##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2008
 Commission File Number: 000-25959
 Goldleaf Financial Solutions, Inc.
 (Exact name of registrant as specified in its charter)
 Tennessee
    
    62-1453841(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)350 Technology Blvd. Suite 200, Norcross, Georgia
    
    30071(Address of principal executive offices)
    
    (Zip Code)
 (678) 966-0844
(Registrants telephone number, including area code)
  þ o
  Large accelerated filer o
    
    Accelerated filer
þNon-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
  o þ
  Class
    
    Outstanding as of August 1, 2008Common Stock, no par value
    
    19,168,784 Shares




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##### 



GOLDLEAF FINANCIAL SOLUTIONS, INC.
Form 10-Q
For Quarter Ended June 30, 2008
INDEX
 Page No.Part I  Financial InformationItem 1 Financial StatementsUnaudited Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    3Unaudited Consolidated Statements of Operations for the Three Months ended June 30, 2008 and 2007
    
    
    4Unaudited Consolidated Statements of Operations for the Six Months ended June 30, 2008 and 2007
    
    
    5Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2008 and 2007
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4 Controls and Procedures
    
    
    24Part II  Other Information
    
    
    25Item 1A Risk Factors
    
    
    25Item 4 Submission of Matters to a Vote of Security Holders
    
    
    25Item 6 Exhibits
    
    
    26Signatures
    
    
    27Ex-10.1 Form of Restricted Stock AgreementEX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEOEX-32.2 Section 906 Certification of the CFO
  2




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  UNAUDITED
 June 30,
    
    
    December 31,2008
    
    
    2007(in thousands, except share data)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    5,503
    
    
    $
    2,648Restricted cash
    
    
    3,055
    
    
    
    5,362Accounts receivable trade, net of allowance for doubtful accounts of $655 and $604, respectively
    
    
    13,594
    
    
    
    6,918Inventory
    
    
    543
    
    
    
    237Deferred tax assets
    
    
    1,209
    
    
    
    1,443Investment in direct financing leases
    
    
    1,644
    
    
    
    1,736Prepaid and other current assets
    
    
    2,345
    
    
    
    1,774Total current assets
    
    
    27,893
    
    
    
    20,118Property and equipment, net
    
    
    4,702
    
    
    
    3,661Operating lease equipment, net
    
    
    17
    
    
    
    23Other Assets:Software development costs, net
    
    
    5,916
    
    
    
    4,725Deferred tax assets
    
    
    
    
    
    
    2,009Investment in direct financing leases, net of current portion
    
    
    2,535
    
    
    
    2,812Intangible and other assets, net
    
    
    36,713
    
    
    
    14,085Goodwill
    
    
    59,029
    
    
    
    34,217Total other assets
    
    
    104,193
    
    
    
    57,848Total assets
    
    $
    136,805
    
    
    $
    81,650Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    3,122
    
    
    $
    2,858Accrued liabilities
    
    
    7,362
    
    
    
    2,055Deferred revenue
    
    
    10,509
    
    
    
    4,867Customer deposits
    
    
    5,270
    
    
    
    5,307Current portion of capital lease obligations
    
    
    432
    
    
    
    414Current portion of non-recourse lease notes payable
    
    
    1,573
    
    
    
    1,638Current portion of long term debt
    
    
    152
    
    
    
    Total current liabilities
    
    
    28,420
    
    
    
    17,139Revolving line of credit
    
    
    42,500
    
    
    
    10,000Long term debt, net of current portion
    
    
    310
    
    
    
    Deferred revenue, net of current portion
    
    
    647
    
    
    
    949Capital lease obligations, net of current portion
    
    
    342
    
    
    
    544Deferred tax liability
    
    
    1,813
    
    
    
    Non-recourse lease notes payable, net of current portion
    
    
    2,236
    
    
    
    2,428Convertible notes payable
    
    
    7,000
    
    
    
    Other non-current liabilities
    
    
    312
    
    
    
    228Total liabilities
    
    
    83,580
    
    
    
    31,288Commitments and ContingenciesStockholders Equity:Common stock, no par value; 100,000,000 shares authorized; 19,168,784 and 17,279,315 shares
issued and outstanding, respectively
    
    
    
    
    
    
    Preferred stock, no par value; 20,000,000 shares authorized, no shares outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    72,818
    
    
    
    69,764Accumulated deficit
    
    
    (19,593
    )
    
    
    (19,402
    )Total stockholders equity
    
    
    53,225
    
    
    
    50,362Total liabilities and stockholders equity
    
    $
    136,805
    
    
    $
    81,650
  3




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
 For the Three Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(in thousands, exceptper share data)Revenues:Financial institution services
    
    $
    17,705
    
    
    $
    11,497Retail inventory management services
    
    
    1,974
    
    
    
    2,073Other products and services
    
    
    810
    
    
    
    1,175Total revenues
    
    
    20,489
    
    
    
    14,745Cost of Revenues:Financial institution services
    
    
    4,250
    
    
    
    2,232Retail inventory management services
    
    
    216
    
    
    
    206Other products and services
    
    
    510
    
    
    
    815Gross profit
    
    
    15,513
    
    
    
    11,492Operating Expenses:General and administrative
    
    
    6,403
    
    
    
    5,173Selling and marketing
    
    
    5,053
    
    
    
    4,821Research and development
    
    
    1,649
    
    
    
    511Amortization
    
    
    1,372
    
    
    
    673Other operating expenses, net
    
    
    24
    
    
    
    9Total operating expenses
    
    
    14,501
    
    
    
    11,187Operating Income
    
    
    1,012
    
    
    
    305Interest Expense, Net
    
    
    (461
    )
    
    
    (231
    )Income Before Income Taxes
    
    
    551
    
    
    
    74Income tax provision (benefit)
    
    
    229
    
    
    
    (27
    )Net Income
    
    $
    322
    
    
    $
    101Income Per Share:Basic
    
    $
    0.02
    
    
    $
    0.01Diluted
    
    $
    0.02
    
    
    $
    0.01Weighted Average Common Shares Outstanding:Basic
    
    
    19,169
    
    
    
    17,277Diluted
    
    
    19,169
    
    
    
    17,312
  4




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
 For the Six Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(in thousands, exceptper share data)Revenues:Financial institution services
    
    $
    34,258
    
    
    $
    21,680Retail inventory management services
    
    
    3,951
    
    
    
    4,118Other products and services
    
    
    1,475
    
    
    
    1,994Total revenues
    
    
    39,684
    
    
    
    27,792Cost of Revenues:Financial institution services
    
    
    7,968
    
    
    
    4,091Retail inventory management services
    
    
    446
    
    
    
    415Other products and services
    
    
    1,007
    
    
    
    1,470Gross profit
    
    
    30,263
    
    
    
    21,816Operating Expenses:General and administrative
    
    
    12,674
    
    
    
    10,574Selling and marketing
    
    
    10,482
    
    
    
    9,314Research and development
    
    
    3,507
    
    
    
    966Amortization
    
    
    2,531
    
    
    
    1,173Other operating expenses, net
    
    
    40
    
    
    
    14Total operating expenses
    
    
    29,234
    
    
    
    22,041Operating Income (Loss)
    
    
    1,029
    
    
    
    (225
    )Interest Expense, Net
    
    
    (1,380
    )
    
    
    (314
    )Loss Before Income Taxes
    
    
    (351
    )
    
    
    (539
    )Income tax benefit
    
    
    (160
    )
    
    
    (263
    )Net Loss
    
    $
    (191
    )
    
    $
    (276
    )Loss Per Share:Basic
    
    $
    (0.01
    )
    
    $
    (0.02
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )Weighted Average Common Shares Outstanding:Basic
    
    
    18,992
    
    
    
    17,273Diluted
    
    
    18,992
    
    
    
    17,273
  5




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 For the Six Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(in thousands)Cash Flows From Operating Activities:Net loss
    
    $
    (191
    )
    
    $
    (276
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    3,849
    
    
    
    2,246Depreciation on fixed assets under operating leases
    
    
    6
    
    
    
    18Deferred taxes
    
    
    (162
    )
    
    
    (445
    )Amortization of debt issuance costs and discount
    
    
    91
    
    
    
    59Acquired in process research and development charge
    
    
    448
    
    
    
    Stock compensation expense
    
    
    416
    
    
    
    15Deferred gain on land sale
    
    
    (6
    )
    
    
    (8
    )Loss on write-down or disposal of fixed assets
    
    
    36
    
    
    
    9Amortization of lease income and initial direct costs
    
    
    (292
    )
    
    
    (358
    )Gain on sale of leased equipment
    
    
    (10
    )
    
    
    (45
    )Changes in assets and liabilities, net of acquisitions:Restricted
cash and customer deposits
    
    
    2,307
    
    
    
    Accounts receivable
    
    
    (131
    )
    
    
    (319
    )Prepaid and other current assets
    
    
    (28
    )
    
    
    11Inventory
    
    
    (306
    )
    
    
    90Accounts payable
    
    
    (228
    )
    
    
    (198
    )Accrued liabilities
    
    
    1,088
    
    
    
    (649
    )Deferred revenue
    
    
    (602
    )
    
    
    (187
    )Other non-current liabilities
    
    
    90
    
    
    
    237Net cash provided by operating activities
    
    
    6,375
    
    
    
    200Cash Flows From Investing Activities:Acquisition of businesses, net of cash acquired
    
    
    (32,999
    )
    
    
    (10,223
    )Investment in direct financing leases
    
    
    (201
    )
    
    
    (404
    )Lease receivables collected
    
    
    862
    
    
    
    1,530Proceeds from lease terminations
    
    
    10
    
    
    
    Additions to property and equipment
    
    
    (1,389
    )
    
    
    (1,486
    )Additions to intangibles and other assets
    
    
    (313
    )
    
    
    (83
    )Additions to software development costs
    
    
    (1,549
    )
    
    
    (1,082
    )Net cash used in investing activities
    
    
    (35,579
    )
    
    
    (11,748
    )
  6




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
For the Six Months Ended June 30, 2008 and 2007
- Continued -
 2008
    
    
    2007(in thousands)Cash Flows From Financing Activities:Repayments on revolving line of credit
    
    $
    (1,000
    )
    
    $
    Repayments on capital lease obligations
    
    
    (184
    )
    
    
    (156
    )Proceeds from revolving line of credit
    
    
    33,500
    
    
    
    8,500Repayments of note payable
    
    
    
    
    
    
    (150
    )Repayments of non-recourse lease notes payable
    
    
    (940
    )
    
    
    (1,198
    )Proceeds from non-recourse lease notes payable
    
    
    683
    
    
    
    517Expenses related to Secondary Offering
    
    
    
    
    
    
    (47
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    52Net cash provided by financing activities
    
    
    32,059
    
    
    
    7,518Net Change in Cash and Cash Equivalents
    
    
    2,855
    
    
    
    (4,030
    )Cash and Cash Equivalents at beginning of period
    
    
    2,648
    
    
    
    6,760Cash and Cash Equivalents at end of period
    
    $
    5,503
    
    
    $
    2,730Non-cash Investing and Financing Activities:Issuance of 1,889,469 common shares as purchase consideration in the Alogent acquisition
    
    $
    2,638
    
    
    $
    Issuance of convertible notes payable to Alogent shareholders
    
    $
    7,000
    
    
    $
    Purchase of software licenses through issuance of debt
    
    $
    462
    
    
    $
    
  7




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GOLDLEAF FINANCIAL SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED
 A. The Company
  B. Summary of Significant Accounting Policies
 Basis of Presentation
    Principles of Consolidation
   C. Income Taxes
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
   D. Reclassifications
  8




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E. Acquisitions
 Assets of DataTrade, LLC
  Alogent Corporation
 Business Combinations
 (In thousands)
 Purchase Price:Cash
    
    $
    32,775Convertible notes payable
    
    
    7,000Common shares (1,889,469 shares valued at $1.40 per share)
    
    
    2,638Direct acquisition costs
    
    
    1,285Total purchase price
    
    $
    43,698Value assigned to assets and liabilities:Assets:Cash
    
    $
    1,061Accounts receivable/Unbilled accounts receivable
    
    
    6,545Current deferred tax asset
    
    
    148Prepaid and other current assets
    
    
    543Property and equipment
    
    
    183Non-current assets
    
    
    5Customer list (estimated life of ten years)
    
    
    7,740Acquired technology (estimated life of five years)
    
    
    11,240Trade names (estimated life of twenty years)
    
    
    5,300In process R&D (expensed)
    
    
    448Non-compete (estimated life of three years)
    
    
    680Goodwill
    
    
    22,614Liabilities:Accounts payable
    
    
    (492
    )Accrued liabilities
    
    
    (2,009
    )Deferred tax liability
    
    
    (4,366
    )Deferred revenue
    
    
    (5,942
    )Total net assets
    
    $
    43,698
  9




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Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302008
    
    2007
    
    2008
    
    2007(in thousands)
    
    (in thousands)Actual
    

Pro Forma Combined
    Pro Forma CombinedRevenue
    
    $
    20,489
    
    
    $
    19,441
    
    
    $
    40,989
    
    
    $
    36,884Net Income (Loss)
    
    $
    322
    
    
    $
    (645
    )
    
    $
    78
    
    
    $
    (1,817
    )Income (Loss) Per Share
    
    $
    0.02
    
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.06
    )
 F. Net Income (Loss) Per Share
   Three Months
    
    
    Six MonthsEnded June 30
    
    
    Ended June 302008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net income (loss) available to common shareholders
    
    $
    322
    
    
    $
    101
    
    
    $
    (191
    )
    
    $
    (276
    )Weighted average common shares outstanding  basic
    
    
    19,169
    
    
    
    17,277
    
    
    
    18,992
    
    
    
    17,273Plus additional shares from common stock equivalent shares:Options
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    19,169
    
    
    
    17,312
    
    
    
    18,992
    
    
    
    17,273
  G. Legal Proceedings
  10




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H. Segment Information
 Disclosures
about Segments of an Enterprise and Related Information.
  Three Months Ended June 30, 2008
    
    
    Three Months Ended June 30, 2007Retail
    
    
    
    
    
    
    
    
    
    
    RetailFinancial
    
    
    Inventory
    
    
    
    
    
    
    Financial
    
    
    InventoryInstitution
    
    
    Management
    
    
    
    
    
    
    Institution
    
    
    ManagementServices
    
    
    Services
    
    
    Total
    
    
    Services
    
    
    Services
    
    
    Total(In thousands)Revenues
    
    $
    18,515
    
    
    $
    1,974
    
    
    $
    20,489
    
    
    $
    12,672
    
    
    $
    2,073
    
    
    $
    14,745Gross Profit
    
    $
    13,755
    
    
    $
    1,758
    
    
    $
    15,513
    
    
    $
    9,625
    
    
    $
    1,867
    
    
    $
    11,492Total expenditures
for additions to
long-lived assets
    
    $
    1,595
    
    
    $
    3
    
    
    $
    1,598
    
    
    $
    1,131
    
    
    $
    12
    
    
    $
    1,143
 Six Months Ended June 30, 2008
    
    
    Six Months Ended June 30, 2007Retail
    
    
    
    
    
    
    
    
    
    
    RetailFinancial
    
    
    Inventory
    
    
    
    
    
    
    Financial
    
    
    InventoryInstitution
    
    
    Management
    
    
    
    
    
    
    Institution
    
    
    ManagementServices
    
    
    Services
    
    
    Total
    
    
    Services
    
    
    Services
    
    
    Total(In thousands)Revenues
    
    $
    35,733
    
    
    $
    3,951
    
    
    $
    39,684
    
    
    $
    23,674
    
    
    $
    4,118
    
    
    $
    27,792Gross Profit
    
    $
    26,758
    
    
    $
    3,505
    
    
    $
    30,263
    
    
    $
    18,113
    
    
    $
    3,703
    
    
    $
    21,816Total expenditures
for additions to
long-lived assets
    
    $
    3,226
    
    
    $
    25
    
    
    $
    3,251
    
    
    $
    2,639
    
    
    $
    12
    
    
    $
    2,651Assets
    
    $
    133,650
    
    
    $
    3,155
    
    
    $
    136,805
    
    
    $
    79,963
    
    
    $
    3,499
    
    
    $
    83,462Goodwill
    
    $
    56,959
    
    
    $
    2,070
    
    
    $
    59,029
    
    
    $
    30,143
    
    
    $
    2,070
    
    
    $
    32,213
  Three Months
    
    
    Six MonthsEnded June 30
    
    
    Ended June 302008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Gross Profit
    
    $
    15,513
    
    
    $
    11,492
    
    
    $
    30,263
    
    
    $
    21,816Less: Operating Expenses
    
    
    (14,501
    )
    
    
    (11,187
    )
    
    
    (29,234
    )
    
    
    (22,041
    )Operating Income (Loss)
    
    $
    1,012
    
    
    $
    305
    
    
    $
    1,029
    
    
    $
    (225
    )
 I. Derivative Instrument
 Accounting for Derivative Instruments and
Hedging Activities
 11




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J. Fair Value Measurements
 Fair Value Measurements The Fair Value Option for Financial Assets and Financial
Liabilities  Including an amendment FASB Statement No. 115
   CarryingAmountin ConsolidatedBalance Sheet
    
    Fair Value
    
    Fair Value Measurements UsingJune 30, 2008
    
    June 30, 2008
    
    Level 1
    
    Level 2
    
    Level 3Interest rate swap liability
    
    $
    36,000
    
    
    $
    36,000
    
    
    $
    
    
    
    $
    36,000
    
    
    $
    
  K. Comprehensive Income (Loss)
  L. Debt and Commitments and Contingencies
  
    
    Corporate office space lease amendment, which was executed by the
Company on January 16, 2008 to extend the term of the lease agreement
at our corporate headquarters for 66 months to commence on the
effective date of May 1, 2008 and terminate on October 31, 2013. The
leased space was expanded from 14,522 square feet to 36,006 square
feet. Thus, the amendment resulted in an approximately $140,000
increase in rent expense over the next twelve months.
    
    Convertible Notes of $7.0 million were executed by the Company and
delivered to the Alogent shareholders on January 17, 2008, having a
24 month term and a 7.0% annual interest rate payable quarterly in
arrears. The principal under the notes is convertible, at the option
of the holder, into shares of our common stock at a conversion price
of $4.50 per share.
    
    An installment payment agreement for the purchase of internal use
software licenses for $462,000 was executed by the Company on
March 21, 2008 having a 36 month term and a 3.037% annual interest
rate.
    
    
    the revolving loan commitment was increased by $5.0 million to $45.0 million;
    
    the limit on annual capital expenditures was increased from $5.0 million to $7.0 million;
    
    two additional applicable interest rates were added to the pricing grid, with a minimum
level of LIBOR plus 1.375%, and maximum level of LIBOR plus 3% (or base rate plus
0.50%), determined by the funded debt to EBITDA ratio (as defined);
    
    the funded debt to EBITDA ratio (as defined) was increased to 4.2 with a graduated
step-down through 2008 to 3.0 for 2009 and beyond;
    
    a senior funded debt to EBITDA ratio (as defined) was added, beginning at 3.5 with a
graduated step down to 3.0 for the fourth quarter of 2008 and beyond; and
    
    consent was given for the Alogent acquisition.
  12




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M. Recent Accounting Pronouncements
 SFAS No. 157
 Fair Value Measurements
 Effective Date of
FASB Statement No. 157
 SFAS No. 159
 The Fair Value Option for Financial
Assets and Financial Liabilities
 SFAS No. 141(R)
 Business Combinations
 SFAS No. 161
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Note Regarding Forward Looking Information
   Overview
  
    
    competition for deposits;
    
    the emergence of non-traditional competitors;
    
    the compression of margins on traditional products;
    
    the convergence of financial products into a single institution; and
    
    legislative changes accelerating the need for financial institutions
to offer a wider range of products and services to their customers.
    
    
    the assets of Community Banking Systems (CBS), which added check
imaging, report archival, and document imaging; and
    
    the assets of DataTrade, LLC, which added data conversion services,
remote deposit, report management, interactive voice response, and
checkscan.
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##### Table of Contents



Revenues
  
    
    financial institution services;
    
    retail inventory management services; and
    
    other products and services.
 Software Revenue Recognition Software Revenue
Recognition with Respect to Certain Transactions Accounting for Performance of
Construction-Type and Certain Production-Type Contracts Application of SOP 97-2 to Arrangements That Include the Right to Use Software Stored on
Another Entitys Hardware
 Financial Institution Services
  
    
    payment solutions;
    
    lending solutions; and
    
    data management solutions.
 Payment Solutions:
  Remote Deposit
 ACH Origination and Processing
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##### Table of Contents



Deposit Automation for Branch, Teller, Cash Vault, & ATM
 Item Processing & Image Exchange
 Lending Solutions :
 Accounts Receivable Financing
  Leasing
  Data Management Solutions:
  Website Design and Hosting
 Document Imaging
 Data Conversion Services
 Report Management and Voice Response Services
 16




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##### Table of Contents



Retail Inventory Management Services:
  Other Products and Services:
 ®
 17




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##### Table of Contents



Results of Operations
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2008
    
    2007
    
    2008
    
    2007Revenues:Financial institution services
    
    
    86.4
    %
    
    
    78.0
    %
    
    
    86.3
    %
    
    
    78.0
    %Retail inventory management services
    
    
    9.6
    
    
    
    14.0
    
    
    
    10.0
    
    
    
    14.8Other products and services
    
    
    4.0
    
    
    
    8.0
    
    
    
    3.7
    
    
    
    7.2Total Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of Revenues:Financial institution services
    
    
    20.7
    
    
    
    15.1
    
    
    
    20.1
    
    
    
    14.7Retail inventory management services
    
    
    1.1
    
    
    
    1.4
    
    
    
    1.1
    
    
    
    1.5Other products and services
    
    
    2.5
    
    
    
    5.5
    
    
    
    2.5
    
    
    
    5.3Total Cost of Revenues
    
    
    24.3
    
    
    
    22.0
    
    
    
    23.7
    
    
    
    21.5Gross Profit
    
    
    75.7
    
    
    
    78.0
    
    
    
    76.3
    
    
    
    78.5Operating Expenses:General and administrative
    
    
    31.3
    
    
    
    35.0
    
    
    
    31.9
    
    
    
    38.0Selling and marketing
    
    
    24.7
    
    
    
    32.7
    
    
    
    26.5
    
    
    
    33.5Research and development
    
    
    8.0
    
    
    
    3.5
    
    
    
    8.8
    
    
    
    3.5Amortization
    
    
    6.7
    
    
    
    4.6
    
    
    
    6.4
    
    
    
    4.2Other operating
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Total Operating Expenses
    
    
    70.8
    
    
    
    75.9
    
    
    
    73.7
    
    
    
    79.3Operating Income (Loss)
    
    
    4.9
    
    
    
    2.1
    
    
    
    2.6
    
    
    
    (0.8
    )Interest Expense, net
    
    
    (2.2
    )
    
    
    (1.6
    )
    
    
    (3.5
    )
    
    
    (1.1
    )Income (Loss) before Taxes
    
    
    2.7
    
    
    
    0.5
    
    
    
    (0.9
    )
    
    
    (1.9
    )Income Tax Provision (Benefit)
    
    
    1.1
    
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.9
    )Net Income (Loss)
    
    
    1.6
    %
    
    
    0.7
    %
    
    
    (0.5
    )%
    
    
    (1.0
    )%
 Three and Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30,
2007
   Financial Institution Services.
 Retail Inventory Management Services.
 Other Products and Services.
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##### Table of Contents



Cost of Revenues  financial institution services.
 Cost of Revenues  retail inventory management services.
 Cost of Revenues  other products and services.
 General and Administrative.
 Selling and Marketing. ® ®
 Research and Development. .
 Amortization.
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##### Table of Contents



Other Operating Expense, Net.
 Operating Income (Loss).
 Interest Expense, Net.
 Income Tax Provision (Benefit).
 Critical Accounting Policies
    Liquidity and Capital Resources
  Six Months EndedJune 30,2008
    
    2007Net cash provided by operating activities
    
    $
    6,375
    
    
    $
    200Net cash used in investing activities
    
    
    (35,579
    )
    
    
    (11,748
    )Net cash provided by financing activities
    
    
    32,059
    
    
    
    7,518
 Cash from Operating Activities
  20




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Cash from Investing Activities
  Cash from Financing Activities
  Analysis of Changes in Working Capital
    Credit Agreement
    21




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##### Table of Contents




    
    the revolving loan commitment was increased by $5.0 million to $45.0 million;
    
    the limit on annual capital expenditures was increased from $5.0 million to $7.0 million;
    
    two additional applicable interest rates were added to the pricing grid, with a minimum
level of LIBOR plus 1.375%, and maximum level of LIBOR plus 3% (or base rate plus
0.50%), determined by the funded debt to EBITDA ratio (as defined);
    
    the funded debt to EBITDA ratio (as defined) was increased to 4.2 with a graduated
step-down through 2008 to 3.0 for 2009 and beyond;
    
    a senior funded debt to EBITDA ratio (as defined) was added, beginning at 3.5 with a
graduated step down to 3.0 for the fourth quarter of 2008 and beyond; and
    
    consent was given for the Alogent acquisition.
    Off-Balance Sheet Arrangements
  22




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Seasonality
  Inflation
  23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Remediation of Material Weaknesses
  
    
    In December of 2007, we hired Dan Owens as Senior Vice
President of Finance; Mr. Owens
was named Chief Financial Officer
during the third quarter 2008; Mr. Owens will oversee our efforts to ensure the
effectiveness of our financial reporting functions;
    
    We have hired two additional senior accounting staff and an internal tax professional, and we
retained the former Chief Financial Officer of Alogent as a vice-president of finance;
    
    We are enhancing review procedures in our financial reporting and income tax accounting functions;
    
    We are assessing our internal control structure and implementing new controls; and
    
    We have completed a comprehensive evaluation of our organizational structure and are continuing
to review our internal processes.
  24




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##### Table of Contents



Part II Other Information
 
 Item 1A. Risk Factors
  The operating environment for financial institutions has become increasingly difficult and, as we
depend heavily on this industry, this may adversely affect our business and operations.
  
 Item 4. Submission of Matters to Vote of Security Holders.
   Votes For
    
    Votes WithheldBill Mathis
    
    
    10,666,282
    
    
    
    3,415,704Beck
A. Taylor
    
    
    11,791,083
    
    
    
    2,290,903Total All Directors
    
    
    22,457,365
    
    
    
    5,706,607
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##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    Description of Exhibit3.1
    
    Amended and Restated Charter of the Company (incorporated by
reference to Exhibit 3.1 of Amendment No. 1 to the Companys
Registration Statement on Form S-1 (File No. 33375013) filed with
the SEC on May 3, 1999).3.1.1
    
    Charter Amendment dated August 9, 2001 (incorporated by reference
to Exhibit 3.3 of the Companys Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).3.1.2
    
    Charter Amendment dated August 9, 2001 (incorporated by reference
to Exhibit 3.4 of the Companys Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001).3.1.3
    
    Charter Amendment dated January 16, 2004 (incorporated by
reference to Exhibit B of the Companys Definitive Proxy Statement
on Schedule 14A filed with the SEC on December 29, 2003).3.1.4
    
    Charter Amendment dated January 23, 2006 (incorporated by
reference to Exhibit 3.1 to the Companys Current Report on Form
8-K filed with the SEC on January 26, 2006).3.1.5
    
    Charter Amendment dated January 24, 2006 (incorporated by
reference to Exhibit 3.2 to the Companys Current Report on Form
8-K with the SEC on January 26, 2006).3.1.6
    
    Charter Amendment dated May 4, 2006 and effective May 5, 2006
(incorporated by reference to Exhibit 3.1 of the Companys Current
Report on Form 8-K filed with the SEC on May 10, 2006).3.1.7
    
    Charter Amendment dated September 8, 2006 (incorporated by
reference to Exhibit 3.1 of the Companys Current Report on
Form 8-K filed with the SEC on September 8, 2006).3.2
    
    Second Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3.2 of Amendment No. 1 to the Companys
Registration Statement on Form S-1 (File No. 333-722;75013) filed
with the SEC on May 3, 1999).3.2.1
    
    Bylaws Amendment dated January 20, 2004 (incorporated by reference
to Exhibit 3.2.1 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2003).3.2.2
    
    Amendment to Second Amended and Restated Bylaws Dated November 7,
2007 (incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K filed with the SEC on November 8,
2007).10.1
    
    Form of Restricted Stock Agreement.31.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief
Executive Officer.31.2
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief
Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief
Executive Officer.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief
Financial Officer.
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##### Table of Contents



Signatures
  Goldleaf Financial Solutions, Inc.
(Registrant)Date: August 11, 2008
    By:
    /s/ G. Lynn BoggsG. Lynn BoggsChief Executive OfficerDate: August 11, 2008
    By:
    /s/ Dan OwensDan OwensChief Financial Officer 27