<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 JULY 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 incorporation or (I.R.S. Employer Identification No.)
organization)
3015 WINDWARD PLAZA, WINDWARD FAIRWAYS II, ATLANTA, GA 30005
(Address of principal executive offices) (Zip Code)
</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 17,618,307 shares of the Registrant's common stock outstanding as of
September 8, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
OPTIO SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
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
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $46,826,000 $16,750,000
Marketable securities..................................... 386,000 359,000
Accounts receivable, net.................................. 9,268,000 11,722,000
Prepaid expenses and other current assets................. 670,000 1,115,000
Income tax receivable..................................... -- 974,000
Deferred income taxes..................................... 229,000 295,000
----------- -----------
Total current assets........................................ 57,379,000 31,215,000
Property and equipment, net................................. 1,518,000 2,412,000
Other assets:
Notes receivable from related party....................... 600,000 600,000
Note receivable from and advances to shareholders......... 120,000 121,000
Deferred income taxes..................................... 495,000 567,000
Intangible assets, net.................................... 400,000 31,433,000
Other..................................................... 130,000 136,000
----------- -----------
Total assets................................................ $60,642,000 $66,484,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,388,000 $ 1,847,000
Accrued expenses.......................................... 2,986,000 2,358,000
Income taxes payable...................................... 452,000 --
Current portion of notes payable to related parties....... 228,000 4,129,000
Current portion of capital lease obligations.............. 45,000 75,000
Deferred revenue.......................................... 6,332,000 6,985,000
----------- -----------
Total current liabilities................................... 11,431,000 15,394,000
Notes payable to related parties, less current portion...... -- 4,000,000
Capital lease obligations, less current portion............. 38,000 187,000
Deferred revenue............................................ 174,000 98,000
Shareholders' equity:
Common stock.............................................. 48,362,000 49,766,000
Retained earnings (accumulated deficit)................... 921,000 (2,556,000)
Accumulated other comprehensive income (loss)............. 12,000 (186,000)
Unamortized stock compensation............................ (296,000) (219,000)
----------- -----------
Total shareholders' equity.................................. 48,999,000 46,805,000
----------- -----------
Total liabilities and shareholders' equity.................. $60,642,000 $66,484,000
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenue:
License fees.............................................. $ 4,351,000 $ 4,498,000
Services, maintenance, and other.......................... 3,822,000 5,730,000
----------- -----------
8,173,000 10,228,000
Costs of revenue:
License fees.............................................. 261,000 215,000
Services, maintenance, and other.......................... 1,996,000 3,853,000
----------- -----------
2,257,000 4,068,000
----------- -----------
5,916,000 6,160,000
Operating expenses:
Sales and marketing....................................... 2,778,000 4,074,000
Research and development.................................. 819,000 1,446,000
General and administrative................................ 845,000 1,877,000
Depreciation and amortization............................. 297,000 2,138,000
----------- -----------
4,739,000 9,535,000
----------- -----------
Income (loss) from operations............................... 1,177,000 (3,375,000)
Other income (expense):
Interest income........................................... 26,000 206,000
Interest expense.......................................... (31,000) (144,000)
Other..................................................... (4,000) 6,000
----------- -----------
(9,000) 68,000
Income (loss) before income taxes........................... 1,168,000 (3,307,000)
Income tax expense.......................................... 508,000 28,000
----------- -----------
Net income (loss)........................................... $ 660,000 $(3,335,000)
=========== ===========
Net income (loss) per share--basic.......................... $ 0.06 $ (0.19)
=========== ===========
Net income (loss) per share--diluted........................ $ 0.03 $ (0.19)
=========== ===========
Weighted average shares outstanding--basic.................. 11,918,640 17,456,618
=========== ===========
Weighted average shares outstanding--diluted................ 19,904,782 17,456,618
=========== ===========
Comprehensive income (loss):
Net income (loss)......................................... $ 660,000 $(3,335,000)
Foreign currency translation adjustment................... 2,000 8,000
Unrealized loss on marketable securities available for
sale.................................................... (29,000) (15,000)
----------- -----------
Comprehensive income (loss)............................... $ 633,000 $(3,334,993)
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Revenue:
License fees.............................................. $ 7,709,000 $ 9,273,000
Services, maintenance, and other.......................... 6,848,000 10,298,000
----------- -----------
14,557,000 19,571,000
Costs of revenue:
License fees.............................................. 456,000 606,000
Services, maintenance, and other.......................... 3,520,000 6,354,000
----------- -----------
3,976,000 6,960,000
----------- -----------
10,581,000 12,611,000
Operating expenses:
Sales and marketing....................................... 5,243,000 7,833,000
Research and development.................................. 1,645,000 2,622,000
General and administrative................................ 1,745,000 2,896,000
Depreciation and amortization............................. 584,000 2,934,000
----------- -----------
9,217,000 16,285,000
----------- -----------
Income (loss) from operations............................... 1,364,000 (3,674,000)
Other income (expense):
Interest income........................................... 59,000 672,000
Interest expense.......................................... (67,000) (193,000)
Other..................................................... (7,000) 23,000
----------- -----------
(15,000) 502,000
Income (loss) before income taxes........................... 1,349,000 (3,172,000)
Income tax expense.......................................... 576,000 305,000
----------- -----------
Net income (loss)........................................... $ 773,000 $(3,477,000)
=========== ===========
Net income (loss) per share--basic.......................... $ 0.06 $ (0.20)
=========== ===========
Net income (loss) per share--diluted........................ $ 0.04 $ (0.20)
=========== ===========
Weighted average shares outstanding--basic.................. 11,918,640 17,325,063
=========== ===========
Weighted average shares outstanding--diluted................ 18,631,090 17,325,063
=========== ===========
Comprehensive income (loss):
Net income (loss)......................................... $ 773,000 $(3,477,000)
Foreign currency translation adjustment................... 2,000 (138,000)
Unrealized loss on marketable securities.................. (23,000) (60,000)
----------- -----------
Comprehensive income (loss)............................... $ 752,000 $(3,675,000)
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON STOCK 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.................... -- -- (3,477,000) -- -- (3,477,000)
Foreign currency translation
adjustment................ -- -- -- (138,000) -- (138,000)
Unrealized loss on
marketable securities
available for sale........ -- -- -- (60,000) -- (60,000)
-----------
Comprehensive loss............ (3,675,000)
Compensation related to stock
option grants............... -- (33,000) -- -- 77,000 44,000
Exercise of stock options and
related tax benefit......... 484,667 1,437,000 -- -- -- 1,437,000
---------- ----------- ----------- --------- --------- -----------
Balance at July 31, 2000........ 17,618,307 $49,766,000 $(2,556,000) $(186,000) $(219,000) $46,805,000
========== =========== =========== ========= ========= ===========
</TABLE>
See accompanying notes.
7
<PAGE>
OPTIO SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
-------------------------
1999 2000
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 773,000 $ (3,477,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation............................................ 307,000 469,000
Amortization of intangible assets....................... 277,000 2,465,000
Provision for doubtful accounts......................... 37,000 (116,000)
Gain on sale of marketable securities................... (12,000) (10,000)
Gain on disposal of property and equipment.............. -- (12,000)
Non-cash compensation and interest...................... 20,000 225,000
Deferred income taxes................................... (80,000) (102,000)
Changes in operating assets and liabilities:
Accounts receivable................................... 93,000 (880,000)
Prepaid expenses and other current assets............. (200,000) (576,000)
Accounts payable...................................... 492,000 87,000
Accrued expenses...................................... (773,000) (1,535,000)
Income taxes payable.................................. 200,000 (124,000)
Deferred revenue...................................... 92,000 (636,000)
---------- ------------
Net cash provided by (used in) operating activities......... 1,226,000 (4,222,000)
Cash flows from investing activities:
Purchases of marketable securities........................ (95,000) (60,000)
Proceeds from the sale of marketable securities........... 128,000 --
Proceeds from the sale of property and equipment.......... -- 10,000
Purchases of property and equipment....................... (450,000) (870,000)
Advances to related parties and shareholders.............. (77,000) (1,000)
Acquisition of business, net of cash acquired............. -- (24,889,000)
---------- ------------
Net cash used in investing activities....................... (494,000) (25,810,000)
Cash flows from financing activities:
Payments of notes payable to related parties and capital
lease obligations....................................... (418,000) (159,000)
Proceeds from exercise of stock options................... -- 225,000
---------- ------------
Net cash (used in) provided by financing activities......... (418,000) 66,000
Impact of foreign currency rate fluctuations on cash........ 64,000 (110,000)
Net increase (decrease) in cash and cash equivalents........ 378,000 (30,076,000)
Cash and cash equivalents at beginning of period............ 1,110,000 46,826,000
---------- ------------
Cash and cash equivalents at end of period.................. $1,488,000 $ 16,750,000
========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 6,000 $ 9,000
========== ============
Income taxes............................................ $ 448,000 $ 554,000
========== ============
</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 six months ended July 31, 2000 are not necessarily
indicative of the expected results for the entire year ending 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 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, provided 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.
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.................................... $ 2,023,000
Liabilities assumed......................................... (2,521,000)
Technology.................................................. 1,600,000
Assembled workforce......................................... 685,000
Customer base............................................... 280,000
Goodwill.................................................... 30,933,000
-----------
$33,000,000
===========
</TABLE>
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 six months ended July 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Revenue............................................ $18,054,000 $20,730,000
Net loss........................................... (3,032,000) (4,031,000)
Net loss per share--basic and diluted.............. $ (0.25) $ (0.23)
Weighted average shares outstanding--basic and
diluted.......................................... 11,918,640 17,325,063
</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 JULY 31,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net income (loss).................................. $ 660,000 $(3,335,000)
=========== ===========
Weighted average shares outstanding--basic......... 11,918,640 17,456,618
Effect of dilutive stock options................... 7,986,142 --
----------- -----------
Weighted average shares outstanding--diluted....... 19,904,782 17,456,618
=========== ===========
Net income (loss) per share--basic................. $ 0.06 $ (0.19)
=========== ===========
Net income (loss) per share--diluted............... $ 0.03 $ (0.19)
=========== ===========
Potentially dilutively stock options, excluded from
diluted net loss per share....................... 8,092,744
===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Net income (loss).................................. $ 773,000 $(3,477,000)
=========== ===========
Weighted average shares outstanding--basic......... 11,918,640 17,325,063
Effect of dilutive stock options................... 6,712,450 --
----------- -----------
Weighted average shares outstanding--diluted....... 18,631,090 17,325,063
=========== ===========
Net income (loss) per share--basic................. $ 0.06 $ (0.20)
=========== ===========
Net income (loss) per share--diluted............... $ 0.04 $ (0.20)
=========== ===========
Potentially dilutively stock options, excluded from
diluted net loss per share....................... 8,645,959
===========
</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 six months ended July 31, 1999 and 2000 is
summarized below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED UNITED UNITED
JULY 31, 1999 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
---------------- ----------- ---------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees...................... $ 6,353,000 $ 965,000 $391,000 $ -- $ 7,709,000 $ -- $ 7,709,000
Services, maintenance and other... 6,209,000 507,000 132,000 -- 6,848,000 -- 6,848,000
Intersegment revenue................ 335,000 102,000 -- -- 437,000 (437,000) --
----------- ---------- -------- --------- ----------- --------- -----------
Total revenue..................... 12,897,000 1,574,000 523,000 -- 14,994,000 (437,000) 14,557,000
Interest income..................... 59,000 -- -- -- 59,000 -- 59,000
Interest expense.................... (67,000) -- -- -- (67,000) -- (67,000)
Depreciation and amortization....... 559,000 23,000 1,000 1,000 584,000 -- 584,000
Income tax expense.................. 358,000 125,000 93,000 -- 576,000 -- 576,000
Segment net income (loss)........... 552,000 187,000 140,000 (106,000) 773,000 -- 773,000
Total segment assets................ 9,842,000 1,512,000 423,000 13,000 11,790,000 (901,000) 10,889,000
Expenditures for long-lived
assets............................ 399,000 48,000 -- 3,000 450,000 -- 450,000
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED UNITED UNITED
JULY 31, 2000 STATES FRANCE KINGDOM AUSTRALIA COMBINED ELIMINATIONS CONSOLIDATED
---------------- ----------- ---------- ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from external customers:
License fees.................... $ 8,320,000 $ 426,000 $ 433,000 $ 94,000 $ 9,273,000 $ -- $ 9,273,000
Services, maintenance and
other......................... 9,441,000 550,000 277,000 30,000 10,298,000 -- 10,298,000
Intersegment revenue.............. 207,000 23,000 -- -- 230,000 (230,000) --
----------- ---------- ---------- --------- ----------- ----------- -----------
Total revenue................... 17,968,000 999,000 710,000 124,000 19,801,000 (230,000) 19,571,000
Interest income................... 672,000 -- -- -- 672,000 -- 672,000
Interest expense.................. (193,000) -- -- -- (193,000) -- (193,000)
Depreciation and amortization..... 2,917,000 13,000 2,000 2,000 2,934,000 -- 2,934,000
Income tax expense................ 214,000 1,000 90,000 -- 305,000 -- 305,000
Segment net income (loss)......... (3,256,000) (61,000) 232,000 (392,000) (3,477,000) -- (3,477,000)
Total segment assets.............. 65,458,000 1,692,000 1,181,000 280,000 68,611,000 (2,127,000) 66,484,000
Expenditures for long-lived
assets.......................... 25,686,000 40,000 -- 33,000 25,759,000 -- 25,759,000
</TABLE>
6. INCOME TAXES
The Company incurred a loss in the quarter ended July 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. SUBSEQUENT EVENTS
Subsequent to July 31, 2000, the Company invested $2,000,000 in ecIndX, a
supply chain collaboration vendor, in exchange for a minority interest in the
company.
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.
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-", now known as "e.comENGIN-TM-") and Electronic
Commerce System ("EC").
Optio markets and sells its software primarily through its direct sales
force and certified resellers. As of July 31, 2000, the Company had 60 sales
personnel and approximately 100 resellers. 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. As of July 31, 2000, the Company had over 3,950
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 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.
13
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 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
JULY 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Revenue:
License fees.......................................... 53% 44%
Services, maintenance and other....................... 47 56
--- ----
Total revenue....................................... 100 100
--- ----
Costs of revenue:
License fees.......................................... 3 2
Services, maintenance and other....................... 25 38
--- ----
Total cost of revenue............................... 28 40
--- ----
Gross profit............................................ 72 60
Operating expenses:
Sales and marketing................................... 34 40
Research and development.............................. 10 14
General and administrative............................ 10 18
Depreciation and amortization......................... 4 21
--- ----
Total operating expenses............................ 58 93
--- ----
Income (loss) from operations........................... 14 (33)
Interest and other income............................... 0 1
--- ----
Income (loss) before income taxes....................... 14 (32)
Income taxes............................................ 6 0
--- ----
Net income (loss)....................................... 8% (32%)
=== ====
</TABLE>
REVENUES
Total revenues increased 25% to $10.2 million from $8.2 million for the
three months ended July 31, 2000 and 1999, respectively.
LICENSE FEES
Revenues from licenses increased 3% to $4.5 million from $4.4 million for
the three months ended July 31, 2000 and 1999, respectively. Factors
contributing to the slight revenue growth are as follows: (i) the introduction
of the Company's e.ComSeries of products beginning September 1999, contributing
approximately $1.4 million in software license revenue in the three months ended
July 31, 2000; and (ii) 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 (i) a
market shift in product requirements from distributed output management ("DOM")
systems to e-business projects and (ii) a lack of focus on sales execution.
Growth in the DOM systems has slowed subsequent to Year 2000 and has been
replaced by spending on e-business projects. In addition, the Company has
experienced difficulties in
14
<PAGE>
integrating the sales efforts for the new e.comSeries of products with the
existing DOM products. The dynamics of an e.comSeries sale and a DOM sale are
quite different in that an e.comSeries sale has a longer sales cycle, a larger
average sale price, and a different strategic solution sale orientation than a
DOM sale. To combat these issues, management has launched a new marketing
campaign that will increase brand recognition of our e.comSeries of products,
initiated a search for a new Senior Vice President of Sales, reorganized the
sales organization, and appointed a Vice President of Sales Training and
Development to deliver training programs and solution sell methodologies that
will coincide with the Company's new marketing strategies.
SERVICES, MAINTENANCE AND OTHER
Revenues from services, maintenance and other increased 50% to $5.7 million
from $3.8 million for the three months ended July 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 of approximately $1.0 million in the three
months ended July 31, 2000; (ii) the sale of hardware related to a specific
contract of approximately $350,000 in the three months July 31, 2000; and
(iii) the overall increase in the Company's number of customers, resulting in
increased implementation, training, and technical support. Despite the fact that
software license revenue increased only slightly during the quarter, consulting
service projects from the first quarter, which were significantly greater than
the first quarter of 1999, were still on-going, contributing significantly to
revenue for the three months ended July 31, 2000.
REVENUE MIX
Revenues from licenses represented 44% and 53% of total revenue for the
three months ended July 31, 2000 and 1999, respectively. The sales mix shift
towards services revenue was due to the slowing growth of the Company's license
revenue in the three months ended July 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 80% to $4.0 million from $2.3 million in
the three months ended July 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 $215,000 from $261,000 for the three months ended
July 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% and 3% for the three months ended July 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 93% to $3.9 million from $2.0 million
in the three months ended July 31, 2000 and 1999, respectively. The increase is
directly related to (i) the increase in services, maintenance and other revenue
and (ii) the addition of approximately $300,000 of hardware costs of a single
contract in the three months ended July 31, 2000. Costs of revenues from
services, maintenance
15
<PAGE>
and other increased as a percentage of total revenue to 38% in 2000 from 24% in
1999. This was primarily due to the fact that the Company used more
subcontractors in the three months ended July 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 47% to $4.1 million from
$2.8 million for the three months ended July 31, 2000 and 1999, respectively.
Sales and marketing expenses were 40% and 34% 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. In addition, the expenses related to the
operations of Muscato and TransLink are reflected subsequent to their
acquisition dates. The Company added approximately 31 employees in the sales and
marketing departments from July 31, 1999 to July 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 77% to $1.4 million from
$800,000 in the three months July 31, 2000 and 1999, respectively, representing
14% 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 36 additional staff
added from July 31, 1999 to July 31, 2000.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, benefits
and related costs for executive, finance and human resources personnel. General
and administrative expenses also includes legal, accounting and other
professional services.
General and administrative expenses increased 122% to $1.9 million from
$800,000 for the three months ended July 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
including approximately $120,000 of expenses related to the production of
Company's annual reports and other documents in the three months ended July 31,
2000, (ii) the addition of the expenses of Muscato and TransLink subsequent to
their acquisition dates, (iii) the charge resulting from an increase in the
reserve for uncollectible accounts receivable of approximately $250,000
attributable to an unusual level of accounts identified as uncollectible in the
three months ended July 31, 2000, and (iv) the addition of approximately seven
general and administrative staff between July 31, 1999 and July 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $2.1 million from
$300,000 for the three months ended July 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
16
<PAGE>
goodwill and other intangibles related to the Muscato and TransLink acquisition
was $1.8 million for the three months ended July 31, 2000.
INTEREST INCOME
Interest income increased to $206,000 from $26,000 in the three months ended
July 31, 2000 and 1999, respectively. This increase was primarily due to
approximately $190,000 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 July 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 July 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 $28,000 and $508,000 for the three months
ended July 31, 2000 and 1999, respectively. The effective tax rate for the three
months ended July 31, 1999 was 43% as a result of non-deductible losses from
foreign operations. Despite the Company's loss in the three months ended
July 31, 2000, the Company incurred $28,000 of income tax expense related to the
Company's foreign operations. 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 deferred tax assets based on
management's assessment that the assets are not more likely than not to be
realized.
17
<PAGE>
FOR THE SIX MONTHS ENDED JULY 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>
SIX MONTHS ENDED
JULY 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Revenue:
License fees............................................ 53% 47%
Services, maintenance and other......................... 47 53
--- ----
Total revenue......................................... 100 100
--- ----
Costs of revenue:
License fees............................................ 3 3
Services, maintenance and other......................... 24 32
--- ----
Total cost of revenue................................. 27 35
--- ----
Gross profit.............................................. 73 65
Operating expenses:
Sales and marketing..................................... 36 40
Research and development................................ 12 13
General and administrative.............................. 12 15
Depreciation and amortization........................... 4 15
--- ----
Total operating expenses.............................. 64 83
--- ----
Income (loss) from operations............................. 9 (18)
Interest and other income................................. 0 2
--- ----
Income before income taxes................................ 9 (16)
Income taxes.............................................. 4 2
--- ----
Net income (loss)......................................... 5% (18%)
=== ====
</TABLE>
REVENUES
Total revenues increased 34% to $19.6 million from $14.6 million for the six
months ended July 31, 2000 and 1999, respectively.
LICENSE FEES
Revenues from licenses increased 20% to $9.3 million from $7.7 million for
the six months ended July 31, 2000 and 1999, respectively. License revenue grew
from 1999 to 2000 due to the following factors: (i) a growing customer base from
approximately 3,600 customers in 1999 to over 3,950 in 2000; (ii) the
introduction of the Company's e.ComSeries of products, beginning in
September 1999, contributing approximately $1.9 million in revenue in the six
months ended July 31, 2000; (iii) the Company's growth into the European market,
including the initiation of operations in the United Kingdom in April 1999; and
(iv) 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 lack of focus on
sales execution. Growth in the DOM systems has slowed subsequent to Year 2000
and has been replaced by spending on e-business projects. In addition, the
Company has experienced difficulties in integrating the sales efforts
18
<PAGE>
for the new e.comSeries of products with the existing DOM products. The dynamics
of an e.comSeries sale and a DOM sale are quite different in that an e.comSeries
sale has a longer sales cycle, a larger average sale price, and a different
strategic solution sale orientation than a DOM sale. To combat these issues,
management has launched a new marketing campaign that will increase brand
recognition of our e.comSeries of products, initiated a search for a new Senior
Vice President of Sales, reorganized the sales organization, and appointed a
Vice President of Sales Training and Development to deliver training programs
and solution sell methodologies that will coincide with the Company's new
marketing strategies.
SERVICES, MAINTENANCE AND OTHER
Revenues from services, maintenance and other increased 50% to
$10.3 million from $6.8 million for the six months ended July 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 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 47% and 53% of total revenue for the
three months ended July 31, 2000 and 1999, respectively. The sales mix shift
towards services revenue was due to the slowing growth of the Company's DOM
license revenue in the six months ended July 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 75% to $7.0 million from $4.0 million in
the six months ended July 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 33% to $606,000 from $456,000 for the six months ended
July 31, 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 consistent at 3% and 3% for
the six months ended July 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 81% to $6.4 million from $3.5 million
in the six months ended July 31, 2000 and 1999, respectively. The increase is
directly related to (i) the increase in services, maintenance and other revenue
and (ii) the addition of approximately $300,000 of hardware costs of a single
contract in the three months ended July 31, 2000. Costs of revenues from
services, maintenance and other increased as a percentage of total revenue to
32% in 2000 from 24% in 1999. This was primarily due to the fact that the
Company used more subcontractors in the six months ended July 31, 2000, which
typically provide a slightly lower gross margin.
19
<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 49% to $7.8 million from
$5.2 million for the six months ended July 31, 2000 and 1999, respectively.
Sales and marketing expenses were 40% and 36% 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. In addition, the expenses related to the
operations of Muscato and TransLink are reflected subsequent to their
acquisition dates. The Company added approximately 31 employees in the sales and
marketing departments from July 31, 1999 to July 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 $2.6 million from
$1.6 million in the six months ended July 31, 2000 and 1999, respectively,
representing 13% and 12% 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 36 additional
staff added from July 31, 1999 to July 31, 2000.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries, benefits
and related costs for executive, finance and human resources personnel. General
and administrative expenses also includes legal, accounting and other
professional services.
General and administrative expenses increased 66% to $2.9 million from
$1.7 million for the six months ended July 31, 2000 and 1999, respectively.
These expenses represent 15% and 12% 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 a public company including
approximately $120,000 of expenses related to the production of Company's annual
reports and other documents in the three months ended July 31, 2000, (ii) the
addition of the expenses of Muscato and TransLink subsequent to their
acquisition dates, (iii) the charge resulting from an increase in the reserve
for uncollectible accounts receivable of approximately $250,000 attributable to
an unusual level of accounts identified as uncollectible in the three months
ended July 31, 2000, and (iv) the addition of approximately seven general and
administrative staff between July 31, 1999 and July 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased to $2.9 million from
$584,000 for the six months ended July 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 $2.3 million for the six months ended July 31, 2000.
20
<PAGE>
INTEREST INCOME
Interest income increased to $672,000 from $59,000 in the six months ended
July 31, 2000 and 1999, respectively. This increase was primarily due to
approximately $640,000 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 six months ended July 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
three months ended July 31, 2000 represented interest on promissory notes of
$8,000,000 given in connection with the acquisition of Muscato and TransLink,
representing approximately $180,000.
INCOME TAX EXPENSE
The provision for income taxes was $305,000 and $576,000 for the six months
ended July 31, 2000 and 1999, respectively. The effective tax rate for the six
months ended July 31, 1999 was 43%. Despite the Company's loss in the six months
July 31, 2000, the Company incurred $305,000 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 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 July 31, 2000 and 1999 the Company had $17.1 million and $1.5 million,
respectively, of cash and cash equivalents.
The following table sets forth certain selected statements of cash flow
information for the six months ended July 31, 2000:
<TABLE>
<S> <C>
Net cash used in operations................................. $ (4,222,000)
Net cash used in investing activities....................... (25,810,000)
Net cash provided by financing activities................... 66,000
Net decrease in cash and cash equivalents................... (30,076,000)
</TABLE>
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 financial reporting requirements. The
Company also paid approximately $600,000 of accrued expenses assumed in the
acquisition of Muscato and TransLink Corporation. In addition, the Company's
accounts receivables increased $880,000 due to increased volume of sales and
timing of billing in the latter half of the three months ended July 31, 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 $870,000 of property and equipment
in the ordinary course of business.
The Company's financing activities included payments of $159,000 toward debt
and the receipt of $225,000 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 provide for
21
<PAGE>
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 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. As
of July 31, 2000, the Company was not in compliance with one of the financial
covenants. The Company has obtained a waiver of the violated financial covenant
as of July 31, 2000 from the Bank. Management is seeking to obtain a
modification of such financial covenant.
Management believes that the remaining net proceeds from the initial public
offering in December 1999, 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
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. 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. Subsequent to July 31, 2000, the Company invested $2.0 million
in ecIndX, a supply chain collaboration vendor, in exchange for a minority
interest in the company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on June 23, 2000.
There were present at the Annual Meeting, in person or by proxy, holders
of 15,737,375 shares of common stock entitled to vote.
(b) The following directors were elected to hold office for a term as
designated below or until their successors are elected and qualified,
with the vote for each director being reflected below:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
--------------------------------------------------- ---------- --------------
<S> <C> <C>
Elected to hold office until the 2003 Annual
Meeting:
C. Wayne Cape.................................... 15,678,158 50,217
James J. Felcyn, Jr.............................. 15,185,358 52,017
</TABLE>
Incumbent Director David Dunn-Rankin will serve on the Board of Directors
until the 2001 Annual Meeting and Incumbent Director Mitchell Laskey will serve
on the Board of Directors until the 2002 Annual Meeting.
(c) The Optio Software, Inc. Director's Stock Option Plan was approved by
the shareholders, with 12,533,186 votes for, 274,742 votes against and
2,929,397 abstentions.
(d) The appointment of Ernst & Young LLP as Optio Software, Inc.'s
independent public accountants for the fiscal year ending January 31,
2001, was ratified with 15,705,897 affirmative votes cast, 23,448
negative votes cast and 8,030 abstentions.
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 June 9, 2000, the Company filed a report on Form 8-K/A for the purpose of
adding the financial statements of the Muscato and TransLink businesses acquired
and the pro forma financial information.
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 8th day of
September, 2000.
<TABLE>
<S> <C> <C>
OPTIO SOFTWARE, INC.
BY: /S/ F. BARRON HUGHES
-----------------------------------------
F. Barron Hughes
Chief Financial Officer
</TABLE>
24
