UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the year ended December 31, 20022003

or

For the transition period from                    to                    .

Commission File Number ( 0-22292 )

Captiva Software Corporation

(Exact name of registrant as specified in its charter)

10145 Pacific Heights Blvd.Boulevard

San Diego, CA 92121

(858) 320-1000

(Address, including zip code, and telephone number, including area code, of principal executive offices)

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

None

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

Common Stock, $.001$0.01 par value

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. Yesx    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 registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨[    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes¨Nox    X    

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 28, 200230, 2003, was approximately $5,767,684$38,274,365 (based on the closing price for shares of the registrant’s Common Stock as reported by the Nasdaq National Market for the last trading day prior toon that date). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the registrant’s Common Stock, $.001$0.01 par value, as of February 28, 200329, 2004 was 8,859,953.10,938,083.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2003registrant’s 2004 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Report. Such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s year ended December 31, 2002.2003.

Certain exhibits filed with the registrant’s (i) Current Report on Form 8-K filed on March 20, 2002, (ii) Registration Statement on Form S-1, as amended (Registration No. 33-66142), (iii) Current Report on Form 8-K filed on September 24, 1997, (iv) Registration Statement on Form 8-A filed on September 10, 1997 (Registration No. 000-22292), (v) Annual Report on Form 10-K filed on March 29, 2002, (vi) Annual Report on Form 10-K filed on April 2, 2001, (vii) Registration Statement on Form S-4 (Registration No. 333-87106) and (viii) Annual Report on Form 10-K filed on March 31, 2003, are incorporated by reference into Part IV of this Report.

CAPTIVA SOFTWARE CORPORATION

FORM 10-K

For the Year Ended December 31, 20022003

INDEX

i

PART I

Forward Looking Statements

This Annual Report on Form 10-K contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminologyterms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of suchthese terms or other words of similar meaning. These statements are only predictions based on information currently available to us. Actual events or results may differ materially. Important factors whichthat may cause actual results to differ materially from the forward-looking statements are described in the Sectionsection entitled “Risk Factors” in Item 1 of this Annual Report on Form 10-Kreport and in other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications.

Although we believe that the estimates and expectations reflected in theour forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to update any of the forward-looking statements contained in this report.

Overview

We are a leading provider of input management solutions designed to manage business critical information from paper, faxed and electronic forms, documents and transactions into the enterprise. Our solutions automate the processing of billions of forms, documents and transactions annually, converting their content into information that is usable in database, document, content, and other information management systems. We believe that our products and services enable organizations to reduce operating costs, obtain higher information accuracy rates, and speed processing times.

Our products offer organizations a cost-effective, accurate, and automated alternative to both manual data entry and electronic data interchange (EDI). These traditional approaches are typically labor intensive, time consuming and costly methods of managing the input of information into the enterprise. Organizations can utilize our products to capture information digitally, extract the meaningful content or data, and apply business rules that ensure the data’s accuracy. Our solutions serve thousands of users in insurance, financial services, business process outsourcing (BPO), government, manufacturing, and other markets. Enterprises that have purchased our products and services include American Express, Blue Cross Blue Shield of Oklahoma, Electronic Data Systems, FileNet, Fujitsu, GEICO, National City Corporation, and Texas Workforce Commission.

In February 2004, we acquired ADP Context Inc. (Context), a business unit of ADP Claims Solutions Group, Inc. and a part of the worldwide Automatic Data Processing, Inc. family of companies, for approximately $5.2 million in cash. Context’s products provide automated solutions to complex medical claims coding, editing and reimbursement challenges in the healthcare industry and allow us to better serve our claims processing customers and expand our reach in the healthcare insurance market.

Captiva Software Corporation is a result ofresulted from the merger of ActionPoint, Inc., a Delaware corporation (ActionPoint), with Captiva Software Corporation, a California corporation (Old Captiva). The merger was consummated during, in the third quarter of 2002.2002 (the Merger). In this transaction, Captiva Software Corporation became a wholly owned subsidiary of ActionPoint, and ActionPoint changed its name to Captiva Software Corporation and remained a Delaware Corporation.

ActionPoint was incorporated in California in January 1986 and was reincorporated in Delaware in September 1993. Our principal executive offices are located at 10145 Pacific Heights Boulevard, San Diego, California 92121, and our telephone number is (858) 320-1000.

We develop, market, deploy320-1000 and service input management solutions used to manage business critical information from paper, faxed and scanned forms and documents, Internet forms and extensible markup language (XML) data streams into enterprises in a more accurate, timely and cost-effective manner. These solutions automate the processing of billions of forms and documents annually, converting their contents into information that is usable in database, enterprise content management, enterprise resource planning, customer relationship management, financial accounting and other information management systems.

Ourour Internet website address is www.captivasoftware.com. We were incorporated in California in January 1986 and were reincorporated in Delaware in September 1993. Our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K, quarterly

reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, are available free of charge through the investor relations section of our Internet website as soon as reasonably practicable after being filed with or furnished to the SEC.

Industry Background

The Input Management Problem.Problem

Enormous quantities of printed and electronic information flow into businesses, government agencies and other organizations on a daily basis. Most of this information comes from customers, suppliers, employees and other third parties conducting transactions or corresponding with the organization through the use of paper and electronic forms and documents. Examples of these forms and documents include medical claims, credit applications,such as letters, resumes, new account enrollments, credit applications, tax returns, invoices, legal briefs, and regulatory filings and otherfilings.

Pertinent information intensive forms and documents. Some parties have predicted that the use of paperfrom these forms and documents will rapidly decline in favor of their electronic counterparts. In fact, the use of both information mediums is increasing at a significant rate and both paper and electronic forms and documents are expected to remain in use

for the foreseeable future. For example, in 2000 Xerox Corporation stated that the percentage of paper versus electronic documents is expected to decline from 90% today to 40% in 2005 but also predicted a 400% increase in the volume of printed pages. These increases have and will continue to fuel rapid growth in the amount of information that needs to be entered into database, enterprise content management, enterprise resource planning, customer relationship management, financial accounting and other information management systems.

Regardless of the source, pertinent information must be collected, extracted, perfected, formatted and exported intoto an organization’s information management systems as quickly and cost effectively, accurately and quickly as possible. Irrelevant,Processing delays, incorrect or invalid data processing delays and inefficient methods can adversely impact an organization’s revenues, operating expenses and interactions with customers, suppliers and employees. For example, an incorrect policy number forAccording to Strategy Partners, a medical insurance claim can causeconsultancy firm specializing in enterprise content management (ECM), the claim to be rejected, which necessitates a second submission and processing cycle or exception processing and additional correspondence, causing delays in payment to the provider, telephone calls from both the provider and the insured and a reduced level of customer satisfaction. Conversely, accurate, timely and cost effective input management processes can increase an organization’s revenue, reduce its expenses and improve its relationships with customers, suppliers and employees.software market is expected to exceed $1.2 billion in 2004.

Current Approaches are Inadequate.Inadequate    Current approaches to

Traditional methods for capturing data from paper forms and documents rely principally upon manual data entry. According to Harvey Spencer Associates, a consultancy firm specializing in input management,ECM, organizations in the United States spend $15 billion a year manually keying data from forms alone. Organizations generally perform this work internally or outsource it to business process outsourcingBPO firms. BothBut both approaches have inherent problems. Organizations performing this work internally usually distribute it on a departmental basis, where higherhighly paid knowledge workers often manually key data directly into information management systems with minimal data validation and low productivity rates. As a result, theThe accuracy of the manually entered information canand processing times usually suffer, and manual entrycosts incurred from both erroneous data and poorly utilized human resources are high.

Gartner Group, an independent information technology research firm, estimates that the amount of time wasted on these document management tasks is significant and increasing. In 1997, Gartner estimated that knowledge workers spent about eight hours per week or 20% of their time on document management tasks. In 2003, Gartner increased this estimate to between 12 and 16 hours per week or 30% and 40% of their time. Additional data gathered by Gartner indicated that:

BPO firms whichthat specialize in performing this type of work typically achieve higher productivity rates use less costly data entry operators and locations and typically offerat a more cost effective approach.lower cost. However, unpredictable data accuracy and turnaround times as well as an overall loss of control impede the adoption, of this approach, particularly for confidential or time sensitive forms and documents.documents and for government agencies sensitive to the increased outsourcing of jobs to offshore firms.

Alternative approaches to manually capturing data include electronic data interchange (EDI), electronic forms and documents and, more recently, Internet applications. AllEach of these approaches havealso has inherent problems and limitations. Electronic data interchangeEDI is difficult to implement and has been adopted in only a few vertical markets, such as medical claims processing, where weprocessing. We believe approximately 40%60% of all medical claims continue to be submitted on paper forms. ElectronicThe growth in use of electronic forms and documents suffer from and Internet-based transactions is limited by

user concerns about the security of the transaction,transactions, the absence of a standard data exchange format and the limited acceptance of legally binding, digital signatures. As a result, the use

These alternative input management methods frequently have minimal data validation capabilities, are incapable of electroniccapturing data from paper forms and documents, has usually been limited to certain types of intra-company applications. The Internet provides a platform for e-commerce applications, which have potentially broad applicability but suffer from high Internet site abandonment rates. According to Forrester Research, an independent information technology research firm, less than 5% of visitors to an e-commerce site attempt to purchase and only 33% of those attempting to purchase actually do so. Similarly, large financial service and insurance companies report that over 95% of all Internet transactions are abandoned prior to completion.

All of these alternative input management methods require substantial custom application development and maintenance, feature minimal data validation capabilities, are disparate, single point technologies and are incapable of capturing data from legacy and new paper forms, documents and attachments.maintenance. Gartner Group another independent information technology research firm, estimates that, for every dollar spent on Internet applications, software organizations should expect to spend from five$5 to twenty dollars$20 on services, especiallyprincipally for the integration of Internet applications with existing information management systems.

Many organizations processing paper and electronic data intensive transactions are acutely aware of these problems and seeking a more comprehensive solution. The problems with manual processing and the benefits of

automation in input management and processing will become increasingly evident asAs the volume of forms and documents processed grows. Accordingcontinues to Strategy Partners, an independent information technology researchgrow, many organizations processing paper and consulting firm, the worldwideelectronic forms and documents are seeking a more comprehensive solution to address their input management software market amountedproblems. We believe there is a significant opportunity to more than $1 billion in 2002.help organizations automate their input management processes, reduce operating costs, obtain higher information accuracy rates and speed processing times.

Our SolutionSolutions

Our solution provides a universal input management platformproducts and related services, that providewhich we refer to together as our “solutions”, allow our customers withto realize the following benefits:

An Input Management Process That is More Accurate, Timely, Cost Effective, Accurate and Subject to Configurable Business Rules.Timely    Our software allows

By automating previously manual processes, our solutions enable our customers to capture information from allmultiple sources in a more accurate, timely and cost effective, accurate and timely manner while consistently applying a configurable set of business rules throughout the process. These business rules allow the information to be automatically verified and properly routed. This allows ourthan otherwise possible. Our customers to achieve lower operating costs, higher information accuracy rates and faster processing times and lower operating costs.times. These benefits can increase the user’sour customers’ revenues, reduce their expenses, accelerate their business processes and help improve their relationships with customers, suppliers and employees. We believe our solutions typically provide a 12 to 18 month return on investment (ROI) through reduced manual data entry costs alone, and also improve the quality and timeliness of information, which further increases the ROI.

Rapid Implementation Timeframes.Timeframes

Our software utilizes a single, integrated environmentproducts utilize graphically oriented, easy to use, development modules that enablesenable rapid application development, testing and deployment. We also offer professional services to assist customers with these tasks or to perform them entirely on their behalf. These capabilitiesOur solutions allow Captiva’sour customers to achieve lowerreduce implementation costs and shortershorten implementation timeframes.

A Highly Flexible, Open and Scalable System.System

Our software products provide a modular platform withusing an open architecture that is scalable from a single personal computer to large, computermulti-user networks processing from several hundred to hundreds of thousands of forms and documents aper day. This allows our customers to configure systems and supplement our software productssolutions with third partythird-party software and hardware products in order to meet their unique requirements and easily expand their systems should the need arise.

An Increased Return onEase in Extracting and Exporting Information Technology Investments.    Our software products typically provide a 12- to 24-month return on investment through reduced manual data entry costs alone. They also improve the quality and timeliness of information, which significantly increases its value.

The AbilityOur solutions are able to Capture Data from Diverse Sourcesextract and Export Data to Most Information Management Systems.    Our solution enables captureimprove the accuracy of information from paper, faxed and scanned forms documents and attachments,documents, electronic forms and electronic data in XMLan EDI or an eXtensible Markup Language (XML) format. Hybrid means transactions in which information must be captured from more than one source; for example, a credit application submitted via an electronic form and the related paper attachments, such as tax returns and W-2 forms submitted via fax, both of which contain information required to complete the process. Our solutionsolutions also providesprovide the ability to export datainformation in manymultiple formats, including XML, to mostalmost any information management systems. This allowssystem, including those from Documentum, FileNet, IBM, OpenText and SAP. These capabilities allow our customers to deploy and benefit from a single, fully integrated input management solutionplatform as opposed, for example, to multiple separate technologiessystems for document capture, forms processing and systems.electronic data streams.

The Application of Uniform Business Rules to All Sources of Information

Our solutions are able to consistently apply a configurable set of business rules to all forms and documents entering the organization throughout the input management process, regardless of their origin or format. This allows organizations to make a one-time investment in developing, testing and deploying these rules, and it allows the forms and documents to be automatically verified and properly routed.

Growth Strategy

Our objective is to extend our position as a leading provider of input management software.solutions. Key elements of ourthis strategy to achieve this objective include:

Leverage Customers, Resellers, System Integrators and Cooperative Marketing Partners.Our Existing Customer Base

We perceivebelieve significant opportunities exist to leverageexpand the use of our softwaresolutions in our existing customer base and through our resellers, system integrators and cooperative marketing partners. Captiva’s newbase. Our customers generally deploystart by deploying our

software solutions on a departmental basis or for limited form or document types. We believe that satisfactionSatisfaction with these initial deployments can lead to a broader or enterprise-wide adoption of our software. In addition, because many of the leading resellers and system integrators remarket Captiva’s software and because we have cooperative marketing partners who offer synergistic products, we expect to benefit from a multiplier effect as these partners expose our products to their current and prospective customers.solutions.

Leverage Professional Services Staff.and Expand Our professional services staff is among the largestSales Channels and most experienced in the input management market. This allows us to respond to the implementation needs of our customers, resellers and system integrators in a timely manner and gives us the ability to manage multiple concurrent deployments while maintaining a strong commitment to quality. The ability to meet customers’ needs enables us to establish strong relationships with these parties.Markets

Strengthen Our International Presence.In 2003 we derived 36% of our revenues from resellers, system integrators and distributors. We believe there are significant opportunities to increase sales of our softwaresolutions through resellers, system integrators and servicesdistributors. We also believe there are significant opportunities to both add new cooperative marketing partners and leverage our existing cooperative marketing partners, who typically develop and market complementary products but do not actually resell our products.

We have historically focused our sales and marketing efforts on large organizations, which typically require the ability to process large volumes of forms and documents through scalable input management solutions. Our solutions are, however, flexible enough to serve the full spectrum of market needs, and we intend to expand into lower volume segments by repackaging and repricing our solutions for these segments.In 2003 we released InputAccel Express to specifically address the lower volume market and we announced a distribution agreement for this product with Headway Technology Group, a leading imaging products distributor in international markets.Western Europe. In 20022004 we announced a distribution agreement for this product with Scientific Digital Business Group, a leading imaging products distributor in Southeast Asia.

Expand International Presence

We derived 21%, 25% and 30% of our revenues from outside the United States.States in 2003, 2002 and 2001, respectively. We believe there are significant opportunities to increase sales of our solutions in international markets. We believe the additional size and presence of our subsidiaries in the United Kingdom, Germany and GermanyAustralia will improve our competitiveness in those countries. In 2003, we initiated efforts to add resellers and system integrators in Spanish and Portuguese speaking countries. In 2004, we initiated similar efforts in the European market, and we will continue to lookPacific Rim. We expect to expand our international presence in otheradditional international markets and to continue to address local language requirements by localizing our products.

Broaden Product Offerings

We intend to continue to develop and introduce new solutions that utilize our proven technologies and allow us to enter new markets. For example, in 2001 we released ClaimPack, in 2003 we introduced InputAccel Express and in 2004 we introduced Digital Mailroom. All of these products build upon our pre-existing technology and have allowed us to enter new markets.

Capture a Larger Portion of Customer Dollars Spent.According to IDC, an independent information technology research firm, end-users are willing to pay a single vendor source 10% to 15% more for a complete solution that includes software, hardware and integration services.

services than they would if they obtained these components separately from multiple vendors. We believe that we can extend our position and increase our average selling price by offering a variety of software, services, and hardware, including digital scanners and other third partythird-party products as part of the solutions we provide.

Move “down market.”Pursue Strategic Acquisitions    We have historically focused on the “high-end” segment of the input management market, which typically involves larger volumes of forms and documents and more complex processes. Our solutions are, however, scalable and flexible enough to serve the full spectrum of market needs and we intend to expand into the “mid-market” segment by expanding the number of our resellers and system integrators.

Leverage Proven Technologies.We believe we extend our presence by developing and introducing products that leverage our proven technology andacquisitions of complementary technologies may allow us to enter new markets. For example,expand our product offerings, augment our distribution channels, expand our market opportunities or broaden our customer base. We have acquired technology in 2001 we introduced our ClaimPack productthe past to achieve these objectives and may in the future evaluate and pursue similar opportunities.

Our Products and Services

Our products and services enable enterprises to manage business critical information from paper, faxed, and electronic forms, documents and transactions. Our solutions automate the processing of medical claimsbillions of forms, documents and 2002 we introduced our InvoicePack product to automate accounts payable departments.transactions annually, converting their contents into information that is usable in database, document, content, and other information management systems.

Software

Our Softwarecustomers are usually required to capture large amounts of information within short timeframes in order to meet inflexible deadlines on a regular basis. We have optimized our software products to provide this level of system performance and Servicesavailability. Our software products are generally licensed on either a per server, per user or per concurrent user basis, with the server-based processes typically being configured to support only a specified form or document throughput rate. In 2003, 2002 and 2001, software revenues were approximately 47%, 57% and 68% of our total revenues, respectively.

FormWare

FormWare

The FormWare software suite began shipping in 1996 and now providesis comprised of a comprehensive set of fully compatible modules that work in conjunction with one another to capture data from paper, faxed and scanned forms and documents, Internet forms and attachments, electronic data in an EDI or XML format. It is a forms processing platform optimized to extract data from structured forms containing fielded data, such as medical claims, new account enrollments, credit applications, tax returns, orders and similar forms. It includes modules for:

ClaimPack

Built on FormWare, ClaimPack is an automated medical claims processing solution for the healthcare industry that is able to capture critical information from paper-based claim forms (including HCFA and UB92 forms). It speeds deployment times by providing a standard packaged application while maintaining the ability to customize applications through the use of FormWare’s integrated development environment and VBA.

InputAccel

InputAccelis comprised of a set of modules that work in conjunction with one another to capture content from paper, faxed and scanned forms and documents and electronic data sources. It is a document capture platform optimized to extract content from unstructured documents, such as correspondence, resumes, regulatory filings, litigation materials, drug test reports and similar documents. It includes modules for:

FormWare and InputAccel are fully integrated with one another and can be licensed separately or together.

InputAccel Express

Based on InputAccel, InputAccel Express is a repackaged and repriced version of InputAccel designed for the mid-market segment of the input management market. Completely upgradeable to InputAccel, InputAccel Express is more of a packaged solution for departmental or lower volume users who need to quickly and easily transform paper forms and documents into more usable electronic content.

InputAccel for Invoices

Built on InputAccel, InputAccel for Invoices is a product for accounts payable departments that is designed to capture critical information from invoices. Like ClaimPack, it speeds deployment times by providing a standard packaged application, but can be customized through the use of InputAccel’s development environment and VB Scripting. InputAccel for Invoices was released in the first quarter of 2004.

Digital Mailroom

Also built on InputAccel, Digital Mailroom is a XML format. While it includessolution for the automated classification and routing of digitized images of inbound mail and electronic communications. It provides a single point of entry and centralized processing that is able to automatically recognize and route forms and documents to the appropriate department or person for processing, while providing full auditing and tracking capabilities. Digital Mailroom was released in the first quarter of 2004.

Pixel Products

Pixel software products include:

Context Products

FormWare isWe acquired the Context products on February 1, 2004 through the acquisition of ADP Context, Inc., a business unit of ADP Claims Solutions Group, Inc. and a part of the worldwide Automatic Data Processing, Inc. family of companies. Context products are sold to providers and payers in the health insurance market and include:

Architecture

Our software products are sophisticated 32 bit applicationapplications for use on standalone personal computers and client-server systemsplatforms using Microsoft Windows 98, NT, 2000software at the desktop and XP. FormWare Enterprise Edition is available for implementing mission critical, production level solutionsMicrosoft Server software on client-server platforms. FormWare Desktop Edition provides many of these capabilities in a tightly integrated bundle for less demanding applications on standalone personal computers and small local area networks. Both are available in English, German and Japanese versions, and we may provide additional localized versions as partfile servers. Many of our strategy to increase our international presence and revenues.

Because our customers are regularly required to capture large amounts of information within short timeframes in order to meet inflexible deadlines, we have optimized FormWare to provide this level of system performance and availability. FormWare uses complex queuing algorithms to ensure less than one second response times and minimize the number of system calls required to complete various tasks. Many of FormWare’ssoftware products include modules that function as servers, which means that their resources can be shared by multiple users and that additional modules can be added as required to address more complex processing or greater throughput requirements. In the eventAll of a system failure, the entire FormWare systemour software products use Microsoft SQL Server or a single module can be restarted with no loss of data or significant duplicate processing. Depending upon the FormWare module, this software is licensed on either a per server or per concurrent user basis.highly optimized proprietary file system to maintain higher throughput rates.

FormWare includes an open architecture with many application programming interfaces and access to real time event and data level information. These features and FormWare’s modular platform allow our customers, resellers and system integrators to programmatically control processing sequences, supplement our solution with third party software and hardware products, configure systems to meet their unique needs and easily expand systems to meet new requirements.

We also offer two vertical market applications that run on the FormWare platform.ClaimPack automates the processing of medical claims submitted on HCFA 1500 and UB 92 forms, andInvoicePack automates the manual keying of data from invoices by accounts payable staff. The use of these applications can speed deployment times by typically providing 80% or more of the functionality required with the remainder being implemented by our customers, resellers, system integrators or professional services staff.

InputAccel

InputAccel began shipping in November 1995. It offers a comprehensive set of fully compatible modules that work in conjunction with one another to capture data from paper, faxed and scanned forms, documents and attachments and electronic data in a XML format. While it includes the ability to process more structured forms, it is optimized for the processing of less structured documents.

InputAccel is a client server application that utilizes an open architecture and includes a set of software modules designed to automate the conversion and indexing of paper documents into formats compatible with information management systems. The Windows NT-based Enterprise Server is the foundationMost of our InputAccel system. It managessoftware products use complex queuing algorithms to ensure subsecond response times and controls various scanning processes, acting as a work-queue manager, performing automatic workload balancing and collecting performance data thatminimize the number of system managers need to control the processing and insure efficiency and productivity. InputAccel modules plug into the Enterprise Server and perform specific input management tasks such as scanning, image enhancement or data extraction. Many of InputAccel’s modules function as servers, which means that their resources can be shared by multiple users and that additional modules can be added ascalls required to address more complex processing or greater throughput requirements. Ascomplete various taskstasks. All of our software products are completed the Enterprise Server provides the connectivity between paper and digital formats by delivering data and images to information management systems.

InputAccel is only available in English, but we mayEnglish; some are available in localized German, Spanish, Portuguese and Japanese versions. We expect to provide additional localized versions as part of our strategyin order to increase our international presence and revenues. Depending upon the client server module, this software is licensed on either a per server, per transaction or per concurrent user basis. In addition to our InputAccel modules, over a dozen third-party technology developers offer InputAccel-compatible modules worldwide. These technology developers help make InputAccel a standard platform for building information capture solutions and give customers the flexibility they need. These third-party relationships also help extend our reach to market segments requiring specialized functionality.

ISIS & Pix ToolsAdvantEDGE Services

Created in 1990, our Image and Scanner Interface Specification (ISIS) is a flexible, modular software standard for acquiring, converting, viewing, printing and storing scanned document and form images. By creating

applications using ISIS-based software toolkits, resellers, system integrators and third party software vendors can support over 250 devices through ISIS scanner drivers. As new devices and their corresponding ISIS drivers are made available, ISIS-based applications automatically inherit support for these drivers. The ISIS interface bridges the gap between scanner and other vendors making ISIS thede facto industry standard. Because ISIS is the basis of an industry standard (ANSI/AIIM MS61-1996), ISIS users can be confident that the hardware they have purchased will be supported byWe offer a variety of applications, and that their imaging applications will support a wide variety of scanners.

Our PixTools software toolkits provide users the most efficient means possible for adding ISIS-based imaging functions to software applications and are designed to enable software application developers to write custom, commercial-level document imaging applications. They save developers both time and money by reducing time to market, lowering application support costs, and lowering research and development costs. It is a collection of software modules, each of which performs a specific imaging related function. PixTools modules are available to control scanners, assist in the viewing of images, compress and convert the format of image data, and read or write files containing image data. PixTools modules communicate with one another using messages that carry information in “tags” and “choices”. The modules are linked together into “pipes” to perform specific imaging functions. PixTools is only available in English, but we may provide localized versions as part ofservices through our strategy to increase our international presence and revenues. This software is usually licensed on per toolkit user basis with an additional royalty being payable for each resulting end user of the application developed.

Professional Services

Our AdvantEDGE services programprogram. We believe that this allows us to better address the implementation and support needs of our customers, resellers and system integrators and achieve a greater level of customer satisfaction. This program includes a comprehensivebroad range of services provided by our professional and technical services staff, which consisted of 7669 employees as of December 31, 2002.2003. In 2003, 2002 and 2001, services revenues were approximately 40%, 40% and 32% of our total revenues, respectively.

Our professional services staff provides project management, functional and detailed specification preparation, application development, form redesign, system configuration, quality assurance,testing, installation and application specific training services to our customers. While our resellers and system integrators can and do provide these services to their customers, they often alsofrequently ask us to provide these services to their customers on a subcontract basis. We generally chargescharge for professional services on a fixed fee basis for projects utilizing mutually agreed upon functional and detailed specifications and on a time and materials basis for other projects.

Our technical services staff provides maintenance for the dependable and timely resolution of technical inquiries by telephone, email and over the Internet, and a set of regularly scheduled training classes usually held at our offices in San Diego, California, San Jose, California and Waltham, Massachusetts.customer sites. We offer several levels of these technical services,maintenance, with the most comprehensive option covering 24 hours a day, seven days a week. We generally charge for customer support based uponmaintenance as a percentage of the related software license feesfee that varies, depending upon the related level of service and other factors, and classroom training on a per attendee basis.

Hardware and Other Products

As part of our solutions, we offer digital scanners and other third-party products. In 2003 these accounted for approximately 13% of our total revenues, with substantially all of these amounts being attributable to the sale of sophisticated, production level digital scanners manufactured by Kodak and IBML. We had a backlog of digital scanner revenues of approximately $4.3 million and $2.2 million at December 31, 2003 and 2002, respectively.

Our Customers

As of December 31, 20022003 we had licensed our software to over 1,0002,000 customers. Our software issolutions are designed to address theinput management needs ofin a broad range of businesses,industries, including those in the insurance, financial services, banking, technology, government, business process outsourcing, retailBPO, and other markets. The following is a partial list of our customers that have licensedand are representative of our software:overall customer base:

Banking		RetailOther
Bank of America		Amgen
Bank of New York Bank One Chase Manhattan Citicorp Deutsche Postbank		DillardsCleary Gottlieb Express Scripts Home Depot Intracorp JD Power and Associates Jostens Lands’ EndKable News Victoria’s SecretMerck Pfizer
PixTools CustomersTechnology		Other
Bell & Howell Canon Cardiff Software Kofax (a Dicom Group (Kofax)company) FileNet Fujitsu Hewlett-PackardHP Hummingbird IBM Kodak Readsoft Ricoh Siemens Business Services		Amgen Amtrak Delta Airlines Greyhound JD Power and Associates Kable News Merck Monsanto Pfizer Searle

For the years ended December 31, 2002, 2001 and 2000In 2003, no single customer accounted for more than 10% of our total revenues.

Sales, Marketing &and Business Development

We sell input management software and servicesreach our customers through our direct sales staff, often in conjunction withforce, our cooperative marketing partners. Approximately 29%partners and a network of our sales are made through resellers, and system integrators and the remainder comes fromdistributors, collectively “channels”. Our cooperative marketing partners typically develop and market complementary products, and we jointly sell directly to end-user customers. We have established relationships with resellers, system integrators and distributors that deliver our direct sales staff.solutions to multiple markets. We believe our ability to successfully work with and through these diverse and sometimes competing channels represents a significant competitive advantage. As of December 31, 2002,These channels currently offer our sales, marketingsolutions in the United States, Western Europe, the Pacific Rim and business development staff consisted of 95 employeesSpanish and we had over 100Portuguese speaking countries.

Our resellers, system integrators and distributors include American Management Systems, Crowe Chizek, Documentum (an EMC company), DST Technologies, EDS, Headway Technology Group (an Acal company), IBM Deutschland, IKON Image Systems Solutions, ImageScan, Integrated Document Technologies, Nissho Electronics Corporation, Open Text and Unisys. Our cooperative marketing partners. We intend to expand our salespartners include Eastman Kodak, FileNet, Fujitsu, Hyland Software, IBM, IBML, Information Management Resources (IMR), Interwoven and marketing staff and activities and to increase the number of our resellers, system integrators and strategic marketing partners.SAP.

Our salesmarketing strategy involves targeting organizations with forms or document capture needs that either already recognize or can be educated about their input management problems. Because our software can increase an organization’s revenue, reduce its expenses and improve its relationships with customers, suppliers and employees, we direct our selling efforts to senior management, including executives responsible for input management functions as well as chief information and chief financial officers at prospective customers. We explain the benefits of our software, assess the specific needs of the organizations, create demonstrations and provide proposals, including return on investment analyses, to satisfy the prospective customer’s requirements. The sales cycle typically ranges from 60 to 180 days.

We useuses a variety of marketing programs to build awareness of input management problems, our solutions and our software and brand name,name. We use a broad mix of programs to accomplish these goals, including market research, product and strategy updates with industry analysts, public relations activities, direct mail and relationship marketing programs, seminars, advertising, trade shows, speaking engagements and Internet siteInternet-based marketing. OurTo support our selling efforts, our marketing staff also produces collateral materials to support sales to prospective customers that includesuch as brochures, data sheets, white papers, customer success stories, presentations and demonstrations.

Our

As of December 31, 2003, our sales, marketing and business development staff consisted of 97 employees. In 2003 approximately 36% of our total revenues came from resellers, and system integrators include American Management Systems, BancTec, Documentum, DST, EDS, IBM Global Services, Xerox, Lockheed Martin, Logicon (a Northrop Grumman company), Nissho Electronics Corporation, PFPC (PNC’s mutual fund servicing subsidiary) and Unisys.

In the years ended December 31, 2002, 2001 and 2000distributors, but none of our resellers or system integratorsthese parties accounted for more than 10% of our total revenues.

We believeintend to aggressively expand our sales and marketing activities, increase the number of our resellers, system integrators, distributors and cooperative marketing partners who offer synergistic products are important in selling and marketing our solution. We benefit from a multiplier effect asdevote significant resources to accomplishing these partners expose Captiva’s products to more of their customers and prospects. As a result, we have developed such arrangements with numerous cooperative marketing partners, including Eastman Kodak, FileNET, IBM, IBML, Information Management Resources, Interwoven, Open Text, Optika and Legato.

Our Pixel software tools are generally sold or licensed on a royalty basis through a direct sales program to hardware and software suppliers such as Fujitsu, Canon, IBM and FileNet.objectives.

Research and Development

We believe that our future success will dependdepends in large part on our ability to enhance our current product line,products, develop new products, maintain technological competitiveness, implement emerging standards and satisfy an evolving range of customer requirements. requirements for existing and new input management problems. Our research and development employees are responsible for achieving these objectives, and we have and intend to continue to devote substantial resources to these efforts.

We have assembled a team of skilled software developers and softwaredevelopment, quality assurance and documentation engineers with substantial industry experience and believe they represent a significant industry experience.competitive advantage. This development group is responsible for exploring new directions and applications of core technologies, incorporating new technologies into products and maintaining strong research relationships withteam includes many individuals who have previously worked together in other software developers. We seek to build upon our direct investment inorganizations where they developed alternative input management products.

Our research and development by supporting efforts by independent software vendors to develop complementary productsexpenditures were approximately $9.0 million, $5.9 million and participate actively$4.9 million in the2003, 2002 and 2001, respectively. As of December 31, 2003, our research and development staff consisted of industry standards.

Technical Support65 employees. All research and development expenditures are expensed as incurred.

An important element in our strategy is to provide comprehensive support of our products. We believe that responsive technical support is essential to satisfy customer requirements. Our support activities provide telephone support via a help desk, e-mail support and remote support that provide direct access from our support staff to our customers’ systems for problem diagnosis and resolution. We also provide support through our Web site, which offers technical information designed to assist in answering frequently asked questions and in problem diagnosis and resolution. Customers are required to buy an annual maintenance contract when they initially license our software and most renew this contract on an annual basis. Additionally, we provide a variety of training and professional consulting services to many of our customers, which assist them to more efficiently implement their systems.

We typically provide a ninety-day warranty program on all our products. Our standard terms and conditions provide that a customer may return a defective product for repair or replacement during the warranty period.

Intellectual Property

We have invested and will continue to invest significantly in the development of proprietary technology forand information, and we believe our productssuccess and ability to compete is dependent on our operations frequently incorporate proprietary and confidential information.ability to protect this intellectual property. We rely uponon a combination of copyright andpatent, trademark, laws and non-disclosure and other intellectual property contractual arrangements to protect our proprietary rights. We protect our software, documentation and other written materials under trade secret and copyright laws which only provide limited protection. We hold one patent and currently have no patent applications pending. We also enter into confidentiality, or license agreements with our employees, consultantsnon-disclosure and corporate partners and control accessother contractual arrangements to and distributionprotect these rights.

Our customers’ use of our software documentation and other proprietary information.

Use by customers of our softwareproducts is governed by shrink-wrap or executed license agreements. We also enter into written agreements with each of our resellers, and system integrators forand distributors governing the distributionlicensing of our software.software products. In addition, we seek to avoid disclosure of our proprietary technology and information by requiring each of our employees and others with access to our intellectual property to execute confidentiality and/or non-disclosure agreements with us. We protect our software products, documentation and other written materials under trade secret and copyright laws. All of these measures afford only limited protection.

Competition

The market for our products is highly competitive, evolving and subject to rapid technological change. We believe that the principal competitive factors in the input management market are:

We believe that we compare favorably with our competitors with respect to each of the above factors.

Our principal competitors are:

We expect additional competition from other established and emerging companies if the market continues to develop and expand. Many of these competitors and potential competitors may have significant competitive advantages, including greater name recognition; more resources to apply to the development, marketing and sales of their products and more established sales channels. In addition, many of our competitors have well-established relationships with our current and potential customers and have extensive knowledge of our industry. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than we can. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We also expect that competition will increase as a result of software industry consolidations.

Employees

As of December 31, 2002,2003, we had 271266 employees. We employ 175 peopleThis included 97 employees in sales, marketing sales, services,and business development; 69 employees in professional and technical support; 60services; 65 employees in engineeringresearch and product developmentdevelopment; and 3635 employees in finance and administration. NoneOur acquisition of theContext on February 1, 2004 added 34 employees. Our employees are not represented by a labor union or are subject to a collective bargaining agreement. Weagreement, and we believe that our employee relations are good.

Risk Factors

You should carefully consider the following risk factors and all other information contained in this Annual Report on Form 10-K. Investing in our common stock involves a high degree of risk. Risks and uncertainties, in addition to those we describe below, that are not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks occur, our business could be harmed, the price of our common stock could decline and you maycould lose all or part of your investment.

The merger of ActionPoint and Old Captiva could harm key third party relationships.

The merger may harm our relationship with third parties with whom ActionPoint and Old Captiva had relationships prior to the merger. Uncertainties following the merger may cause these parties to discontinue or modify these relationships. Any changes in these relationships could harm our business. In addition, customers of Old Captiva and ActionPoint and other third parties may, in response to the merger, delay or defer decisions concerning whether to utilize our services and products. We could experience a decrease in expected revenue as a consequence of uncertainties associated with the merger. Any delay or deferral in those decisions by customers of Old Captiva and ActionPoint or other third parties could have a material adverse effect on our business.

Because of the unpredictability and variability of revenues from our products, we may not accurately forecast revenues or match expenses to revenues, which could harm quarterly operating results and cause volatility or declines in our stock price.

Both ActionPoint’s and Old Captiva’sOur quarterly revenues, expenses and operating results have varied significantly in the past, and our quarterly revenues, expenses and operating results are likelymay fluctuate significantly from period to vary significantlyperiod in the future due to a variety of factors, including:

We believe that comparisons of quarterly operating results will not necessarily be meaningful and should not be relied upon as the sole measure of our future performance. In addition, we may from time to time provide estimates of our future performance. For example, we typically estimate that the first quarter of each year is our weakest quarter and the fourth quarter of each year is our strongest quarter. Estimates are inherently uncertain and actual results are likely to deviate, perhaps substantially, from our estimates as a result of the many risks and uncertainties in our business, including, but not limited to, those set forth in these risk factors. We undertake no duty to update estimates if given. Our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, the trading price of our stock could decline significantly.

If we fail to rapidly reduce expenses in the event our revenues unexpectedly decline, our results may be harmed.

We currently operate with virtually no software order backlog because software products are shipped shortly after orders are received. This fact makes software revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, a large portion of our orders are generally booked late in each quarter and we obtain a significant portion of our revenues from indirect sales channels over which we have little control. Moreover, expenseThe combination of these factors makes our revenues difficult to predict from period to period. Expense levels are based to a significant extent on expectations of future revenues and therefore are relatively fixed in the short term. IfIn particular, we increased hiring and product development expenses in the fourth quarter of 2003 in anticipation of an improving economic environment. We expect to continue these higher levels of expenses and, if revenue levels are below expectations, our operating results are likely to be harmed because only small portions of our expenses vary directly with revenues.

We have a long sales cycle and our solutions require a sophisticated sales effort.

Given the high average selling price and the cost and time to implement our solutions, a customer’s decision to license our products typically involves a significant commitment of resources and is influenced by the customer’s budget cycles and internal approval procedures for IT purchases. In addition, selling our solutions requires us to educate potential customers on our solutions’ uses and benefits. As a result, of these factors,our solutions have a long sales cycle, which can take from three to six months or more. Consequently, we believe that revenues, expenses and operating results are likelyface difficulty predicting the quarter in which sales to vary significantly between quarters in the future and comparisons of operating results from period-to-period will not necessarily be meaningful. As such, these comparisons should not be relied upon as the sole measureexpected customers may occur. The sale of our future performance. Our operating results in one or more future quarters may failsolutions is also subject to meetdelays from the expectations of securities analysts or investors. If this occurs, we could experience an immediatelengthy budgeting, approval and significant decline in the trading pricecompetitive evaluation processes of our stock.customers that typically accompany significant capital expenditures.

Our solutions require a sophisticated sales effort targeted at senior management of our prospective customers. New hires in our sales department require extensive training and typically take at least six months to achieve full productivity. There is no assurance that new sales representatives will ultimately become productive. If we were to lose qualified and productive sales personnel, our revenues could be adversely impacted.

The loss of key employees pursuant to the merger of ActionPoint and Old Captiva may prevent us from achieving the anticipated benefits of the merger.

The merger of ActionPoint and Captiva has been and will continue to be followed by a period of integration and transition. This process may result in the loss of key employees. The loss of key employees could make it significantly more difficult to manage the critical functions of these two businesses and impair our ability to compete effectively against other input management software providers.

As a result of the merger, James Vickers, David Sharp and Matthew Albanese, the former executive officers of ActionPoint, may be entitled to significant severance benefits if they resign or if their employment is terminated under certain circumstances after the merger. The former executive officers may be entitled to resign and collect severance payments if they have suffered a material reduction in their authority or responsibility. In addition, Reynolds Bish, Rick Russo, Steven Burton and Blaine Owens are employees at will and may terminate their employment at any time.

Charges against earnings related to the merger of ActionPoint and Old Captiva have reduced and may continue to reduce our earnings, if any, during the post-merger integration period.

We have incurred direct transaction costs of approximately $1.7 million, including legal, accounting and financial advisory fees. In addition, we incurred integration costs associated with the merger of $2.1 million, including the payment of employee severance benefits, which are expected to be nonrecurring and have been charged to operations in the third quarter of 2002, thereby increasing expenses for the quarter. We may incur additional merger-related integration costs.

Accounting charges resulting from the merger will continue to have a negative effect on earnings over future quarters.

The merger of ActionPoint and Old Captiva has resulted in approximately $13 million of goodwill and other intangible assets being recorded on the books of the combined company. Of this amount, up to approximately $6 million will be amortized as part of our cost of revenues over the next five years. These non-cash charges will negatively affect earnings during the amortization period, which could have a negative effect on our stock price.

If we cannot successfully integrate existing business operations of ActionPoint and Old Captiva, we may not achieve the anticipated benefits of the merger of ActionPoint and Old Captiva.

Integrating the business of Old Captiva and ActionPoint involves a number of risks, including:

In the past, as a private company Old Captiva was not subject to rigorous public disclosure and reporting obligations. Further, the process of combining the two companies could create uncertainty among employees about their future roles with us, thereby negatively affecting employee morale. This uncertainty may adversely affect the ability of the combined company to retain some of our key employees after the merger.

If we are to realize the anticipated benefits of the merger, the operations of Old Captiva and ActionPoint must be integrated and combined efficiently and effectively. There can be no assurance that the integration will be successful, or that the anticipated benefits of the merger will be realized.

ActionPoint and Old Captiva incurred losses in the past and we may incur losses in the future.

ActionPoint incurred losses of $1.9 million for the year ended December 31, 2001, and Old Captiva incurred losses of $0.4 million for the same period. Even if we maintain profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis. We will need to generate higher revenues while containing costs and operating expenses to become and remain profitable. Failure to do so may cause our stock price to decline.

We may not be able to compete successfully against current and potential competitors.

The input management software industry is currently fragmented, with no one company having a significant market share. We believeexpect that competition in the input management software industry maywill intensify in the future. The market for forms processing and document capture solutions is very competitive and subject to rapid change. In addition, because there are relatively low barriers to entry into the software market, we may encounter additional competition from both established and emerging companies. Our current competitors could be acquired by larger companies and could become more formidable competitors. Many potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than ours, in addition to significantly greater name recognition and a larger installed base of customers. As a result, these potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of competitive products than we can. There is also a substantial risk that announcements of competing products by potential competitors could result in the delay or postponement of customer orders in anticipation of the introduction of the competitors’ new products.

In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address customer needs. These cooperative relationships may limit our ability to sell our products through particular reseller partners. Accordingly, new competitors or competitive cooperative relationships may emerge and rapidly gain significant market share. We also expectContributing to these challenges, our industry is subject to consolidation, which could subject us to competition with larger companies offering integrated solutions and a wider breadth of products. Potential competitors may bundle their products or incorporate additional components into existing products in a manner that discourages users from purchasing our products.

Increased competition will increase as a result of software industry consolidation. Increased competitionany combination of the above factors is likely to result in price reductions, fewer customer orders, reduced margins and loss of market share, any of which could harm our revenues, business and operating results.

We have incurred losses in the past and we may incur losses in the future.

We have only recently become profitable with net income of $2.6 million for the year ended December 31, 2003. We incurred a net loss of $0.5 million and $1.9 million for the years ended December 31, 2002 and 2001, respectively. Given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis, which would likely cause our stock price to decline.

If the market for input management software does not grow, our revenues may not grow.

The market for input management software is fragmented and extremely competitive.competitive and in recent years has had limited, if any, growth. In addition, the concept of input management software is not widely understood in the marketplace. We have spent, and intend to continue to spend, considerable resources educating potential customers about our software products

and the input management market in general. These expenditures may fail to achieve any broadening of the market or additional degree of market acceptance for our products. The rate at which organizations have adopted ActionPoint and Old Captivaour products has varied significantly in the past, and we expect to continue to experience such variations in the future. If the market for input management products grows more slowly than we anticipate or not at all, our revenues will not grow and our operating results will suffer.

We currently depend on repeat business for a substantial portion of our revenues, and need to increase our customer base to grow in the future.

Currently, a significant and increasing portion of our revenues is generated from existing customers. Many of our customers initially make a limited purchase of our products and services on a departmental basis or for limited form or document types. These customers may not choose to purchase additional licenses to expand their use of our products. If this occurs, or if existing customers fail to renew services or maintenance contracts, then new customer revenue may not be sufficient to offset this and enable us to sustain our current revenue levels.

Conversely, a significant factor in our ability to grow our revenues in the future is our ability to expand our customer base. We believe our ability to grow depends in part on our ability to expand into the “mid-market” segment of the input management market. Some of our competitors are more established in this segment of the market, and price is a more significant factor in the mid-market segment than the ability of our products to handle large volumes of documents. We have recently released products that address this market segment, and it is uncertain whether and to what extent these products will be successful and to what extent price-driven competition will erode our margins. If we are unsuccessful in expanding into the mid-market segment, or otherwise fail to increase our customer base, our business and operating results would be harmed.

If we are unable to respond in an effective and timely manner to technological change and new products in the industry, our revenues and operating results will suffer.

We currently expect to release a number of new products and enhancements to existing products in 2004 and anticipate that a substantial portion of our product revenue growth will come from these new releases. If we faceexperience material delays in introducing new services, products and enhancements, our customers may forego the use of our products and services and use those of our competitors. The market for input management is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Our future success will depend upon our ability to continue to enhance our current products while developing and introducing new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in our software,

new products and product enhancements can require long development and testing periods. Significant delays in the general availability of suchthese new releases or significant problems in the installation or implementation of suchthese new releases could harm our operating results and financial condition. Both ActionPoint and Old CaptivaWe have experienced delays in the past in the release of new products and new product enhancements. We may fail to develop and market on a timely and cost effective basis new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction or marketing of our products or reduce the likelihood that our new products and product enhancements will achieve market acceptance. Any such failures or difficulties would harm our business and operating results.

We may not be successful in expanding into new vertical markets.

One element of our strategy involves applying our technology in new applications for new vertical markets. To be successful in expanding our sales in new vertical markets, we will need to develop additional expertise in these markets. We may be required to hire new employees with expertise in new target markets in order to compete effectively in those markets. If we are not successful in growing our sales in other vertical markets, we may not achieve desired sales growth.

We could be subject to potential product liability claims and third-party litigation related to our products and services, and as a result our operating results might suffer.

Our products are used in connection with critical business functions and may result in significant liability claims if they do not work properly. Limitation of liability provisions included in our license agreements may not sufficiently protect us from product liability claims because of limitations in existing or future laws or unfavorable judicial decisions. Although we have not experienced any material product liability claims in the past, the sale and support of our products may give rise to claims in the future that may be substantial in light of the use of those products in business-critical applications. Liability claims could require expenditure of significant time and money in litigation or payment of significant damages.

Software defects that are discovered in our products could also damage our reputation, causing a loss of customers and resulting in significant costs and liabilities.costs.

Our software products are complex and may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, both ActionPoint and Old Captivawe have discovered software errors in certain of their products after they were released to the market. In addition, our products are combined with complex products developed by other vendors. As a result, should problems occur, it may be difficult to identify the source or sources of the problems. Defects and errors, or end-user perception of defects and errors, found in current versions, new versions or enhancements of these products after commencement of commercial shipments may result in:

The occurrence of any one or more of these factors could harm our operating results and financial condition.

If we cannot manage and expand international operations or respond to changing regulatory conditions in international markets, our revenues may not increase and our business and results of operations wouldcould be harmed.

In 2002, ourWe currently have international operations, including offices in the United Kingdom, Germany and Australia. For the year ended December 31, 2003, international sales represented approximately 25%21% of our revenues. We anticipate that our international sales will increase as a percentage of our revenues, and that for the foreseeable

future, a significant portion of our revenues will be derived from sources outside the United States. We

intend to continue to expand sales and support operations internationally. In order to successfullyWe could enter additional international markets which would require significant management time and financial resources which could adversely affect our operating margins and earnings. To expand international sales, we may establish additional foreigninternational operations, expand international sales channel management and support organizations, hire additional personnel, customize our products for local markets, recruit additional international resellers and attempt to increase the productivity of existing international resellers. If we are unable to do any of the foregoing in a timely and cost-effective manner, our sales growth internationally, if any, will be limited, and our business, operating results and financial condition wouldmay be harmed. Even if we are able to successfully expand international operations successfully, we may not be able to maintain or increase international market demand for our products. Our international operations are generally subject to a number of risks, including:

The majority of ActionPoint’s and Old Captiva’s historicalour international revenues and costs have been denominated in United States dollars. However, we expect that in the future an increasing portion of revenues and costs could beare denominated in foreign currencies. Although we do not currently undertake foreign exchange hedging transactions to reduce foreign currency transaction exposure, we may do so in the future. However, we do not have any plans to eliminate all foreign currency transaction exposure. Foreign currency exchange rate fluctuations and other risks associated with international operations could increase our costs which, in turn, could harm our business. If we are unable to expand and manage our international operations effectively, our business may be harmed.

Failure to further develop and sustain our indirect sales channel could limit or prevent future growth.

Our strategy for future growth depends in part on our ability to increase sales through our indirect sales channel. We have a limited number of distribution relationships for our products with systems integrators and other resellers, and we may not be able to maintain our existing relationships or form new relationships. Competitors may have existing relationships with these parties that may make it difficult for us to form new relationships in some cases. If our indirect sales channel does not continue to grow, our ability to generate revenues may be harmed.

Our current agreements with our distribution partners typically do not prevent these companies from selling products of other companies (including products that may compete with our products), and they do not generally require these companies to purchase minimum quantities of our products. Some of these relationships are governed by agreements that can be terminated by either party with little or no prior notice. These distributors could give higher priority to the products of other companies or to their own products than they give to our products. The loss of, or significant reduction in, sales volume from any of our current or future distribution partners as a result of any of these or other factors could harm our revenues and operating results.

Our future success is dependent on the services of our key management, sales and marketing, professional services, technical support and research and development personnel, and those persons’whose knowledge of our business and technical expertise would be difficult to replace.

Our products and technologies are complex, and we are substantially dependent upon the continued service of existing key management, sales and marketing, professional services, technical support and research and

development personnel. All of these key employees are employees “at will” and can resign at any time. Moreover, some of these key employees may be entitled to receive severance benefits upon their termination or resignation. Mergers like that of ActionPoint and Old Captiva are followed by a period of transition that often results in changes in key employees. The loss of the services of one or more of these key employees could harm our business and slow product development processes or sales and marketing efforts.efforts or otherwise harm our business.

A significant aspect of our ability to attract and retain highly qualified employees is the equity compensation that we offer, typically in the form of stock options. Bills are currently pending before Congress, and the Financial Accounting Standards Board is expected to propose standards, that would require companies to include compensation expense in their statement of operations relating to the issuance of employee stock options. As a result, we may decide to issue fewer stock options and may be impaired in our efforts to attract and retain necessary personnel.

If we fail to recruit and retain a significant number of qualified technical personnel, we may not be able to develop, introduce or enhance products on a timely basis.

We require the services of a substantial number of qualified professional services, technical support and research and development personnel. The market for these highly skilled employees is characterized by intense competition, which is heightened by their high level of mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel required. We have experienced, and expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate technical qualifications.

If we are unable to recruit and retain a sufficient number of technical personnel with the skills required for existing and future products, we may not be able to complete development of, or upgrade or enhance, our products in a timely manner. Even if we are able to expand our staff of qualified technical personnel, they may require greater than expected compensation packages whichthat would increase operating expenses.

We could be subjectIf we are unable to potential product liability claims and third party litigation related toprotect our products and services, and as a resultintellectual property, our reputation and operating results may suffer.

Our products are used in connection with critical business functions and may result in significant liability claims if they do not work properly. Limitation of liability provisions included in our license agreements may not sufficiently protect us from product liability claims because of limitations in existing or future laws or unfavorable judicial decisions. Although neither ActionPoint nor Old Captiva experienced any material product liability claims in the past, the sale and support of our products may give rise to claims in the future which may be substantial in light of the use of those products in business-critical applications. Liability claims could require expenditure of significant time and money in litigation or payment of significant damages. Any claims for damages, whether or not successful, could seriously damage our reputation and business.harmed.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreigninternational countries where the laws may not protect our proprietary rights as fully as in the United States. In particular, we could begin performing significant research and development outside of the United States, where intellectual property protection could be less stringent than in the United States. In addition, our competitors might independently develop similar technology, or duplicate our productproducts or circumvent any patents or our other intellectual property rights.rights we may have. Due to rapid technological change in our market, we believe the various legal protections available for our intellectual property are of limited value. Instead, we seek to establish and maintain a technology leadership position by leveraging technological and creative skills of our personnel, new product developments and enhancements to existing products.

Substantial litigation regarding intellectual property rights exists in the software industry. To date we have been notified that our technologies infringe the proprietary rights of two other parties and have settled such claims on terms we consider to be favorable. There can be no assurance that others will not claim that we have infringed proprietary rights relating to past, current or future software or technologies. We could become subject to intellectual property infringement claims as the number of our competitors grows and as our software overlaps with competitive offerings. These claims, even if meritless, could be expensive, time-consuming to defend, divert our attention from the operation of our business and cause software shipment delays. If we infringe another party’s intellectual property rights, we could be required to pay a substantial damage award and to develop non-infringing technology, obtain a license or cease selling the software that contains the infringing intellectual property. We may be unable to develop non-infringing technology or to obtain a license on commercially reasonable terms, if at all.

We license some technologies from third parties. Although these licenses include indemnifications, there can be no assurance that these technology licenses will not infringe the proprietary rights of others.

We depend upon software that we license from and products provided by third parties, the loss of which could harm our revenues.

We rely upon certain software licensed from third parties, including software that is integrated with our internally developed software and used in our products to perform key functions. There can be no assurance that these third-party softwaretechnology licenses will not infringe the proprietary rights of others or will continue to be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain any such software licenses could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated. Such delays wouldDelays of this type could materially adversely affect our business, operating results and financial condition.

In addition, we have recently derived a significant portion of our revenues from reselling third-party products, primarily digital scanners. These third-party products may not continue to meet industry standards or be available to us at all or on commercially reasonable terms, in which case our operating results and financial condition would be harmed. In addition, we have little control over the quality of these third-party products other than our decisions as to which products to resell.

If we wereare subject to a protracted infringement claim or one withthat we infringe a significant damage award,third-party’s intellectual property, our operating results wouldcould suffer.

Substantial litigation regarding intellectual property rights and brand names exists in the software industry. We expect that software product developers increasingly will be subject to infringement claims as the number of products and competitors in this industry segment grows and the functionality of products in differentrelated industry segments overlaps. We are not aware that any of our products infringe any proprietary rights of third parties.

However, third parties, some with far greater financial resources than ours, may claim infringement of their intellectual property rights by our products. products, both those developed by us and obtained through the acquisition of other businesses.

Any such claims, with or without merit, could:

If we are required to enter into royalty or licensing agreements to resolve an infringement claim, we may not be able to enter into those agreements on favorable terms. A successful claim of product infringement against us, or failure or inability to either license the infringed or similar technology or develop alternative technology on a timely basis, could harm our operating results, financial condition or liquidity.

To manage our expected growth and expansion,If we needare unable to continue to improveimplement and implementimprove financial and managerial controls and continue to improve our reporting systems and procedures. If we are unable to do so successfully,procedures, we may not be able to manage growth effectively and our operating results may be harmed.

Our expected growthGrowth will place a significant strain on our management, information systems and resources. In order to manage this growth effectively, we will need to continue to improve our financial and managerial controls and our reporting systems and procedures. Any inability of our management to integrate employees, products, technology advances and customer service into operations and to eliminate unnecessary duplication may have a materially adverse effect on our business, financial condition and results of operations.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, Nasdaq Stock Market rules, and new accounting pronouncements are creating uncertainty and additional complexities for companies such as ours. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonable necessary resources to comply with evolving standards. This investment may result in increased general and administrative expenses and a diversion of management time and attention from strategic revenue generating and cost management activities.

If we are unable to build awareness of our brand,brands, we may not be able to compete effectively against competitors with greater name recognition and our sales could be adversely affected.

If we are unable to economically achieve orand maintain a leading position in input management software or to promote and maintain our brands, our business, results of operations and financial condition could suffer. Development and awareness of our brands will depend largely on our success in increasing our customer base. In order to attract and retain customers and to promote and maintain our brands in response to competitive pressures, we may be required to increase our marketing and advertising budget or otherwise increase our sales expenses. There can be no assurance that our efforts will be sufficient or that we will be successful in attracting and retaining customers or promoting our brands. Failure in this regard could harm our business and results.

Most of our revenues are currently derived from sales and service of three software products.product lines. If demand for these products declines or fails to grow as expected, our revenues will be harmed.

Historically, ActionPointwe have derived substantially all of itsour revenues from the InputAccel productFormWare, InputAccel and PixTools software, and substantially all of Old Captiva’s revenues were generated from the FormWare product.product lines. Our future operating results continue towill depend heavily upon continued and widespread market acceptance for the InputAccel,FormWare, InputAccel and PixTools and FormWare productsproduct lines and enhancements to those products. A decline in the demand for any of these products as a result of competition, technological change or other factors may cause our revenues to decrease.

We may not be successful in our efforts to identify, acquire or integrate acquisitions.

Our failure to manage risks associated with acquisitions could harm our business. A component of our business strategy is to expand our presence in new or existing markets by acquiring additional businesses. For example, we most recently acquired ADP Context, Inc. in February 2004. Acquisitions involve a number of risks, including:

We may be unable to meet our future working capital requirements and any inability to finance our operationswhich could harm our business.

We could experience negative cash flow from operations in the future and could require substantial working capital to fund our business. We cannot be certain that financing will be available to us on favorable terms if and when required, or at all. If we raise funds through the issuance of equity, equity-related or debt securities, the securities may have rights,

preferences or privileges senior to those of the rights of our common stock and our stockholders may experience dilution. We could require substantial working capital to fund our business. Each of ActionPoint and Old Captiva frequently experienced negative cash flows from operations in the past, and we may experience negative cash flow from operations in the future. Notwithstanding these factors, we believe that we have sufficient cash and cash equivalents to fund our operations for at least the next 12 months.

We rely upon contractual provisions and domestic copyright and trademark laws to protect our proprietary rights. Such laws may not be sufficient to protect our intellectual property from others who may sell similar products.

We believe that the steps we have taken to safeguard our intellectual property afford only limited protection. We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We license our software products primarily under license agreements with our customers. Our trade secrets may be inadvertently or unlawfully disclosed. In addition, competitors may develop technologies that are similar or superior to our technology or design that do not infringe our copyrights and this could reduce demand for our products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing the unauthorized use of our products and proprietary information is difficult and, although we are not able to determine the extent to which piracy of our software products and proprietary information exists, such piracy is expected to be a persistent problem. In addition, the laws of many foreign countries do not protect proprietary rights and intellectual property as fully as the laws of the United States.

In the past, ActionPoint and Old Captivawe have depended heavily on service and other revenues to increase overall revenues, and we may not be able to sustain the existing levels of profitability of this part of our business.

Many ActionPointof our customers enter into professional services and Old Captiva customers entered into servicemaintenance agreements, which made up a significant portion of each company’s revenueour revenues in the past. Service and other revenues represented 43%40%, 40% and 32% of our total revenues for the year ended December 31, 2002. Service revenues represented 30% and 22% of ActionPoint’s total revenues for the years ended December 31, 20012003, 2002 and 2000, respectively. Service revenues represented 54% and 48% of Old Captiva’s total revenues for the years ended December 31, 2001, and 2000, respectively. The level of service revenues in the future will depend largely upon our implementationprofessional services and ongoing renewals of customer supportmaintenance contracts by our growing installed customer base. Our serviceprofessional services revenues could decline if third-party organizations such as systems integrators compete for the installation or servicing of our products. In addition, our customer supportmaintenance contracts might be downsized or might not be renewed in the future. Due to the increasing costs of operating a professional services organization, we may not be able to sustain profitability in this part of our business in the near future, or ever.

Our executive officersWe are subject to the effects of general economic and directors, and entities affiliated with them, have substantial control over us, which could delay or prevent a change in the corporate control favored by non-affiliate stockholders.geopolitical conditions.

Our executive officersbusiness is subject to the effects of general economic conditions and, directors,in particular, market conditions in the industries that we serve. Recent political turmoil in many parts of the world, including terrorist and entities affiliated with them, beneficially ownmilitary actions, may put pressure on global economic conditions. Our customers’ decisions to purchase our products are discretionary and subject to their internal budget and purchasing processes, which may be affected by the above factors. If economic conditions deteriorate, our business and operating results are likely to be adversely impacted.

Accounting charges resulting from mergers and acquisitions will continue to have a significant percentagenegative effect on earnings over future quarters.

The merger of ActionPoint and Old Captiva has resulted in approximately $13.0 million of goodwill and other intangible assets being recorded on the books of the combined company. Of this amount, amortization of purchased intangibles, which is included as part of our common stock.cost of revenues, is expected to be $2.1 million, $1.3 million, $0.2 million and $0.1 million for the years ending December 31, 2004, 2005, 2006 and 2007, respectively. These parties acting together would be able to significantly influence any matters requiring approvalnon-cash charges and additional charges arising from our acquisition of ADP Context, Inc. in February 2004 will negatively affect earnings during the amortization period, which could have a negative effect on our stockholders, including the election of directors and the approval of mergers or other business combination transactions.stock price.

Provisions ofin our charter documents, Delaware law and our rights plan may have anti-takeover effects that could discourage or prevent a change in control, which may depress our stock price or cause it to decline.price.

Provisions ofin our certificate of incorporation and bylaws and a stockholder rights plan may discourage, delay or prevent a merger or acquisition of us that the majority of our stockholders may consider favorable. Provisions of our certificate of incorporation and bylaws:

The terms of the rights plan are set forth in the rights agreement entered into by us and the rights agent. The rights granted pursuant to the rights agreement have anti-takeover effects, which may cause substantial dilution to any party that attempts to acquire us or our stock on terms that our board of directors determines are not in the best interests of our stockholders. Certain provisions of Delaware law also may discourage, delay or prevent a party from acquiring or merging with us, which may cause the market price of our common stock to decline.

We may not be able to maintain our listing on The Nasdaq National Market, in which event the liquidity and share price of our common stock will be adversely affected.

Our common stock is presently authorized for quotation on The Nasdaq National Market. Accordingly, we are subject to all the requirements of our listing agreement with Nasdaq. Certain events could cause us to have our status as a National Market Issuer terminated, including:

Our common stock has had a closing bid price below the $1.00 minimum within the last six months, but for fewer than 30 consecutive trading days. If our common stock fails to maintain a closing bid price of at least $1.00, it could result in the delisting of our stock on The Nasdaq National Market. If our stock is delisted and thus no longer eligible for quotation on The Nasdaq National Market, it could trade either as a Nasdaq Small Cap issue or in the over-the-counter market, both of which are viewed by most investors as less desirable and less liquid marketplaces. The loss of our listing on The Nasdaq National Market could reduce the liquidity and share price of our common stock and would complicate compliance with state blue-sky laws.

Our principal offices are located in San Diego, California and consist of approximately 25,000 square feet of office space held under a lease that expires in January 2009. We also lease approximately 46,00024,000 square feet of office space in San Jose, California under a lease expiring in February 2004, of which approximately half is subleased to a third party,2010, approximately 8,200 square feet of office space in Park City, Utah under a lease expiring in June 2006, and 4,600 square feet of office space in Waltham, Massachusetts under a lease expiring in March 2007, bothall of which house a portion of Captiva’sour professional and technical services and software development employees. We also lease office space for sales and professional and technical services employees in Westmont, Illinois; Guildford, United Kingdom; Freiburg, Germany; Munich, GermanyGermany; and Toorak, Australia. We believe these offices are adequate to meet our needs for the foreseeable future.

Captiva Software Corporation is not a party to any material legal proceedings.

No matters were submitted to a vote of security holders during the quarter ended December 31, 2002.2003.

PART II

Our common stock is traded on the Nasdaq National Market under the symbol “CPTV.” TheOur common stock was initially offered to the public in September 1993. The following table sets forth the range of high and low sales prices on the Nasdaq National Market of our common stock for the periods indicated, as reported by Nasdaq. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.

There were approximately 191 holders of record of our common stock as of February 29, 2004.

To date, we have neither declared nor paid any dividends on our common stock. We currently intend to retain all future earnings, if any, for use in the operation and development of our business and, therefore, do not expect to declare or pay any cash dividends on the common stock in the foreseeable future. In addition, any such dividends would be required to be approved pursuant to the terms and conditions of our line of credit.

The information required to be disclosed by Item 201(d) of Regulation S-K “Securities Authorized for Issuance Under Equity Compensation PlansPlans” is included under Item 12 of Part III of this Annual Report on Form 10-K.

In the table below, we provide you with our summary historical consolidated financial data. We have prepared this information using our consolidated financial statements, for the years ended December 31, 2003, 2002, 2001, 2000, 1999 and 1998.1999. When you read this selected historical consolidated financial data, it is important that you read the historical consolidated financial statements and related notes as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. Historical results are not necessarily indicative of future results. Amounts below are in thousands, except per share data.