<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-15529
------------------------
OPTIO SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-1435435
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3015 WINDWARD PLAZA, FAIRWAYS II, 30005
ALPHARETTA, GA (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (770) 576-3500
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
There were 17,621,432 shares of the Registrant's common stock outstanding as
of December 14, 2000.
--------------------------------------------------------------------------------
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<PAGE>
OPTIO SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 22
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 2. Changes in Securities and Use of Proceeds................... 23
Item 3. Defaults Upon Senior Securities............................. 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Item 5. Other Information........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among other things, statements regarding
Optio Software, Inc.'s (the "Company") anticipated costs and expenses, capital
needs and financing plans, product and service development, growth strategies,
market demand for the Company's products and services, relationships with the
Company's strategic marketing alliances, competition and plans for addressing
Year 2000 issues. These forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. The Company's actual results may differ significantly from
those projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, risks associated
with the Company's reliance on strategic marketing and reseller relationships,
fluctuations in operating results because of acquisitions, changes in
competition, delays in developing new software, disputes regarding the Company's
intellectual property, or risks associated with expanding the Company's
international operations. These and additional factors are set forth in "Safe
Harbor Compliance Statement for Forward-Looking Statements" included as
Exhibit 99.1 to this Quarterly Report on Form 10-Q. You should carefully review
these risks and additional risks described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
latest Annual Report on Form 10-K that the Company has filed. You are cautioned
not to place undue reliance on the forward-looking statements, which speak only
as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no
obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $46,826,000 $12,029,000
Marketable securities..................................... 386,000 355,000
Accounts receivable, net.................................. 9,268,000 10,445,000
Prepaid expenses and other current assets................. 670,000 1,027,000
Income taxes receivable................................... -- 1,069,000
Deferred income taxes..................................... 229,000 308,000
----------- -----------
Total current assets........................................ 57,379,000 25,233,000
Property and equipment, net................................. 1,518,000 2,463,000
Other assets:
Notes receivable from related party....................... 600,000 600,000
Note receivable from and advances to shareholders......... 120,000 122,000
Investment in ecIndX...................................... -- 2,189,000
Deferred income taxes..................................... 495,000 567,000
Intangible assets, net.................................... 400,000 29,731,000
Other..................................................... 130,000 128,000
----------- -----------
Total assets................................................ $60,642,000 $61,033,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,388,000 $ 2,487,000
Accrued expenses.......................................... 2,986,000 2,243,000
Income taxes payable...................................... 452,000 --
Current portion of notes payable to related parties....... 228,000 53,000
Current portion of capital lease obligations.............. 45,000 85,000
Deferred revenue.......................................... 6,332,000 6,401,000
----------- -----------
Total current liabilities................................... 11,431,000 11,269,000
Notes payable to related parties, less current portion...... -- 8,000,000
Capital lease obligations, less current portion............. 38,000 160,000
Deferred revenue............................................ 174,000 88,000
Shareholders' equity:
Common stock.............................................. 48,362,000 49,636,000
Retained earnings (accumulated deficit)................... 921,000 (7,690,000)
Accumulated other comprehensive income (loss)............. 12,000 (314,000)
Unamortized stock compensation............................ (296,000) (116,000)
----------- -----------
Total shareholders' equity.................................. 48,999,000 41,516,000
----------- -----------
Total liabilities and shareholders' equity.................. $60,642,000 $61,033,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenue:
License fees.............................................. $ 4,239,000 $ 3,189,000
Services, maintenance, and other.......................... 4,406,000 5,162,000
----------- -----------
8,645,000 8,351,000
Costs of revenue:
License fees.............................................. 192,000 158,000
Services, maintenance, and other.......................... 2,243,000 3,655,000
----------- -----------
2,435,000 3,813,000
----------- -----------
6,210,000 4,538,000
Operating expenses:
Sales and marketing....................................... 3,191,000 4,689,000
Research and development.................................. 884,000 1,390,000
General and administrative................................ 841,000 1,475,000
Depreciation and amortization............................. 308,000 2,128,000
----------- -----------
5,224,000 9,682,000
----------- -----------
Income (loss) from operations............................... 986,000 (5,144,000)
Other income (expense):
Interest income........................................... 26,000 177,000
Interest expense.......................................... (29,000) (142,000)
Other..................................................... 7,000 11,000
----------- -----------
4,000 46,000
Income (loss) before income taxes........................... 990,000 (5,098,000)
Income tax expense.......................................... 453,000 35,000
----------- -----------
Net income (loss)........................................... $ 537,000 $(5,133,000)
=========== ===========
Net income (loss) per share--basic.......................... $ 0.05 $ (0.29)
=========== ===========
Net income (loss) per share--diluted........................ $ 0.03 $ (0.29)
=========== ===========
Weighted average shares outstanding--basic.................. 11,918,640 17,621,398
----------- -----------
Weighted average shares outstanding--diluted................ 20,779,887 17,621,398
----------- -----------
Comprehensive income (loss):
Net income (loss)......................................... $ 537,000 $(5,133,000)
Foreign currency translation adjustment................... 12,000 (107,000)
Unrealized gain (loss) on marketable securities available
for sale................................................ 4,000 (21,000)
----------- -----------
Comprehensive income (loss)............................... $ 553,000 $(5,261,000)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenue:
License fees.............................................. $11,948,000 $12,462,000
Services, maintenance, and other.......................... 11,254,000 15,460,000
----------- -----------
23,202,000 27,922,000
Costs of revenue:
License fees.............................................. 648,000 764,000
Services, maintenance, and other.......................... 5,763,000 10,009,000
----------- -----------
6,411,000 10,773,000
----------- -----------
16,791,000 17,149,000
Operating expenses:
Sales and marketing....................................... 8,434,000 12,522,000
Research and development.................................. 2,529,000 4,012,000
General and administrative................................ 2,586,000 4,371,000
Depreciation and amortization............................. 892,000 5,062,000
----------- -----------
14,441,000 25,967,000
----------- -----------
Income (loss) from operations............................... 2,350,000 (8,818,000)
Other income (expense):
Interest income........................................... 86,000 849,000
Interest expense.......................................... (96,000) (335,000)
Other..................................................... (1,000) 34,000
----------- -----------
(11,000) 548,000
Income (loss) before income taxes........................... 2,339,000 (8,270,000)
Income tax expense.......................................... 1,029,000 341,000
----------- -----------
Net income (loss)........................................... $ 1,310,000 $(8,611,000)
=========== ===========
Net income (loss) per share--basic.......................... $ 0.11 $ (0.49)
=========== ===========
Net income (loss) per share--diluted........................ $ 0.07 $ (0.49)
=========== ===========
Weighted average shares outstanding--basic.................. 11,918,640 17,424,562
=========== ===========
Weighted average shares outstanding--diluted................ 19,347,356 17,424,562
=========== ===========
Comprehensive income (loss):
Net income (loss)......................................... $ 1,310,000 $(8,611,000)
Foreign currency translation adjustment................... 14,000 (245,000)
Unrealized loss on marketable securities available for
sale.................................................... (19,000) (81,000)
----------- -----------
Comprehensive income (loss)............................... $ 1,305,000 $(8,937,000)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMMON STOCK RETAINED EARNINGS COMPREHENSIVE UNAMORTIZED
------------------------ (ACCUMULATED (LOSS) STOCK TOTAL SHAREHOLDERS'
SHARES AMOUNT DEFICIT) INCOME COMPENSATION EQUITY
---------- ----------- ----------------- ------------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 1,
2000.................. 17,133,640 $48,362,000 $ 921,000 $ 12,000 $(296,000) $48,999,000
Comprehensive loss,
net of tax:
Net loss.............. -- -- (8,611,000) -- -- (8,611,000)
Foreign currency
translation
adjustment.......... -- -- -- (245,000) -- (245,000)
Unrealized loss on
marketable
securities available
for sale............ -- -- -- (81,000) -- (81,000)
-----------
Comprehensive loss.... (8,937,000)
Compensation related
to stock option
grants.............. -- (168,000) -- -- 180,000 12,000
Exercise of stock
options and related
tax benefit......... 487,792 1,442,000 -- -- -- 1,442,000
---------- ----------- ----------- --------- --------- -----------
Balance at October 31,
2000.................. 17,621,432 49,636,000 (7,690,000) (314,000) (116,000) 41,516,000
========== =========== =========== ========= ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1999 2000
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $1,310,000 $(8,611,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................ 478,000 747,000
Amortization of intangible assets....................... 414,000 4,315,000
Provision for doubtful accounts......................... 358,000 (231,000)
Gain on sale of marketable securities................... -- (10,000)
Gain on disposal of property and equipment.............. -- (10,000)
Non-cash compensation and interest...................... 55,000 628,000
Deferred income taxes................................... (191,000) (101,000)
Changes in operating assets and liabilities:
Accounts receivable................................... (1,626,000) 275,000
Prepaid expenses and other current assets............. (389,000) (501,000)
Accounts payable...................................... 440,000 660,000
Accrued expenses...................................... (148,000) (1,926,000)
Income taxes payable.................................. 417,000 (289,000)
Deferred revenue...................................... 582,000 (1,204,000)
---------- -----------
Net cash provided by (used in) operating activities......... 1,400,000 (6,258,000)
Cash flows from investing activities:
Purchases of marketable securities........................ (147,000) (90,000)
Proceeds from the sale of marketable securities........... 169,000 --
Proceeds from the sale of property and equipment.......... -- 10,000
Purchases of property and equipment....................... (520,000) (1,207,000)
Advances to related parties and shareholders.............. (78,000) (2,000)
Investment in EcIndx...................................... -- (2,189,000)
Acquisition of business, net of cash acquired............. -- (24,889,000)
---------- -----------
Net cash used in investing activities....................... (576,000) (28,367,000)
Cash flows from financing activities:
Payments of notes payable to related parties and capital
lease obligations....................................... (700,000) (251,000)
Proceeds from exercise of stock options................... -- 230,000
---------- -----------
Net cash used in financing activities....................... (700,000) (21,000)
Impact of foreign currency rate fluctuations on cash........ 52,000 (151,000)
Net decrease in cash........................................ 176,000 (34,797,000)
Cash at beginning of period................................. 1,110,000 46,826,000
---------- -----------
Cash at end of period....................................... $1,286,000 $12,029,000
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 97,000 $ 23,000
========== ===========
Income taxes............................................ $ 662,000 $ 570,000
========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Optio Software, Inc. (the "Company") is engaged primarily in the
development, sale and support of document customization and e-business
infrastructure 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. BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION
The accompanying interim consolidated condensed financial statements of the
Company have been prepared in accordance with the instructions for Form 10-Q.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management, all
adjustments necessary for a fair presentation of the financial information for
the interim period and year-to-date periods reported have been made.
The accompanying financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended
January 31, 2000, included in the Company's Annual Report on Form 10-K, dated
April 28, 2000, filed with the Securities and Exchange Commission. Results of
operations for the three and nine months ended October 31, 2000 are not
necessarily indicative of the results for the entire year ended January 31,
2001.
3. ACQUISITION
On March 27, 2000, the Company purchased all of the outstanding capital
stock of Muscato Corporation ("Muscato"), thereby making Muscato a wholly-owned
subsidiary of the Company. In addition, on the same date, the Company purchased
substantially all of the assets of TransLink Solutions Corporation
("TransLink"), an affiliate of Muscato. The consideration paid Muscato was
$28,000,000, of which $20,000,000 was paid in cash at the closing. The Company
issued a promissory note for the remaining $8,000,000, which is due and payable
on March 27, 2030. The promissory notes had provided for mandatory acceleration,
upon the request of the former shareholders of Muscato, of payments of
$4,000,000 on March 27, 2001 and $4,000,000 on March 27, 2002, provided certain
provisions were met. These provisions of the contract were not met and, as a
result, the notes are now due and payable on March 27, 2030. The purchase price
for the assets acquired from TransLink was $5,000,000 in cash paid at closing.
The cash component of each purchase price was paid out of the net proceeds
of the Company's initial public offering. Each of the acquisitions was accounted
for as a purchase transaction for financial accounting purposes, and
accordingly, the results of operations of Muscato and TransLink have been
included in the Company's consolidated condensed financial statements from the
date of the acquisition.
Muscato is a provider of business-to-business infrastructure software and
services that enable the secure, reliable transformation and exchange of
e-commerce, financial and healthcare transactions across diverse trading
communities. TransLink currently provides application service provider hosting
of Muscato's products for Muscato's healthcare customers under a recurring
revenue licensing model.
9
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACQUISITION (CONTINUED)
The purchase price was preliminarily allocated to the assets acquired and
liabilities assumed based on their respective fair values on the date of
acquisition as follows:
<TABLE>
<S> <C>
Tangible assets acquired.................................... $ 1,919,000
Liabilities assumed......................................... (2,545,000)
Technology.................................................. 1,600,000
Assembled workforce......................................... 685,000
Customer base............................................... 280,000
Goodwill.................................................... 31,061,000
-----------
$33,000,000
===========
</TABLE>
The final purchase price allocation is subject to settlement of unrecorded
liabilities deductible from the notes payable to the former shareholders.
The technology is being amortized over an average estimated life of two
years. The assembled workforce is being amortized over an estimated life of five
years. The customer base is being amortized over an estimated life of five
years. Goodwill is being amortized over an estimated life of five years.
The pro forma effect of combining Muscato and TransLink with the Company's
operations for the nine months ended October 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Revenue............................................ $28,418,000 $29,081,000
Net loss........................................... (4,476,000) (9,922,000)
Net loss per share--basic and diluted.............. $ (0.38) $ (0.57)
Weighted average shares outstanding--basic and
diluted.......................................... 11,918,640 17,424,562
</TABLE>
10
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net income (loss)................................. $ 537,000 $(5,133,000)
=========== ===========
Weighted average shares outstanding--basic........ 11,918,640 17,621,398
Effect of dilutive stock options.................. 8,861,247 --
----------- -----------
Weighted average shares outstanding--diluted...... 20,779,887 17,621,398
=========== ===========
Net income (loss) per share--basic................ $ 0.05 $ (0.29)
=========== ===========
Net income (loss) per share--diluted.............. $ 0.03 $ (0.29)
=========== ===========
Potentially dilutive stock options, excluded from
diluted net loss per share...................... 6,552,154
===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net income (loss)................................. $ 1,310,000 $(8,611,000)
=========== ===========
Weighted average shares outstanding--basic........ 11,918,640 17,424,562
Effect of dilutive stock options.................. 7,438,757 --
----------- -----------
Weighted average shares outstanding--diluted...... 19,347,356 17,424,562
=========== ===========
Net income (loss) per share--basic................ $ 0.11 $ (0.49)
=========== ===========
Net income (loss) per share--diluted.............. $ 0.07 $ (0.49)
=========== ===========
Potentially dilutive stock options, excluded from
diluted net loss per share...................... 8,350,071
===========
</TABLE>
5. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized around geographic areas. The Company operates in
four geographic segments, the United States, France, the United Kingdom and
Australia. The foreign locations principally function as distributors of
products developed by the Company in the United States. The accounting policies
as described in the summary of significant accounting policies of the Form 10-K
are applied consistently across the segments. Intersegment sales are based on
intercompany transfer prices to achieve a reasonable margin upon distribution.
11
<PAGE>
OPTIO SOFTWARE, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Segment information for the nine months ended October 31, 1999 and 2000 is
summarized below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED UNITED UNITED
OCTOBER 31, 1999 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)........ 1,044,000 248,000 242,000 (224,000) 1,310,000 -- 1,310,000
Total segment assets............. 11,118,000 1,532,000 703,000 58,000 13,411,000 (951,000) 12,460,000
Expenditures for long-lived
assets......................... 485,000 33,000 -- -- 520,000 -- 520,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED UNITED UNITED
OCTOBER 31, 2000 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
----------------- ----------- ---------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees................... $11,110,000 $ 584,000 $ 640,000 $ 128,000 $12,462,000 $ -- $12,462,000
Services, maintenance and
other........................ 14,139,000 757,000 504,000 60,000 15,460,000 -- 15,460,000
Intersegment revenue............. 377,000 160,000 -- -- 537,000 (537,000) --
----------- ---------- ----------- --------- ----------- ----------- -----------
Total revenue.................. 25,626,000 1,501,000 1,144,000 188,000 28,459,000 (537,000) 27,922,000
Interest income.................. 849,000 -- -- -- 849,000 -- 849,000
Interest expense................. (334,000) (1,000) -- -- (335,000) -- (335,000)
Depreciation and amortization.... 5,031,000 24,000 3,000 4,000 5,062,000 -- 5,062,000
Income tax expense............... 213,000 1,000 127,000 -- 341,000 -- 341,000
Segment net (loss) income........ (7,900,000) (316,000) 312,000 (707,000) (8,611,000) -- (8,611,000)
Total segment assets............. 60,778,000 1,311,000 1,292,000 203,000 63,584,000 (2,551,000) 61,033,000
Expenditures for long-lived
assets......................... 1,101,000 70,000 -- 35,000 1,206,000 -- 1,206,000
</TABLE>
6. INCOME TAXES
The Company incurred a loss in the quarter and nine months ended October 31,
2000. As a result, the Company evaluated the realizability of the resulting tax
assets from carryback opportunities and has recorded refundable income taxes to
the extent of taxes previously paid. A valuation allowance has been recorded
related to deferred tax assets based on management's assessment that the assets
are not more likely than not to be realized.
7. INVESTMENT IN ECINDX.
The Company invested $2,000,000 in ecIndX, Inc., a supply chain
collaboration vendor, in exchange for a minority interest in the company. An
additional $189,000 of costs incurred related to making the investment were
added to the basis of the investment. In conjunction with the investment,
ecIndX, Inc. entered into the Company's standard software license agreement to
purchase $1,000,000 in software and related services on or before January 1,
2001.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Optio Software, Inc. (the "Company" or "Optio") was incorporated in Georgia
in 1981 as Technology Marketing, Inc., and changed its name to Xpoint
Corporation in 1982, then to Optio Software, Inc. in 1997. The Company currently
operates through three wholly-owned subsidiaries: Optio Software, Europe S.A.
("Optio Europe"), located in France, and its wholly-owned subsidiary Optio
Software, UK Pvt. Limited ("Optio UK"), located in the United Kingdom; Optio
Software, Asia Pacific, ("Optio Australia") located in Australia; and Muscato
Corporation ("Muscato"), located in Orlando, Florida.
The majority of the Company's revenue is derived from software that delivers
customized information by fax, printer and e-mail. During fiscal year 2000, the
Company began expanding its business plan to develop new software and services
that would help its customers move from paper-intensive commerce to e-business.
The Company began to release its software designed to facilitate e-business,
with the introduction of Optio e.ComPresent in September 1999. In March 2000,
the Company announced the initial release of its e.ComIntegrate-TM- product
which provides organizations with the ability to conduct business-to-business
e-commerce and participate in e-marketplaces through the creation,
transformation and exchange of XML documents. In April 2000, the Company
announced e.ComPayments-TM-, the third product offering in its e.ComSeries-TM-.
e.ComPayments represents the Company's full-scale payment platform providing
comprehensive support for electronic and traditional payments. Effective
March 27, 2000, the Company purchased Muscato Corporation and its affiliate
TransLink Solutions Corporation ("TransLink"), providing the Company with two
additional business-to-business infrastructure software products, Enterprise
Generic Integrator ("ENGIN-TM-", now known as "e.ComENGIN-TM-") and Electronic
Commerce System ("EC").
Optio also offers consulting services which provide customers with
implementation assistance and training. In order to better service customers and
support the growth of its consulting business, the Company has established the
Optio Alliance Program. This program certifies independent consulting companies
that help deliver consulting services to the Company's customer base.
Optio markets and sells its software primarily through its direct sales
force and certified resellers. As of October 31, 2000, the Company had
50 quota-carrying sales personnel and approximately 100 resellers. This direct
sales force and group of certified resellers are located throughout the world as
Optio has expanded its international operations and completed acquisitions over
the past two years. In November 1998, Optio Europe expanded by founding its
wholly-owned subsidiary in the United Kingdom, Optio UK, which began operations
in the three months ended April 30, 1999. In May 1999, the Company entered the
Asia Pacific market by establishing its subsidiary in Australia, Optio Software,
Asia Pacific, which began operations in July, 1999. As previously mentioned, the
Company purchased Muscato and TransLink effective March 27, 2000. Now, in
addition to operations in the United States, Optio operates three international
offices involved in the direct sales, marketing and support activities of Optio
products throughout France, Germany, the United Kingdom, Australia, Japan,
Singapore and other countries. As of October 31, 2000, the Company had over
3,980 customers worldwide using the Company's software and services.
13
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1999 AND 2000
REVENUES
The following table sets forth certain items from the Company's statements
of operations as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER 31,
-------------------------
1999 2000
-------- --------
<S> <C> <C>
Revenue:
License fees.............................................. 49% 38%
Services, maintenance and other........................... 51 62
--- ---
Total revenue........................................... 100 100
--- ---
Costs of revenue:
License fees.............................................. 2 2
Services, maintenance and other........................... 26 44
--- ---
Total cost of revenue................................... 28 46
--- ---
Gross profit................................................ 72 54
Operating expenses:
Sales and marketing....................................... 37 56
Research and development.................................. 10 17
General and administrative................................ 10 18
Depreciation and amortization............................. 4 26
--- ---
Total operating expenses................................ 61 116
--- ---
Income (loss) from operations............................... 11 (62)
Interest and other income................................... 0 1
--- ---
Income before income taxes.................................. 11 (61)
Income taxes................................................ 5 0
--- ---
Net income (loss)........................................... 6% (62%)
=== ===
</TABLE>
REVENUES
Total revenues decreased 3% to $8.4 million from $8.6 million for the three
months ended October 31, 2000 and 1999, respectively.
LICENSE FEES
Revenues from licenses decreased 25% to $3.2 million from $4.2 million for
the three months ended October 31, 2000 and 1999, respectively. The leading
factor contributing to the decrease in revenue was the effect of re-staffing of
the Company's sales organization with fully-trained sales personnel. As the
Company continues to build its e-business products, management believed the
Company required a more technical, more solutions-based sales organization than
what was currently in place. The Company had difficulty integrating the sales
efforts for the new e.ComSeries of products with the existing distributed output
management ("DOM") products. As a result, the Company experienced significant
turnover as some sales personnel could not make the transition to the e-business
market solution based selling process. The Company determined that the sales
department was not properly structured in light of the changes that were taking
place in the Enterprise Resource Planning ("ERP") marketplace. To move into the
Business-to-Business ("B2B") integration space, the Company determined that a
geographically aligned sales force, as opposed to an ERP aligned sales force,
would be better suited for the market. Additionally,
14
<PAGE>
the Company's referral business trended the ERP market, which was down
significantly from the explosive growth that occurred in 1999. In response, in
August 2000, the Company initiated its geographically aligned sales model and
began to re-staff the sales organization to allow the sales people to be nearer
to the customer base that they would pursue. As a result of the turnover and of
the restructuring of the sales organization, revenues declined.
Despite the decline in license fee revenue, the Company's average selling
price continues to rise. As the Company continues to increase sales of its
e-business products, including eight e.ComPayments in the first quarter of its
availability, the average sale price is beginning to increase.
SERVICES, MAINTENANCE AND OTHER
Revenues from services, maintenance and other increased 17% to $5.2 million
from $4.4 million for the three months ended October 31, 2000 and 1999,
respectively. Despite the decrease in license fee revenue, the overall increase
in the Company's number of customers has resulted in increased implementation,
training and technical support. In addition, consulting service projects from
the second quarter were still on-going, contributing significantly to the three
months ended October 31, 2000.
REVENUE MIX
Revenues from licenses represented 38% and 49% of total revenue for the
three months ended October 31, 2000 and 1999, respectively. The sales mix shift
towards services revenue was due to the decline of the Company's license revenue
in the three months ended October 31, 2000, while the Company's services,
maintenance, and other revenue grew in conjunction with the increased number of
customers and outstanding consulting projects.
COSTS OF REVENUES
Total costs of revenues increased 57% to $3.8 million from $2.4 million in
the three months ended October 31, 2000 and 1999, respectively.
LICENSES
Costs of revenues from licenses consists of costs related to the packaging
and distribution of the products, fees paid for incorporation of third-party
software products, and fees paid to referral partners. Costs of revenues from
licenses decreased 18% to $158,000 from $192,000 for the three months ended
October 31, 2000 and 1999, respectively. The decrease was primarily due to
decreased referral partner fees as fewer sales were obtained through referral
partners. As a percentage of revenue, costs of revenue from licenses remained
relatively consistent at 2% for the three months ended October 31, 2000 and
1999, respectively.
SERVICES, MAINTENANCE AND OTHER
Costs of revenues from services, maintenance and other consists of
personnel, subcontract and other expenses relating to the cost of providing
customer support, education and professional services. Costs of revenue from
services, maintenance and other increased 63% to $3.7 million from $2.2 million
in the three months ended October 31, 2000 and 1999, respectively. Costs of
revenues from services, maintenance and other increased as a percentage of total
revenue from 26% in 1999 to 44% in 2000. The increase is directly related to
(i) the increase in services, maintenance and other revenue as a whole and as a
percentage of total revenue, (ii) an emphasis on customer satisfaction that has
resulted in increased headcount in the project management and implementation
areas, (iii) increased training and mentoring of subcontracted consulting
solution providers, (iv) the cost associated with holding training classes at
various locations in the United States, and (v) the use of more subcontractors
in the three months ended October 31, 2000, which typically provide a slightly
lower gross margin.
15
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commission,
bonuses and benefits earned by sales and marketing personnel, direct
expenditures such as travel, communication and occupancy and marketing
expenditures related to direct mail, trade shows and other advertising.
Sales and marketing expenses increased 47% to $4.7 million from
$3.2 million for the three months ended July 31, 2000 and 1999, respectively.
Sales and marketing expenses were 56% and 37% of total revenue for the same
periods. The increase was primarily due to the following factors:
(i) additional hiring to support the Company's restructuring of the sales
organization, (ii) the expansion of the Company's North American and
international operations, (iii) additional marketing to promote the Company's
expansion of its product base to include Optio's e.ComSeries, (iv) expenses of
approximately $350,000 related to the Company's first annual users conference
and (v) the addition of the expenses related to the operations of Muscato and
TransLink that are reflected subsequent to their acquisition dates. The Company
added approximately 24 employees in the sales and marketing departments from
October 31, 1999 to October 31, 2000.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of salaries, benefits
and equipment for software developers, quality assurance personnel, and product
managers.
Research and development expenses increased 57% to $1.4 million from
$900,000 in the three months October 31, 2000 and 1999, respectively,
representing 17% and 10% of total revenue for the same periods. This increase is
primarily due to additions to the development team to design and complete the
Company's new e.ComSeries of products and the addition of other personnel from
the acquisition of Muscato and TransLink. There were a total of 27 additional
research and development staff added from October 31, 1999 to October 31, 2000.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, benefits
and related costs for executive, finance, human resources and information
services personnel. General and administrative expenses also includes legal,
accounting and other professional services.
General and administrative expenses increased 75% to $1.5 million from
$800,000 for the three months ended October 31, 2000 and 1999, respectively.
These expenses represent 18% and 10% of total revenue for the same periods. The
increase in general administrative expenses as a percentage of revenue is
primarily the result of (i) expenses associated with being a public company,
(ii) the addition of the expenses of Muscato and TransLink subsequent to their
acquisition dates, (iii) the non-recurring write-off of approximately $120,000
of uncollectible accounts receivable in the three months ended October 31, 2000,
and (iv) the addition of approximately eleven general and administrative staff
between October 31, 1999 and October 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $2.1 million from
$300,000 for the three months ended October 31, 2000 and 1999, respectively.
This increase is primarily due to the additional amortization expense resulting
from the purchase of Muscato and TransLink on March 27, 2000. Amortization of
goodwill and other intangibles related to the Muscato and TransLink acquisition
was $1.8 million for the three months ended October 31, 2000.
INTEREST INCOME
Interest income increased to $177,000 from $26,000 in the three months ended
October 31, 2000 and 1999, respectively. This increase was primarily due to
approximately $160,000 of interest earned from the short-term investment of cash
and cash equivalents generated by the Company's initial public offering.
16
<PAGE>
INTEREST EXPENSE
Interest expense in the three months ended October 31, 1999 represented
interest on notes payable to related parties, which were subsequently paid in
full with the proceeds of the Company's initial public offering. Interest
expense of approximately $135,000 in the three months ended October 31, 2000
represented interest on promissory notes of $8,000,000 given in connection with
the acquisition of Muscato and TransLink.
INCOME TAX EXPENSE
The provision for income taxes was $35,000 and $453,000 for the three months
ended October 31, 2000 and 1999, respectively. The effective tax rate for the
three months ended October 31, 1999 was 46%, which was a result of
non-deductible losses from foreign operations. Despite the Company's loss in the
three months October 31, 2000, the Company incurred $35,000 of income tax
expense related to the Company's foreign operations. The Company evaluated the
realizability of the resulting tax assets from carryback opportunities and has
recorded refundable income taxes to the extent of taxes previously paid. A
valuation allowance has been recorded related to deferred tax assets based on
management's assessment that the assets are not more likely than not to be
realized.
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999 AND 2000
REVENUES
The following table sets forth certain items from the Company's statements
of operations as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OCTOBER 31,
-------------------------
1999 2000
-------- --------
<S> <C> <C>
Revenue:
License fees.............................................. 51% 45%
Services, maintenance and other........................... 49 55
--- ---
Total revenue........................................... 100 100
--- ---
Costs of revenue:
License fees.............................................. 3 3
Services, maintenance and other........................... 25 36
--- ---
Total cost of revenue................................... 28 39
--- ---
Gross profit................................................ 72 61
Operating expenses:
Sales and marketing....................................... 36 45
Research and development.................................. 11 14
General and administrative................................ 11 16
Depreciation and amortization............................. 4 18
--- ---
Total operating expenses................................ 62 93
--- ---
Income (loss) from operations............................... 10 (32)
Interest and other income................................... 0 2
--- ---
Income before income taxes.................................. 10 (30)
Income taxes................................................ 4 1
--- ---
Net income (loss)........................................... 6% (31%)
=== ===
</TABLE>
REVENUES
Total revenues increased 20% to $27.9 million from $23.2 million for the
nine months ended October 31, 2000 and 1999, respectively.
17
<PAGE>
LICENSE FEES
Revenues from licenses increased 4% to $12.5 million from $11.9 million for
the nine months ended October 31, 2000 and 1999, respectively. License revenue
grew from 1999 to 2000 due to the following factors: (i) the introduction of the
Company's e.ComSeries of products, beginning in September 1999, contributing a
higher average selling price per sale; (ii) the Company's growth into the
European market, including the initiation of operations in the United Kingdom in
April 1999 and in Australia in July 1999; and (iii) the Company's purchase of
Muscato and TransLink on March 27, 2000, contributing revenue subsequent to
their acquisition dates. Despite the growth in the Company's e.ComSeries and the
acquisition of Muscato and Translink, the Company's core product performance
suffered due to a market shift in product requirements from DOM systems to
e-business projects and a confusion of sales focus and execution. The Company
has experienced difficulties in integrating the sales efforts for the new
e.ComSeries of products with the existing DOM products. As a result, the Company
experienced significant turnover as some sales personnel could not make the
transition to the e-business market solution based selling process. The Company
determined that the sales department was not properly structured in light of the
changes that were taking place in the ERP marketplace. To move into the B2B
integration space, the Company determined that a geographically aligned sales
force, as opposed to an ERP aligned sales force, would be better suited for the
market. Additionally, the Company's referral business trended the ERP market,
which was down significantly from the explosive growth that occurred in 1999. In
response, in August 2000, the Company initiated its geographically aligned sales
model and began to re-staff the sales organization to allow the sales people to
be nearer to the customer base that they would pursue. As a result of the
turnover and of the restructuring of the sales organization, revenue growth
suffered even though revenue increased.
SERVICES, MAINTENANCE AND OTHER
Revenues from services, maintenance and other increased 37% to
$15.5 million from $11.3 million for the nine months ended October 31, 2000 and
1999, respectively. The increase in revenues from service, maintenance and other
is the result of (i) the acquisition of Muscato and TransLink, contributing
revenue subsequent to their acquisition dates; (ii) the sale of hardware related
to a specific contract of approximately $350,000 in the three months ended
July 31, 2000; and (iii) the overall increase in the Company's number of
customers, resulting in increased implementation, training, and technical
support.
REVENUE MIX
Revenues from licenses represented 51% and 45% of total revenue for the nine
months ended October 31, 1999 and 2000, respectively. The sales mix shift
towards services revenue was due to the slowing growth of the Company's license
revenue in the nine months ended October 31, 2000, while the Company's services,
maintenance, and other revenue grew in conjunction with the increased number of
customers and outstanding consulting projects.
COSTS OF REVENUES
Total costs of revenues increased 68% to $10.8 million from $6.4 million in
the nine months ended October 31, 2000 and 1999, respectively.
LICENSES
Costs of revenues from licenses consists of costs related to the packaging
and distribution of the products, fees paid for incorporation of third-party
software products, and fees paid to referral partners. Costs of revenues from
licenses increased 18% to $764,000 from $648,000 for the nine months ended
October 31, 2000 and 1999, respectively. The increase was in direct proportion
to the increase in license
18
<PAGE>
revenue. As a percentage of revenue, costs of revenue from licenses remained
consistent at 3% for both the nine months ended October 31, 2000 and 1999.
SERVICES, MAINTENANCE AND OTHER
Costs of revenues from services, maintenance and other consists of
personnel, subcontract and other expenses relating to the cost of providing
customer support, education and professional services. Costs of revenue from
services, maintenance and other increased 74% to $10.0 million from
$5.8 million in the nine months ended October 31, 2000 and 1999, respectively.
The increase is directly related to (i) the increase in services, maintenance
and other revenue; (ii) the addition of approximately $300,000 of hardware costs
of a single contract in the three months ended July 31, 2000; (iii) an emphasis
on customer satisfaction that has resulted in increased headcount in the project
management and implementation areas; (iv) increased training and mentoring of
subcontracted consulting solution providers; (v) the cost associated with
holding training classes at various locations in the United States; and
(vi) the use of more subcontracted consulting solution providers in the nine
months ended October 31, 2000. Costs of revenues from services, maintenance and
other increased as a percentage of total revenue from 25% in 1999 to 36% in
2000. This was primarily due to the fact that the Company used more
subcontractors in the nine months ended October 31, 2000, which typically
provide a slightly lower gross margin.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commission,
bonuses and benefits earned by sales and marketing personnel, direct
expenditures such as travel, communication and occupancy and marketing
expenditures related to direct mail, trade shows and other advertising.
Sales and marketing expenses increased 48% to $12.5 million from
$8.4 million for the nine months ended October 31, 2000 and 1999, respectively.
Sales and marketing expenses were 45% and 36% of total revenue for the same
periods. The increase was primarily due to the following factors:
(i) additional hiring to support the Company's restructuring of the sales
organization, (ii) the expansion of the Company's North American and
international operations, (iii) additional marketing to promote the Company's
expansion of its product base to include Optio's e.ComSeries, (iv) expenses of
approximately $350,000 related to the Company's first annual users conference
and (v) the addition of the expenses related to the operations of Muscato and
TransLink that are reflected subsequent to their acquisition dates. The Company
added approximately 24 employees in the sales and marketing departments from
October 31, 1999 to October 31, 2000.
RESEARCH AND DEVELOPMENT
Research and development expenses consists primarily of salaries, benefits
and equipment for software developers, quality assurance personnel, and product
managers.
Research and development expenses increased 59% to $4.0 million from
$2.5 million in the nine months October 31, 2000 and 1999, respectively,
representing 14% and 11% of total revenue for the same periods. This increase is
primarily due to additions to the development team to design and complete the
Company's new e.ComSeries of products and the addition of other personnel from
the acquisition of Muscato and TransLink. There were a total of 27 additional
research and development staff added from July 31, 1999 to July 31, 2000.
19
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, benefits
and related costs for executive, finance, human resources and information
services personnel. General and administrative expenses also includes legal,
accounting and other professional services.
General and administrative expenses increased 69% to $4.4 million from
$2.6 million for the nine months ended October 31, 2000 and 1999, respectively.
These expenses represent 16% and 11% of total revenue for the same periods. The
increase in general administrative expenses as a percentage of revenue is
primarily the result of (i) expenses associated with being a public company,
including $120,000 of expenses related to the production of the Company's annual
reports and other documents; (ii) the addition of the expenses of Muscato and
TransLink subsequent to their acquisition dates; (iii) the non-recurring
write-off of approximately $270,000 of uncollectible accounts receivable in the
nine months ended October 31, 2000; and (iv) the addition of approximately
eleven general and administrative staff between October 31, 1999 and
October 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $5.1 million from
$900,000 for the nine months ended October 31, 2000 and 1999, respectively. This
increase is primarily due to the additional amortization expense resulting from
the purchase of Muscato and TransLink on March 27, 2000. Amortization of
goodwill and other intangibles related to the Muscato and TransLink acquisition
was $4.1 million for the nine months ended October 31, 2000.
INTEREST INCOME
Interest income increased to $849,000 from $85,000 in the nine months ended
October 31, 2000 and 1999, respectively. This increase was primarily due to
approximately $800,000 of interest earned from the short-term investment of cash
and cash equivalents generated by the Company's initial public offering.
INTEREST EXPENSE
Interest expense in the nine months ended October 31, 1999 represented
interest on notes payable to related parties, which were subsequently paid in
full with the proceeds of the Company's initial public offering. Interest
expense in the nine months ended October 31, 2000 represented interest on
promissory notes of $8.0 million given in connection with the acquisition of
Muscato and TransLink, representing approximately $315,000.
INCOME TAX EXPENSE
The provision for income taxes was $341,000 and $1.0 million for the nine
months ended October 31, 2000 and 1999, respectively. The effective tax rate for
the nine months ended October 31, 1999 was 44%. Despite the Company's loss in
the nine months ended October 31, 2000, the Company incurred $341,000 of income
tax expense. As a result of the loss, the Company evaluated the realizability of
the resulting tax assets from carryback opportunities and has recorded
refundable income taxes to the extent of taxes previously paid. A valuation
allowance has been recorded related to the deferred tax assets based on
management's assessment that the assets are not more likely than not to be
realized.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000 and 1999 the Company had $12.0 million and
$1.3 million, respectively, of cash and cash equivalents.
20
<PAGE>
The following table sets forth certain selected statements of cash flow
information for the nine months ended October 31, 2000:
<TABLE>
<S> <C>
Net cash used in operations................................. $(6,259,000)
Net cash used in investing activities....................... (28,366,000)
Net cash used in financing activities....................... (21,000)
Net decrease in cash and cash equivalents................... (34,797,000)
</TABLE>
The Company used cash in operations primarily (i) to pay expenses accrued
through January 31, 2000, including year-end incentive bonuses and commissions
of $755,000, expenses of $385,000 relating to the Company's initial public
offering, and approximately $120,000 related to various routine year-end
expenses including the Company's annual audit and (ii) to fund general operating
expenses not supported by the Company's level of revenues, resulting in a loss
for the nine months ended October 31, 2000. The Company also paid approximately
$600,000 of accrued expenses assumed in the acquisition of Muscato and TransLink
Corporation.
In investing activities, the Company used $25 million of its proceeds from
its initial public offering for the acquisitions of Muscato and TransLink. In
addition, the Company purchased approximately $1.2 million of property and
equipment in the ordinary course of business. Finally, the Company invested a
total of $2.2 million in ecIndX, Inc., a supply chain collaboration vendor, in
exchange for a minority interest in the company.
The Company's financing activities included payments of $251,000 toward debt
and the receipt of $230,000 in connection with options exercised.
Optio has promissory notes payable to the former shareholders of Muscato and
TransLink in the amount of $8.0 million, which are due and payable on March 27,
2030. The promissory notes had provided for mandatory acceleration, upon the
request of the former shareholders of Muscato, of payments of $4,000,000 on
March 27, 2001 and $4,000,000 on March 27, 2002, provided certain provisions
were met. These provisions of the contract were not met and, as a result, the
notes are now due and payable on March 27, 2030.
On April 14, 2000, the Company entered into a $10.0 million line of credit
arrangement with First Union National Bank. The line of credit matures on
April 14, 2001. The line of credit bears interest at LIBOR plus 1.75%. This debt
instrument is collateralized by accounts receivable of the Company. This
agreement contained customary events of default and a number of customary
covenants, including certain financial ratios and restrictions on dividends. As
of October 31, 2000, the Company was not in compliance with the required
financial ratios and was in default on the line of credit. The Company and First
Union National Bank subsequently amended the line of credit to eliminate the
financial ratios causing the default. This agreement now contains customary
events of default and customary covenants, including restrictions on dividends.
Under the line of credit, the Company may borrow not more than the amount of
liquid capital, including cash and securities, maintained by the Company.
Management believes that the remaining net proceeds from the initial public
offering in December 1999, together with the line of credit, and existing cash
and cash equivalents will provide adequate cash to fund its anticipated cash
needs at least through the next twelve months. To the extent that these amounts
are insufficient, the Company will be required to raise additional funds through
equity or debt financing. There can be no assurance that the Company will be
able to raise additional funds on favorable terms, or at all.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company provides its services to customers primarily in the United
States and, to a lesser extent, in Europe and elsewhere throughout the world. As
a result, the Company's 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 the Company's products less competitive in foreign
markets. The Company's interest income and expense is sensitive to changes in
the general level of U.S. interest rates. Based on the Company's cash
equivalents balance and the nature of its outstanding debt, management believes
its 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.
22
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company is not currently a party to any
material legal proceeding.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 15, 1999, the Company commenced an initial public offering of
its Common Stock. The net proceeds from the offering to the Company after
deducting the discounts, commissions, fees and expenses were $47.0 million.
Approximately $1.2 million of the proceeds were used for the repayment of our
indebtedness to three former shareholders incurred in connection with the
repurchase of their common stock in December 1998. In March 2000, $20 million of
the proceeds were used for the acquisition of all of the capital stock of
Muscato and an additional $5 million was used to acquire the assets of
TransLink. In August 2000, the Company invested $2.2 million in ecIndX, Inc., a
supply chain collaboration vendor, in exchange for a minority interest in the
company. Pending use of the net proceeds, the Company has invested the funds in
money market funds and used them for general corporate purposes, including
working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment to Credit Agreement dated as of April 14, 2000, by and
among Optio Software, Inc., as Borrower, and First Union National Bank, as
Lender.
27.1 Financial Data Schedule
99.1 Safe Harbor Compliance Statements for Forward Looking Statements
(b) Reports on Form 8-K
None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 14th day of
December, 2000.
<TABLE>
<S> <C> <C>
OPTIO SOFTWARE, INC.
By: /s/ F. BARRON HUGHES
-----------------------------------------
F. Barron Hughes
CHIEF FINANCIAL OFFICER
</TABLE>
24
