##### 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 March 31, 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., 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 þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Class
    
    Outstanding as of May 1, 2008Common Stock, no par value
    
    19,258,784 Shares




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##### 



GOLDLEAF FINANCIAL SOLUTIONS, INC.
Form 10-Q
For Quarter Ended March 31, 2008
INDEX
 Page No.Part I   Financial InformationItem 1 Financial StatementsUnaudited Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    
    
    3Unaudited Consolidated Statements of Operations for the Three Months ended March 31, 2008 and 2007
    
    
    
    4Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2008 and 2007
    
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    12Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    
    21Item 4 Controls and Procedures
    
    
    
    21Part II   Other InformationItem 1A Risk Factors
    
    
    
    22Item 6 Exhibits
    
    
    
    29SignaturesEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFOExhibit 2.1  Agreement and Plan of MergerEx-10.1 Registration Rights AgreementEx-10.2 Form of Convertible Note from the CompanyEx-10.3 First Amendent dated January 17, 2008 to Second Amended and Restated Credit AgreementEx-10.4 Interest Rate Swap AgreementEx-10.5 Employment AgreementEx-10.6 Employment 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
 March 31,
    
    
    December 31,2008
    
    
    2007(in thousands, except share data)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    3,975
    
    
    $
    2,648Restricted cash
    
    
    5,506
    
    
    
    5,362Accounts receivable trade, net of allowance for doubtful accounts of $636 and $604, respectively
    
    
    13,314
    
    
    
    6,918Inventory
    
    
    525
    
    
    
    237Deferred tax assets
    
    
    1,346
    
    
    
    1,443Investment in direct financing leases
    
    
    1,686
    
    
    
    1,736Prepaid and other current assets
    
    
    1,685
    
    
    
    1,774Total current assets
    
    
    28,037
    
    
    
    20,118Property and Equipment, net
    
    
    4,552
    
    
    
    3,661Operating Lease Equipment, net
    
    
    20
    
    
    
    23Other Assets:Software development costs, net
    
    
    5,361
    
    
    
    4,725Deferred tax assets
    
    
    
    
    
    
    2,009Investment in direct financing leases, net of current portion
    
    
    2,726
    
    
    
    2,812Intangible and other assets, net
    
    
    37,981
    
    
    
    14,085Goodwill
    
    
    56,846
    
    
    
    34,217Total other assets
    
    
    102,914
    
    
    
    57,848Total assets
    
    $
    135,523
    
    
    $
    81,650Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    3,803
    
    
    $
    2,858Accrued liabilities
    
    
    5,560
    
    
    
    2,055Deferred revenue
    
    
    11,705
    
    
    
    4,867Customer deposits
    
    
    5,511
    
    
    
    5,307Current portion of capital lease obligations
    
    
    411
    
    
    
    414Current portion of non-recourse lease notes payable
    
    
    1,595
    
    
    
    1,638Current portion of long term debt
    
    
    124
    
    
    
    Total current liabilities
    
    
    28,709
    
    
    
    17,139Revolving Line of Credit
    
    
    41,000
    
    
    
    10,000Long Term Debt, net of current portion
    
    
    338
    
    
    
    Deferred Revenue
    
    
    792
    
    
    
    949Capital Lease Obligations, net of current portion
    
    
    443
    
    
    
    544Deferred Tax Liability
    
    
    1,722
    
    
    
    Non-Recourse Lease Notes Payable, net of current portion
    
    
    2,346
    
    
    
    2,428Convertible Notes Payable
    
    
    7,000
    
    
    
    Other Non-Current Liabilities
    
    
    519
    
    
    
    228Total liabilities
    
    
    82,869
    
    
    
    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 share authorized, no shares outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    72,569
    
    
    
    69,764Accumulated deficit
    
    
    (19,915
    )
    
    
    (19,402
    )Total stockholders equity
    
    
    52,654
    
    
    
    50,362Total liabilities and stockholders equity
    
    $
    135,523
    
    
    $
    81,650
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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
 For the Three Months Ended March 31, 2008 and 2007
 2008
    
    
    2007(in thousands, exceptper share data)Revenues:Financial institution services
    
    $
    16,614
    
    
    $
    10,223Retail inventory management services
    
    
    1,977
    
    
    
    2,045Other products and services
    
    
    604
    
    
    
    779Total revenues
    
    
    19,195
    
    
    
    13,047Cost of Revenues:Financial institution services
    
    
    3,761
    
    
    
    1,781Retail inventory management services
    
    
    220
    
    
    
    209Other products and services
    
    
    430
    
    
    
    653Gross profit
    
    
    14,784
    
    
    
    10,404Operating Expenses:General and administrative
    
    
    6,281
    
    
    
    5,470Selling and marketing
    
    
    5,453
    
    
    
    4,504Research and development
    
    
    1,858
    
    
    
    455Amortization
    
    
    1,158
    
    
    
    500Other operating expense, net
    
    
    17
    
    
    
    5Total operating expenses
    
    
    14,767
    
    
    
    10,934Operating Income (Loss)
    
    
    17
    
    
    
    (530
    )Interest Expense, Net
    
    
    919
    
    
    
    83Loss Before Income Taxes
    
    
    (902
    )
    
    
    (613
    )Income tax benefit
    
    
    (389
    )
    
    
    (236
    )Net Loss
    
    $
    (513
    )
    
    $
    (377
    )Loss Per Share:Basic
    
    $
    (0.03
    )
    
    $
    (0.02
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )Weighted Average Common Shares Outstanding:Basic
    
    
    18,816
    
    
    
    17,269Diluted
    
    
    18,816
    
    
    
    17,269
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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
 For the Three Months Ended March 31, 2008 and 2007
 2008
    
    
    2007(in thousands)Cash Flows From Operating Activities:Net loss
    
    $
    (513
    )
    
    $
    (377
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,773
    
    
    
    1,002Depreciation on fixed assets under operating leases
    
    
    3
    
    
    
    9Deferred taxes
    
    
    (390
    )
    
    
    (253
    )Amortization of debt issuance costs and discount
    
    
    44
    
    
    
    29Acquired in process research and development charge
    
    
    448
    
    
    
    Stock compensation expense
    
    
    167
    
    
    
    7Deferred gain on land sale
    
    
    (1
    )
    
    
    (4
    )(Gain)/loss on write-down or disposal of fixed assets
    
    
    (1
    )
    
    
    3Amortization of lease income and initial direct costs
    
    
    (153
    )
    
    
    (190
    )Gain on sale of leased equipment
    
    
    (8
    )
    
    
    (29
    )Changes in assets and liabilities, net of acquisitions:Accounts receivable
    
    
    149
    
    
    
    460Prepaid and other current assets
    
    
    632
    
    
    
    73Inventory
    
    
    (288
    )
    
    
    29Accounts payable
    
    
    453
    
    
    
    (561
    )Accrued liabilities
    
    
    1,496
    
    
    
    (934
    )Deferred revenue
    
    
    739
    
    
    
    (394
    )Other non-current liabilities
    
    
    292
    
    
    
    149Net cash provided by (used in) operating activities
    
    
    4,842
    
    
    
    (981
    )Cash Flows From Investing Activities:Acquisition of businesses, net of cash acquired
    
    
    (32,990
    )
    
    
    (4,459
    )Change in restricted cash
    
    
    60
    
    
    
    Investment in direct financing leases
    
    
    (109
    )
    
    
    (34
    )Lease receivables collected
    
    
    398
    
    
    
    730Proceeds from lease terminations
    
    
    8
    
    
    
    Additions to property and equipment
    
    
    (705
    )
    
    
    (1,060
    )Additions to intangibles and other assets
    
    
    (193
    )
    
    
    (33
    )Additions to software development costs
    
    
    (755
    )
    
    
    (415
    )Net cash used in investing activities
    
    
    (34,286
    )
    
    
    (5,271
    )
  5




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GOLDLEAF FINANCIAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED
For the Three Months Ended March 31, 2008 and 2007
- Continued -
 2008
    
    
    2007(in thousands)Cash Flows From Financing Activities:Repayments on long-term debt
    
    $
    (1,000
    )
    
    $
    Repayments on capital lease obligations
    
    
    (104
    )
    
    
    (64
    )Proceeds from revolving line of credit
    
    
    32,000
    
    
    
    2,000Repayments of note payable
    
    
    
    
    
    
    (655
    )Repayments of non-recourse lease financing notes payable
    
    
    (513
    )
    
    
    Proceeds from non-recourse lease financing notes payable
    
    
    388
    
    
    
    Proceeds from exercise of employee stock options
    
    
    
    
    
    
    20Net cash provided by financing activities
    
    
    30,771
    
    
    
    1,301Net Change in Cash and Cash Equivalents
    
    
    1,327
    
    
    
    (4,951
    )Cash and Cash Equivalents at beginning of period
    
    
    2,648
    
    
    
    6,760Cash and Cash Equivalents at end of period
    
    $
    3,975
    
    
    $
    1,809Non-cash Investing and Financing Activities:Issuance of
1,889,469 common shares as purchase consideration in the Alogent acquisition
    
    $
    2,638
    
    
    $
    Issuance of note payable to Alogent shareholders
    
    $
    7,000
    
    
    $
    Purchase of software licenses through issuance of debt
    
    $
    462
    
    
    $
    
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GOLDLEAF FINANCIAL SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED
 A. The Company
   
    
    financial institution services;
    
    retail inventory management services; and
    
    other products and services.
  
    
    deposit automation, remote capture, and processing fees;
    
    check imaging fees;
    
    ACH origination and processing fees;
    
    core data processing and image processing fees;
    
    software license and maintenance fees;
    
    professional services fees;
    
    participation fees and insurance brokerage fees;
    
    leasing revenues;
    
    website design and hosting fees;
    
    report archival fees;
    
    document imaging fees;
    
    data conversion services fees;
    
    report management fees; and
    
    voice response fees.
 B. Summary of Significant Accounting Policies
 Basis of Presentation
    Principles of Consolidation
   Foreign Currency
 Foreign Currency Translation
 Income Taxes
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Stock-Based Compensation
    C. Reclassifications
  8




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##### Table of Contents



D. Acquisitions
 Alogent Corporation
 Business Combinations
 (In thousands)
 Purchase Price:Cash
    
    $
    32,766Convertible
notes payable
    
    
    7,000Common
shares (1,889,469 shares valued at $1.40 per share)
    
    
    2,638Direct acquisition costs
    
    
    1,285Total purchase price
    
    $
    43,689Value 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)
    
    
    11,240Tradenames (estimated life of twenty years)
    
    
    5,300In process R&D (expensed)
    
    
    448Non-compete (estimated life of three years)
    
    
    680Goodwill
    
    
    22,605Liabilities:Accounts payable
    
    
    (492
    )Accrued liabilities
    
    
    (2,009
    )Deferred tax liability
    
    
    (4,366
    )Deferred revenue
    
    
    (5,942
    )Total net assets
    
    $
    43,689
      Three
Months Ended March 312008
    

    2007(in
thousands)Pro FormaCombined
    

    Pro FormaCombinedRevenue
    
    $
    20,500
    

    $
    17,443Net Loss
    
    $
    (244
    )

    $
    (1,172
    )Loss per
Share
    
    $
    (0.01
    )

    $
    (0.06
    )
 9




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E. Net Loss Per Share
   Three MonthsEnded March 312008
    
    
    2007(in thousands)Net Loss
    
    $
    (513
    )
    
    $
    (377
    )Weighted average common shares outstanding  basic
    
    
    18,816
    
    
    
    17,269Plus additional shares from common stock equivalent shares
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    18,816
    
    
    
    17,269
  F. Legal Proceedings
  G. Segment Information
 Disclosures
about Segments of an Enterprise and Related Information.
  Three Months Ended March 31, 2008
    
    
    Three Months Ended March 31, 2007Retail
    
    
    
    
    
    
    
    
    
    
    RetailFinancial
    
    
    Inventory
    
    
    
    
    
    
    Financial
    
    
    InventoryInstitution
    
    
    Management
    
    
    
    
    
    
    Institution
    
    
    ManagementServices
    
    
    Services
    
    
    Total
    
    
    Services
    
    
    Services
    
    
    Total(In thousands)Revenues
    
    $
    17,218
    
    
    $
    1,977
    
    
    $
    19,195
    
    
    $
    11,002
    
    
    $
    2,045
    
    
    $
    13,047Gross Profit
    
    $
    13,027
    
    
    $
    1,757
    
    
    $
    14,784
    
    
    $
    8,568
    
    
    $
    1,836
    
    
    $
    10,404Total expenditures for additions to long-lived assets
    
    $
    1,631
    
    
    $
    22
    
    
    $
    1,653
    
    
    $
    1,508
    
    
    $
    
    
    
    $
    1,508Assets
    
    $
    132,307
    
    
    $
    3,216
    
    
    $
    135,523
    
    
    $
    72,396
    
    
    $
    3,453
    
    
    $
    75,849Goodwill
    
    $
    54,776
    
    
    $
    2,070
    
    
    $
    56,846
    
    
    $
    27,931
    
    
    $
    2,070
    
    
    $
    30,001
  Three MonthsEnded March 312008
    
    
    2007(in thousands)Gross Profit
    
    $
    14,784
    
    
    $
    10,404Less: Operating Expenses
    
    
    (14,767
    )
    
    
    (10,934
    )Operating Income (Loss)
    
    $
    17
    
    
    $
    (530
    )
 10




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H. Derivative Instrument
 Accounting for Derivative Instruments and Hedging Activities
 I. Fair Value Measurements
 Fair Value Measurements The Fair Value Option for Financial Assets and Financial
Liabilities  Including an amendment FASB Statement No. 115
   Carrying Amountin ConsolidatedBalance Sheets
    
    Fair Value
    
    Fair Value Measurements UsingMarch 31, 2008
    
    March 31, 2008
    
    Level 1
    
    Level 2
    
    Level 3Interest rate swap liability
    
    $
    235,000
    
    
    $
    235,000
    
    
    $
    
    
    
    $
    235,000
    
    
    $
    
  J. Comprehensive Loss
  K. 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 for 66 months to commence
on the effective date of May 1, 2008 and terminate on October 31, 2013. The leased
space shall be 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 and have a 24 month term and a 7.0%
annual interest rate payable quarterly in arrears. The principal under the
convertible 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 and has 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.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Note Regarding Forward Looking Information
   Overview
  
    
    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.
   ® ® ® ®
 
    
    P. T. C. , which added teller automation systems; and
    
    Goldleaf Technologies, which added ACH processing, remote capture processing, and website design and hosting.
  
    
    Community Banking Systems, which added check imaging, report archival, and document imaging; and
    
    DataTrade, LLC, which added data conversion services, remote deposit, report management, interactive voice response, and checkscan.
  12




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##### Table of Contents



Revenues
  
    
    financial institution services;
    
    retail inventory management services; and
    
    other products and services.
 Financial Institution Services
  
    
    deposit automation, remote capture, and processing fees;
    
    check imaging fees;
    
    ACH origination and processing fees;
    
    core data processing and image processing fees;
    
    software license and maintenance fees;
    
    professional services fees;
    
    participation fees and insurance brokerage fees;
    
    leasing revenues;
    
    website design and hosting fees;
    
    report archival fees;
    
    document imaging fees;
    
    data conversion services fees;
    
    report management fees; and
    
    voice response fees.
 ACH Origination and Processing, Remote Capture and Deposit Processing Fees.
 Merchant and Branch Capture
 Core Data Processing and Image Processing Fees.
 Software License and Maintenance and Implementation Fees.
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##### Table of Contents



Participation Fees, Insurance Brokerage Fees and Maintenance Fees from Our Accounts
Receivable Financing Solution.
 Leasing Revenues.
 Website Design and Hosting Fees.
 Document Imaging.
 Data Conversion Services.
 Report Management and Voice Response Services.
 Retail Inventory Management Services
  Other Products and Services
 ®
  14




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Results of Operations
  Three MonthsEnded March 31,2008
    
    2007Revenues:Financial institution services
    
    
    86.6
    %
    
    
    78.3
    %Retail inventory management services
    
    
    10.3
    
    
    
    15.7Other products and services
    
    
    3.1
    
    
    
    6.0Total revenues
    
    
    100.0
    
    
    
    100.0Cost of revenues:Financial institution service fees
    
    
    19.6
    
    
    
    13.7Retail inventory management services
    
    
    1.2
    
    
    
    1.6Other products and services
    
    
    2.2
    
    
    
    5.0Gross profit
    
    
    77.0
    
    
    
    79.7Operating expenses:General and administrative
    
    
    32.7
    
    
    
    41.9Selling and marketing
    
    
    28.4
    
    
    
    34.5Research and development
    
    
    9.7
    
    
    
    3.5Amortization
    
    
    6.0
    
    
    
    3.8Other operating expense
    
    
    0.1
    
    
    
    0.1Total operating expenses
    
    
    76.9
    
    
    
    83.8Operating
income (loss)
    
    
    0.1
    
    
    
    (4.1
    )Interest expense, net
    
    
    (4.8
    )
    
    
    (0.6
    )Loss before income taxes
    
    
    (4.7
    )
    
    
    (4.7
    )Income tax benefit
    
    
    (2.0
    )
    
    
    (1.8
    )Net loss
    
    
    (2.7
    )%
    
    
    (2.9
    )%
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
  Financial Institution Services. ®
 Retail Inventory Management Services.
 Other Products and Services.
 Cost of Revenues  financial institution services.
 Cost of Revenues  retail inventory management services.
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Cost of Revenues  other products and services.
 General and Administrative.
 Selling and Marketing. ® ®
 Research and Development.
 Amortization.
 Other Operating Expense, Net.
 Operating Income (Loss).
 Interest Expense, Net.
 Income Tax Benefit.
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Critical Accounting Policies
    Liquidity and Capital Resources
  Three Months EndedMarch 31,2008
    
    2007Net cash provided by (used in) operating activities
    
    $
    4,842
    
    
    $
    (981
    )Net cash used in investing activities
    
    
    (34,286
    )
    
    
    (5,271
    )Net cash provided by financing activities
    
    
    30,771
    
    
    
    1,301
 Cash from Operating Activities
  Cash from Investing Activities
  Cash from Financing Activities
  Analysis of Changes in Working Capital
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Credit Agreement
    
    
    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
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Recent Accounting Pronouncements
 SFAS No. 157
   SFAS No. 159
  SFAS No. 141(R)
  SFAS No. 161
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Seasonality
  Inflation
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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. Along with acting
Chief Financial Officer Scott Meyerhoff, Mr. Owens will oversee our efforts to ensure the
effectiveness of our financial reporting functions;
    
    We have hired additional senior accounting staff and an
internal tax professional, and we retained
the former CFO 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 are undergoing a comprehensive evaluation of our organizational structure and processes.
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Part II Other Information
 
 Item 1A. Risk Factors
 RISK FACTORS
  Risks Related to Our Business
 We generate a significant amount of our revenues from our accounts receivable financing solution
and our retail inventory management services, and those revenues have declined in recent years. If
these trends continue, our financial performance may be materially and adversely affected.
 ®  ® ® ®  ® ®
 The loss of our chief executive officer or other key employees could have a material adverse effect
on our business.
  Acquisitions could result in integration difficulties, unexpected expenses, diversion of
managements attention and other negative consequences.
  
    
    the inability to retain and motivate key employees of an acquired company;
    
    our entrance into markets in which we have little or no prior direct experience;
    
    the inability to prepare and file with the SEC in a timely manner the required financial statements of any businesses we acquire;
    
    litigation, indemnification claims and other unforeseen claims and liabilities that may arise from the acquisition or operation of acquired businesses;
    
    the costs necessary to complete integration exceeding our expectations or outweighing some of the intended benefits of the acquisitions we close;
    
    the inability to maintain the client relationships of an acquired business;
    
    the costs necessary to improve or replace the operating systems, products and services of acquired businesses exceeding our expectations;
    
    the inability to centralize and consolidate our financial, operational and administrative functions with those of the businesses we acquire; and
    
    our managements attention may be diverted from other business concerns.
  If we are unable to successfully integrate the business operations of companies we acquire in the
future into our business operations, we will not realize the anticipated potential benefits from
these acquisitions and our business could be adversely affected.
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If our goodwill or amortizable intangible assets become impaired we may be required to record a
significant charge to earnings.
  Because our business involves the electronic storage and transmission of data, security breaches
and computer viruses could expose us to litigation and adversely affect our reputation and revenue.
  If we experience losses, we could experience difficulty meeting our business plan and our stock
price could decline.
  If we are unable to maintain or grow our business, our operating results and financial condition
would be adversely affected.
  If we are unable to manage our growth, our business and results of operations could be adversely
affected.
  Our business significantly depends on a productive sales force, and our sales force has experienced
management and employee turnover in recent years. If these problems recur, we may not be able to
achieve our sales plans or maintain our current level of sales.
  Because we have a long sales and implementation cycle for some of our solutions, we face the risk
of not closing sales after expending significant resources, which could materially and adversely
affect our business, financial condition and results of operations.
  
    
    our clients budgetary constraints;
    
    the timing of our clients budget cycles and approval processes;
    
    our clients willingness to replace their current vendors;
    
    the success and continued support of our strategic marketing partners sales efforts;
and
    
    the timing and expiration of our clients current license agreements or outsourcing
agreements for similar services.
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Competition, restrictions under our credit facility, market conditions and other factors may impede
our ability to acquire other businesses and may inhibit our growth.
  
    
    identify suitable acquisition candidates;
    
    reach agreements to acquire these companies;
    
    obtain necessary financing on acceptable terms; and
    
    successfully integrate the operations of these businesses.
 We may not be able to enter into and successfully implement strategic alliances, which could limit
our ability to grow our business as we intend.
  We may be unable to market our products and services successfully to new client financial
institutions or to retain current client financial institutions. If we are unable to do so, our
business may be materially and adversely affected.
  The failure to execute our growth plans may affect our ability to remain a publicly traded company.
  Our plans to expand the number of products and services we offer may not be successful and may
lower our overall profit margin.
  We may be unable to compete in our markets, which could cause us not to achieve our growth plans
and materially and adversely affect our financial performance.
 ®
 We may be unable to protect our proprietary technology adequately, which may have a material
adverse effect on our revenue, our prospects for future growth and our overall business.
  The Company depends on proprietary technology licensed from third parties; if the Company loses
these licenses, it could delay shipments of products incorporating this technology and could be
costly.
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If our products or services are found to infringe the proprietary rights of others, we may be
required to change our business practices and may also become subject to significant costs and
monetary penalties.
  
    
    be expensive and time-consuming to defend;
    
    cause us to cease making, licensing or using products that incorporate the challenged
intellectual property;
    
    divert our managements attention and resources; and
    
    require us to enter into royalty or licensing agreements to obtain the right to use
necessary technologies.
  The failure of our network infrastructure and equipment could have a material adverse effect on our
business.
  We rely on the technological infrastructure of our client financial institutions and their
individual customers, and any failure of that infrastructure could have a material adverse effect
on our revenue and our business.
  Increased fraud committed by small businesses and increased uncollectible accounts of small
businesses may adversely affect our accounts receivable financing business.
  We could be sued for contract or product liability claims that exceed our available insurance
coverage, which could have a material adverse effect on our business, financial condition and
results of operations.
  We may not have adequate capital to support our planned growth, which could significantly impair
our ability to add new products or services.
  If our products and services contain errors, we may lose clients and revenues and be subject to
claims for damages.
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
 
 
  Technological changes may reduce the demand for our products and services or render them obsolete,
which would reduce our revenue and income.
  Examination of our business by regulatory agencies could cause us to incur significant expenses,
and failure to remedy any identified deficiency would adversely affect our business.
  Governmental laws and regulations may adversely affect us by making it more costly and burdensome
to conduct our business or operations.
  Risks Related to Our Industry
 We depend heavily on a single industry and any downturn in that industry would materially and adversely affect our business and operations.
  Financial institutions are subject to industry consolidation, and we may lose clients with little
notice, which could adversely affect our revenues.
  The banking industry is highly regulated, and changes in banking regulations could negatively
affect our business.
 ®
 Risks of Owning Our Common Stock
 Our stock price is volatile and any investment in our common stock could suffer a decline in value.
  
 
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
 
 
 
 
 
 
 
  If we are required to restate or reissue our financial statements, the price of our stock may
decline significantly.
  If we fail to maintain adequate internal controls over financial reporting, then our business and
operating results could be harmed.
  Complying with Section 404 of the Sarbanes-Oxley Act of 2002 may strain our resources and distract
management.
  In complying with Section 404 of the Sarbanes-Oxley Act of 2002, we may detect material weaknesses
in our internal controls.
  We do not anticipate paying any dividends on our common stock in the foreseeable future.
  We may not be able to use the tax benefit from our operating losses.
  Provisions in our organizational documents and under Tennessee law could delay or prevent a change
in control of our company, which could adversely affect the price of our common stock.
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Part II  Other Information
 
 Item 6. Exhibits
  ExhibitNumber
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger dated January 17, 2008 by and among the Company GLF Sub, Inc and Alogent Corporation.3.1
    
    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
    
    Registration Rights Agreement dated January 17, 2008 between the Company and certain former shareholders of Alogent Corporation.10.2
    
    Form of Convertible Note from the
Company to certain shareholders of Alogent Corporation dated
January 17, 2008.10.3
    
    First Amendment dated January 17, 2008 to Second Amended and Restated Credit Agreement dated November 30, 2006 (the Credit Agreement) by and among the Company, Bank of America, N.A., The Peoples Bank and Wachovia
Bank, N.A.10.4
    
    Interest Rate Swap Agreement with Bank of America, N.A. dated January 30, 2008.10.5
    
    Employment Agreement dated January 2006, between the Company and David Peterson.10.6
    
    Employment Agreement dated January 17, 2008, between the Company and Brian Geisel.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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Signatures
  Goldleaf Financial Solutions, Inc.
(Registrant)Date: May 12, 2008
    By:
    /s/ G. Lynn BoggsG. Lynn BoggsChief Executive OfficerDate: May 12, 2008
    By:
    /s/ Scott MeyerhoffScott MeyerhoffActing Chief Financial Officer 30