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 October 31, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 3015 Windward Plaza, Fairways II, Alpharetta, 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Securities Exchange Act of 1934). Yes ¨ No x
There were 21,118,149 shares of the Registrant’s common stock outstanding as of December 13, 2004.
FORM 10-Q
For the Quarterly Period Ended October 31, 2004
TABLE OF CONTENTS
| Page | ||||
| PART I – FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 4 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 | ||
| Item 4. | Controls and Procedures | 28 | ||
| PART II – OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 28 | ||
| Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 29 | ||
| Item 3. | Defaults Upon Senior Securities | 29 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 29 | ||
| Item 5. | Other Information | 30 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 30 | ||
2
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995 and are made based on management’s current expectations or beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements include, among other things, statements regarding Optio Software, Inc.’s (“Optio”) anticipated costs and expenses, Optio’s capital needs and financing plans, product and service development, Optio’s growth strategies, integration of acquired entities, market demand for Optio’s products and services, relationships with Optio’s strategic marketing alliances, and competition. These forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Optio’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 Optio’s reliance on strategic marketing and reseller relationships, collectibility of accounts receivable and notes receivable, fluctuations in operating results because of acquisitions or dispositions, failure to integrate new products and newly acquired companies, diversion of management resources relating to acquisitions, reduction in cash reserves relating to acquisitions, challenges relating to acquisitions and the possibility that this may cause Optio to no longer be profitable, the negative effective on Optio’s earnings relating to the amortization or potential write-down of acquired assets or goodwill, failure to retain the business relationships with existing customers from acquisitions, changes in competition, changes in economic conditions in the U.S. and in other countries in which Optio currently does business (both general and relative to the technology industry), delays or inability in developing new or unique software products, market acceptance of new products, the failure of new products to operate as anticipated, expectation of achieving and sustaining operating profits and earnings, including timing of such cash flows and company performance, disputes regarding Optio’s intellectual property, risks relating to the delisting of Optio’s stock, possible adverse results of pending or future litigation, or risks associated with Optio’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 Optio files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K that Optio has filed. You are cautioned not to place undue reliance on the forward-looking statements in this document, 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.
3
PART I – FINANCIAL INFORMATION
Optio Software, Inc.
Consolidated Condensed Balance Sheets
| January 31, 2004 |
October 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 5,328,000 | $ | 4,754,000 | ||||
| Accounts receivable, net |
5,293,000 | 3,931,000 | ||||||
| Prepaid expenses and other current assets |
283,000 | 450,000 | ||||||
| Notes receivable from related party |
5,000 | 5,000 | ||||||
| Current portion of note receivable from M2 |
310,000 | 346,000 | ||||||
| Total current assets |
11,219,000 | 9,486,000 | ||||||
| Property and equipment, net |
541,000 | 648,000 | ||||||
| Other assets: |
||||||||
| Note receivable from M2, net, less current portion |
2,376,000 | 2,097,000 | ||||||
| Goodwill |
— | 1,720,000 | ||||||
| Other intangible assets, net |
— | 2,130,000 | ||||||
| Other |
110,000 | 108,000 | ||||||
| Total assets |
$ | 14,246,000 | $ | 16,189,000 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 812,000 | $ | 1,017,000 | ||||
| Accrued expenses |
2,627,000 | 1,662,000 | ||||||
| Current portion of capital lease obligations |
76,000 | 22,000 | ||||||
| Deferred revenue |
6,256,000 | 5,774,000 | ||||||
| Total current liabilities |
9,771,000 | 8,475,000 | ||||||
| Capital lease obligations, less current portion |
87,000 | 91,000 | ||||||
| Other long-term liabilities |
101,000 | 92,000 | ||||||
| Total liabilities |
9,959,000 | 8,658,000 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
50,291,000 | 52,178,000 | ||||||
| Accumulated deficit |
(46,084,000 | ) | (44,736,000 | ) | ||||
| Accumulated other comprehensive income |
80,000 | 89,000 | ||||||
| Total shareholders’ equity |
4,287,000 | 7,531,000 | ||||||
| Total liabilities and shareholders’ equity |
$ | 14,246,000 | $ | 16,189,000 | ||||
See accompanying notes.
4
Optio Software, Inc.
Consolidated Condensed Statements of Operations
(Unaudited)
| Three Months Ended October 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenue: |
||||||||
| License fees |
$ | 2,052,000 | $ | 1,783,000 | ||||
| Subscription fees |
— | 417,000 | ||||||
| Services, maintenance, and other |
4,326,000 | 4,449,000 | ||||||
| 6,378,000 | 6,649,000 | |||||||
| Costs of revenue (exclusive of depreciation and amortization shown separately below): |
||||||||
| License fees |
59,000 | 121,000 | ||||||
| Services, maintenance, and other |
1,521,000 | 1,406,000 | ||||||
| 1,580,000 | 1,527,000 | |||||||
| 4,798,000 | 5,122,000 | |||||||
| Operating expenses: |
||||||||
| Sales and marketing |
2,119,000 | 2,538,000 | ||||||
| Research and development |
978,000 | 1,089,000 | ||||||
| General and administrative |
1,076,000 | 962,000 | ||||||
| Impairment of M2 note receivable |
900,000 | — | ||||||
| Depreciation and amortization |
122,000 | 221,000 | ||||||
| 5,195,000 | 4,810,000 | |||||||
| Income (loss) from operations |
(397,000 | ) | 312,000 | |||||
| Other income (expense): |
||||||||
| Interest income |
41,000 | 38,000 | ||||||
| Interest expense |
(5,000 | ) | (3,000 | ) | ||||
| Other |
4,000 | 4,000 | ||||||
| 40,000 | 39,000 | |||||||
| Income (loss) before income taxes |
(357,000 | ) | 351,000 | |||||
| Income tax expense (benefit) |
— | (2,000 | ) | |||||
| Net income (loss) |
$ | (357,000 | ) | $ | 353,000 | |||
| Net income (loss) per share – basic |
$ | (0.02 | ) | $ | 0.02 | |||
| Net income (loss) per share – diluted |
$ | (0.02 | ) | $ | 0.02 | |||
| Weighted average shares outstanding – basic |
19,214,942 | 20,632,738 | ||||||
| Weighted average shares outstanding – diluted |
19,214,942 | 23,532,892 | ||||||
| Comprehensive income: |
||||||||
| Net income (loss) |
$ | (357,000 | ) | $ | 353,000 | |||
| Foreign currency translation adjustment |
35,000 | 35,000 | ||||||
| Comprehensive income (loss) |
$ | (322,000 | ) | $ | 388,000 | |||
See accompanying notes.
5
Optio Software, Inc.
Consolidated Condensed Statements of Operations
(Unaudited)
| Nine Months Ended October 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenue: |
||||||||
| License fees |
$ | 6,635,000 | $ | 7,243,000 | ||||
| Subscription fees |
— | 417,000 | ||||||
| Services, maintenance, and other |
12,967,000 | 12,989,000 | ||||||
| 19,602,000 | 20,649,000 | |||||||
| Costs of revenue (exclusive of depreciation and amortization shown separately below): |
||||||||
| License fees |
285,000 | 444,000 | ||||||
| Services, maintenance, and other |
4,592,000 | 4,361,000 | ||||||
| 4,877,000 | 4,805,000 | |||||||
| 14,725,000 | 15,844,000 | |||||||
| Operating expenses: |
||||||||
| Sales and marketing |
6,858,000 | 7,853,000 | ||||||
| Research and development |
2,969,000 | 3,247,000 | ||||||
| General and administrative |
3,367,000 | 3,095,000 | ||||||
| Impairment of M2 note receivable |
900,000 | — | ||||||
| Depreciation and amortization |
443,000 | 398,000 | ||||||
| 14,537,000 | 14,593,000 | |||||||
| Income from operations |
188,000 | 1,251,000 | ||||||
| Other income (expense): |
||||||||
| Interest income |
132,000 | 121,000 | ||||||
| Interest expense |
(13,000 | ) | (10,000 | ) | ||||
| Other |
31,000 | 42,000 | ||||||
| 150,000 | 153,000 | |||||||
| Income before income taxes |
338,000 | 1,404,000 | ||||||
| Income tax expense (benefit) |
(146,000 | ) | 56,000 | |||||
| Net income |
$ | 484,000 | $ | 1,348,000 | ||||
| Net income per share – basic |
$ | 0.03 | $ | 0.07 | ||||
| Net income per share – diluted |
$ | 0.02 | $ | 0.06 | ||||
| Weighted average shares outstanding – basic |
19,174,225 | 19,855,566 | ||||||
| Weighted average shares outstanding – diluted |
20,956,617 | 23,124,753 | ||||||
| Comprehensive income: |
||||||||
| Net income |
$ | 484,000 | $ | 1,348,000 | ||||
| Foreign currency translation adjustment |
57,000 | 9,000 | ||||||
| Comprehensive income |
$ | 541,000 | $ | 1,357,000 | ||||
See accompanying notes.
6
Optio Software, Inc.
Consolidated Condensed Statement of Shareholders’ Equity
(Unaudited)
| Common Stock |
Accumulated Deficit |
Accumulated Other Income |
Total Shareholders’ Equity | ||||||||||||
| Shares |
Amount |
||||||||||||||
| Balance at February 1, 2004 |
19,261,144 | $ | 50,291,000 | $ | |||||||||||