercise price for ninety days
following such termination.
As of October 31, 1999, options to purchase 9,599,785 shares of our common
stock were outstanding under the stock incentive plan at a weighted average
exercise price of $0.70 per share. 500,000 shares of common stock have been
issued upon exercise of options granted under the stock incentive plan.
DIRECTORS' STOCK OPTION PLAN. Our board of directors adopted our directors'
stock option plan on October 15, 1999. 300,000 shares of our common stock are
reserved for issuance pursuant to the plan. Only members of our board of
directors who are not employees of Optio are eligible to receive option grants
under the directors' plan. The directors' plan only provides for the grant of
options which do not qualify under Section 422 of the Internal Revenue Code.
The directors' plan is administered by our board of directors, which has the
authority to interpret the directors' plan and to take such other actions in the
administration and operation of the directors' plan as it deems equitable. The
board of directors may delegate its authority under the directors' plan to a
committee appointed by the board consisting of not less than two directors.
Upon initially becoming an eligible director, a director is entitled to
receive an option to purchase 10,000 shares of our common stock. As of the end
of each completed fiscal year of service as an eligible director following
adoption of the directors' plan, a director shall be granted an option to
purchase 5,000 shares of our common stock. Each person who qualified as an
eligible director as of the effective date of the directors' plan received an
option to purchase 10,000 shares of our common stock as of the effective date of
the directors' plan.
All options granted under the directors' plan are fully vested as of the
date of grant and have an exercise price equivalent to the fair market value of
the underlying shares. Options granted under the directors' plan may not have
terms exceeding ten (10) years from the date of grant. Options granted under the
directors' plan are not transferable or assignable except by will or by the laws
of descent and distribution and are exercisable, during the optionee's lifetime,
only by the optionee.
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<PAGE>
As of October 15, 1999, options to purchase 20,000 shares of our common
stock were outstanding under the directors' plan at an exercise price equal to
the per-share price of our common stock being sold in this offering, and no
shares of our common stock have been issued upon exercise of options granted
under the directors' plan.
NON-PLAN OPTIONS. In addition to options granted under the stock incentive
plan and the directors' plan, as of October 31, 1999, options to purchase an
aggregate of 3,767,500 shares of our common stock at a weighted average exercise
price of $0.27 were outstanding.
401(K) PROFIT SHARING PLAN. We maintain a 401(k) profit sharing plan which
is intended to be a tax-qualified contribution plan under Section 401(k) of the
Internal Revenue Code. Pursuant to the 401(k) plan, participants may contribute,
subject to certain Internal Revenue Code limitations, up to 15% of eligible
compensation, as defined, to the 401(k) plan. Employees are eligible for this
arrangement upon completion of first three calendar months of employment. We
will match contributions made by employees pursuant to the 401(k) plan at a rate
of 75% of the participant's contributions, up to 5% of the eligible compensation
being contributed after the participant's first three months of employment,
subject to certain Internal Revenue Code limitations. All of our employees who
have completed two years of service with us consisting of at least 1,000 hours
of employment are eligible for the matching contribution. We may make an
additional contribution to participants' 401(k) plans each year at the
discretion of our board of directors. The portion of a participant's account
attributable to his or her own contributions is 100% vested. The portion of the
account attributable to Company contributions (including matching contributions)
vests over 6 years of service with us. Distributions from the 401(k) plan may be
made in the form of a lump-sum cash payment or in installment payments.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our articles of incorporation provide that the liability of our directors
for monetary damages shall be eliminated to the fullest extent permissible under
Georgia law and that we may indemnify our officers, employees and agents to the
fullest extent permitted under Georgia law.
Our bylaws provide that we must indemnify our directors against all
liabilities to the fullest extent permitted under Georgia law and that we must
advance all reasonable expenses incurred in a proceeding where the director was
either a party or a witness because he or she was a director.
We have entered into agreements that require us to indemnify our directors
and our officers to the full extent permitted under Georgia law. In addition, we
have agreed to defend, hold harmless and indemnify our directors and our
officers against any obligation to pay a judgment, penalty, fine, expenses and
settlement amounts in connection with any action, suit or proceeding brought by
reason of the fact that he or she is a director or officer, as the case may be,
of Optio or is serving, at the request of Optio, as a director, officer,
employee, agent or consultant of another entity. No indemnification will be
provided for any misappropriation of any Optio business opportunity, any act or
omission involving intentional misconduct or a knowing violation of law, any
transaction from which an improper personal benefit was received and other types
of liability under Georgia law. Further, Optio will pay expenses incurred by
directors and officers in defending any covered action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding. We believe
that these agreements, as well as the provisions contained in our articles and
bylaws described above, are necessary to attract and retain qualified persons as
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors of Optio pursuant to the provisions of our charter
documents, Georgia law or the agreements described above, Optio has been advised
that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
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<PAGE>
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS.
In the past, we have loaned a total of $78,800 to C. Wayne Cape. See
"Management--Compensation Committee Interlocks and Insider Participation."
We loaned $600,000 to David Dunn-Rankin, a director of Optio, in six
advances from August 6, 1998 to February 19, 1999. This loan bears interest at
9% per annum. Mr. Dunn-Rankin is required to make annual interest payments on
October 13 of each year, and the principal is due and payable in full on
October 13, 2001. This loan is secured by Mr. Dunn-Rankin's options to acquire
500,000 shares of Optio common stock at an exercise price of $0.60 per share.
This loan was originally convertible into equity of The Unilink Group, LLC, a
technology company controlled by Mr. Dunn-Rankin; however, we did not elect to
convert in the time frame agreed with Mr. Dunn-Rankin.
The outstanding balance of principal plus interest on other interest bearing
notes receivable from shareholders as of October 31, 1999 was $7,700.
We have a $2,000,000 line of credit from Premier Lending Corporation. At
October 31, 1999, there is no outstanding balance on this loan. Mr. Cape has
personally guaranteed this loan. We intend to refinance this loan after
completion of this offering and terminate Mr. Cape's personal guarantee.
On May 1, 1998, the Company issued a note payable for $50,000 to Carol
Carey, an employee, in exchange for 75,000 shares of the Company's common stock.
On December 23, 1998, we repurchased 1,646,590 shares of our common stock
that were previously owned by Gordon Terris, Bonnie Malstrom and Clarence
Rydberg. These shareholders exercised dissenters' rights in connection with an
amendment to our Articles of Incorporation. At the time of the settlement,
Mr. Terris, Ms. Malstrom and Mr. Rydberg held approximately 6.1%, 5.6% and 3.6%,
respectively, of our outstanding capital stock. We agreed to pay Mr. Terris
$1,318,393, evidenced by a promissory note for the full amount, which is secured
by 603,360 shares of our common stock. Mr. Terris had been paid $879,556 in
principal and accrued interest as of October 31, 1999. We agreed to pay
Ms. Malstrom $1,221,884, evidenced by cash payment of $60,000 and a promissory
note for $1,161,884, which is secured by 543,230 shares of our common stock.
Ms. Malstrom had been paid $755,022 in principal and accrued interest as of
October 31, 1999. We agreed to pay Mr. Rydberg $802,500, evidenced by a
promissory note for the full amount, which is secured by 500,000 shares of our
common stock. Mr. Rydberg had been paid $535,382 in principal and accrued
interest as of October 31, 1999. All of these promissory notes bear interest at
7% per annum and require equal quarterly principal payments. All the common
stock held as security for these promissory notes is held in escrow and will be
released as payments are made. The notes will be required to be paid in full
from the proceeds of this offering and all common stock held in escrow will be
released to us for cancellation.
We have agreed to provide indemnification to our executive officers and
directors which may require us to indemnify officers and directors against
liabilities that may rise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a culpable
nature, and to advance expenses incurred as a result of any proceeding against
them as to which they could be indemnified. See "Management--Limitation of
Liability and Indemnification of Officers and Directors."
All future transactions, including loans, if any, between us and our
officers, directors and principal shareholders and their affiliates and any
transactions between us and any entity with which our officers, directors or
principal shareholders are affiliated will be subject to the approval of a
majority of our board of directors, including the majority of the independent
and disinterested outside directors of the board of directors and must be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
49
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of October 31, 1999 and as adjusted to reflect
the sale of the common shares that are being sold by Optio in this offering with
respect to:
- each named executive officer;
- each of our directors;
- each shareholder known by us to be the beneficial owner of more than 5% of
the outstanding shares of common stock; and
- all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each person listed is c/o Optio
Software, Inc., 3015 Windward Plaza, Windward Fairways II, Alpharetta, Georgia
30005.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF
SHARES OWNED(1)
---------------------------------------- ------------------------
NAMED EXECUTIVE OFFICERS, DIRECTORS SUBJECT TO BEFORE AFTER
AND 5% SHAREHOLDERS ACTUALLY OWNED ACQUISITION TOTAL OFFERING OFFERING
- -------------------------------------------- -------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
C. Wayne Cape............................... 7,380,650(2) 2,256,300(3) 9,636,950(2)(3) 68.0% 50.3%
G. Robert Beck.............................. -- 687,500 687,500 5.5% 3.9%
F. Barron Hughes............................ 40,000 500,000 540,000 4.3% 3.1%
David Dunn-Rankin........................... -- 510,000 510,000 4.1% 2.9%
Mitchel J. Laskey........................... -- 10,000 10,000 * *
Charles Carey (4)........................... 1,938,770 250,000 2,188,770 18.0% 12.8%
All directors and executive officers as a
Group (9 persons)......................... 7,645,650 4,301,300 11,946,950 73.7% 56.3%
</TABLE>
- ------------------------
* Less than 1% of the outstanding common stock.
(1) For purposes of calculating the percentage beneficially owned, the number of
shares of common stock deemed outstanding prior to the offering consists of
11,918,640 shares outstanding as of October 31, 1999 together with shares
underlying options that are exercisable by these shareholders within 60 days
of October 31, 1999. The number of shares of common stock deemed outstanding
after this offering includes an additional 5,000,000 shares that are being
offered for sale by Optio in this offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission that deem shares to be beneficially owned by any person or group
who has or shares voting and investment power with respect to these shares
and includes shares subject to issuances upon the exercise of options which
may be exercised within 60 days following October 31, 1999.
(2) This number includes 89,130 shares held by Mr. Cape's wife.
(3) This number includes 6,300 shares subject to options exercisable within 60
days following October 31, 1999 held by Mr. Cape's wife.
(4) Mr. Carey's address is 215 Bellamy Street, Homer, Georgia 30547.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Optio consists of 100,000,000 shares of
common stock, no par value per share, and 20,000,000 shares of preferred stock,
no par value per share. The following description of our capital stock, articles
of incorporation and bylaws is only a summary and does not purport to be
complete. For a full understanding of these documents and the terms of our
capital stock, you should read the original documents, which are included as
exhibits to the Registration Statement of which this prospectus is a part, and
by the provisions of applicable law.
COMMON STOCK
As of October 31, 1999, there were 11,918,640 shares of Optio common stock
outstanding held of record by 24 shareholders. This number takes into account a
5-for-1 stock split on October 15, 1999. There will be 16,918,640 shares of
common stock outstanding, assuming no exercise of outstanding options after
October 31, 1999, after giving effect to the split and to the sale of common
stock offered to the public in this offering. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of shareholders. There are no cumulative voting rights. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by the board of directors out of funds legally available
for the payment of dividends. In the event of a liquidation, dissolution or
winding up of Optio, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and liquidation preferences
of any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
As of October 31, 1999, there were no shares of Optio's preferred stock
outstanding. Pursuant to Optio's articles of incorporation, the board of
directors is authorized, subject to limitations prescribed by law, without
further shareholder approval, to issue, from time to time, up to an aggregate of
20,000,000 shares of preferred stock in one or more series, and to fix or alter
the designations, preferences, rights and any qualifications, limitations or
restrictions on the shares of this preferred stock, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
including sinking fund provisions, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change of control of Optio. There are no outstanding
shares of preferred stock and no series have been designated.
ANTITAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND GEORGIA LAW
CLASSIFIED BOARD AND REMOVAL OF DIRECTORS. Optio's articles of
incorporation provide for Optio's board of directors to be elected, initially,
to staggered one, two and three year terms and, thereafter, for successive three
year terms. Also, the directors may only be removed from office for cause, which
requires the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of common stock of Optio entitled to vote at an election of
directors.
CONSIDERATION OF INTEREST OF NON-SHAREHOLDER CONSTITUENCIES. In discharging
the duties of their respective positions and in determining what is believed to
be in the Optio's best interest, the board of directors, and individual
directors, in addition to considering the effects of any action would have on
51
<PAGE>
Optio or its shareholders, may, to the extent permitted by applicable Georgia
law, consider the interests of the employees, customers, suppliers and creditors
of Optio and its subsidiaries, the communities in which offices or other
establishments of Optio and its subsidiaries are located, and all other factors
which our directors may consider pertinent. This provision of Optio's articles
of incorporation solely grants discretionary authority to the directors and does
not give rights to any other constituency.
The preceding provisions of our articles of incorporation may be changed
only upon the affirmative vote of holders of at least a 66 2/3% of the
outstanding shares of our common stock.
OPTIO'S AMENDED AND RESTATED BYLAWS
SHAREHOLDER MEETINGS. Under Optio's bylaws, the shareholders may call a
special meeting only upon the request of holders of at least 50% of votes
entitled to be cast on each issue proposed to be considered at the special
meeting. Additionally, the board of directors, the chairman of the board, the
chief executive officer or the president of Optio may call special meetings of
shareholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Optio's bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the board of directors or a
committee thereof, of candidates for election as directors, as well as for other
shareholder proposals to be considered at shareholders meetings. Notice of
shareholder proposals and director nominations must be given timely in writing
to Optio's Secretary before the meeting at which such matters are to be acted
upon or directors are to be elected. Such notice, to be timely, must be received
at Optio's principal executive offices with respect to shareholder proposals and
elections to be held at the annual meeting not less than 60 days before the date
of the meeting at which the director(s) are to be elected; however, if less than
70 days notice or prior public disclosure of the date of the scheduled meeting
is given or made, notice by the shareholder, to be timely, must be delivered or
received not later than the close of business on the tenth day following the
earlier of the day on which notice of the date of the meeting is mailed to
shareholders or public disclosure of the date of such meeting is made.
Notice to Optio from a shareholder who intends to present a proposal or to
nominate a person for election as a director at a shareholders' meeting must
contain certain information about the shareholder giving such notice and, in the
case of director nominations, all information that would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee (including such person's written consent to serve as a director
if so elected). If the presiding officer at the meeting determines that a
shareholder's proposal or nomination is not made in accordance with the
procedures set forth in the articles of incorporation, such proposal or
nomination, at the direction of such presiding officer, may be disregarded. The
notice requirement for shareholder proposals contained in the articles of
incorporation does not restrict a shareholder's right to include proposals in
Optio's annual proxy materials pursuant to rules promulgated under the
Securities Exchange Act of 1934. In addition, the articles of incorporation
provide that upon consummation of this offering, shareholders may take action
only at a duly called and held meeting and may not take action by written
consent.
PROVISIONS OF GEORGIA LAW
GEORGIA BUSINESS COMBINATION STATUTE. Optio has elected in its bylaws to be
subject to provisions of Georgia law prohibiting various business combinations
involving shareholders that own 10% or more of the outstanding shares of Optio
for a period of five years after the shareholder acquired such shares.
Notwithstanding the statute's restrictions, the business combination may proceed
if it is approved by Optio's board of directors or results in the shareholder
owning 90% or more of Optio's outstanding shares, excluding shares held by
directors and executive officers. A "business combination" includes, among other
things, a merger or consolidation involving Optio and the shareholder and the
sale of 10% or more of Optio's assets.
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<PAGE>
GEORGIA FAIR PRICE STATUTE. Optio has elected in its bylaws to be subject
to provisions of Georgia law which require that business combinations with
shareholders that own 10% or more of the outstanding shares of Optio which do
not meet certain pricing criteria must be approved by the directors and
shareholders of Optio who are not affiliated or associated with the shareholder.
The fair price statute does not require this approval of a business combination
if the cash, stock and other property received by Optio's shareholders in the
transaction is the same for all shareholders and is not less than the highest of
a number of values assigned to the shares of Optio based on trading prices and
liquidation values.
The provisions of the articles of incorporation, the bylaws and Georgia law
described above contain provisions that may have the effect of delaying,
deferring or preventing a non-negotiated merger or other business combination
involving Optio. These provisions are intended to encourage any person
interested in acquiring Optio to negotiate with and obtain the approval of the
board of directors in connection with the transaction. Many of these provisions
may, however, discourage a future acquisition of Optio not approved by the board
of directors in which shareholders might receive an attractive value for their
shares or that a substantial number or even a majority of Optio's shareholders
might believe to be in their best interest. As a result, shareholders who desire
to participate in this type of transaction may not have the opportunity to do
so. These provisions could also discourage bids for the common stock at a
premium, as well as create a depressive effect on the market price of the common
stock.
These charter provisions and provisions of Georgia law may have the effect
of delaying, deterring or preventing a change of control of Optio.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta.
NASDAQ NATIONAL MARKET LISTING
We have applied for the listing of Optio's common stock on the Nasdaq
National Market under the symbol "OPTO."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for Optio's common
stock, and there can be no assurance that a significant public market for the
common stock will be developed or be sustained after this offering. Sales of
substantial amounts of common stock in the public market after this offering, or
the possibility of these sales occurring, could adversely affect prevailing
market prices for the common stock or the future ability of Optio to raise
capital through an offering of equity securities.
After this offering, Optio will have outstanding an aggregate of 16,918,640
shares of common stock. Of these shares, the 5,000,000 shares being sold in this
offering will be freely tradeable in the public market without restriction under
the Securities Act, unless these shares are held by "affiliates" of Optio, as
that term is defined in Rule 144 under the Securities Act or by persons subject
to other contractual or legal restrictions on resale. The remaining 11,918,640
shares of common stock outstanding upon completion of this offering will be
"restricted securities," as that term is defined in Rule 144 under the
Securities Act. The restricted securities were issued and sold by Optio in
private transactions in reliance upon exemptions from registration under the
Securities Act. Restricted securities may be sold in the public market only if
they are registered or if they qualify for an exemption from registration, such
as Rules 144, 144(k) or 701 under the Securities Act, which are summarized
below.
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<PAGE>
All of the executive officers, directors, selling shareholders and certain
management shareholders of Optio, who collectively hold an aggregate of
7,556,520 restricted shares of Optio, have entered into "lock-up" agreements
with Merrill Lynch in which they have agreed not to offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any of these shares for a period of 180 days from the
date of this prospectus. We have also entered into an agreement with Merrill
Lynch that Optio will not offer, sell or otherwise dispose of common stock for a
period of 180 days from the date of this prospectus.
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701 will be as follows:
- no restricted shares will be eligible for sale as of the date of this
prospectus; and
- approximately 7,556,520 restricted shares will be eligible for sale
180 days after the date of this prospectus upon the expiration of lock-up
agreements with the underwriters subject to the provisions of Rule 144.
Following the expiration of the lock-up periods and subject to applicable
vesting periods, shares issued upon exercise of options granted by Optio prior
to the date of this prospectus will also be available for sale in the public
market pursuant to Rule 701 under the Securities Act. Rule 701 permits resales
of these shares in reliance upon Rule 144 but without compliance with its
restrictions, including the holding period requirement, imposed under Rule 144.
In general, under Rule 144 as in effect at the closing of this offering,
beginning 90 days after the date of this prospectus, a person or persons whose
shares of Optio are aggregated who has beneficially owned restricted shares for
at least one year including the holding period of any prior owner who is not an
affiliate of Optio would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of common stock, or approximately 169,186 shares immediately
after this offering, or the average weekly trading volume of the common stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to the sale. Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about Optio.
Under Rule 144(k), a person who is not deemed to have been an affiliate of Optio
at any time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner who is not an affiliate of Optio, is entitled to sell
the shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Optio intends to file, after the effective date of this offering, a
registration statement on Form S-8 to register approximately 16,267,500 shares
of common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our stock option plan. This registration statement
will become effective automatically upon filing. Shares issued under the
foregoing plans, after the filing of a registration statement on Form S-8, may
be sold in the open market, subject, in the case of option holders, to the
Rule 144 limitations applicable to affiliates, the above-referenced lock-up
agreements and vesting restrictions imposed by Optio.
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<PAGE>
UNDERWRITING
GENERAL
We intend to offer our common stock through a number of underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co., Inc.,
and The Robinson-Humphrey Company, LLC are acting as representatives of each of
the underwriters named below. Subject to the terms and conditions set forth in a
purchase agreement among our company, the selling shareholders and the
underwriters, we have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from our company,
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Bear, Stearns & Co., Inc.........................................................
The Robinson-Humphrey Company, LLC...............................................
----------
Total.................................................................. 5,000,000
==========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of the
shares of common stock being sold under the terms of the agreement if any of the
shares of common stock being sold under the terms of the agreement are
purchased. In the event of a default by an underwriter, the purchase agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We and the selling shareholders have agreed to indemnify the underwriters
against some liabilities, including some liabilities under the Securities Act of
1933, as amended, or to contribute to payments the underwriters may be required
to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us and the selling shareholders that the
underwriters propose initially to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus, and to certain dealers at a price less a concession not in excess of
$ per share of common stock. The underwriters may allow, and such
dealers may
55
<PAGE>
reallow, a discount not in excess of $ per share of common stock to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may change.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us and the selling shareholders to the
underwriters and the proceeds before expenses to us and the selling
shareholders. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT
PER SHARE OPTION
----------------- ---------------
<S> <C> <C>
Public offering price...............................................................
Underwriting discount...............................................................
Proceeds, before expenses, to Optio.................................................
Proceeds, before expenses, to the selling shareholders..............................
<CAPTION>
WITH
OPTION
---------------
<S> <C>
Public offering price...............................................................
Underwriting discount...............................................................
Proceeds, before expenses, to Optio.................................................
Proceeds, before expenses, to the selling shareholders..............................
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1,000,000 and are payable by us.
OVER-ALLOTMENT OPTION
We and the selling shareholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 750,000 additional shares of our common stock at the public
offering price set forth on the cover page of this prospectus, less the
underwriting discount. The underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered hereby. To
the extent that the underwriters exercise this option, each underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of our common stock proportionate to such underwriter's initial amount
reflected in the foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 250,000 of the shares sold by Optio in this
offering to be sold to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. The number of shares of our
common stock available for sale to the general public will be reduced to the
extent that those persons purchase the reserved shares. Any reserved shares
which are not orally confirmed for purchase within one day of the pricing of the
offering will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors, all of the selling shareholders
and certain management shareholders prior to this offering have agreed, with
certain exceptions, without the prior written consent of Merrill Lynch on behalf
of the underwriters for a period of 180 days after the date of this prospectus,
not to directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any shares of
our common stock or securities convertible into or exchangeable or
exercisable for or repayable with our common stock, whether now owned or
later acquired by the person executing the agreement or with respect to
which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
relating to any shares of our common stock; or
56
<PAGE>
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.
QUOTATION OF THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"OPTO."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives and the lead managers. The factors to be considered
in determining the initial public offering price, in addition to prevailing
market conditions, are the valuation multiples of publicly traded companies that
the representatives and the lead managers believe to be comparable to us,
certain of our financial information, the history of, and the prospects for, our
company and the industry in which we compete, and an assessment of our
management, its past and present operations, the prospects for, and timing of,
future revenue of our company, the present state of our development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to ours. An active trading market
may not develop for our common stock, and our common stock may not trade in the
public market subsequent to the offering at or above the initial public offering
price.
The underwriters do not expect sales of the common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of these purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the
representatives or the lead managers will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
57
<PAGE>
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by Morris, Manning & Martin LLP, Atlanta, Georgia. Certain legal matters
relating to our common stock will be passed upon for the underwriters by Willkie
Farr & Gallagher, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at January 31, 1998 and 1999, and for each of
the three years in the period ended January 31, 1999, as set forth in their
reports. We have included our financial statements and schedule, in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus is only a part of the registration
statement and does not contain all of the information included in the
registration statement. Further information with respect to Optio and the common
stock offered hereby can be found in the registration statement. Statements made
in this prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. Documents filed as an exhibit to the
registration statement, and all descriptions in this prospectus, are qualified
in all respects by reference to the registration statement. The registration
statement and the exhibits and schedules thereto may be inspected without charge
at the public reference room maintained by the Securities and Exchange
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Securities and Exchange Commission: Seven
World Trade Center, Room 1400, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the public reference section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, Room 1024, at prescribed rates. The public may obtain information on the
operation of the Securities and Exchange Commission's public reference room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. In addition,
Optio is required to file electronic versions of these documents with the
Securities and Exchange Commission through the Securities and Exchange
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Securities and Exchange Commission maintains an Internet site at
http://www.sec.gov, which contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. Information concerning Optio is also
available for inspection at the offices of the Nasdaq National Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
Such periodic reports, proxy statements and other information will be available
for inspection and copying at the Securities and Exchange Commission's public
reference rooms and the Securities and Exchange Commission's web site, which is
described above.
58
<PAGE>
OPTIO SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C>
Report of Independent Auditors.......................................................................... F-2
Consolidated Balance Sheets as of January 31, 1998 and 1999 and October 31, 1999 (unaudited)............ F-3
Consolidated Statements of Income for the years ended January 31, 1997, 1998, and 1999 and the
nine-month periods ended October 31, 1998 and 1999 (unaudited)........................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended January 31, 1997, 1998, and 1999 and
the nine-month period ended October 31, 1999 (unaudited).............................................. F-5
Consolidated Statements of Cash Flows for the years ended January 31, 1997, 1998 and 1999 and the
nine-month periods ended October 31, 1998 and 1999 (unaudited)........................................ F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Optio Software, Inc.
We have audited the accompanying consolidated balance sheets of Optio
Software, Inc. as of January 31, 1998 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended January 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Optio
Software, Inc. at January 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1999 in conformity with generally accepted accounting principles.
Ernst & Young LLP
March 19, 1999, except for
Note 15, as to which the date is
October 15, 1999
Atlanta, Georgia
F-2
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,507,000 $ 1,129,000 $ 1,286,000
Marketable securities..................................................... 74,000 372,000 317,000
Accounts receivable, less allowance for doubtful accounts of $89,000,
$118,000, and $197,000 (unaudited), respectively........................ 3,066,000 5,691,000 7,212,000
Prepaid expenses and other current assets................................. 123,000 239,000 562,000
Income tax receivable..................................................... -- 171,000 --
Deferred income taxes..................................................... 150,000 175,000 176,000
----------- ------------ ------------
Total current assets........................................................ 4,920,000 7,777,000 9,553,000
Property and equipment:
Furniture and equipment................................................... 1,266,000 1,886,000 2,460,000
Accumulated depreciation.................................................. (378,000) (833,000) (1,366,000)
----------- ------------ ------------
888,000 1,053,000 1,094,000
Other assets:
Notes receivable from related party....................................... -- 525,000 600,000
Note receivable and advances to shareholders.............................. 120,000 116,000 119,000
Deferred income taxes..................................................... 151,000 297,000 501,000
Intangible assets, net of accumulated amortization of $435,000, $919,000,
and $1,333,000 (unaudited), respectively................................ 869,000 872,000 458,000
Other..................................................................... 30,000 98,000 135,000
----------- ------------ ------------
Total assets................................................................ $ 6,978,000 $ 10,738,000 $ 12,460,000
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 707,000 $ 696,000 $ 1,261,000
Accrued expenses.......................................................... 1,063,000 1,860,000 1,574,000
Income taxes payable...................................................... 229,000 -- 232,000
Current portion of notes payable to related parties....................... 170,000 913,000 840,000
Current portion of capital lease obligations and note payable to bank..... 176,000 45,000 47,000
Deferred revenue.......................................................... 2,727,000 5,913,000 6,456,000
----------- ------------ ------------
Total current liabilities................................................... 5,072,000 9,427,000 10,410,000
Notes payable to related parties, less current portion...................... 140,000 1,124,000 532,000
Capital lease obligations and note payable to bank, less current portion.... 106,000 84,000 46,000
Deferred revenue............................................................ 36,000 94,000 116,000
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, none
issued or outstanding................................................... -- -- --
Common stock, no par value:
100,000,000 shares authorized; 12,930,230, 11,918,640 and 11,918,640
(unaudited) shares issued and outstanding, respectively................. 704,000 1,033,000 1,439,000
Retained earnings (accumulated deficit)................................... 953,000 (1,071,000) 239,000
Accumulated other comprehensive (loss) income............................. (33,000) 47,000 29,000
Unamortized stock compensation............................................ -- -- (351,000)
----------- ------------ ------------
Total shareholders' equity.................................................. 1,624,000 9,000 1,356,000
----------- ------------ ------------
Total liabilities and shareholders' equity.................................. $ 6,978,000 $ 10,738,000 $ 12,460,000
=========== ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED JANUARY 31, ENDED OCTOBER 31,
---------------------------------------- -------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees.................................... $ 5,802,000 $ 9,150,000 $ 12,014,000 $ 8,081,000 $ 11,948,000
Services, maintenance, and other................ 3,200,000 4,419,000 7,525,000 4,999,000 11,254,000
------------ ------------ ------------ ----------- ------------
9,002,000 13,569,000 19,539,000 13,080,000 23,202,000
Costs of revenue:
License fees.................................... 642,000 1,088,000 913,000 574,000 648,000
Services, maintenance, and other................ 1,814,000 2,214,000 4,089,000 2,719,000 5,763,000
------------ ------------ ------------ ----------- ------------
2,456,000 3,302,000 5,002,000 3,293,000 6,411,000
------------ ------------ ------------ ----------- ------------
6,546,000 10,267,000 14,537,000 9,787,000 16,791,000
Operating expenses:
Sales and marketing............................. 3,674,000 5,901,000 7,534,000 5,004,000 8,434,000
Research and development........................ 891,000 1,551,000 2,530,000 1,713,000 2,529,000
General and administrative...................... 1,143,000 1,886,000 2,884,000 1,654,000 2,586,000
Depreciation and amortization................... 144,000 806,000 941,000 665,000 892,000
------------ ------------ ------------ ----------- ------------
5,852,000 10,144,000 13,889,000 9,036,000 14,441,000
------------ ------------ ------------ ----------- ------------
Income from operations............................ 694,000 123,000 648,000 751,000 2,350,000
Other income (expense):
Interest income................................. 71,000 32,000 104,000 64,000 86,000
Interest expense................................ (42,000) (77,000) (257,000) (45,000) (96,000)
Other........................................... -- 8,000 (46,000) 9,000 (1,000)
------------ ------------ ------------ ----------- ------------
29,000 (37,000) (199,000) 28,000 (11,000)
------------ ------------ ------------ ----------- ------------
Income before income taxes........................ 723,000 86,000 449,000 779,000 2,339,000
Income tax expense................................ 304,000 64,000 99,000 181,000 1,029,000
------------ ------------ ------------ ----------- ------------
Net income........................................ $ 419,000 $ 22,000 $ 350,000 $ 598,000 $ 1,310,000
============ ============ ============ =========== ============
Net income per share-basic........................ $ 0.03 $ 0.00 $ 0.03 $ 0.05 $ 0.11
============ ============ ============ =========== ============
Net income per share-diluted...................... $ 0.03 $ 0.00 $ 0.02 $ 0.04 $ 0.07
============ ============ ============ =========== ============
Weighted average shares outstanding--basic........ 12,380,356 12,890,904 12,824,532 12,928,056 11,918,640
============ ============ ============ =========== ============
Weighted average shares outstanding--diluted...... 15,477,556 16,423,952 17,304,829 16,753,206 19,347,356
============ ============ ============ =========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON STOCK EARNINGS COMPREHENSIVE UNAMORTIZED TOTAL
------------------------ (ACCUMULATED INCOME STOCK SHAREHOLDERS'
SHARES AMOUNT DEFICIT) (LOSS) COMPENSATION EQUITY
----------- ----------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1996........... 12,095,230 $ 190,000 $ 512,000 $ -- $ -- $ 702,000
Comprehensive income (loss), net of
tax:
Net income........................ -- -- 419,000 -- -- 419,000
Unrealized loss on marketable
securities available for sale... -- -- -- (15,000) -- (15,000)
-----------
Comprehensive income................ 404,000
Issuance of common stock............ 335,000 214,000 -- -- -- 214,000
----------- ----------- ---------- ---------- ----------- -----------
Balance at January 31, 1997........... 12,430,230 404,000 931,000 (15,000) -- 1,320,000
Comprehensive income (loss), net of
tax:
Net income........................ -- -- 22,000 -- -- 22,000
Unrealized loss on marketable
securities available for sale... -- -- -- (18,000) -- (18,000)
-----------
Comprehensive income................ 4,000
Issuance of common stock............ 500,000 300,000 -- -- -- 300,000
----------- ----------- ---------- ---------- ----------- -----------
Balance at January 31, 1998........... 12,930,230 704,000 953,000 (33,000) -- 1,624,000
Comprehensive income, net of tax:
Net income........................ -- -- 350,000 -- -- 350,000
Foreign currency translation
adjustment...................... -- -- -- 1,000 -- 1,000
Unrealized gain on marketable
securities available for sale... -- -- -- 79,000 -- 79,000
-----------
Comprehensive income................ 430,000
Issuance of common stock:
Acquisition of business........... 200,000 160,000 -- -- -- 160,000
Exercise of stock options and
related
tax benefit..................... 500,000 301,000 -- -- -- 301,000
Issuance to employee.............. 10,000 15,000 -- -- -- 15,000
Purchase and retirement of common
stock............................. (1,721,590) (147,000) (2,374,000) -- -- (2,521,000)
----------- ----------- ---------- ---------- ----------- -----------
Balance at January 31, 1999........... 11,918,640 1,033,000 (1,071,000) 47,000 -- 9,000
Comprehensive income (loss), net of
tax:
Net income........................ -- -- 1,310,000 -- -- 1,310,000
Foreign currency translation
adjustment...................... -- -- -- 2,000 -- 2,000
Unrealized loss on marketable
securities available for sale... -- -- -- (20,000) -- (20,000)
-----------
Comprehensive income................ 1,292,000
Compensation related to stock option
grants............................ -- 406,000 -- -- (351,000) 55,000
----------- ----------- ---------- ---------- ----------- -----------
Balance at October 31, 1999
(unaudited)......................... 11,918,640 $ 1,439,000 $ 239,000 $ 29,000 $ (351,000) $ 1,356,000
=========== =========== ========== ========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------------- ------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income............................................ $ 419,000 $ 22,000 $ 350,000 $ 598,000 $ 1,310,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 144,000 366,000 457,000 316,000 473,000
Amortization of intangible assets................... -- 440,000 484,000 346,000 414,000
Provision for doubtful accounts..................... 72,000 373,000 227,000 123,000 358,000
Gain on sale of marketable securities............... -- -- (55,000) -- --
Non-cash compensation and interest.................. -- -- 888,000 -- 55,000
Deferred income taxes............................... 1,000 (225,000) (199,000) (143,000) (191,000)
Change in assets and liabilities:
Accounts receivable............................... (404,000) (1,028,000) (2,581,000) (175,000) (1,926,000)
Prepaid expenses and other assets................. (5,000) 67,000 (116,000) (56,000) (389,000)
Accounts payable.................................. 200,000 (36,000) (156,000) (529,000) 440,000
Accrued expenses.................................. (554,000) 125,000 742,000 46,000 (148,000)
Income taxes payable.............................. (89,000) 252,000 (115,000) (14,000) 417,000
Deferred revenue.................................. 425,000 793,000 3,136,000 1,537,000 582,000
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities............. 209,000 1,149,000 3,062,000 2,049,000 1,395,000
INVESTING ACTIVITIES
Purchase of marketable securities..................... (79,000) (27,000) (302,000) (215,000) (147,000)
Proceeds from sale of marketable securities........... -- -- 166,000 -- 169,000
Purchases of property and equipment................... (340,000) (544,000) (571,000) (382,000) (520,000)
Advances to shareholders.............................. -- (7,000) 4,000 5,000 (3,000)
Advances to related party............................. -- -- (525,000) (300,000) (75,000)
Acquisition of business, net of cash acquired......... -- -- (223,000) (237,000) --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities................. (419,000) (578,000) (1,451,000) (1,129,000) (576,000)
FINANCING ACTIVITIES
Payments of notes payable to related parties, capital
lease obligations, and note payable to bank......... (109,000) (710,000) (2,028,000) (188,000) (700,000)
Proceeds from exercise of stock options............... -- -- 1,000 -- --
Issuance of common stock.............................. 214,000 -- -- -- --
Other................................................. -- -- 5,000 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities... 105,000 (710,000) (2,022,000) (188,000) (700,000)
Impact of foreign currency rate fluctuations on cash.. -- -- 33,000 (11,000) 38,000
Net increase (decrease) in cash and cash equivalents.. (105,000) (139,000) (378,000) 732,000 119,000
Cash and cash equivalents at beginning of year........ 1,751,000 1,646,000 1,507,000 1,507,000 1,129,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year.............. $ 1,646,000 $ 1,507,000 $ 1,129,000 $ 2,228,000 $ 1,286,000
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.............................. $ 30,000 $ 48,000 $ 221,000 $ 44,000 $ 97,000
=========== =========== =========== =========== ===========
Cash paid for income taxes.......................... $ 392,000 $ 127,000 $ 416,000 $ 305,000 $ 662,000
=========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Optio Software, Inc. (the "Company") is engaged primarily in the
development, sale and support of document customization software to companies
located principally in the United States and Europe. The industry in which the
Company operates is subject to rapid change due to development of new
technologies and products. Effective March 11, 1997 the Company changed its name
from XPoint Corporation to Optio Software, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's French subsidiary have been
translated into United States dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, FOREIGN CURRENCY TRANSLATION, which
generally provides for the use of current exchange rates in translating
financial statements. The foreign currency translation adjustment is included in
shareholders' equity (deficit).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company typically recognizes software license fee revenue from sales to
end users as well as from sales to resellers and distributors upon delivery when
there is persuasive evidence of an arrangement, the fee is fixed and
determinable and collection of the license fee is probable. For sales to
resellers and distributors, products are delivered either directly to the end
user or to the reseller when the reseller has an identified end user. No
customers have the right to return products purchased. When contracts requiring
significant production, modification or customization are entered into, contract
revenue is recognized on a percentage of completion basis using actual costs
incurred as a percentage of expected total costs. Revenue from maintenance
contracts is recognized on a pro-rata basis over the term of each contract, and
revenue from other services, principally training, is recognized as the services
are performed. Deferred revenue represents payments received in advance of
recognizing the related revenue.
Prior to February 1, 1998, the Company recognized revenue in accordance with
the American Institute of Certified Public Accountants ("AICPA") Statement of
Position 91-1, SOFTWARE REVENUE RECOGNITION ("SOP 91-1"). In October 1997 the
AICPA issued Statement of Position 97-2, SOFTWARE REVENUE RECOGNITION ("SOP
97-2"), which superseded SOP 91-1, to clarify guidance on applying generally
accepted accounting principles to software transactions and to provide guidance
on when revenue should be recognized and in what amounts for licensing, selling,
leasing, or otherwise marketing computer software. Effective February 1, 1998,
the Company adopted SOP 97-2, as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2." Such
adoption did not have a material effect on the Company's methods of recognizing
revenue.
F-7
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Total advertising
expense amounted to approximately $447,000, $887,000, and $1,147,000 during the
years ended January 31, 1997, 1998 and 1999, and $948,000 (unaudited) and
$1,092,000 (unaudited), for the nine-month periods ended October 31, 1998 and
1999, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on these investments are reported as a separate component of accumulated
other comprehensive income, which is included in shareholders' equity, and are
not reported in earnings until realized or until a decline in fair value below
cost is deemed to be other than temporary. The aggregate costs of marketable
securities held as of January 31, 1998 and 1999 and October 31, 1999 are
$107,000, $297,000, and $277,000 (unaudited), respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
calculated over the estimated useful lives of the related assets (generally
three to five years) using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Amortization of assets
recorded under capital leases is included with depreciation expense.
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair value of net
tangible assets acquired and include goodwill and other intangible assets,
principally the value of an existing customer base acquired. Intangible assets
are being amortized using the straight-line method over periods of three to five
years for goodwill and three years for other intangible assets.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
EMPLOYEE STOCK OPTIONS
The Company accounts for stock based awards using the intrinsic value method
under Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25") and related interpretations. The pro forma effect on the
accompanying statements of income of applying the fair value method under SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, is presented in Note 8.
F-8
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
As of February 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and the foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. The consolidated financial
statements for the years ended January 31, 1997 and 1998 have been reclassified
to conform to the requirements of SFAS 130. Unrealized gains on marketable
securities as of January 31, 1999 and October 31, 1999 are net of income taxes
of $28,000 and $14,000 (unaudited), respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," which
delayed for one year the effective date of the provisions within SOP 97-2 that
set forth the definition of "vendor-specific objective evidence" of fair value.
In December 1998, the AICPA issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 extended the effective date to apply the definition of
"vendor-specific objective evidence" of fair value under SOP 97-2 through fiscal
years beginning on or before March 15, 1999 and introduced the requirement to
recognize revenue using the "residual method" to value delivered elements of
multiple-element contracts under certain circumstances. The provisions of
SOP 98-9 will be adopted by the Company effective February 1, 2000. The Company
is currently evaluating the impact of adopting SOP 98-9 but does not expect the
adoption of this standard to have a material effect on the Company's methods of
recognizing revenue.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
("SFAS 131"). The Company adopted SFAS 131 effective February 1, 1998. The
Company has made the financial statement disclosures necessary to conform to
SFAS 131, which has had no impact on the Company's financial position or results
of operations.
In 1998, the AICPA issued Statement of Position 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPMENT OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). The Company adopted SOP 98-1 effective February 1, 1999. The adoption of
this standard did not have a material effect on the Company's financial position
or results of operations.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), which
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure these instruments
at fair value. SFAS 133 is expected to be effective for the Company's fiscal
year beginning February 1, 2001. The Company is currently evaluating what
impact, if any, SFAS 133 may have on its consolidated financial statements.
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the nine-month periods
ended October 31, 1998 and 1999 have been prepared on substantially the same
basis as the audited financial statements and
F-9
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
include all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the financial information set forth
therein.
3. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities, trade accounts receivable, and receivables from related
parties.
The Company maintains cash and cash equivalents at various financial
institutions. Company policy is designed to limit exposure at any one
institution. The Company performs periodic evaluations of the relative credit
standing of those financial institutions which are considered in the Company's
investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
generally are due within 30 days, and management records estimates of expected
credit losses and returns of products sold. Bad debt expense for the years ended
January 31, 1997, 1998 and 1999 and for the nine-month periods ended
October 31, 1998 and 1999 amounted to $72,000, $373,000, $227,000, $123,000, and
$358,000, respectively. Credit risk with respect to the note receivable from
related party is limited as the note is secured by options to purchase 500,000
shares of the Company's common stock.
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, receivables from related parties,
accounts payable and long-term debt approximate their fair value. The fair
values of marketable equity securities are based on quoted market prices.
F-10
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
4. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
------------------------ ------------
1998 1999 1999
---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a shareholder resulting from the purchase of Devcom
Mid-America, Inc. (see Note 10), in the original amount of $379,000 due
in monthly installments of $11,000 including interest at 10%, through
February 2000.......................................................... $ 257,000 $ 141,000 $ 45,000
Notes payable to a shareholder and employee for the purchase of
Competence Software Europe, S.A. (See Note 10) in the original amount
of $150,000 due in two annual payments of $75,000 and accruing interest
at 5%.................................................................. -- 150,000 75,000
Notes payable to three former shareholders and employees for the purchase
of common stock and options to purchase common stock (see Note 9), in
the original amount of $3,283,000, of which $1,612,000 was paid in
January 1999, with the remaining balance due in quarterly installments
of $183,000 including interest at 7%, through July 2001................ -- 1,671,000 1,199,000
Other notes payable to related parties................................... 53,000 75,000 53,000
---------- ------------ ----------
310,000 2,037,000 1,372,000
Less current portion..................................................... 170,000 913,000 840,000
---------- ------------ ----------
$ 140,000 $ 1,124,000 $ 532,000
========== ============ ==========
</TABLE>
Aggregate future maturities of notes payable to related parties at
January 31, 1999 are as follows:
<TABLE>
<S> <C>
2000............................................................ $ 913,000
2001............................................................ 767,000
2001............................................................ 357,000
---------
$2,037,000
=========
</TABLE>
F-11
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
5. NOTE PAYABLE TO BANK, CAPITAL LEASES, AND LINES OF CREDIT
The Company had a note payable to a bank in the original amount of $550,000
due in monthly installments of $11,000 including interest at prime plus .75%
(9.0% at January 31, 1998), which became fully paid in November 1998. The note
was secured by substantially all assets, and personally guaranteed by the
majority shareholder. The outstanding balance of this note was $144,000 as of
January 31, 1998.
The Company also leases telecommunications and computer equipment under
capital leases. Assets under capital leases included in property and equipment
are as follows:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
---------------------- ------------
1998 1999 1999
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Equipment.............................................. $ 178,000 $ 215,000 $ 212,000
Less accumulated amortization.......................... 39,000 85,000 123,000
---------- ---------- ----------
$ 139,000 $ 130,000 $ 89,000
========== ========== ==========
</TABLE>
Future minimum lease payments under capital leases consist of the following
at January 31, 1999:
<TABLE>
<S> <C>
2000............................................................... $ 63,000
2001............................................................... 53,000
2002............................................................... 38,000
---------
Total minimum lease payments....................................... 154,000
Less amounts representing interest................................. (25,000)
---------
Present value of net minimum lease payments........................ 129,000
Less current portion............................................... (45,000)
---------
$ 84,000
=========
</TABLE>
On May 9, 1997, the Company entered into a line of credit with a bank under
which it could borrow up to $1,500,000 subject to certain limitations, through
May 11, 1998. The line bore interest at the prime rate (8.25% at January 31,
1998). As of January 31, 1998, there were no borrowings outstanding under the
line.
On January 31, 1999, the Company entered into a line of credit with a bank
under which it may borrow up to $2,000,000 subject to certain limitations,
through January 31, 2001. The line bears interest at the prime rate plus one to
two percent based on the balance outstanding under the line of credit (8.75% to
9.75% at January 31, 1999). Virtually all assets have been pledged as collateral
under the line of credit. As of January 31, 1999 and October 31, 1999, there
were no borrowings outstanding under the line.
6. OPERATING LEASES
The Company leases office and warehouse space under operating leases. Rent
expense under the Company's operating leases was approximately $168,000,
$253,000, and $314,000 during the years ended January 31, 1997, 1998, and 1999.
F-12
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
6. OPERATING LEASES (CONTINUED)
Future minimum lease payments under noncancellable operating leases, with
initial terms of at least one year at the time of inception, are as follows at
January 31, 1999:
<TABLE>
<S> <C>
2000.............................................................. $ 504,000
2001.............................................................. 284,000
2002.............................................................. 176,000
2003.............................................................. 3,000
2004.............................................................. 1,000
---------
$ 968,000
=========
</TABLE>
In March 1999, the Company entered into a new lease agreement which provides
office space for the Company over a 86 month period beginning November 1, 1999
in exchange for annual lease payments ranging from $1,115,000 to $1,230,000.
7. INCOME TAXES
The provisions for income taxes are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------
<S> <C> <C> <C>
1997 1998 1999
---------- ---------- ----------
Current:
Federal.................................................................... $ 210,000 $ 222,000 $ 120,000
State...................................................................... 28,000 39,000 44,000
Foreign.................................................................... 65,000 28,000 134,000
---------- ---------- ----------
303,000 289,000 298,000
Deferred:
Federal.................................................................... 1,000 (202,000) (178,000)
State...................................................................... -- (23,000) (21,000)
---------- ---------- ----------
1,000 (225,000) (199,000)
---------- ---------- ----------
Total........................................................................ $ 304,000 $ 64,000 $ 99,000
========== ========== ==========
</TABLE>
Pre-tax income attributable to foreign and domestic operations is summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------
<S> <C> <C> <C>
1997 1998 1999
---------- ---------- ----------
Canadian operations...................................... $ 131,000 $ -- $ --
French operations........................................ -- -- 337,000
U.S. operations.......................................... 592,000 86,000 112,000
---------- ---------- ----------
$ 723,000 $ 86,000 $ 449,000
========== ========== ==========
</TABLE>
F-13
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
7. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------
<S> <C> <C> <C>
1997 1998 1999
---------- ---------- -----------
Statutory rate of 34% applied to pre-tax income.............................. $ 246,000 $ 29,000 $ 153,000
State income taxes, net of Federal tax benefit............................... 25,000 7,000 8,000
Foreign taxes................................................................ 19,000 28,000 20,000
Research and development tax credits......................................... (21,000) (56,000) (116,000)
Other, net................................................................... 35,000 56,000 34,000
---------- ---------- -----------
$ 304,000 $ 64,000 $ 99,000
========== ========== ===========
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31
----------------------
<S> <C> <C>
1998 1999
---------- ----------
Deferred income tax assets:
Goodwill amortization................................................................... $ 135,000 $ 289,000
Payroll related accruals................................................................ 89,000 104,000
Allowance for doubtful accounts......................................................... 33,000 43,000
Deferred revenue........................................................................ 14,000 36,000
Other, net.............................................................................. 39,000 28,000
---------- ----------
Total deferred income tax assets.......................................................... 310,000 500,000
Deferred income tax liabilities:
Tax over book depreciation.............................................................. 9,000 --
Unrealized changes in marketable securities............................................. -- 28,000
---------- ----------
Total deferred income tax liabilities..................................................... 9,000 28,000
---------- ----------
Net deferred tax asset.................................................................... $ 301,000 $ 472,000
========== ==========
</TABLE>
F-14
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
8. STOCK OPTIONS
Effective January 1, 1997, the Company adopted a stock incentive plan (the
"Plan") for employees and key persons which provides for the issuance of stock
incentives covering up to 12,500,000 shares of common stock. The Plan provides
for the grant of incentive stock options, non-qualified stock options,
restricted stock awards and stock appreciation rights. The terms and conditions
of stock incentives granted under the Plan, including the number of shares, the
exercise price and the time at which such options become exercisable are
determined by the Board of Directors. The term of options granted under the Plan
may not exceed 10 years and generally vest over periods ranging from three to
five years. A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF PER EXERCISE
SHARES OPTION PRICE
---------- --------------- -----------
<S> <C> <C> <C>
Outstanding options at February 1, 1996.................................. 3,500,000 $0.002-$0.20 $ 0.07
Options granted........................................................ 2,192,500 $0.60-$0.64 $ 0.60
----------
Outstanding options at January 31, 1997.................................. 5,692,500 $0.002-0.64 $ 0.27
Options granted........................................................ 975,000 $0.60-$0.80 $ 0.65
Options canceled....................................................... (375,000) $0.03-$0.60 $ 0.27
----------
Outstanding options at January 31, 1998.................................. 6,292,500 $0.002-$0.80 $ 0.34
Options granted........................................................ 4,099,940 $0.80-$1.50 $ 0.80
Options exercised...................................................... (500,000) $0.002 $ 0.002
Options canceled....................................................... (790,040) $0.10-$0.80 $ 0.22
----------
Outstanding options at January 31, 1999.................................. 9,102,400 $0.002-$1.50 $ 0.56
Options granted (unaudited)............................................ 1,362,595 $1.00-$9.00 $ 1.66
Options canceled (unaudited)........................................... (865,210) $0.60-$1.50 $ 0.75
----------
Outstanding options at October 31, 1999 (unaudited)...................... 9,599,785 $0.002-$9.00 $ 0.70
==========
Exercisable options at January 31, 1998.................................. 3,840,000 $0.002-$0.80 $ 0.22
==========
Exercisable options at January 31, 1999.................................. 4,625,000 $0.002-$0.80 $ 0.39
==========
</TABLE>
The following table summarizes information concerning options outstanding
and exercisable as of January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE WEIGHTED
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
- ------------- --------- --------- --------- ---------- ---------
$0.002-0.20 2,350,000 .77 $ 0.07 2,250,000 $ 0.07
$0.60-0.80 6,727,400 6.32 $ 0.73 2,375,000 $ 0.69
$0.80-1.50 25,000 .03 $ 1.50 -- --
--------- ----------
9,102,400 7.05 $ 0.56 4,625,000 $ 0.39
========= ==========
</TABLE>
The Company has reserved 12,500,000 shares of common stock for issuance upon
exercise of stock options.
F-15
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
The Company has elected to follow APB 25 in accounting for its stock options
because, as discussed below, the alternative fair value accounting provided for
under Statement 123 requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, when the
exercise price of the Company's stock options equals or exceeds the market price
of the underlying stock on the date of grant, no compensation expense is
recorded.
Pro forma information regarding net income is required by Statement 123,
which also requires that the information be determined as if the Company has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method. The fair value for these options was estimated at
the date of grant using the minimum value method with the following
weighted-average assumptions for the years ended January 31, 1997, 1998 and
1999: risk-free interest rates of 6.71%, 6.28%, and 5.61%, respectively; no
dividend yield; volatility of .01; and an expected life of the options of
6 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
weighted-average fair value of options granted during the year ended
January 31, 1997 equaled $0.29 per share. The weighted-average fair value of
options granted during the year ended January 31, 1998 equaled $0.20 for options
whose exercise price equaled the estimated stock value on the grant date and
$0.15 for options whose exercise price exceeded the estimated stock value on the
grant date. The weighted average fair value of options granted during the year
ended January 31, 1999 equaled $0.23 per share. The Company's pro forma
information as determined using the fair value method of accounting of Statement
123, was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------------
<S> <C> <C> <C>
1997 1998 1999
---------- ---------- ----------
Pro forma net income (loss)............................... $ 314,000 ($ 31,000) $ 123,000
Pro forma net income (loss) per share--basic.............. 0.03 0.00 0.01
Pro forma net income (loss) per share--diluted............ 0.02 0.00 0.01
</TABLE>
Since Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.
The Company recorded deferred compensation of $406,000 during the nine-month
period ended October 31, 1999 in connection with grants of employee share
purchase options with exercise prices lower than the deemed fair market value
per share of the Company's common stock on the date of grant. Such amounts are
being amortized over the period in which the options vest, generally three to
four years, and accordingly, $55,000 in compensation expense was recognized in
the nine-month period ended October 31, 1999.
9. SHAREHOLDERS' EQUITY
On May 1, 1998, the Company issued a note payable for $50,000 to an employee
in exchange for 75,000 shares of the Company's common stock. Shareholders'
equity was reduced by the $50,000 repurchase price.
In December 1998, the Company entered into an agreement (the "Agreement")
with two of its former key employees and a former advisor (the "Former
Shareholders"), whereby the Company paid cash of $60,000 and issued notes
payable totaling $3,283,000 in exchange for 1,646,590 shares of the Company's
common stock, forfeiture of options to purchase 500,000 shares of the Company's
common stock, and
F-16
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
accrued interest of $173,000. Shareholders' equity was reduced by the $7.50 per
share purchase price for the 1,646,590 repurchased shares.
The Company recorded compensation expense of $700,000, which is included in
general and administrative expenses for the year ended January 31, 1999, as a
result of the $1.40 per share price paid to the Former Employees for the options
to purchase 500,000 shares of the Company's common stock. The $1.40 price paid
represents the estimated fair value of a share of the Company's common stock of
$1.50 less the $0.10 per share exercise price of these options.
During the year ended January 31, 1999, the holder of certain non-qualified
options covering 500,000 shares of the Company's common stock exercised such
options in exchange for the exercise price of $0.002 per share. As a result the
Company recorded a tax benefit of $300,000 in common stock relative to the
difference between the estimated fair value of the Company's common stock on the
exercise date of $1.50 per share and the exercise price paid of $0.002 per
share.
In connection with the Agreement, the Company executed an escrow agreement
between the Former Employees and a bank whereby the shares of common stock
purchased by the Company shall be held in escrow as security for the repayment
of the issued promissory notes. The escrowed shares shall be released from
escrow as payments are made on the notes. Such escrowed shares remaining in
escrow at January 31, 1999 are not included as outstanding shares of common
stock.
10. ACQUISITIONS
On February 28, 1997 the Company acquired all the assets and assumed all the
liabilities of Devcom Mid-America, Inc. ("Devcom"). The purchase price amounted
to $1,671,000 consisting of 500,000 shares of the Company's common stock valued
at $300,000 and assumed liabilities (including notes payable) of $1,371,000. The
transaction was accounted for using the purchase method of accounting and all
assets and liabilities were recorded at fair value. The excess of purchase price
over the assets acquired is recorded as goodwill of approximately $1,285,000
which is being amortized over a three-year period. The results of operations of
Devcom have been included in the Company's income statement since the effective
date of the transaction.
The following represents the unaudited pro forma consolidated results of
operations for the year ended January 31, 1997, assuming the above acquisition
of Devcom had occurred at the beginning of the year immediately preceding the
year of acquisition:
<TABLE>
<CAPTION>
YEAR-ENDED
JANUARY 31
1997
-------------
<S> <C>
Net revenue.................................................................... $ 10,624,000
Net loss....................................................................... (137,000)
Pro forma net loss per share--basic and diluted................................ (0.01)
</TABLE>
The pro forma consolidated results of operations for the year ended
January 31, 1998 was not materially different from the Company's consolidated
results of operations for the year ended January 31, 1998.
These unaudited pro forma consolidated results do not purport to be
indicative of the results or trends that actually would have been obtained if
the operations were combined during the period presented, and is not intended to
be a projection of future results or trends.
F-17
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
10. ACQUISITIONS (CONTINUED)
On August 26, 1998, the Company acquired all the outstanding shares of
Competence Software Europe, S.A ("Competence"), a software product distributor
in Europe for consideration valued at approximately $730,000 consisting of notes
payable of $150,000, 200,000 shares of the Company's common stock valued at
$160,000 and cash and related acquisition costs of approximately $351,000 and
$69,000 respectively. In accordance with the purchase agreement, the Company may
have to pay additional amounts of up to $100,000 as part of the purchase price,
if certain aggregate gross revenue thresholds are achieved during the twenty-two
month period ending January 31, 2000. If the revenue thresholds are met, payment
will be due in February 2000. In connection with the transaction, the Company
and the seller (the "Seller") entered into a shareholder agreement whereby the
Seller, who received 200,000 shares of the Company's common stock as part of the
purchase price, is subject to certain restrictions on the transfer or sale of
shares, including the Company's right of first refusal to purchase shares to be
sold.
The transaction was accounted for using the purchase method of accounting
and its results have been included in the Company's income statement since the
effective date of the acquisition. The Company recorded intangible assets of
approximately $487,000 which represents the excess of the purchase price over
the fair value of assets acquired. The intangible assets were further allocated
$150,000 to the existing customer base, which is being amortized over three
years, and $337,000 to goodwill, which is being amortized over five years.
The following represents the unaudited pro forma consolidated results of
operations for the years ended January 31, 1998 and 1999, assuming the above
acquisition of Competence had occurred at the beginning of the year of
acquisition and the beginning of the year for the immediately preceding period:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------
<S> <C> <C>
1998 1999
------------- -------------
Net revenue........................................................................ $ 14,167,000 $ 19,899,000
Net income......................................................................... (70,000) 307,000
Pro forma net (loss) income per share--basic and diluted........................... (0.01) 0.02
</TABLE>
These unaudited pro forma consolidated results do not purport to be
indicative of the results or trends that actually would have been obtained if
the operations were combined during the periods presented, and is not intended
to be a projection of future results or trends.
11. EMPLOYEE BENEFIT PLAN
The Company has a combined profit sharing and 401(k) plan (the "Plan") which
covers substantially all employees meeting specified age and length-of-service
requirements. The Company may make a discretionary matching contribution each
year. The Company recognized expense related to the Plan of approximately
$82,000, $136,000 and $127,000 during the years ended January 31, 1997, 1998 and
1999 respectively.
12. RELATED PARTY TRANSACTIONS
The Company has notes receivable and advances to shareholders for general
personal purposes of $120,000, $116,000, and $119,000 (unaudited) at
January 31, 1998 and 1999 and October 31, 1999, respectively. Included in these
amounts are notes amounting to $40,000, $35,000, and $35,000 as of January 31,
1998 and 1999 and October 31, 1999, respectively, which bear interest between
9.5% and 10% with the principal and interest thereon due upon demand. The
remaining advances do not accrue interest
F-18
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
and are due upon demand. The advances and note receivable are classified as
long-term as the shareholders do not intend to repay the balances within the
next fiscal year.
During the year ended January 31, 1999, the Company advanced $525,000 for
general personal purposes to an individual who is a director of the Company and
who holds options to purchase 500,000 shares of the Company's common stock. At
January 31, 1999 and October 31, 1999, $525,000 and $600,000 (unaudited),
respectively, was owed to the Company from this individual as a result of these
advances. Such advances are secured by the options held by the individual.
13. NET INCOME PER SHARE
Net income per share has been computed in accordance with SFAS 128 which
requires disclosure of basic and diluted earnings per share. Basic earnings per
share excludes any dilutive effects of stock options. Diluted earnings per share
includes the impact of potentially dilutive securities.
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED JANUARY 31 ENDED OCTOBER 31
------------------------------------------- ----------------------------
1997 1998 1999 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income............................ $ 419,000 $ 22,000 $ 350,000 $ 598,000 $ 1,310,000
============= ============= ============= ============= =============
Weighted average shares
outstanding--basic.................. 12,380,356 12,890,904 12,824,532 12,928,056 11,918,640
Effect of dilutive stock options...... 3,097,200 3,533,048 4,480,297 3,825,150 7,428,716
------------- ------------- ------------- ------------- -------------
Weighted average shares
outstanding--diluted................ 15,477,556 16,423,952 17,304,829 16,753,206 19,347,356
============= ============= ============= ============= =============
Net income per share--basic........... $ 0.03 $ 0.00 $ 0.03 $ 0.05 $ 0.11
============= ============= ============= ============= =============
Net income per share--diluted......... $ 0.03 $ 0.00 $ 0.02 $ 0.04 $ 0.07
============= ============= ============= ============= =============
</TABLE>
14. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized around geographic areas. Prior to fiscal 1999 the
Company operated in one geographic segment. During fiscal 1999 the Company
operated in two geographic segments, the United States and France, and expanded
into the United Kingdom and Australia subsequent to January 31, 1999. The
foreign locations principally function as distributors of products developed by
Optio in the United States. The accounting policies as described in the summary
of significant accounting policies are applied consistently across the segments.
Intersegment sales are based on intercompany transfer prices to achieve a
reasonable margin upon distribution.
F-19
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
14. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Segment information for the year ended January 31, 1999 and the two
nine-month periods ended October 31, 1998 and 1999 (unaudited) is summarized
below.
<TABLE>
<CAPTION>
UNITED
YEAR ENDED JANUARY 31, 1999 STATES FRANCE COMBINED ELIMINATIONS CONSOLIDATED
- ---------------------------------------------------- ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees...................................... $11,442,000 $ 572,000 $12,014,000 $ -- $12,014,000
Services, maintenance and other................... 7,111,000 414,000 7,525,000 -- 7,525,000
Intersegment revenue................................ 19,000 -- 19,000 (19,000) --
---------- --------- ---------- ---------- ----------
Total revenue..................................... 18,572,000 986,000 19,558,000 (19,000) 19,539,000
Interest income..................................... 102,000 2,000 104,000 -- 104,000
Interest expense.................................... (257,000) -- (257,000) -- (257,000)
Depreciation and amortization....................... 917,000 24,000 941,000 -- 941,000
Income tax expense (benefit)........................ (35,000) 134,000 99,000 -- 99,000
Segment net income (loss)........................... 166,000 203,000 369,000 (19,000) 350,000
Total segment assets................................ 9,554,000 1,184,000 10,738,000 -- 10,738,000
Expenditures for long-lived assets.................. 1,004,000 107,000 1,111,000 -- 1,111,000
</TABLE>
<TABLE>
<CAPTION>
UNITED
NINE-MONTH PERIOD ENDED OCTOBER 31, 1998 (UNAUDITED) STATES FRANCE COMBINED ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------ ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees........................................ $7,840,000 $ 241,000 $8,081,000 $ -- $8,081,000
Services, maintenance and other..................... 4,829,000 170,000 4,999,000 -- 4,999,000
Intersegment revenue.................................. 19,000 -- 19,000 (19,000) --
---------- --------- ---------- ---------- ----------
Total revenue....................................... 12,688,000 411,000 13,099,000 (19,000) 13,080,000
Interest income....................................... 64,000 -- 64,000 -- 64,000
Interest expense...................................... (45,000) -- (45,000) -- (45,000)
Depreciation and amortization......................... 655,000 10,000 665,000 -- 665,000
Income tax expense.................................... 101,000 80,000 181,000 -- 181,000
Segment net income (loss)............................. 502,000 115,000 617,000 (19,000) 598,000
Total segment assets.................................. 8,323,000 698,000 9,021,000 -- 9,021,000
Expenditures for long-lived assets.................... 869,000 50,000 919,000 -- 919,000
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED OCTOBER 31, UNITED UNITED
1999 (UNAUDITED) STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
- ----------------------------------- ---------- --------- ----------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees..................... $9,952,000 $1,379,000 $ 577,000 $ 40,000 $11,948,000 $ -- $11,948,000
Services, maintenance and
other.......................... 10,192,000 802,000 248,000 12,000 11,254,000 -- 11,254,000
Intersegment revenue............... 486,000 155,000 -- -- 641,000 (641,000) --
---------- --------- --------- --------- ---------- ---------- ----------
Total revenue.................... 20,630,000 2,336,000 825,000 52,000 23,843,000 (641,000) 23,202,000
Interest income.................... 86,000 -- -- -- 86,000 -- 86,000
Interest expense................... (96,000) -- -- -- (96,000) -- (96,000)
Depreciation and amortization...... 854,000 37,000 1,000 -- 892,000 -- 892,000
Income tax expense................. 702,000 166,000 161,000 -- 1,029,000 -- 1,029,000
Segment net income (loss).......... 1,543,000 390,000 242,000 (224,000) 1,951,000 (641,000) 1,310,000
Total segment assets............... 10,189,000 1,525,000 688,000 58,000 12,460,000 -- 12,460,000
Expenditures for long-lived
assets........................... 485,000 33,000 -- -- 520,000 -- 520,000
</TABLE>
F-20
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999 AND OCTOBER 31, 1999 (UNAUDITED)
15. SUBSEQUENT EVENTS
On August 2, 1999, the Company granted options to purchase 12,500 shares of
common stock at an exercise price of $1.70 per share. The Company will record
deferred compensation of $129,000 during August 1999 in connection with such
grant as such options were granted at exercise prices lower than the deemed fair
market value per share of the Company's common stock on the date of grant. Such
amount will be amortized over the period in which the options vest.
On October 8, 1999, the Company amended its articles of incorporation,
increasing the number of authorized shares of common stock from 10,000,000 to
100,000,000 shares and authorizing 20,000,000 shares of no par value preferred
stock, the terms and preferences of which may be designated without further
shareholder approval upon future issuance. These changes have been reflected in
these financial statements.
On October 15, 1999, the Company's Board of Directors declared a 5-for-1
common stock split. All common stock and option information, weighted average
shares and net income per share information has been retroactively restated to
reflect the stock split.
On October 15, 1999, the Company adopted a Directors' Stock Option Plan for
directors of the Company who are not officers or employees of the Company. The
Plan provides for issuance of options to purchase the Company's common stock at
an exercise price equal to the fair market value on the date of grant and
expiring 10 years after issuance. The options will become fully vested as of the
date of issuance. The Company has reserved 300,000 shares of the Company's
common stock for issuance under the plan. Also on October 15, 1999, the Company
granted options to purchase 20,000 shares of common stock at an exercise price
of $12.00 per share to directors under the Plan.
F-21
<PAGE>
DESCRIPTION OF GRAPHICS
OPTIO SOFTWARE, INC.
The Information Value Chain
At the bottom of the graphic are three nested rectangles. The outermost
rectangle is labeled "E-Business", the middle rectangle is labeled
"Industry-Specific Applications" and the innermost rectangle is labeled
"Company-Wide Applications."
Within the innermost rectangle is an aligned group of five arrow-shaped
polygons oriented to point from left to right and labeled "Front Office, Sales,
Manufacturing, Supply Chain, Back Office."
Extending upward from the outermost rectangle are three arrows oriented
lower-left to upper right at an approximate 45 degree angle. They point to an
image superimposed on an ellipse that depicts a grouping of various different
documents which is labeled "Customized Business to Business Information."
Extending upward from the image of the documents are three arrows oriented
lower-left to upper right at an approximate 45 degree angle. Above the arrows is
a group of six aligned, labeled images that, from left to right, depict the
following;
- A graphic of a printer that is labeled "Printers"
- A graphic of a fax machine that is labeled 'Fax"
- A graphic of the reverse side of an envelope with a lower-case sans serif
letter "e" superimposed on it that is labeled "E-Mail"
- A graphic of a stylized sphere (or globe) with a horizontal ring around
its circumference at the midline. The globe is labeled with the letters
"WWW" and the entire graphic is labeled "Browsers"
- A graphic of a computer workstation with a monitor. On the screen of the
monitor is a lower case sans serif letter "e" that is labeled "External
Systems"
- A graphic of a stylized alphanumeric pager that is labeled "Wireless
Devices."
Extending upward from the image of the documents are three arrows oriented
lower-left to upper right at an approximate 45 degree angle. Above the arrows is
a group of five aligned, circular images that depict different persons
performing business related task that are labeled "Staff, Customer, Supplier,
Partner, Investor."
Above the five images in red, sans serif type are the words, "The
Information Value Chain."
The caption at the bottom of the page states the following:
"The quality of a company's relationships with customers, suppliers and
partners is directly dependent upon the quality of the information it uses to
communicate.
Up until the early 1990's, information was processed by separate systems
dedicated to functions such as sales, manufacturing and the back office.
Company-wide applications helped integate all of these separate systems and
industry-specific applications helped tailor them for industries like
healthcare, automotive and electronics. E-business requires that all of these
applications leverage the Internet to conduct business.
The real-time nature of e-business requires that highly customized
information, tailored to the needs of customers, suppliers and partners, be
delivered seamlessly to one or more digital destinations. Optio's Enterprise and
Healthcare Suites provide a solution that fulfills this requirement."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including (the 25(th) day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
5,000,000 SHARES
[LOGO]
COMMON STOCK
-------------
P R O S P E C T U S
------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THE ROBINSON-HUMPHREY COMPANY
DECEMBER , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 15,346
National Association of Securities Dealers, Inc. fee............ $ 6,020
Nasdaq Stock Market listing fee................................. $ 5,000
Accountants' fees and expenses.................................. $ 300,000
Legal fees and expenses......................................... $ 300,000
Blue Sky fees and expenses...................................... $ 5,000
Transfer Agent's fees and expenses.............................. $ 5,250
Printing and engraving expenses................................. $ 178,000
Miscellaneous................................................... $ 185,384
---------
Total Expenses............................................ $1,000,000
=========
</TABLE>
- ------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws limit personal liability for breach of the fiduciary duty of our
directors to the fullest extent provided by the General Corporation Law of the
State of Georgia. Such provisions provide that no director of Optio
Software, Inc. shall have personal liability to us or to our shareholders for
monetary damages for breach of fiduciary duty of care or other duty as a
director. However, such provisions shall not eliminate or limit the liability of
a director
- for any breach of the director's duty of loyalty to us or our
shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation or law;
- for voting or assenting to unlawful distributions; or
- for any transaction for which the director derived an improper personal
benefit.
Any amendment, modification or repeal of such provisions will not eliminate
or reduce the effect of such provisions in respect of any act or failure to act,
or any cause of action, suit or claim that would accrue or arise prior to any
amendment, repeal or adoption of such an inconsistent provision. If the General
corporation Law of the State of Georgia is subsequently amended to provide for
further limitations on the personal liability of directors of corporations for
breach of duty of care or other duty as a director, then the personal liability
of the directors of Optio Software, Inc. will be so further limited to the
greatest extent permitted by the General corporation law of the State of
Georgia.
Section 6 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 28, 1997, we issued 500,000 shares of our common stock to Devcom
Mid-America, Inc. in connection with the acquisition of all of its assets in a
transaction exempt from registration under Section 4(2) of the Securities Act.
On August 26, 1998, we issued 200,000 shares of our common stock to the sole
shareholder of Competence Software Europe, S.A. in connection with the
acquisition of all of the outstanding shares of Competence Software
Europe, S.A. in a transaction exempt from registration under Section 4(2) of the
Securities Act.
II-1
<PAGE>
On November 1, 1998, we issued 10,000 shares of our common stock to an
employee in a transaction exempt from registration under Section 4(2) of the
Securities Act and Rule 701 under the Securities Act.
In January, 1999, we issued 500,000 shares of our common stock to a former
employee pursuant to the exercise of an option in a transaction exempt from
registration under Section 4(2) of the Securities Act and Rule 701 under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1** Amended and Restated Articles of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1** See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws of the Registrant defining rights of the holders of Common Stock of the
Registrant.
4.2** Specimen Stock Certificate.
5.1** Opinion of Morris, Manning & Martin, Counsel to the Registrant, as to the legality of the shares being
registered.
10.1** Optio Software, Inc. Stock Incentive Plan dated as of January 1, 1997.
10.2** Optio Software, Inc. Outside Director Stock Option Plan dated as of October 13, 1999.
10.3** Lease Agreement by and between Weeks Realty, L.P. and X-Point Corporation dated March 18, 1996.
10.4** Sublease Agreement by and between HBO & Company and Optio Software, Inc. dated March 22, 1999.
10.5** Promissory note by and between Optio Software, Inc. and Premier Lending Corporation dated January 31,
1999.
10.6** Equipment Security Agreement by and between Optio Software, Inc. and Premier Lending Corporation dated
January 31, 1999.
10.7** Security Agreement by and between Optio Software, Inc. and Premier Lending Corporation dated
January 31, 1999.
10.8** Guaranty Agreement by and between Optio Software, Inc. and Premier Lending Corporation dated
January 31, 1999.
10.9** Promissory note by and between Optio Software, Inc. and David Dun-Rankin dated October 13, 1999.
10.10** Stock Option Pledge and Security Agreement by and between Optio Software, Inc. and David Dunn-Rankin
dated October 13, 1999.
10.11** Promissory note by and between Optio Software, Inc. and C. Wayne Cape dated December 31, 1998.
21.1** List of Subsidiaries.
23.1 Consent and Report of Ernst & Young LLP.
23.2** Consent of Morris, Manning & Martin (included in Exhibit 5.1).
24.1** Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- --------------------------------------------------------------------------------------------------------
<S> <C>
99.1** Consent of James J. Felcyn, Jr.
99.2 Consent of Port Huron Hospital.
99.3 Consent of Schlumberger, Ltd.
99.4** Consent of The Home Depot, Inc.
99.5 Consent of AMR Research, Inc.
99.6 Consent of International Data Corporation.
</TABLE>
- ------------------------
** Previously filed.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on the 13th day of December, 1999.
<TABLE>
<S> <C> <C>
OPTIO SOFTWARE, INC.
BY: /S/ C. WAYNE CAPE
-----------------------------------------
C. Wayne Cape
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ C. WAYNE CAPE Officer and Director
- ------------------------------ (Principal Executive December 13, 1999
C. Wayne Cape Officer)
Chief Financial Officer
/s/ F. BARRON HUGHES (Principal Financial and
- ------------------------------ Accounting Officer), December 13, 1999
F. Barron Hughes Secretary and Treasurer
* Director
- ------------------------------ December 13, 1999
David Dunn-Rankin
* Director
- ------------------------------ December 13, 1999
Mitchel J. Laskey
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ C. WAYNE CAPE
--------------------------------------
C. Wayne Cape
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
OPTIO SOFTWARE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING OF COSTS AND TO OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1997
Allowance for doubtful accounts................. $ 59,000 $ 72,000 $ -- $ 5,000 $ 126,000
========== ========= ========== ========= ==========
Year ended January 31, 1998
Allowance for doubtful accounts................. $ 126,000 $ 373,000 $ -- $ 410,000 $ 89,000
========== ========= ========== ========= ==========
Year ended January 31, 1999
Allowance for doubtful accounts................. $ 89,000 $ 227,000 $ -- $ 198,000 $ 118,000
========== ========= ========== ========= ==========
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT AND REPORT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 19, 1999 (except for Note 15, as to which the date
is October 15, 1999) in Amendment No. 3 to the Registration Statement (Form S-1
No. 333-89181) and related Prospectus of Optio Software, Inc.
Our audits also included the financial statement schedule of Optio Software,
Inc. listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
December 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1998 JAN-31-1999 JAN-31-1999 JAN-31-2000
<PERIOD-START> FEB-01-1996 FEB-01-1997 FEB-01-1998 FEB-01-1998 FEB-01-1999
<PERIOD-END> JAN-31-1997 JAN-31-1998 JAN-31-1999 OCT-31-1998 OCT-31-1999
<CASH> 1,646,000 1,507,000 1,129,000 2,204,000 1,286,000
<SECURITIES> 64,000 74,000 372,000 281,000 317,000
<RECEIVABLES> 2,312,000 3,155,000 5,809,000 3,517,000 7,409,000
<ALLOWANCES> (126,000) (89,000) (118,000) (111,000) (197,000)
<INVENTORY> 75,000 17,000 5,000 17,000 10,000
<CURRENT-ASSETS> 4,142,000 4,919,000 7,777,000 6,260,000 9,553,000
<PP&E> 905,000 1,266,000 1,886,000 1,784,000 2,460,000
<DEPRECIATION> (300,000) (378,000) (833,000) (783,000) (1,366,000)
<TOTAL-ASSETS> 4,905,000 6,978,000 10,738,000 9,021,000 12,460,000
<CURRENT-LIABILITIES> (3,242,000) (5,072,000) (9,427,000) (6,443,000) (10,410,000)
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 404,000 704,000 1,033,000 864,000 1,439,000
<OTHER-SE> 916,000 920,000 (1,024,000) 1,458,000 (83,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,905,000 6,978,000 10,738,000 9,021,000 12,460,000
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 9,002,000 13,569,000 19,539,000 13,080,000 23,202,000
<CGS> (2,456,000) (3,302,000) (5,002,000) (3,293,000) (6,411,000)
<TOTAL-COSTS> (8,308,000) (13,446,000) (18,891,000) (12,329,000) (20,852,000)
<OTHER-EXPENSES> 0 8,000 (46,000) 9,000 (1,000)
<LOSS-PROVISION> (72,000) (373,000) (227,000) (123,000) (358,000)
<INTEREST-EXPENSE> (42,000) (77,000) (257,000) (45,000) (96,000)
<INCOME-PRETAX> 723,000 86,000 449,000 779,000 2,339,000
<INCOME-TAX> (304,000) (64,000) (99,000) (181,000) (1,029,000)
<INCOME-CONTINUING> 419,000 22,000 350,000 598,000 1,310,000
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 419,000 22,000 350,000 598,000 1,310,000
<EPS-BASIC> 0.03 0.00 0.03 0.05 0.11
<EPS-DILUTED> 0.03 0.00 0.02 0.04 0.07
</TABLE>
<PAGE>
EXHIBIT 99.2
The undersigned grants permission to Optio Software, Inc. to include the
application overview below in its Form S-1 registration statement. All
information provided is complete and accurate.
Port Huron Hospital
By: /s/ Raymond C. Peltier
---------------------------------
Title: Director of Financial Services
---------------------------------
Date December 10, 1999
---------------------------------
PORT HURON HOSPITAL. With approximately 1,200 employees and 173,000
outpatient visits annually, Port Huron Hospital, a 186-bed hospital with four
off-campus community centers in St. Clair county, Michigan, required the use of
several forms and documents to operate the facility and record patient
information. The hospital implemented our healthcare solution to ensure
enterprise-wide document standardization; lower costs by eliminating pre-printed
forms; and increase flexibility to respond to constantly changing requirements
for patient information. Equally important to them was Optio's seamless
integration to their McKesson HBO & Company STAR applications and their need for
a solution that automatically distributed information throughout the facility.
Within the first year of using our software, the hospital has realized a savings
in excess of $80,000 by automating their accounting department to create
customized AP and payroll checks, payroll advices and other documents. Due to
the savings, the hospital will be implementing our solution in several other
departments and projects annual savings as much as $250,000.
<PAGE>
EXHIBIT 99.3
The undersigned grants permission to Optio Software, Inc. to include the
application overview below in its Form S-1 registration statement. All
information provided is complete and accurate.
Schlumberger, Ltd.
By: /s/ Jean Roy
---------------------------------
Title: RMS IT Manager
---------------------------------
Date December 13, 1999
---------------------------------
SCHLUMBERGER, LTD. The Resource Management Services group of
Schlumberger Ltd., a Fortune 500 international technical products and services
company, provides business analysis and consulting, system integration, product
design and manufacturing. With more than 15,000 employees in over 30 countries,
the company wanted to integrate its enterprise applications with a single-vendor
solution that customized and distributed purchase order, request for quotation,
invoicing and payment information. The objective was to ensure worldwide
standardization of business information, while improving business processes to
aid in its future growth. Our solutions, implemented in 38 sites throughout 14
countries, allows Schlumberger to take information generated by its enterprise
applications and deliver customized business-critical documents and reports to a
variety of digital destinations, including laser and thermal printers and fax
servers. Benefits include improved response times to customer, supplier and
vendor requests, improved utilization of current information technology
infrastructure and worldwide coverage for all implementations.
<PAGE>
Exhibit 99.5
Optio Software, Inc.
3015 Windward Plaza
Windward Fairways II
Alpharetta, Georgia 30005
December 10, 1999
Ladies and Gentlemen,
We hereby consent to the citation of data contained in our reports in Optio
Software, Inc.'s Registration Statement on Form S-1 (the "Registration
Statement"), filed with the Securities and Exchange Commission on October 15,
1999, and in any amendments thereto and prospectuses contained therein. Any
such citation must be verbatim and must reference the document title, article
title and date of publication. Furthermore, each such citation must be
approved by AMR Research Inc. prior to publication or use. We specifically
consent to the citation in the Registration Statement to our report entitled
"Enterprise Resource Planning Software Report, 1998-2003" as set forth on the
attached EXHIBIT A.
Very truly yours,
AMR RESEARCH INC.
By: /s/ Susan C. Pierce
----------------------
Name: Susan C. Pierce
Title: Marketing Assistant
<PAGE>
EXHIBIT A
Summary--Page 1:
"According to AMR Research, Inc., total revenues from companies that sell
software applications that automate and integrate the business processes of
organizations will grow to $66.6 billion in 2003 from $16.7 billion in 1998."
Business--Page 30:
"According to a report by AMR Research entitled "Enterprise Resource Planning
Software Report, 1998-2003," total ERP company revenues are expected to grow
to $66.6 billion in 2003 from $16.7 billion in 1998, maintaining a compounded
annual growth rate of 32%."
<PAGE>
Exhibit 99.6
DISCLOSURE FORM
International Data Corporation grants C. WAYNE CAPE of OPTIO SOFTWARE, INC.
permission to disclose select pages of International Data Corporation's
publication, entitled INTERNET COMMERCE SOFTWARE APPLICATIONS MARKET REVIEW
AND FORECAST, 1998-2003; AND THE GLOBAL MARKET FORECAST FOR INTERNET USAGE
AND COMMERCE: BASED ON INTERNET COMMERCE MARKET MODEL, VERSION 5.
It is understood by both International Data Corporation and OPTIO SOFTWARE,
INC. that the information will not be sold. It is further understood
International Data Corporation will be credited as the source of publication.
The original date of publication will also be noted.
/s/ Alexa McCloughan 12/6/99
- --------------------------------- ---------
Alexa McCloughan, Vice President
International Data Corporation Date
