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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 1-15529
OPTIO SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1435435
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3015 WINDWARD PLAZA, WINDWARD FAIRWAYS II, ATLANTA, GA 30005
(Address of principal executive offices) (Zip Code)
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 17,394,140 shares of the Registrant's common stock outstanding as
of June 13, 2000.
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OPTIO SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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....................................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................................17
Item 2. Changes in Securities and Use of Proceeds............................................................17
Item 3. Defaults Upon Senior Securities......................................................................18
Item 4. Submission of Matters to a Vote of Security Holders..................................................18
Item 5. Other Information....................................................................................18
Item 6. Exhibits and Reports on Form 8-K.....................................................................18
</TABLE>
2
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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 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. Optio 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
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OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 2000
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,826,000 $ 18,347,000
Marketable securities 386,000 355,000
Accounts receivable, net 9,268,000 11,582,000
Prepaid expenses and other current assets 670,000 986,000
Income tax receivable -- 987,000
Deferred income taxes 229,000 316,000
--------------------- ---------------------
Total current assets 57,379,000 32,573,000
Property and equipment, net 1,518,000 2,362,000
Other assets:
Notes receivable from related party 600,000 600,000
Note receivable and advances to shareholders 120,000 121,000
Deferred income taxes 495,000 515,000
Intangible assets, net 400,000 32,523,000
Other 130,000 138,000
--------------------- ---------------------
Total assets $ 60,642,000 $68,832,000
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,388,000 $ 1,436,000
Accrued expenses 2,986,000 1,867,000
Income taxes payable 452,000 --
Current portion of notes payable to related parties 228,000 4,128,000
Current portion of capital lease obligations 45,000 80,000
Deferred revenue 6,332,000 7,008,000
--------------------- ---------------------
Total current liabilities 11,431,000 14,519,000
Notes payable to related parties, less current portion -- 4,000,000
Capital lease obligations, less current portion 38,000 205,000
Deferred revenue 174,000 177,000
Shareholders' equity:
Common stock 48,362,000 49,598,000
Retained earnings (accumulated deficit) 921,000 779,000
Accumulated other comprehensive income (loss) 12,000 (179,000)
Unamortized stock compensation (296,000) (267,000)
--------------------- ---------------------
Total shareholders' equity 48,999,000 49,931,000
--------------------- ---------------------
Total liabilities and shareholders' equity $ 60,642,000 $68,832,000
===================== =====================
</TABLE>
SEE ACCOMPANYING NOTES.
4
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Optio Software, Inc.
Consolidated Condensed Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------------------------
1999 2000
--------------------- --------------------
<S> <C> <C>
Revenue:
License fees $3,358,000 $4,775,000
Services, maintenance, and other 3,026,000 4,568,000
--------------------- --------------------
6,384,000 9,343,000
Costs of revenue:
License fees 195,000 391,000
Services, maintenance, and other 1,524,000 2,501,000
--------------------- --------------------
1,719,000 2,892,000
--------------------- --------------------
4,665,000 6,451,000
Operating expenses:
Sales and marketing 2,465,000 3,759,000
Research and development 826,000 1,176,000
General and administrative 900,000 1,019,000
Depreciation and amortization 287,000 796,000
--------------------- --------------------
4,478,000 6,750,000
--------------------- --------------------
Income (loss) from operations 187,000 (299,000)
Other income (expense):
Interest income 33,000 466,000
Interest expense (36,000) (49,000)
Other (3,000) 17,000
--------------------- --------------------
(6,000) 434,000
Income before income taxes 181,000 135,000
Income tax expense 68,000 277,000
--------------------- --------------------
Net income (loss) $ 113,000 $ (142,000)
===================== ====================
Net income (loss) per share - basic $ 0.01 $ (0.01)
===================== ====================
Net income (loss) per share - diluted $ 0.01 $ (0.01)
===================== ====================
Weighted average shares outstanding - basic 11,918,640 17,190,584
===================== ====================
Weighted average shares outstanding - diluted 17,357,397 17,190,584
===================== ====================
</TABLE>
SEE ACCOMPANYING NOTES.
5
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Optio Software, Inc.
Consolidated Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------------------------
1999 2000
--------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 113,000 $ (142,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 149,000 214,000
Amortization of intangible assets 138,000 582,000
Provision for doubtful accounts (13,000) (31,000)
Gain on sale of marketable securities (12,000) (10,000)
Gain on disposal of property and equipment -- (4,000)
Non-cash compensation and interest 7,000 73,000
Deferred income taxes 316,000 (80,000)
Changes in operating assets and liabilities:
Accounts receivable 770,000 (966,000)
Prepaid expenses and other current assets (840,000) (325,000)
Accounts payable 361,000 (192,000)
Accrued expenses (1,182,000) (1,817,000)
Income taxes payable 317,000 (148,000)
Deferred revenue 327,000 (67,000)
--------------------- ---------------------
Net cash provided by (used in) operating activities 451,000 (2,913,000)
Cash flows from investing activities:
Purchases of marketable securities (70,000) (30,000)
Proceeds from the sale of marketable securities 128,000 --
Proceeds from the sale of property and equipment -- 4,000
Purchases of property and equipment (237,000) (425,000)
Advances to related parties and shareholders (76,000) --
Acquisition of business, net of cash acquired -- (24,889,000)
--------------------- ---------------------
Net cash used in investing activities (255,000) (25,340,000)
Cash flows from financing activities:
Payments of notes payable to related parties and capital
lease obligations (215,000) (136,000)
Proceeds from exercise of stock options -- 25,000
--------------------- ---------------------
Net cash used in financing activities (215,000) (111,000)
Impact of foreign currency rate fluctuations on
Cash (201,000) (115,000)
Net decrease in cash (220,000) (28,479,000)
Cash at beginning of period 1,129,000 46,826,000
--------------------- ---------------------
Cash at end of period $ 909,000 $ 18,347,000
===================== =====================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,000 $ 2,000
===================== =====================
Income taxes $ 240,000 $ 542,000
===================== =====================
</TABLE>
See accompanying notes.
6
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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 months ended April 30, 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
7
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promissory note provides 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, providing certain provisions are met. 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.
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:
Tangible assets acquired $ 2,202,000
Liabilities assumed (1,896,000)
Technology 1,600,000
Assembled workforce 685,000
Customer base 280,000
Goodwill 30,129,000
------------------
$ 33,000,000
==================
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 three months ended April 30, 2000 and 1999
is as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Revenue $ 10,502,000 $ 8,123,000
Net loss (1,213,000) (1,563,000)
Net loss per share - basic and diluted $ (0.07) (0.13)
Weighted average shares outstanding - basic
and diluted 17,190,584 11,918,640
</TABLE>
8
<PAGE>
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 APRIL 30,
1999 2000
------------------ ------------------
<S> <C> <C>
Net income (loss) $ 113,000 $ (142,000)
=================== ==================
Weighted average shares outstanding - basic 11,918,640 17,190,584
Effect of dilutive stock options 5,438,757 --
------------------- ------------------
Weighted average shares outstanding - diluted 17,357,397 17,190,584
=================== ==================
Net income (loss) per share - basic $ 0.01 $ (0.01)
=================== ==================
Net income (loss) per share - diluted $ 0.01 $ (0.01)
=================== ==================
</TABLE>
5. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized around geographic areas. Prior to April 30,
1999, the Company operated in three geographic segments, the United States,
France and the United Kingdom, and expanded into Australia subsequent to
April 30, 1999. 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 are
applied consistently across the segments. Intersegment sales are based on
intercompany transfer prices to achieve a reasonable margin upon distribution.
Segment information for the three months ended April 30, 1999 and
2000 is summarized below.
9
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<TABLE>
<CAPTION>
UNITED UNITED
THREE MONTHS ENDED APRIL 30, 1999 STATES FRANCE KINGDOM COMBINED ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees $ 2,765,000 $543,000 $50,000 $3,358,000 $ - $ 3,358,000
Services, maintenance and other 2,777,000 249,000 - 3,026,000 - 3,026,000
-----------------------------------------------------------------------------------------
Total revenue 5,542,000 792,000 50,000 6,384,000 - 6,384,000
Interest income 33,000 - - 33,000 - 33,000
Interest expense (36,000) - - (36,000) - (36,000)
Depreciation and amortization 275,000 12,000 - 287,000 - 287,000
Income tax expense (benefit) (63,000) 132,000 (1,000) (68,000) - (68,000)
Segment net income (loss) (84,000) 198,000 (1,000) 113,000 - 113,000
Total segment assets 8,866,000 1,425,000 50,000 10,341,000 (465,000) 9,876,000
Expenditures for long-lived assets 33,000 204,000 - 237,000 - 237,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED UNITED UNITED
APRIL 30, 2000 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external
customers:
License fees $ 4,215,000 $ 205,000 $330,000 $ 25,000 $ 4,775,000 $ - $ 4,775,000
Services, maintenance
and other 4,188,000 265,000 108,000 7,000 4,568,000 - 4,568,000
Intersegment revenue 131,000 89,000 - - 220,000 (220,000) -
------------------------------------------------------------------------------------------------------
Total revenue 8,5534,000 559,000 438,000 32,000 9,563,000 (220,000) 9,343,000
Interest income 466,000 - - - 466,000 - 466,000
Interest expense (49,000) - - - (49,000) - (49,000)
Depreciation and
amortization 786,000 8,000 1,000 1,000 796,000 - 796,000
Income tax expense 214,000 1,000 62,000 - 277,000 - 277,000
Segment net income (loss) (40,000) (43,000) 160,000 (219,000) (142,000) - (142,000)
Total segment assets 67,749,000 1,646,000 1,037,000 225,000 70,657,000 (1,825,000) 68,832,000
Expenditures for
long-lived assets 25,285,000 2,000 - 27,000 25,314,000 - 25,314,000
</TABLE>
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Optio Software, Inc. (the "Company") 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.
Over the past year, the Company has invested in all areas of its
business with a particular emphasis on sales, marketing and research and
development. To date, most of the Company's revenue has been derived from
software that was not originally designed to facilitate e-business, but
rather to deliver customized information by fax, printer and e-mail. 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. In June 1999, the Company tested its
first e-business product, Optio e.ComPresent(TM), which was then released 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)") and Electronic
Commerce System ("EC").
Optio Software, Inc. markets and sells its software primarily
through its direct sales force and certified resellers. Optio Software, Inc.
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. As of
April 30, 2000, the Company had over 3,900 customers worldwide using the
Company's software and services.
The Company's growth has been supplemented by international
expansion and acquisitions. 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, 2000. In May 1999, the
Company entered the Asia Pacific market by establishing its subsidiary in
Australia, Optio
11
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Software, Asia Pacific, which began operations in July, 1999. As previously
mentioned, the Company purchased Muscato and TransLink effective March 27,
2000. 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 financial
statements from the date of the acquisition. 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.
RESULTS OF OPERATIONS
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 APRIL 30,
---------------
1999 2000
---- ----
<S> <C> <C>
Revenue:
License fees........................................................................ 53% 51%
Services, maintenance and other..................................................... 47 49
------- -------
Total revenue.................................................................. 100 100
------- -------
Costs of revenue:
License fees........................................................................ 3 4
Services, maintenance and other..................................................... 24 27
------- -------
Total cost of revenue.......................................................... 27 31
------- -------
Gross profit.............................................................................. 73 69
Operating expenses:
Sales and marketing................................................................. 39 40
Research and development............................................................ 13 13
General and administrative.......................................................... 14 11
Depreciation and amortization....................................................... 4 8
------- -------
Total operating expenses....................................................... 70 72
------- -------
Income (loss) from operations............................................................. 3 (3)
Interest and other income................................................................. 1 5
------- -------
Income before income taxes................................................................ 3 1
Income taxes.............................................................................. 1 3
------- -------
Net income (loss)......................................................................... 2% (2%)
======= =======
</TABLE>
12
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REVENUES
Total revenues increased 46% to $9.3 million from $6.4 million for
the three months ended April 30, 2000 and 1999, respectively.
LICENSE FEES
Revenues from licenses increased 42% to $4.8 million from $3.4
million for the three months ended April 30, 2000 and 1999, respectively.
License fee revenue grew significantly from 1999 to 2000 due to the following
factors: (i) growing market acceptance of the Company's software - the
Company's customer base has grown from approximately 3,600 customers in 1999
to over 3,900 customers in 2000; (ii) the continued acceptance of the
Company's e.ComPresent software introduced in September 1999; (iii) the
Company's growth into the European market, including the initiation of
operations in the United Kingdom at the end of the three months ended
April 30, 1999; (iv) the Company's expansion into the Asian Pacific market
in May 1999; and (v) the Company's purchase of Muscato and TransLink on
March 27, 2000, contributing additional software license revenue in the three
months ended April 30, 2000.
SERVICES, MAINTENANCE AND OTHER
Revenues from services, maintenance and other increased 51% to $4.6
million from $3.0 million for the three months ended April 30, 2000 and 1999,
respectively. The increase in revenues from service, maintenance and other is
directly related to the increased sales of software licenses to the Company's
customers, resulting in increased implementation, training, and technical
support of those products. In addition, the acquisition of Muscato and
TransLink contributed additional maintenance and consulting services in the
three months ended April 30, 2000.
REVENUE MIX
Revenues from licenses represented 53% and 51% of total revenue for
the three months ended April 30, 1999 and 2000, respectively. The sales mix
shift towards services revenue was due to an increased focus by management on
the marketing of services to the Company's customers who have purchased
software licenses as an additional source of revenue. In addition, there has
been a greater need for additional consulting services as products are
integrated within the enterprise, thus increasing services revenue as a
percentage of total revenue.
COSTS OF REVENUES
Total costs of revenues increased 68% to $2.9 million from $1.7
million in the three months ended April 30, 2000 and 1999, respectively.
13
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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 101% to $391,000 from $195,000 for the three
months ended April 30, 2000 and 1999, respectively. The increase was
primarily due to increased referral partner fees resulting from increased
sales. As a percentage of revenue, costs of revenue from licenses remained
relatively consistent at 4% and 3% at April 30, 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, educational and professional services. Costs of revenue
from services, maintenance and other increased 64% to $2.5 million from $1.5
million in the three months ended April 30, 2000 and 1999, respectively. The
increase is directly related to the increase in services, maintenance and
other revenue. Costs of revenues from services, maintenance and other
increased as a percentage of total revenue from 24% in 1999 to 27% in 2000.
This was primarily due to the fact that the Company increased its emphasis in
the Company's new outsourcer training program in the three months ended April
30, 2000, with little associated revenue. The Company also experienced an
increase in fees to outsourcers.
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 52% to $3.8 million from $2.5
million for the three months ended April 30, 2000 and 1999, respectively.
Sales and marketing expenses were 40% and 39% of total revenue for the same
periods. The increase was primarily due to additional hiring to support the
Company's expansion of both its North American and international operations
and to additional marketing to promote the Company's expansion of its product
base to include Optio's e.ComSeries. The Company added approximately 25
employees in the sales and marketing departments from April 30, 1999 to April
30, 2000.
14
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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 42% to $1.2 million from
$800,000 in the three months ended April 30, 2000 and 1999, respectively,
representing 13% of total revenue for both periods. This increase is
primarily due to additions to the development team to design and complete the
Company's new e.ComSeries of products. In addition, in the three months ended
April 30, 2000, other personnel from the acquisition of Muscato and TransLink
were added in an effort to combine the technologies of Muscato and Optio
Software, Inc.
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
include legal, accounting and other professional services.
General and administrative expenses increased 13% to $1.0 million
from $900,000 for the three months ended April 31, 2000 and 1999,
respectively. These expenses represent 11% and 14% of total revenue for the
same periods. The decrease in general and administrative expenses as a
percentage of revenue is primarily due to the fact that the Company has added
only five additional staff members to its general and administrative team
since April 30, 1999 and these expenses are now being spread over a larger
revenue base.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $800,000 from
$300,000 for the three months ended April 30, 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 $525,000 for the three months ended April 30, 2000.
INTEREST INCOME
Interest income increased to $466,000 from $33,000 in the three
months ended April 30, 2000 and 1999, respectively. This increase was
primarily due to approximately $450,000 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 three months ended April 30, 1999
represented interest on notes payable to related parties, which were
subsequently paid in full with the proceeds of the Company's
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initial public offering. Interest expense in the three months ended April 30,
2000 represented interest on promissory notes of $8.0 million given in
connection with the acquisition of Muscato and TransLink.
INCOME TAX EXPENSE
The provision for income taxes was $277,000 and $68,000 for the
three months ended April 30, 2000 and 1999, respectively, representing an
effective tax rate of 205% and 38% for the same periods. The unusually high
effective tax rate for the three months ended April 30, 2000 is a result of
non-deductible amortization of goodwill and intangible assets related to the
acquisition of Muscato, and the inability to deduct various expenses related
to the start-up of the Company's Australian operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily financed its operations
and met its capital expenditure requirements through cash flows from
operations and short and long-term borrowings. At April 30, 2000 and 1999 the
Company had $18.3 million and $900,000, respectively, of cash and cash
equivalents.
The following table sets forth certain selected statements of cash
flow information for the three months ended April 30, 2000:
Net cash used in operations $ (2,913,000)
Net cash used in investing activities (25,340,000)
Net cash used in financing activities (111,000)
Net decrease in cash and cash equivalents (28,479,000)
The Company used cash in operations primarily 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. The Company
also paid approximately $600,000 of accrued expenses assumed in the
acquisition of Muscato and TransLink. In addition, the Company's accounts
receivables increased $900,000 due to increased volume of sales and timing of
billing in the latter half of the three months ended April 30, 2000.
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 $425,000 of
property and equipment in the ordinary course of business.
The Company's financing activities included payments of $136,000
toward debt and the receipt of $25,000 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
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provide 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, providing certain provisions are met.
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.
The agreement contains customary events of default and a number of customary
covenants, including certain financial ratios and restrictions on dividends.
Management believes that the net proceeds from the initial public
offering in December 1999, together with the line of credit, existing cash
and cash equivalents and future funds generated from operations 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Optio Software, Inc. 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 and 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.
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
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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.
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
27.1 Financial Data Schedule
99.1 Safe Harbor Compliance Statements for Forward Looking
Statements
(b) Reports on Form 8-K
On April 10, 2000, the Company filed a report on Form 8-K regarding
the acquisition of Muscato Corporation and TransLink Solutions Corporation.
On June 9, 2000, the Company filed a report on Form 8-K/A for the
purpose of adding the financial statements of the business acquired and the
pro forma financial information.
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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 June, 2000.
OPTIO SOFTWARE, INC.
By: /s/ F. BARRON HUGHES
----------------------------------
F. Barron Hughes
Chief Financial Officer
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