<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 27, 2000
------------------------------
OPTIO SOFTWARE, INC.
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Georgia 333-89181 58-1435435
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(state of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Windward Fairways II, 3015 Windward Plaza, Alpharetta, Georgia 30005
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(Address of principal office)
Registrant's telephone number, including area code (770) 576-3500
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K
filed by Optio Software, Inc. on April 10, 2000 solely for the purpose of adding
the financial statements of the business acquired as required by Item 7(a) and
the pro forma financial information as required by Item 7(b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Financial Statements of Business Acquired
Audited Combined Financial Statements of Muscato Corporation and
TransLink Solutions Corporation
Financial Statements for the Year Ended March 31, 1999 and Period from
April 1, 1999 to March 26, 2000 with Reports of Independent
Auditors................................................................ 3
(b) Pro Forma Financial Information of Combined Business
Unaudited Pro Forma Condensed Combined Financial Information of
Optio Software, Inc., Muscato Corporation, and TransLink Solutions
Corporation
Financial Information for the Year Ended January 31, 2000............... 23
</TABLE>
2
<PAGE>
(a) Financial Statements of Business Acquired
Combined Financial Statements
Muscato Corporation and
TransLink Solutions Corporation
YEAR ENDED MARCH 31, 1999 AND
PERIOD FROM APRIL 1, 1999 TO MARCH 26, 2000
WITH REPORTS OF INDEPENDENT AUDITORS
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Combined Financial Statements
Year ended March 31, 1999 and period
from April 1, 1999 to March 26, 2000
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................. 5
Report of Independent Auditors............................................. 6
Combined Financial Statements
Combined Balance Sheets.................................................... 7
Combined Statements of Operations.......................................... 9
Combined Statements of Shareholders' Equity............................... 10
Combined Statements of Cash Flows......................................... 11
Notes to Combined Financial Statements.................................... 12
</TABLE>
4
<PAGE>
Report of Independent Auditors
The Shareholders
Muscato Corporation and
TransLink Solutions Corporation
We have audited the accompanying combined balance sheet of Muscato Corporation
and TransLink Solutions Corporation as of March 26, 2000 and the related
combined statements of operations, shareholders' equity, and cash flows for the
period from April 1, 1999 to March 26, 2000. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Muscato
Corporation and TransLink Solutions Corporation as of March 26, 2000 and the
combined results of their operations and their cash flows for the period from
April 1, 1999 to March 26, 2000 in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
May 12, 2000
5
<PAGE>
Report of Independent Auditors
The Board of Directors
Muscato Corporation and
TransLink Solutions Corporation
We have audited the accompanying combined balance sheet of Muscato Corporation
and TransLink Solutions Corporation as of March 31, 1999 and the related
combined statements of operations, shareholders' equity, and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Muscato
Corporation and TransLink Solutions Corporation as of March 31, 1999 and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG LLP
December 8, 1999
6
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Combined Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, MARCH 26,
1999 2000
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 119,297 $ 88,162
Short-term investments 440,187 -
Accounts receivable, less allowance for
doubtful accounts of $35,000 and $310,000,
respectively 275,803 1,453,793
Receivables from related parties 254,937 649,747
Prepaid expenses and other current assets 14,105 2,568
Deferred income taxes 361,069 795,126
--------------------- ---------------------
Total current assets 1,465,398 2,989,396
Software development costs, net of accumulated
amortization of $890,296 and $1,894,833,
respectively
1,420,198 750,350
Property and equipment:
Furniture and equipment 609,487 990,724
Less accumulated depreciation 333,402 454,601
--------------------- ---------------------
276,085 536,123
Other assets 5,583 8,819
--------------------- ---------------------
Total assets $3,167,264 $4,284,688
===================== =====================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 26,
1999 2000
-------------------- -------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 206,861 $ 377,132
Accrued expenses 347,805 311,141
Income taxes payable 42,836 461,776
Line of credit 395,000 698,815
Current portion of notes payable to banks 135,402 33,333
Current portion of capital lease obligations 35,663 78,121
Deferred revenue 357,822 1,272,499
-------------------- --------------------
Total current liabilities 1,521,389 3,232,817
Notes payable to banks, less current portion 58,333 25,000
Capital lease obligations, less current portion 84,118 226,925
Deferred income taxes 698,554 413,589
Shareholders' equity:
Common stock:
Muscato Corporation, $1 par value, 7,500 shares
authorized, 400 shares issued and outstanding 400 400
TransLink Solutions Corporation, $1 par value,
10,000 shares authorized, 300 shares issued
and outstanding 300 300
Retained earnings 804,170 385,657
-------------------- --------------------
Total shareholders' equity 804,870 386,357
-------------------- --------------------
Total liabilities and shareholders' equity $3,167,264 $4,284,688
==================== ====================
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Combined Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1999
MARCH 31, TO MARCH 26,
1999 2000
--------------------- --------------------
<S> <C> <C>
Revenue:
License fees $2,098,625 $1,404,985
Services, maintenance, and other 6,625,304 5,549,011
--------------------- --------------------
8,723,929 6,953,996
Costs of revenue:
License fees 643,826 1,004,537
Services, maintenance, and other 4,651,415 4,084,664
--------------------- --------------------
5,295,241 5,089,201
--------------------- --------------------
3,428,688 1,864,795
Operating expenses:
Sales and marketing 549,465 667,955
Research and development 709,986 934,733
General and administrative 2,282,050 1,729,481
Depreciation and amortization 139,035 122,462
--------------------- --------------------
3,680,536 3,454,631
--------------------- --------------------
Loss from operations (251,848) (1,589,836)
Other income (expense):
Interest and dividends 27,811 6,362
Realized gains on sales of short-term investments 15,809 51,428
Unrealized gains on short-term investments 44,926 -
Interest expense (72,716) (56,562)
Other 96,421 892,288
--------------------- --------------------
112,251 893,516
Loss before income taxes (139,597) (696,320)
Income tax benefit 70,812 277,807
--------------------- --------------------
Net loss $ (68,785) $ (418,513)
===================== ====================
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Combined Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------
TRANSLINK SOLUTIONS
MUSCATO CORPORATION CORPORATION TOTAL
------------------------- -------------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
------------ ------------ ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1998 500 $500 400 $400 $ 1,147,855 $1,148,755
Common stock repurchased (100) (100) (100) (100) (274,900) (275,100)
Net loss - - - - (68,785) (68,785)
------------ ------------ ------------ ------------- -------------- ----------------
Balances at March 31, 1999 400 400 300 300 804,170 804,870
Net loss - - - - (418,513) (418,513)
------------ ------------ ------------ ------------- -------------- ----------------
Balances at March 26, 2000 400 $ 400 300 $ 300 $ 385,657 $ 386,357
============ ============ ============ ============= ============== ================
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1999
MARCH 31, TO MARCH 26,
1999 2000
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (68,785) $ (418,513)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of software development costs 643,826 1,004,537
Depreciation 139,035 122,462
Loss on disposal of property and equipment 8,521 -
Change in unrealized gain on short-term investments 34,345 (51,428)
Deferred income taxes (162,648) (719,022)
Changes in operating assets and liabilities:
Accounts receivable 445,119 (1,177,990)
Prepaid expenses and other current assets (6,812) 11,537
Other assets 8,742 (3,236)
Accounts payable (299,915) 170,271
Accrued expenses 341,520 (36,664)
Income taxes payable 42,836 418,940
Deferred revenue 131,210 914,677
--------------------- ---------------------
Net cash provided by operating activities 1,256,994 235,571
Cash flows from investing activities:
Capitalized software development costs (720,213) (334,689)
Purchases of property and equipment (121,855) (99,323)
Purchases of short-term investments (333,485) (17,962)
Proceeds from sales of short-term investments 463,515 509,577
--------------------- ---------------------
Net cash (used in) provided by investing activities (712,038) 57,603
Cash flows from financing activities:
Proceeds from notes payable to banks 100,000 -
Principal payments on notes payable to banks and capital
lease obligations (198,654) (169,314)
Net (repayments) borrowings on line of credit (190,000) 303,815
Net advances (from) to related parties 27,646 (458,810)
Repurchase of common stock (275,100) -
--------------------- ---------------------
Net cash used in financing activities (536,108) (324,309)
Net increase (decrease) in cash 8,848 (31,135)
Cash at beginning of period 110,449 119,297
--------------------- ---------------------
Cash at end of period $ 119,297 $ 88,162
===================== =====================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 57,900 $ 56,562
===================== =====================
Income taxes $ 49,000 $ 50,155
===================== =====================
</TABLE>
See accompanying notes.
11
<PAGE>
Muscato Corporation and TransLink Solutions Corporation
Notes to Combined Financial Statements
March 31, 1999 and March 26, 2000
1. DESCRIPTION OF BUSINESS
Muscato Corporation ("Muscato") and TransLink Solutions Corporation
("TransLink") (collectively the "Company") are incorporated under the laws of
the State of Florida. The Company is engaged in the development, sale, and
support of computer software which serves the on-line transaction processing
systems marketplace by facilitating the integration of dissimilar information
systems. The Company also provides data processing services through host
software on an internally operated computing platform. The Company primarily
serves organizations located throughout the United States operating in the
banking, healthcare, insurance and transportation industries. The industry in
which the Company operates is subject to rapid change due to the development of
new technologies and products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements include the accounts of Muscato and TransLink
which are owned and controlled by common shareholders. All significant balances
and transactions between Muscato and TransLink have been eliminated in
combination.
RECLASSIFICATIONS
Certain amounts in the fiscal 1999 financial statements have been reclassified
to conform to the fiscal 2000 presentation.
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 combined financial statements and
accompanying notes. Actual results could differ from these estimates.
12
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's revenue recognition policies are as follows:
- Revenues from license fees and software installation contracts are
recognized using the percentage of completion method when there is
persuasive evidence of an arrangement, the fee is fixed and determinable
and collection of the license fee is probable.
- Revenues on software installation contracts and software customization
contracts are recorded using the percentage of completion method;
accordingly, costs and related revenues are recorded as the work is
performed.
- Revenues from software support, consulting, processing fees and other
services are recognized over the term of the contract as the services are
performed.
An allowance is established to provide for estimated uncollectible accounts
receivable. Deferred revenue represents payments received or billings in advance
of recognizing the related revenue.
SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized. Capitalization of software
development costs begins upon the establishment of technological feasibility.
The establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs requires considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross sales,
estimated economic life and changes in software and hardware technologies.
Capitalization of software development costs ceases when the product is
available for general release to customers.
13
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS (CONTINUED)
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross sales for a product to the total of current and
anticipated future gross sales or (b) the straight-line method over the
estimated economic life of the product, ranging from 2 to 3 years.
All other software development costs, which are research and development costs
in nature, are expensed in the period incurred.
SHORT-TERM INVESTMENTS
The Company's short-term investments are classified as trading securities under
Financial Accounting Standards Board Statement No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, and accordingly are carried at fair
value as determined by quoted market prices. Unrealized holding gains and losses
on these investments are reported in earnings. Dividend and interest income are
recognized when earned.
As of March 31, 1999, the Company's short-term investments consisted of the
following:
<TABLE>
<CAPTION>
UNREALIZED FAIR
COST GAIN VALUE
----------------- ----------------- -----------------
<S> <C> <C> <C>
Certificates of deposit $ 65,105 $ - $ 65,015
Equity securities 299,547 75,625 375,172
----------------- ----------------- -----------------
$ 364,562 $ 75,625 $ 440,187
================= ================= =================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using accelerated methods over the estimated useful
lives of the assets which range from five to seven years.
14
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company incurs advertising costs associated with the marketing of its
software products and services. The Company expenses advertising costs in the
period incurred. Advertising expenses, included in sales and marketing expenses,
were approximately $122,000 and $228,000 in the year ended March 31, 1999 and
the period from April 1, 1999 to March 26, 2000, respectively.
INCOME TAXES
For income tax purposes, Muscato is a C corporation and TransLink is an S
corporation. Accordingly, taxable income or loss of TransLink is attributable to
the shareholders, and therefore, no provision for income taxes relative to
TransLink has been made in the combined financial statements.
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.
3. RELATED PARTY TRANSACTIONS
The Company leases certain computer equipment, office equipment, and office
furniture from companies owned by the Company's shareholders (the "Affiliated
Companies"). Rental expense under these leases amounted to $179,380 and $179,334
for the year ended March 31, 1999 and the period from April 1, 1999 to March 26,
2000, respectively. On March 24, 2000, assets valued at approximately $64,000
leased by certain of the Affiliated Companies were acquired by the Company in
exchange for forgiveness of receivables from related parties in the same amount.
The Affiliated Companies were established through capital contributions from the
shareholders provided through loans from Muscato. As of March 31, 1999 and March
26, 2000, Muscato had such amounts receivable from shareholders totaling
$254,937 and $649,747, respectively, as included in the accompanying balance
sheet. These amounts are noninterest bearing and payable on demand.
4. LINE OF CREDIT
The Company has an $800,000 operating line of credit agreement with a financial
institution bearing interest at the prime rate plus 1.0% per annum (9.75% at
March 26, 2000) with interest payable monthly. Unpaid principal of $698,815 at
March 26, 2000, plus interest, is payable on December 1, 2000. The line of
credit is secured by accounts receivable, property and equipment.
15
<PAGE>
5. NOTES PAYABLE TO BANKS
Notes payable to banks consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 26,
1999 2000
-------------------- --------------------
<S> <C> <C>
Note payable to a financial institution, payable in
monthly installments of $2,778 plus interest at
prime plus 1.5% (10.25% at March 26, 2000). Final
payment of principal and unpaid interest is due
December 15, 2001. The note is secured by accounts
receivable, property and equipment. $ 91,666 $ 58,333
Note payable to a financial institution, payable in
monthly installments of $6,945 plus interest at
prime plus 1.0%. Final payment of principal and
unpaid interest was made in February 2000. 76,375 -
Note payable to a financial institution, payable in
monthly installments of $6,250 plus interest at
prime plus 1.5%. Final payment of principal and
unpaid interest was made in August 1999. 25,694 -
-------------------- --------------------
193,735 58,333
Less current maturities 135,402 33,333
-------------------- --------------------
$ 58,333 $25,000
==================== ====================
</TABLE>
16
<PAGE>
5. NOTES PAYABLE TO BANKS (CONTINUED)
The aggregate principal maturities of notes payable subsequent to March 26, 2000
are due as follows:
<TABLE>
<S> <C>
Year ending March 31,
2001 $33,333
2002 25,000
---------------
$58,333
===============
</TABLE>
6. LEASES
The Company leases its operating facilities and certain of its computer
equipment, office equipment, and office furniture under non-cancelable leases
expiring in various years through 2003. Assets under capital lease included in
property and equipment are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 26,
1999 2000
----------------- ------------------
<S> <C> <C>
Equipment $180,885 $400,062
Less accumulated amortization 96,231 152,010
----------------- ------------------
$ 84,654 $248,052
================= ==================
</TABLE>
During the period from April 1, 1999 to March 26, 2000, the Company entered into
a capital lease that provided assets, on a cost basis, of approximately
$219,000, which are included in property and equipment in the combined balance
sheet. As the acquisition of such assets through capital lease is a non-cash
transaction, such transaction is excluded from the statement of cash flows.
Amortization of assets under capital lease is included in depreciation and
amortization expense in the accompanying statement of operations. Rental expense
under operating leases amounted to $535,376 and $505,722 for the year ended
March 31, 1999 and the period from April 1, 1999 to March 26, 2000,
respectively.
17
<PAGE>
6. LEASES (CONTINUED)
Future minimum payments under operating and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING MARCH 31 LEASES LEASES
-------------------------------------------------- ------------------- --------------------
<S> <C> <C>
2001 $ 315,861 $ 101,754
2002 309,070 101,754
2003 194,317 54,732
2004 - 54,732
2005 - 49,107
------------------- --------------------
Total minimum lease payments $ 819,248 362,079
===================
Less amounts representing interest 57,033
--------------------
305,046
Less current maturities 78,121
--------------------
$226,925
====================
</TABLE>
7. INCOME TAXES
The (benefit) expense from income taxes are summarized below:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1999
MARCH 31, TO MARCH 26,
1999 2000
---------------- --------------
<S> <C> <C>
Current:
Federal $ 71,936 $ 337,588
State 19,900 103,627
---------------- --------------
91,836 441,215
Deferred:
Federal (146,837) (582,261)
State (15,811) (136,761)
---------------- --------------
Total (162,648) (719,022)
---------------- --------------
$ (70,812) $(277,807)
================ ==============
</TABLE>
18
<PAGE>
7. INCOME TAXES (CONTINUED)
Pre-tax loss attributable to Muscato, a C corporation, and TransLink, an
S corporation, is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1999
MARCH 31, TO MARCH 26,
1999 2000
--------------- ---------------
<S> <C> <C>
Muscato $ 65,332 $ 636,998
TransLink 74,265 59,322
--------------- ---------------
$ 139,597 $ 696,320
=============== ===============
</TABLE>
A reconciliation of the benefit from income taxes to the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1999
MARCH 31, TO MARCH 26,
1999 2000
--------------- ---------------
<S> <C> <C>
Statutory rate applied to pre-tax loss of
Muscato $(22,216) $(216,579)
State income taxes, net of Federal income
tax effect 2,699 (17,906)
Research and development tax credits (63,164) (63,160)
Other, net 11,869 19,838
--------------- --------------
$(70,812) $(277,807)
=============== ==============
</TABLE>
19
<PAGE>
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 26,
1999 2000
----------------- -----------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 13,171 $ 117,676
Accrued vacation 26,206 35,971
Research and development tax credit carryforwards 294,272 153,467
Deferred revenue 134,648 483,041
Other 3,712 4,971
----------------- -----------------
Total deferred income tax assets 472,009 795,126
Deferred income tax liabilities:
Cash to accrual adjustment (237,820) (119,953)
Software development costs (534,421) (284,833)
Other (37,253) (8,803)
----------------- -----------------
Total deferred income tax liabilities (809,494) (413,589)
----------------- -----------------
Net deferred income tax (liabilities) assets $(337,485) $ 381,537
================= =================
</TABLE>
At March 26, 2000, the Company has research and development credit carryforwards
of approximately $153,467 which are available to offset future taxable income.
8. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan which covers all
employees who have completed at least 1000 hours in a twelve month consecutive
period. The plan includes a 401(k) salary deferral plan with matching
contributions by the Company. The Company's contributions to the plan are based
on a predetermined rate and totaled approximately $24,000 and $19,000 for the
year ended March 31, 1999 and the period from April 1, 1999 to March 26, 2000,
respectively. In conjunction with the acquisition of the Company as described in
Note 11, the 401(k) salary plan was terminated on March 23, 2000, subject to a
favorable determination letter from the Internal Revenue Service indicating that
termination will not adversely affect the tax-qualified status of the plan.
20
<PAGE>
9. LEGAL PROCEEDINGS
During the year ended March 31, 1999, the Company settled a claim against a
former customer for illegal use of the Company's licensed software for a lump
sum payment. Other income for the year ended March 31, 1999 includes
approximately $102,000 related to proceeds from the settlement, net of
approximately $308,000 of related attorney's fees.
During the period from April 1, 1999 to March 26, 2000, the Company settled a
claim related to the aforementioned software licensing claim for a lump sum
payment. Other income for the period from April 1, 1999 to March 26, 2000
includes approximately $900,000 related to proceeds from the settlement.
10. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable and
receivables from related parties. The receivables from related parties are
unsecured.
Concentrations of credit risk with respect to accounts receivable are dispersed
among the Company's relatively small customer base. As a consequence, poorer
than expected collection results for certain significant customers may
materially impact the financial results of the Company in subsequent periods.
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
year ended March 31, 1999 and the period from April 1, 1999 to March 26, 2000
amounted to $35,000 and $275,000, respectively.
21
<PAGE>
10. CONCENTRATIONS OF CREDIT RISK (CONTINUED)
The Company provides a significant amount of project management and other
services to a customer, generating approximately 16% and 22% of total Company
revenues for the year ended March 31, 1999 and the period from April 1, 1999 to
March 26, 2000, respectively. The services are provided under a master software
services agreement, automatically renewable on the agreement's anniversary date,
until terminated by either party upon six months notice. At March 26, 2000, a
renewal agreement has been executed, extending the term of the agreement until
March 31, 2001.
The carrying amounts reported in the combined balance sheets for cash, accounts
receivable, receivables from related parties, accounts payable, notes payable
from banks, line of credit, and capital lease obligations approximate their fair
value.
11. SUBSEQUENT EVENT
On March 27, 2000, the Company completed the sale of the common stock of Muscato
and substantially all assets of TransLink to Optio Software, Inc. ("Optio") for
cash and notes receivable in the amount of $33 million. The accompanying
combined financial statements do not give effect to any of the transactions
contemplated pursuant to the sale agreements.
In conjunction with the sale to Optio on or around March 27, 2000, all amounts
payable under the line of credit and notes payable to banks were paid and the
receivables from related parties were forgiven.
22
<PAGE>
(c) Pro Forma Financial Information
Optio Software, Inc. ("Optio") acquired the capital stock of Muscato
Corporation ("Muscato") and the assets of TransLink Solutions Corporation
("TransLink") as of March 27, 2000. The consideration paid to the shareholders
for Muscato was $28,000,000, of which $20,000,000 was paid in cash at the
closing. Optio issued a promissory note to the former shareholders of Muscato
for the remaining $8,000,000, which is due and payable on March 27, 2030. The
promissory note provides for mandatory acceleration, upon the request of the
shareholders, of payments of $4,000,000 on March 27, 2001 and $4,000,000 on
March 27, 2002, providing certain provisions are met. The purchase price for the
assets acquired from TransLink was $5,000,000 in cash paid at closing. Each
acquisition was accounted for as a purchase transaction for financial accounting
purposes.
Optio's historical fiscal year ends on January 31, while Muscato's and
TransLink's historical fiscal years end on March 31. The unaudited condensed
combined financial data is presented using the audited consolidated financial
statements of Optio for the fiscal years ended January 31, 2000 and the audited
combined financial statements of Muscato and TransLink for the period of April
1, 1999 to March 26, 2000.
The unaudited pro forma condensed combined financial data has been
included only for the purpose of illustration, and it does not necessarily
indicate what the operating results or financial position would have been if the
purchase of Muscato and TransLink had been completed at the dates indicated.
Moreover, the data does not necessarily indicate what the future operating
results or financial position of the combined company will be. You should read
the unaudited pro forma condensed combined financial data in conjunction with
the audited consolidated financial statements of Optio and the related notes
thereto, and the audited combined financial statements of Muscato and TransLink,
and the related notes thereto.
23
<PAGE>
Optio Software, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of January 31, 2000
<TABLE>
<CAPTION>
MUSCATO AND PRO FORMA PRO FORMA
OPTIO TRANSLINK ADJUSTMENTS COMBINED
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
$ 46,826,000 $ 88,000 $ (25,082,000) a $ 21,832,000
Accounts receivable, net 9,268,000 1,454,000 (12,000) a 10,710,000
Other current assets 1,285,000 1,448,000 (1,339,000) a 1,394,000
---------------- ---------------- --------------- ---------------
Total current assets 57,379,000 2,990,000 (26,433,000) 33,936,000
Software development costs, net -- 750,000 (750,000) a --
Intangible assets, net 400,000 -- 32,865,000 a 33,265,000
Property and equipment, net 1,518,000 536,000 (33,000) a 2,021,000
Other assets 1,345,000 9,000 (9,000) a 1,345,000
---------------- ---------------- --------------- ---------------
Total assets $ 60,642,000 $ 4,285,000 5,640,000 70,567,000
================ ================ =============== ===============
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities $ 11,431,000 $ 3,233,000 2,460,000 a 17,124,000
Long-term debt, less current
portion 38,000 252,000 3,967,000 a 4,257,000
Other long-term liabilities 174,000 414,000 (401,000) a 187,000
Stockholder's equity 48,999,000 386,000 (386,000) a 48,999,000
---------------- ---------------- --------------- ---------------
Total liabilities and
stockholder' sequity $ 60,642,000 $ 4,285,000 5,640,000 70,567,000
================ ================ =============== ===============
</TABLE>
24
<PAGE>
Optio Software, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended January 31, 2000
<TABLE>
<CAPTION>
MUSCATO AND PRO FORMA PRO FORMA
OPTIO TRANSLINK ADJUSTMENTS COMBINED
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 32,833,000 $ 6,954,000 $ 39,787,000
---------------- ---------------- ----------------- ----------------
Costs and expenses:
Costs of revenue 8,977,000 5,089,000 14,066,000
Research and development 3,559,000 935,000 4,494,000
Selling, general and
administrative 15,711,000 2,397,000 (243,000) e 17,865,000
Depreciation and
Amortization 1,227,000 122,000 6,573,000 b 7,922,000
Interest and other
Income (363,000) (949,000) (1,312,000)
Interest and other
Expense 129,000 57,000 (57,000) c
540,000 d 669,000
---------------- ---------------- ----------------- ----------------
Income (loss) before
Income taxes 3,593,000 (697,000) (6,813,000) (3,917,000)
Income tax benefit
(expense) (1,601,000) 278,000 674,000 f (649,000)
---------------- ---------------- ----------------- ----------------
Net income (loss) $ 1,992,000 $ (419,000) $ (6,139,000) $ (4,566,000)
================ ================ ================= ================
Net income per share -
Basic $ 0.16 $ (0.36)
================ ================
Net income per share -
diluted $ 0.10 $ (0.36)
================ ================
Weighted average shares
outstanding - basic 12,586,037 12,586,037
================ ================
Weighted average shares
outstanding - diluted 20,441,759 12,586,037
================ ================
</TABLE>
25
<PAGE>
Optio Software, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. PRO FORMA ADJUSTMENTS
The pro forma adjustments to the unaudited pro forma condensed combined
financial statements are as follows:
(a) To record the preliminary allocation of the $33.0 million purchase price
on the basis of the estimated fair values of the assets acquired and
the liabilities assumed, including the full payment of certain debt and
leases paid by the former shareholders with the proceeds of the purchase
price and the forgiveness of certain receivables and liabilities to
shareholders and affiliated companies, as defined in the purchase
agreement.
(b) To reflect amortization of the preliminary allocation of intangible assets
associated with the acquisition over an estimated average five year life.
(c) Elimination of interest expense related to the debt paid in full by the
former shareholders with the proceeds of the purchase price.
(d) Interest expense related to the $8.0 million promissory notes outstanding
for the purchase price of Muscato.
(e) Elimination of costs and expenses to reflect the termination of certain
positions made redundant by the combination of operations of Optio, Muscato
and TransLink.
(f) To adjust the income tax provision to Optio's estimated effective tax rate.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
OPTIO SOFTWARE, INC.
Dated: June 9, 2000 By: /s/ F. Barron Hughes
-----------------------------
F. Barron Hughes
Chief Financial Officer
27
