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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

OR

Commission File Number: 1-15529

OPTIO SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (770) 576-3500

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

(Title of Class)

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  ¨  No  x

The aggregate market value of the voting stock held by nonaffiliates of the Registrant, based upon the closing sale price for the Common Stock on July 31, 2002 as reported by the Nasdaq SmallCap Market, was approximately $2,571,720. The shares of Common Stock held by each officer and director and by each person known to the Registrant who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 19,157,498 shares of the Registrant’s common stock outstanding as of April 29, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2003 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K.

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OPTIO SOFTWARE, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED JANUARY 31, 2003

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** The information required by Items 10, 11, 12 and 13 of Part III is hereby incorporated by reference from the Registrant’s Definitive Proxy Statement on Schedule 14A to be filed not more than 120 days after January 31, 2003.

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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report 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, 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, fluctuations in operating results because of acquisitions or dispositions, 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 99.3 to this Annual Report on Form 10-K. 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 Quarterly Reports on Form 10-Q 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 Annual Report on Form 10-K. 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

Item 1. Business

Optio Software, Inc. (“Optio”), founded in 1981 as a Georgia corporation, provides infrastructure software and services that enhance the form, content, availability and distribution of business critical information. Our software allows information stored within or created by an organization’s wide range of enterprise systems, applications or databases to be captured, transformed and customized in formats according to the business needs of an organization’s customers, suppliers and partners and then delivered to the appropriate destination, including print, fax, e-mail, wireless devices and the web. Optio’s software also allows information to be transformed into a wide variety of formats, languages and standards and enables customers to create customized documents, according to the customer’s own individual requirements. For example, customers can use our software to create and deliver customized business documents (invoices, purchase orders, packing slips, etc.) and business-to-business transactions around the globe by web, e-mail, fax or print. Optio’s solutions are non-intrusive and can be deployed without modifying the software or the business processes that created the original information. We reduce the cost and complexity of document-centric business processes while extending the value of existing technology investments.

We engage primarily in the development, sale and support of software that enchances the form, content, availability and distribution of business critical information of companies located principally in the United States, Europe and the Asia Pacific region. Optio was founded in 1981 and in Optio’s first 18 years, Optio’s primary business consisted of providing software and services that addressed organizations’ needs for customized information delivered via print, fax and e-mail to users of enterprise and healthcare applications. In August 1998, Optio acquired Optio Software Europe, S.A., a software product distributor in Europe, providing Optio’s first entry into the European markets. Optio Software, Asia Pacific was established in May 1999, but subsequently closed in September 2002.

In addition to continuing its distributed output management solutions, in 1999 Optio began pursuing the e-business market created by the evolution of the internet. In September, 1999, Optio introduced the first of its e.ComSeries of products, e.ComPresent, the browser-based software allowing document presentation to the web. In December 1999, Optio completed its initial public offering, raising $47.0 million in capital. In March 2000, Optio

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introduced its second product in the e.ComSeries of products, e.ComIntegrate. Also in March 2000, Optio purchased Muscato Corporation and TransLink Solutions Corporation, further expanding its breadth into the e-commerce market. Muscato offered a product, e.ComEngine which enabled the real-time exchange of information between dissimilar formats and protocols. Unfortunately, Optio was unsuccessful in the integration of these two companies and subsequently disposed of the two companies and the e.ComEngine product in December 2001. With the disposal of Muscato and Translink, Optio has focused on expanding its core products, enhancing them to provide additional functionality for document output management and information archive and retrieval.

Wholly-Owned Subsidiaries

Optio currently has two wholly-owned foreign subsidiaries, Optio Software Europe, S.A. (“Optio Europe”) and Optio Software, Asia Pacific, only one of which is active. Optio Europe, a software product distributor in Europe, was acquired in August 1998. This acquisition provided entry into European markets. Optio Europe is directly involved in the sales, marketing and support activities for Optio’s products throughout mainland Europe (including Germany) and the United Kingdom through its wholly-owned subsidiaries Optio Software Deutschland GmbH (“Optio Germany”), formed in December 2002, and Optio Software UK, Pvt. Limited (“Optio UK”). The office of Optio Software, Asia Pacific (“Optio Australia”) was closed in September 2002.

Segment Information

Optio is organized around geographic areas. Optio’s U.S. operations and Optio Europe represent Optio’s two reportable segments. Optio’s other foreign subsidiary is classified as “Other”. The foreign locations principally function as distributors of products developed by Optio in the United States. The accounting policies, as described in the summary of significant accounting policies in Optio’s financial statements, are applied consistently across the segments. Intersegment sales are based on intercompany transfer prices to achieve a reasonable margin upon distribution.

The Company previously reported four geographic segments, with the current Europe segment representing two segments, France and the United Kingdom and the current “Other” segment representing Australia. Segment information for the years ended January 31, 2001 and 2002 has been restated to combine the previous France and United Kingdom segments into the Europe segment and to classify the Australian segment as “Other”.

Segment information for the years ended January 31, 2001, 2002 and 2003 is summarized below.

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Optio’s foreign operations generated revenue from licenses and services to customers of $4.0 million the year ended January 31, 2003, representing 15% of total revenue compared to $4.0 million in the year ended January 31, 2002, representing 13% of total revenue and revenue of $3.9 million in the year ended January 31, 2001, representing 13% of total revenue.

Risks Inherent in Foreign Operations

Optio’s international operations pose additional risks to its operations as a result of the following factors:

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Industry

Organizations are increasingly being driven to increase the cost-effectiveness of their existing systems and overall productivity of the organization by sharing vital business information, in the proper format, to the proper users. Their objectives are to enhance the form, content, availability and distribution of the information, thus reducing the cost and complexity of document-centric processes. To achieve these objectives, organizations must deliver focused, business-ready information derived from a multitude of sources across the enterprise, to employees, customers, suppliers and strategic partners. In addition, many organizations are embracing e-business to enhance their productivity and cost-savings. Organizations are attempting to maximize the value of their business processes by using the Internet to conduct business electronically and reach a large number of geographically dispersed users across the extended enterprise. Some examples of e-business applications include the electronic distribution of information related to the procurement of goods and services, presentation of bills and collection of payments over the Internet and the viewing of reports and other company information utilizing web browsers. Specifically, this environment has created the need for a comprehensive software solution that gathers information on a real-time basis from multiple sources, including enterprise, legacy and custom applications, external databases and files; enhances the information to improve its suitability for business purposes; customizes and formats the information to meet business objectives; and provides timely delivery of the information formats to the appropriate destinations, including the Internet, e-mail, printers, faxes and wireless devices.

This need has created a market for software that performs cost effective management of the transformation and delivery of information from various enterprise computing systems. The Gartner Group defines the markets that provide software solutions described above as the Distributed Output Management (“DOM”) Market and the Integrated Document Archive and Retrieval Systems (“IDARS”) Market. In a report dated August 15, 2002, Gartner forecasts these two market segments will converge by the end of 2005. In a report dated November 1, 2001, Gartner estimates the combined DOM/IDARS market size to be $1.6 billion in 2001 growing to $3.9 billion in 2005. Management estimates that Optio has approximately 1.9% of this combined market.

Technology

Optio’s suite of products is used to enhance business critical documents and information. They provide an organization’s systems and applications the ability to share information, transfer documents and conduct business transactions with customers, suppliers and employees, in the proper format, with the appropriate content and at the time and location required. Optio’s software contains components for: communicating with Optio’s visual design software; collecting, transforming, and routing information from other enterprise application programs or databases; performing calculations and other types of data transformations; formatting the information into human-readable documents, e-business documents or database transactions; distributing information to a wide variety of digital destinations including web servers, fax servers, e-mail servers, alphanumeric pagers, printers, document archives and e-commerce application servers; maintaining and executing recipient specified rules for information notification and document delivery; and securely controlling the distribution and processing of information between multiple computers within the same network and over the Internet.

Optio’s software supports many industry standards for file, message and document formats, document delivery methods and data access from enterprise databases and other data sources. Optio’s software also supports many of the proprietary formats for data, documents and information produced by the software of third parties with whom Optio has strategic relationships and other common enterprise application software vendors. For example, e-business documents may be extracted from existing enterprise application output and transformed into XML, Adobe PDF and many other standard electronic document formats.

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Technical Advantages

Optio’s technology provides customers with the following advantages:

Strategic Initiatives

Optio’s objective is to be a global innovator and leading provider of solutions that enhance the form, content, availability and distribution of business critical information. We are dedicated to helping our customers achieve long term success by reducing the cost and complexity of their document-centric business processes while extending the value of existing technology investments. To achieve these objectives, Optio intends to:

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Optio. The new program has three levels, basic, certified and strategic, and represents relationships that include referral agents, distributors, value-added resellers and OEM relationships. The basic level uses a simple sales and marketing structure with partners with limited resources. The certified level adds the advantage of advanced technical support and consulting opportunities. For those partners that want to sell Optio solutions as a stand-alone product, or embed Optio’s technology into their applications, a strategic relationship can be entered into, offering rewards and marketing resources for partners that exceed revenue goals. During 2001 and 2002, Optio had over twenty-five partners signed up under the new partnership program, including McKesson Corporation, DataRoad and Carolina System Solutions, Inc. Optio intends to strengthen these relationships, build revenues and customer value through enhanced support of these partners. Optio also intends to expand the new partnership program, but with a focus on a limited number of core strategic partners. Our objectives are to create partnerships that will introduce us into specific growth markets. For example, in April 2003, Optio entered into separate partnerships with both QAD, Inc. and Lexmark International, Inc., who will actively market Optio’s products into the QAD, Inc. and Lexmark International, Inc. user base. Optio intends to continue to expand its relationships with organizations that can introduce Optio’s products to markets not extensively served by Optio.

Products

Software

Optio’s software enables the cost-effective, efficient delivery of highly customized information across the extended enterprise. Our software is divided into two suites: the Optio Enterprise Suite and the Optio Healthcare Suite.

The Optio Enterprise Suite is designed to meet the needs of the general business marketplace. The Optio Healthcare Suite is tailored to the special needs of the healthcare marketplace.

In each case, Optio’s customers may purchase the entire suite or may purchase one or more of the software products that make up the suite. Typically, customers buy either Optio e.ComIntegrate^® or Optio MedForms^TM (or more recently Optio MedExFlex^TM) as well as one or more other components of the applicable suite. In August 2001, Optio unveiled its e.ComIntegrate product packages. The Optio e.ComIntegrate solution sets are geared to companies of

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different sizes, with varying functional needs across industries. The program offers tiered solution sets which include Optio’s server technology, e.ComIntegrate, and design tool, Design Studio, along with services and training to implement the solution. As advanced functions are required, customers can add support for XML, double-byte characters and presenting documents and reports to the web. Other components of the suite of products may include OptioFax, our fax server product or Optio e.ComPresent, our web accessible document repository. Most of the revenue derived from the enterprise suite is attributable to Optio e.ComIntegrate, and most of the revenue derived from the healthcare suite is attributable to Optio MedForms.

The Optio Enterprise Suite

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Services

Consulting. Optio’s consulting services provide customers with expertise and assistance in evaluating, planning and implementing Optio’s software products. To ensure a successful implementation of Optio’s software products, consultants assist customers with the evaluation, planning and design process, the initial installation of a system, the integration of Optio’s software products with the customer’s existing enterprise computing applications and ongoing training and upgrades. Management believes that consulting services enable rapid implementation of Optio’s software products, ensures success with the Optio solution, strengthens the customer relationship and adds to Optio’s industry-specific knowledge base.

While consulting services are optional, substantially all of Optio’s customers utilize these services to facilitate the rapid implementation of the software. These services are billed on an hourly or daily basis that varies based on the type of service provided.

Optio employs its own staff of consultants, systems analysts and technical personnel devoted to assisting customers in all phases of systems implementation, including evaluation, planning and design, customer-specific configuring of modules and on-site implementation or conversion from existing systems. In addition, Optio utilizes third party consultants, such as those from major systems integrators, to assist in certain implementations. For the year ended January 31, 2002, Optio outsourced approximately 37% of its services business, while maintaining a staff of 33 employees. However, during the year ended January 31, 2003, Optio anticipated slightly reduced services revenue coinciding with its declining software revenue. In addition, Optio revised its strategy to focus on higher utilization rates of its internal employees. These factors allowed the company to reduce its internal consulting services staff to 15 employees. During the year ended January 31, 2003, Optio’s services business was approximately equal to that of the prior year, forcing us to utilize more external resources for services. For the year ended January 31, 2003, Optio outsourced approximately 50% of its services business. Separately, six additional employees are training staff dedicated to internal, customer and partner training as well as to development of curriculum materials for training programs.

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Maintenance.

Optio offers a comprehensive maintenance program that provides customer telephone support, as well as timely software updates and designated upgrades offering increased functionality and technology advances. Optio offers these services for a fee equal to a percentage of the current software license fee per annum. As of January 31, 2003, a majority of Optio’s customers had subscribed to the comprehensive maintenance support program.

Research and Development

Overview

To maintain Optio’s competitive position, we must continually enhance our current products and introduce new features or functionality to address customers’ needs to make document and output management more efficient and cost effective. During the year ended January 31, 2003, Optio spent $4.3 million, or 15% of revenues, on research and development activities, consistent with prior years. Although Optio’s overall expenses have been reduced over the previous two years, Optio was committed to continue to invest heavily in its research and development activities, resulting in improved products and competitive position.

Product development activities for the year ended January 31, 2003 were focused on (i) the creation of new products, including Optio’s MedEx product, (ii) the enhancement of existing products, including the introduction of Optio’s newest version of e.ComPresent 2.0 and OptioFax 4.0, and (iii) broadening the base of platforms upon which Optio’s products can be supported, including the introduction of e.ComIntegrate on Windows 2000 and Linux. In addition, there was much focus on the integration of Optio’s products with new international ERP vendors, which will support our strategy of expanding our international sales.

Future Product Development Activities

Product development activities for the following year are focused on supporting Optio’s strategic initiatives. A brief overview of new feature development, new product development and maintenance releases are described below.

New Feature Development

In general, Optio intends to offer new features focused on the increased scalability of Optio’s products as well as ease-of-use and vendor specific integration features. For example, Optio intends to develop new capabilities in e.ComIntegrate, e.ComPresent and Design Studio which will include new features to allow better integration with specific ERP vendors.

New Product Development

A series of new product development initiatives were begun in the fiscal year ended January 31, 2003 for release in the current and following years. Brief overviews of these initiatives are described below.

Healthcare Initiatives

A number of additional initiatives will be undertaken to create a suite of healthcare products based on the foundations of the existing products with tailored functionality for the healthcare market. An example of this is the expansion of audit logging capability used in the Optio MedExFlex software into other related products, making them capable of enabling support for HIPAA regulations.

Enterprise Content Management

Development will be focused on improving and enabling our core product lines to take advantage of the changing market in the content management industry. Examples are improved print server capabilities, security, electronic signatures and long term archive.

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Maintenance Releases

On going maintenance releases were accomplished in several products and sub products. These releases were primarily to repair software defects or to modify products to accommodate changes to partner software design and to upgrade vendor supported application programming interfaces. Optio will continue to produce maintenance releases as required.

Retirement

In the future, Optio intends to no longer offer or support some of our existing products and the operating systems on which they operate. We are in the process of developing migration paths for our customers on these products and intend to retire certain products once the migration path is defined and communicated to our customer base.

Sales and Marketing

During the year ended January 31, 2003, approximately 70% of Optio’s software revenue was generated through Optio’s direct sales force. With Optio’s increased focus on sales through partners, Optio realized a greater percentage of sales through its reseller/partner network, up to 30% of license revenue over the previous year’s 20% of license revenue. As of January 31, 2003, Optio had 32 sales representatives and sales support staff, divided into teams that:

As of January 31, 2003, Optio’s international sales organization, focused on Europe, was comprised of eight sales representatives.

Optio’s marketing activities during the year ended January 31, 2003 have typically focused on trade shows where we are able to demonstrate our products and their capabilities. Other marketing processes have included direct mail and electronic media campaigns as well as distribution of product brochures and other literature to inform new and existing customers about our new product offerings.

Strategic Relationships

Optio has strategic relationships with third parties that help market, sell, implement, support and enhance Optio’s solutions that include:

Distributor Relationships. Optio has relationships with distributors who market and resell Optio’s software. These distributors may also provide education, implementation and customization services for their customers. Optio’s major distributors include Harvest Technology and Deloitte Consulting Product Services LLC.

Value-Added Reseller Relationships. Optio has relationships with resellers that market and resell Optio’s software as a component of their own solutions and who often provide software-related education, implementation and customization services as well. These resellers have their own software solutions that typically address a specific market sector and utilize Optio’s software to enhance the functionality of their own solution. Optio’s software is sold along with their own solutions under the Optio brand name. Optio’s major value-added resellers include Dataroad, Corning Data Services, Inc., McKesson Corporation and Source 4 Healthcare Solutions Group.

OEM Relationships. Certain companies may choose to embed Optio’s software within their software and re-label the software with their own name. Because resellers who embed or include Optio’s products within their solutions

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provide substantially all of the sales and marketing efforts and the initial support services with respect to this embedded software, they receive price discounts on Optio’s software.

Referral Relationships. Optio has established relationships with over 25 partners including QAD, Inc., McKesson Corporation, Carolina System Solutions, Inc. and Lexmark International, Inc., to refer prospects to Optio that may have an interest in licensing Optio’s solution. As part of a defined process, Optio validates that it is not currently working with that prospect and if Optio secures a licensing agreement with that prospect within a fixed period of time, Optio will pay a referral fee to the referring partner.

Implementation Relationships. Optio has active relationships with 10 consulting organizations to provide value added services that assist customers in implementing Optio’s software. Optio trains and tests these organizations’ consultants to install and use Optio’s software and certify them once they have demonstrated their proficiency in delivering complete solutions that meet the needs of the customers.

Vendor Relationships. Optio has relationships with major ERP and healthcare software vendors where Optio has demonstrated that its solutions are compatible with their applications and provide complimentary functionality. These vendors include Oracle Corporation, J.D. Edwards, McKesson Corporation and Baan. In most cases, Optio’s products are certified as to their compatibility with these vendors. As a result, these vendors will include descriptions of Optio products’ key features and benefits in their directories which are published periodically and on their web sites. Optio can also feature their logos in its advertising and promotional materials, participate in vendor sponsored trade shows, marketing programs and other events. In the past, these vendor relationships have resulted in significant revenues and Optio expects that they will continue to do so in the foreseeable future.

Customers

Optio’s customers consist of enterprises across a broad spectrum of industries, however healthcare, manufacturing, retail and distribution customers represent approximately 60% of Optio’s customers. Other customer industry types include technology, banks, financial institutions and the public sector. As of January 31, 2003, we licensed our products for use by more than 4,600 customers.

No single customer accounted for 10% or more of Optio’s total revenue during the years ended January 31, 2001, 2002 or 2003.

Competition

The market for Optio’s software and services is intensely competitive, quickly evolving and subject to rapid technological change. Management expects competition to intensify in the future. Optio’s potential competitors vary in size and in the scope and breadth of the products and services offered. Our competitors fit into two separate categories. The first is custom software developers. The second is comprised of distributed output management solutions from organizations such as Accelio Corporation (acquired by Adobe Corporation), AFP Technology (Formscape), CreateForm, Dazel/Hewlett Packard, StreamServe, Standard Register, Cypress, FormFast, and Evergreen.

Management believes that Optio is differentiated relative to its competitors due to its software’s ability to combine capabilities including information customization, distributed output management, information integration and exchange and e-business enablement in one solution. Management believes that, to the best of its knowledge, none of Optio’s competitors provides all of this functionality in a single solution. Management believes that Optio also competes on the basis of its software’s ability to operate across multiple operating systems. With respect to the Optio Healthcare Suite, management believes that Optio compares favorably to its competitors because Optio offers a vertically oriented solution to address the needs of the healthcare marketplace, including new HIPAA regulation concerns.

Management believes that the principal competitive factors present in Optio’s market include: product performance, quality, functionality and features; cost of solution; customer service; core technology; ease of implementation; and value derived from solution. Although management believes that Optio’s products and services currently compete favorably with respect to each of these factors, Optio’s market is evolving rapidly. Optio may not be able to maintain its competitive position against current and potential competitors.

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Intellectual Property

Optio distributes its products under software license agreements, which generally grant clients perpetual licenses to use, rather than own, Optio’s products. These licenses contain various provisions protecting our ownership and the confidentiality of the underlying technology. The software is protected from unauthorized use through electronic activation keys tied to the system on which the software is licensed to operate. The source code, or the intellectual property underlying Optio’s software, is protected as a trade secret and as unpublished copyrighted work.

Optio protects its proprietary rights by relying on copyright, trade secret, trademark, confidentiality procedures and contractual provisions. Some of Optio’s software, documentation and other written materials are protected under the federal copyright law. Optio has registered “Optio” and its accompanying logo, as well as its product’s names such as “e.ComIntegrate” as trademarks in the United States and in certain countries in which Optio sells its products. Optio has used the “Optio” trademark in the European Economic Community since 1997, but has not registered the mark there. During 1999, Optio was made aware of an EEC registration of a mark similar to Optio’s which was filed after Optio began using the mark. Optio has received notice from a company in the United Kingdom that has alleged it uses a logo similar to the “Optio” mark. No assurance can be given that Optio will be able to register the “Optio” mark in these markets or that the existing EEC registration or United Kingdom use will not ultimately have an adverse affect on Optio’s ability to use its “Optio” marks in those markets. Optio also relies on trade secret laws of the State of Georgia and the states in which it does business to protect its software designs and other proprietary information. In addition, non-disclosure agreements contained in employment contracts protect Optio’s proprietary information from disclosure by current and former employees.

Optio has not applied for any U.S. patents. It is possible that Optio may not develop proprietary products or technologies that are patentable, that any patent issued to Optio may not provide Optio with any competitive advantages, or that the patents of others will seriously harm our ability to do business.

Despite Optio’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of Optio’s products or to obtain and use information that Optio regards as proprietary. Policing unauthorized use of Optio’s products is difficult, and while Optio is unable to determine the extent to which piracy of Optio’s software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect Optio’s proprietary rights to as great an extent as do the laws of the United States. Optio’s means of protecting its proprietary rights may not be adequate and Optio’s competitors may independently develop similar technology, duplicate Optio’s products or design around patents issued to Optio or Optio’s other intellectual property.

There has been a substantial amount of litigation in the software and Internet industries regarding intellectual property rights. It is possible that in the future third parties may claim that Optio or its current or potential future products infringe their intellectual property. Management expects that software product developers and providers of e-commerce solutions will increasingly be subject to infringement claims as the number of products and competitors in the industry grows and the functionality of products in different industry segments overlaps. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require Optio to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to Optio or at all, which could seriously harm our business.

Employees

As of January 31, 2003, Optio had 145 employees. No employees are covered by any collective bargaining agreements. Optio considers its relationships with its employees to be good.

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Executive Officers of the Registrant

As of the date of this report, the executive officers of Optio and certain information about them are as follows:

C. Wayne Cape, the founder of Optio, served as Chief Executive Officer and President of Optio from its inception in 1981 through June 2001 and again since February 2003. Mr. Cape has acted as a member of Optio’s Board of Directors since the company’s inception and became Chairman of the Board in September 1999. Prior to launching Optio, Mr. Cape was an employee at Digital Communication Associates from 1974 to 1981 where he served in a variety of technical, sales and regional sales management positions.

Paul O’Callaghan has served as Senior Vice President of Sales since February 2003. He also previously held this position from May 2001 to July 2001. Prior to joining Optio, from June 2000 to May 2001, Mr. O’Callaghan served as SVP Sales and Services for Idapta, Inc. a B2B solutions company providing electronic trading exchanges to major consortium organizations. From 1998 to 2000 Mr. O’Callaghan was Vice President of Sales for startup XACCT Technologies, which delivered internet-based, IP mediation software solutions to telecommunications industry leaders. Mr. O’Callaghan has also served in senior executive positions with Cisco Systems, IMNET Systems and Network Systems Corporation.

Terry Kraft has served as Senior Vice President of Product Development since November 2001. Prior to joining Optio, Mr. Kraft served as Vice President and General Manager for the Wireless and Calling Card Division of Glenayre Technologies, Inc. from 1998 to 2001. From 1997 to 1998, Mr. Kraft served in a key technology and management role with Comverse Network Systems, Inc., an enhanced voice application services company.

Daryl G. Hatton has served as Chief Technology Officer for Optio since February 1997. From October 1993 to February 1997, he served as director of research for Optio. From 1988 through 1993, Mr. Hatton was a co-founder and president of Pacific Genesys Development, Inc., a Canadian corporation in the electronic forms software development industry, which was acquired by Optio in 1993. Prior to that, Mr. Hatton was Vice President of Product Development for Modatech Systems, Inc., a publicly traded software developer of sales force automation solutions.

Caroline Bembry has served as Optio’s Vice President of Finance since December 2002. From November 1999 to December 2002, she served as the Controller of Optio. Prior to joining Optio, Ms. Bembry was Assistant Corporate Controller for WebMD Medical Manager from June 1997 to November 1999. Prior to WebMD Medical Manager, Ms. Bembry held positions with Coopers & Lybrand LLP. She is certified as a CPA in Florida.

Item 2. Properties

Optio’s principal corporate offices are located in approximately 62,000 square feet at 3015 Windward Plaza, Windward Fairways II, Atlanta, Georgia. The term of this lease is through December 31, 2006. Sales offices are also located in France and the United Kingdom, providing us with an additional 7,000 square feet.

Optio leases all of its properties with remaining terms between one and four years. Management believes that its facilities are adequate for its current needs and that suitable additional space will be available as required.

Item 3. Legal Proceedings

Optio is from time to time involved in routine litigation incidental to the conduct of its business.

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On June 19, 2001, a lawsuit styled Wagner, et al v. Optio Software, Inc., was filed in the United States District Court for the Southern District of Ohio, Western Division, Case No. C-1-01-406 and later amended to include a corporate officer as a defendant. The lawsuit, filed by 19 shareholders of the now bankrupt company known as Prograde Technologies, Inc. (“PTI”), alleges breach of contract, promissory estoppel and promissory fraud arising out of the termination by Optio of negotiations of a possible merger with PTI. The plaintiffs were seeking compensatory damages of an unspecified amount, but in excess of $1.0 million, as well as punitive damages in excess of $10.0 million, reimbursement for the plaintiff’s attorney’s fees and associated costs and expenses of the lawsuit. Optio counterclaimed against two of the plaintiffs for failure to pay on a guarantee on a promissory note. The parties have agreed in principle to a settlement, which will result in the dismissal of the lawsuit. This settlement is contingent upon the release by PTI’s trustee in bankruptcy of all claims against the plaintiffs and the Company and the approval of that release by the bankruptcy court. Under the terms of the proposed settlement, Optio will pay a total of $875,000 within ten days of the bankruptcy court’s final non-appealable order approving the release of the trustee’s claims and will receive immediate reimbursement from its insurer of $750,000. Both parties must release all claims each may have in the PTI bankruptcy in exchange for a reciprocal release from the bankruptcy trustee. The company has recorded a liability for the settlement and a receivable for the amount to be contributed by the insurance carrier in the financial statements dated January 31, 2003.

On November 13, 2001, a lawsuit styled Kevin Dewey vs. Optio Software, Inc., et. al. was filed in the United States District Court for the Southern District of New York. The complaint was filed against the underwriters in Optio’s initial public offering as well as Optio and certain officers and directors of Optio, by a single plaintiff purportedly on behalf of persons purchasing Optio’s common stock between December 14, 1999 and December 6, 2000 and seeks class action status. The complaint includes allegations of violations of (i) Section 11 of the Securities Act of 1933 by all named defendants, (ii) Section 12(a)(2) of the Securities Act of 1933 by the underwriter defendants, (iii) Section 15 of the Securities Act of 1933 by the individual defendants, and (iv) Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the underwriter defendants. The complaint alleges that the Optio’s prospectus was materially false and misleading because it failed to disclose, among other things, that: (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the restricted number of Optio shares issued in connection with the Optio initial public offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate Optio shares to those customers in the Optio initial public offering in exchange for which the customers agreed to purchase additional Optio shares in the aftermarket at pre-determined prices. Optio believes the lawsuit is without merit. Thus, Optio intends to defend vigorously against the plaintiff’s claims. The complaint seeks unspecified amounts as compensatory damages as a result of Optio’s alleged actions, as well as punitive damages and reimbursement for the plaintiff’s attorney’s fees and associated costs and expenses of the lawsuit. Optio is currently engaged in settlement negotiations between its insurance carrier and the plaintiffs.

Management believes that it has meritorious defenses in the foregoing matter and intends to pursue its position vigorously. Litigation is inherently subject to many uncertainties; however, management does not believe that the outcome of this case will have a material adverse effect on the financial position of Optio. However, depending on the amount and timing of an unfavorable resolution of the contingency, it is possible that Optio’s future results of operations or cash flows could be materially affected.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Optio held a Special Meeting of Shareholders on December 30, 2002. There were present at the Special Meeting, in person or by proxy, holders of 17,545,411 shares of common stock entitled to vote. At the Special Meeting, the shareholders were asked to approve the grant of authority to the Board of Directors to amend Optio’s Amended and Restated Articles of Incorporation to effect a reverse stock split of Optio’s common stock at one of the following ratios: one-for-five, one-for-six, one-for-seven, one-for-eight, one-for-nine, or one-for-ten, with authority being granted to the Board of Directors (i) to determine whether to effect or abandon the amendment prior to filing and (ii) if the determination was made to effect the amendment, then to determine, in the discretion of the Board of Directors, which specific ratio shall be included in the amendment to effect the reverse stock split. The resolution was rejected, with 7,437,429 affirmative votes, 10,107,982 votes against, and no abstentions.

PART II

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Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Information

On December 15, 1999, Optio’s common stock began trading on the Nasdaq National Market under the symbol “OPTO” until June 19, 2002, when Optio’s common stock began trading on the Nasdaq SmallCap Market. Effective January 8, 2003, Optio failed to meet the qualifications for listing on the Nasdaq SmallCap Market and began trading on the Over-the-Counter Bulletin Board under the symbol “OPTO.OB”. On April 29, 2003, the closing price of the common stock on the Over-the-Counter Bulletin Board was $0.42.

The following table reflects the range of high and low bid prices of Optio’s common stock by quarter, for the two most recent fiscal years. Bid prices reflect inter dealer prices without retail mark-up, mark-down or commissions.

Holders

As of April 29, 2003, there were approximately 92 holders of record of Optio’s common stock.

Dividends

Optio did not pay any dividends during the years ended January 31, 2001, 2002 or 2003. Optio intends to retain all of its earnings to finance the expansion of its business and for general corporate purposes and does not anticipate paying any cash dividends on its common stock for the foreseeable future.

Changes in Securities and Use of Proceeds

On December 15, 1999, Optio’s registration statement for its initial public offering of its Common Stock was declared effective by the Securities and Exchange Commission, Registration No. 333-89181. The net proceeds from the offering to Optio after deducting the discounts, commissions, fees and expenses were approximately $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 Corporation and an additional $5 million was used to acquire the assets of TransLink Solutions Corporation. For further discussion, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discontinued Operations.” In August 2000, Optio invested $2.2 million in ec-Hub, Inc. (formerly ecIndX, Inc.), a supply chain collaboration vendor, in exchange for a minority interest in the company. For further discussion, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Investment in ec-Hub.” In December 2000, Optio issued a note in the amount of $400,000 to a company that was considered a potential strategic investment. Subsequent to January 31, 2001, this company filed for bankruptcy and the $400,000 was fully reserved as uncollectible. The remaining $14.3 million was used for general working capital purposes.

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Item 6. SELECTED FINANCIAL DATA

The following table sets forth the selected historical financial data of Optio. The selected financial data should be read together with the financial statements and related notes and the section of this Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected financial data as of and for the years ended January 31, 1999, 2000, 2001, 2002, and 2003 have been derived from the audited financial statements of Optio.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and related notes thereto and “Item 6. Selected Financial Data” appearing elsewhere in this report.

OVERVIEW

Optio is engaged primarily in the development, sale and support of infrastructure software that enhances the form, content, availability and delivery of business information. Optio’s primary business consists of providing software and services that addresses organizations’ needs for customized information delivered via print, fax and e-mail to users of enterprise and healthcare applications.

Optio markets and sells its software and services throughout the United States and Europe, and in the Asia Pacific region, through its direct sales force and certified resellers. Optio also offers consulting services, which provide customers with implementation assistance and training. As of January 31, 2002, Optio had over 4,600 customers worldwide using Optio’s software and services. No single customer accounted for 10% or more of Optio’s revenue for the years ended January 31, 2001, 2002, or 2003.

Critical Accounting Policies and Use of Estimates

Optio has identified significant accounting policies and estimates that are critical to the understanding of its financial statements.

Revenue Recognition

Overview

The Company’s revenue consists of fees for licenses of the Company’s software products, maintenance, consulting services and customer training. The Company generally charges fees for licenses of its software products either based on the number of Central Processing Units (“CPUs”) on which the product is installed or, to a lesser extent, based on the number of persons or hospital beds registered to use the product. The Company’s revenue recognition policies are in accordance with Statement of Position (“SOP”) No. 97-2, Software Revenue Recognition, as amended; SOP No. 98-9, Software Revenue Recognition, With Respect to Certain Transactions and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.

License Fees

The Company licenses its products through its direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. If collectibility is not considered probable, revenue is recognized when the fee is collected. The Company enters into reseller arrangements that typically provide for sublicense fees payable to the Company based upon a percentage of list price. The Company does not grant its resellers the right of return.

The Company recognizes revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, maintenance, consulting services or customer training. The determination of fair value is based on objective evidence, which is specific to the Company. The Company limits its assessment of objective evidence for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not

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exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

The Company records deferred revenue for software license agreements when cash has been received from the customer and the agreement does not qualify for revenue recognition under the Company’s revenue recognition policy. The Company records accounts receivable for software license agreements when the agreement qualifies for revenue recognition but cash or other consideration has not been received from the customer.

Services, Maintenance and Other Revenue

Consulting services revenues and customer training revenues are recognized as such services are performed as they are incidental to the functionality of the software. Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to the Company’s products, are deferred and recognized ratably over the related agreement period, generally twelve months. In accordance with Emerging Issues Task Force release 01-14, “Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred”, the Company recognizes reimbursable expenses as revenue and as an expense in cost of sales in all periods presented.

Notes Receivable

Optio holds notes from M2 Systems as consideration for the sale of Muscato and TransLink. Optio’s management has assessed the notes to be fully collectible. Management assessed the collateral of the notes, including the technology which could be sold or used, and the proven success of the shareholders of the acquirer in its evaluation of the collectibility of the notes. M2 Systems has a limited operating history. The credit risk with respect to the notes is partially limited as the notes are secured by all outstanding shares of M2 Systems’ common stock and its assets, including cash, accounts receivable, fixed assets, and intangible assets. The amount of the notes receivable recorded could be materially different under different conditions or using different assumptions, including the assumption that repayment of the notes could be dependent upon the future successful operations of M2. If M2 Systems defaults on the notes and the collateral for the amount due proves to be of no value to Optio, Optio would incur a loss of $3.8 million.

Accounts Receivable

Optio maintains allowances for doubtful accounts for estimated losses resulting from customers’ inability to make payments required under their contracts. The amount of Optio’s reserve is based on historical experience and Optio’s specific review and analysis of the receivables outstanding. If the financial condition of Optio’s customers were to deteriorate, resulting in their inability to make payments, additional reserves would be required, increasing Optio’s bad debt expense included in general and administrative expenses.

Other Accounting Policies

Optio has identified additional accounting policies and estimates that are beneficial to the understanding of its financial statements.

Costs of Revenue. Costs of revenue from license fees consist of costs relating to the manufacturing, packaging and distribution of software and related documentation and third party license and referral fees. Costs of revenue from services, maintenance and other consists of personnel, outsourced consultants and direct expenses relating to the cost of providing consulting, implementation, training, technical support and allocable overhead. Costs of revenue from services will vary depending on the mix of services performed internally by Optio staff and services performed externally by third party consultants.

Sales and Marketing. Sales and marketing expenses consist primarily of sales and marketing personnel compensation and benefits, direct expenditures such as travel, trade shows, direct mail, online marketing, advertising and promotion, and allocable overhead.

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Research and Development. Research and development expenses consist primarily of salaries, benefits, equipment and allocable overhead for software engineers, pre-production quality assurance personnel, program managers and technical writers. Research and development expenses also include expenses associated with independent contractors which Optio uses to augment its research and development efforts. Research and development expenses relate to activities performed prior to commercial production of a product. To date Optio has not capitalized any development costs because Optio’s short development cycle has historically resulted in only immaterial amounts of development costs that were eligible for capitalization.

General and Administrative. General and administrative expenses consist primarily of salaries, benefits and related costs for executive, finance, administrative and human resource functions. General and administrative expenses also include legal, audit and other professional fees and allocable overhead.

Depreciation and Amortization. Depreciation and amortization expenses consist of depreciation of property and equipment and amortization of intangible assets related to acquisitions in 2001 and 2002.

Discontinued Operations. On March 27, 2000, Optio acquired all the outstanding shares of Muscato Corporation (“Muscato”) and substantially all of the assets of TransLink Solutions Corporation (“TransLink”), an affiliate of Muscato. The consideration paid for the shares of Muscato was $28.0 million, of which $20.0 million was paid in cash. Optio issued promissory notes for the remaining $8.0 million, which were due and payable on March 27, 2030. The purchase price for the assets acquired from TransLink was $5.0 million in cash. Each of the acquisitions was accounted for as a purchase transaction for financial accounting purposes.

On December 4, 2001, Optio sold its Muscato and TransLink business units to M2 Systems Corporation (“M2 Systems”), a company owned by certain of the former shareholders of Muscato. The stock of Muscato was sold for consideration of $250,000 cash, a $3.25 million promissory note, and the retirement of the promissory notes in the aggregate amount of $8.9 million in principal and interest related to the original purchase of Muscato. The assets of the TransLink business unit were sold for a $750,000 promissory note.

Pursuant to the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, 144, the financial statements have been reclassified to reflect the discontinuation of these components. Accordingly, the revenues, costs and expenses, assets and liabilities of these components have been segregated in the consolidated balance sheets and statements of operations. The net operating results of these components have been reported as discontinued operations in the consolidated statements of operations. The net assets and liabilities of these divested units have been reported as assets of discontinued operations and liabilities of discontinued operations in the consolidated balance sheet.

The estimated loss at October 31, 2001 on these two transactions was $10.9 million and was recorded as an impairment of intangible assets in the quarter ended October 31, 2001. The impairment of intangible assets has been classified in the loss from discontinued operations on the consolidated statements of operations. The subsequent actual gain on the sale of $413,000 was recorded in the quarter ended January 31, 2002 and is classified in the loss from discontinued operations on the consolidated statements of operations.

Investment in ec-Hub

In the year ended January 31, 2001, Optio invested $2.0 million in ec-Hub, Inc. (formerly ecIndX, Inc.), a supply chain collaboration vendor, in exchange for a minority interest in the company. An additional $209,000 of costs incurred related to making the investment were added to the basis of the investment. In conjunction with the investment, ec-Hub, Inc. entered into Optio’s standard software license agreement to purchase $1.0 million in software and related services.

During the year ended January 31, 2002, Optio continually assessed the value of its investment in ec-Hub. In April 2001, Optio wrote down its investment in ec-Hub by $200,000 to reflect the value of Optio’s percentage of ownership based upon the price per share paid by a recent investor. In January 2002, Optio wrote down the investment an additional $2,009,000, resulting in a $0 value of the investment. Optio based this write down on several factors including business changes that took place at ec-Hub during the fourth quarter of 2002, ec-Hub’s financial performance,

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Optio’s assessment of the company’s future viability, the value of Optio’s new percentage of ownership following the merger of ecIndX into ec-Hub, and valuations of other companies similar to ec-Hub.

Foreign Currencies

The financial position and results of operations of the Company’s foreign subsidiaries are measured generally using local currencies as the functional currencies, including the British pound, the Euro and the Australian dollar. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each year-end. Income and expense items are translated at average exchange rates for the year. The resulting translation adjustments are recorded in the foreign currency translation adjustment account. The effects of changes in foreign currency exchange rates have had minimal affect on the Company’s financial results to date.

RESULTS OF OPERATIONS

The following table sets forth certain items from Optio’s statements of operations as a percentage of total revenue for the periods indicated.