UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)

For the fiscal year ended December 31, 20012002

ORor

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period fromto.

FOR THE TRANSITION PERIOD FROM ___________ TO _____________Commission File Number ( 0-22292 )

Commission file number 0-22292Captiva Software Corporation

ACTIONPOINT, INC.
(Exact name of registrant as specified in its charter)

1299 Parkmoor Avenue
10145 Pacific Heights Blvd.

San Jose, California    95126Diego, CA 92121

(858) 320-1000

(Address, of principal executive offices including zip code)

(408) 325-3800
(Registrant'scode, and telephone number, including area code)


code, of principal executive offices)

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

None Title or each class None

Name of each exchange on which registered None

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

Common Stock, $.001 par value

Common Stock, $0.01 par value Preferred Share Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [X]x     No  [   ]¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant'sregistrant’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   ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of FebruaryJune 28, 2002 was toapproximately $5,767,684 (based on the best of the registran's knowledge approximately $8.7 million (based upon the February 28, 2002 closing price for shares of the registrant'sregistrant’s Common Stock as reported by the Nasdaq National Market)Market for the last trading day prior to 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 to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 On

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, as of February 28, 2002, approximately 4,374,874 shares of the registrant's Common Stock, $0.01 par value, were outstanding.2003 was 8,859,953.

DOCUMENTS INCORPORATED BY REFERENCE

1.

Portions of the registrant's proxy statement forregistrant’s definitive Proxy Statement to be filed with the 2002Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2003 Annual Meeting are incorporated herein by reference into Part III of Stockholders, whichthis Report. Such Proxy Statement will be filed with the Securities and Exchange Commission withinnot later than 120 days after the end of registrant's fiscalregistrant’s year ended December 31, 2002.

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, (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) are incorporated by reference into Part III.

IV of this Report.

ACTIONPOINT, INC.

CAPTIVA SOFTWARE CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER

For the Year Ended December 31, 2001

TABLE OF CONTENTS
2002

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 terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other words of similar meaning. These statements are only predictions based on information currently available to us. Actual events or results may contain forward- looking statements that involve risks and uncertainties. Ourdiffer materially. Important factors which may cause actual results mayto differ materially from the results discussedforward-looking statements are described in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below under the caption "Risk Factors" as well as the following: the emergenceSection entitled “Risk Factors” in Item 1 of the document managementthis Annual Report on Form 10-K and image processing markets, potential fluctuations in quarterly results, competition, new products and technological change, general economic conditions and dependence on capital spending of customers, a lengthy sales cycle and dependence on system sales, reliance upon third-party resellers, dependence upon key personnel., and suchother risks and uncertainties as are detailedidentified from time to time in ActionPoint's SEC reportsour filings with the Securities and filings, includingExchange Commission, press releases and other communications.

Although we believe that the expectations reflected in the 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 Form 10-K forreport.

Overview

Captiva Software Corporation is a result of the 2001 fiscal year and the Registration Statement on form S-4 to be filed bymerger of ActionPoint, in connection with its proposed merger with Captiva software Corporation.

PART I

Item 1.Business

Overview

We develop, market and service information capture software. Information capture software enables organizations to collect, organize and input paper and fax-based information into their installed computing systems, providingInc., a critical bridge between the paper world and the digital world. Our customers have traditionally been large ("global 1000") businesses and governmental agencies that use our InputAccel software to convert transaction-related documents, such as order forms, claim forms, or loan applications, into an appropriate electronic format and to transport images of and information from these documents to storage on Web sites, compact disks, or internal databases for subsequent search, retrieval or further processing. Additionally, we market software tools under our Pixel Translations brand to various hardware and software providers.

On March 4, 2002, we entered into a merger agreementDelaware corporation (ActionPoint), with Captiva Software Corporation, a privately held company that provides forms processing software products and services. Pursuant toCalifornia corporation (Old Captiva). The merger was consummated during the merger agreement,third quarter of 2002. In this transaction, Captiva will becomeSoftware Corporation became a wholly owned subsidiary of ActionPoint, and we will change ourActionPoint changed its name to Captiva Software 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, deploy 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.

Our Internet website address is www.captivasoftware.com. 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 our Internet website as soon as reasonably practicable after being filed with or furnished to the SEC.

Industry Background

The merger is subject to necessary approvalsInput Management Problem.    Enormous quantities of 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 through the stockholdersuse of paper and electronic forms and documents. Examples of these forms and documents include medical claims, credit applications, new account enrollments, tax returns, invoices, legal briefs, regulatory filings and other information intensive forms and documents. Some parties have predicted that the use of paper forms and documents will rapidly decline in favor of their electronic counterparts. In fact, the use of both companiesinformation 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 be completeddecline from 90% today to 40% in 2005 but also predicted a 400% increase in the second quartervolume of 2002. In connection withprinted pages. These increases have and will continue to fuel rapid growth in the merger, we will file a registration statement with the SEC on Form S-4, which will include additionalamount of information about the merger and the merger agreement.

Industry Background

Today, most global 1000 companies and governmental agencies worldwide have installed computerizedthat 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 into an organization’s information management systems as quickly and cost effectively as possible. Irrelevant, 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 for a medical insurance claim can cause 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.

Current Approaches are Inadequate.    Current approaches to 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, 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 outsourcing firms. Both approaches have inherent problems. Organizations performing this work internally usually distribute it on a departmental basis, where higher paid knowledge workers often manually key data directly into information management systems with minimal data validation and low productivity rates. As a result, the accuracy of the manually entered information can suffer and manual entry is a relatively expensive form and document processing method. Business process outsourcing firms, which specialize in performing this work achieve higher productivity rates, use less costly data entry operators and locations and typically offer a more cost effective approach. 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.

Alternative approaches to capturing data include electronic data interchange, electronic forms and documents and, more recently, Internet applications. All of these approaches have inherent problems and limitations. Electronic data interchange is difficult to implement and has been adopted in only a few vertical markets, such as medical claims processing, where we believe approximately 40% of all claims continue to be submitted on paper forms. Electronic forms and documents suffer from user concerns about the security of the transaction, the absence of a standard data exchange format and the limited acceptance of legally binding, digital signatures. As a result, the use of electronic 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. 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 to twenty dollars on services, especially 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 intranet applications,processing will become increasingly evident as the volume of forms and documents processed grows. According to Strategy Partners, an independent information technology research and consulting firm, the worldwide input management software market amounted to more than $1 billion in 2002.

Our Solution

Our solution provides a universal input management platform and related services that provide our customers with the following benefits:

An Input Management Process That is More Accurate, Timely, Cost Effective and Subject to Configurable Business Rules.    Our software allows our customers to capture information from all sources in a more accurate, timely and cost effective 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 our customers to achieve higher information accuracy rates, faster processing times and lower operating costs. These benefits can increase the user’s revenues, reduce expenses and improve relationships with customers, suppliers and employees.

Rapid Implementation Timeframes.    Our software utilizes a single, integrated environment that enables 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 capabilities allow Captiva’s customers to achieve lower implementation costs and shorter implementation timeframes.

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

An Increased Return on 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 Ability to Capture Data from Diverse Sources and Export Data to Most Information Management Systems.    Our solution enables capture from paper, faxed and scanned forms, documents and attachments, electronic forms and electronic data in 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 solution also provides the ability to export data in many formats, including XML, to most information management systems. This allows our customers to deploy and benefit from a single, fully integrated input management solution as opposed to multiple separate technologies and systems.

Strategy

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

Leverage Customers, Resellers, System Integrators and Cooperative Marketing Partners.    We perceive significant opportunities to leverage the use of our software in our existing customer base and through our resellers, system integrators and cooperative marketing partners. Captiva’s new customers generally deploy our

software on a departmental basis or for limited form or document types. We believe that satisfaction with these initial deployments can lead to 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 hadcooperative marketing partners who offer synergistic products, we expect to benefit from a profound impact on howmultiplier effect as these entitiespartners expose our products to their current and prospective customers.

Leverage Professional Services Staff.    Our professional services staff is among the largest 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 their internal informationmultiple concurrent deployments while maintaining a strong commitment to quality. The ability to meet customers’ needs enables us to establish strong relationships with these parties.

Strengthen Our International Presence.    We believe there are significant opportunities to increase sales of our software and internal business operations. But, these same organizationsservices in international markets. In 2002 we derived 25% of our revenues from outside the United States. We believe the additional size and presence of our subsidiaries in the United Kingdom and Germany will improve our competitiveness in the European market, and we will continue to receivelook to expand our international presence in other international markets.

Capture a significant amountLarger 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. We believe we can extend our position and increase our average selling price by including digital scanners and other third party products as part of the solutions we provide.

Move “down market.”    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 and allow us to enter new markets. For example, in 2001 we introduced our ClaimPack product to automate the processing of medical claims and 2002 we introduced our InvoicePack product to automate accounts payable departments.

Our Software and Services

FormWare

The FormWare software suite began shipping in 1996 and now provides 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, electronic forms and documents and electronic data in a XML format. While it includes the ability to process less structured documents, it is optimized for the processing of more structured forms.

FormWare is a sophisticated 32 bit application for use on standalone personal computers and client-server systems using Microsoft Windows 98, NT, 2000 and XP. FormWare Enterprise Edition is available for implementing mission critical, production level solutions 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 part 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’s modules 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 event of a system failure, the entire FormWare system 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.

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 customers, suppliers, partners and others outsideinvoices by accounts payable staff. The use of these applications can speed deployment times by typically providing 80% or more of the enterprise in the form of paper, faxes, microfilm and even incompatible electronic files. Dealing with paper and fax in a computerized environment is a challenge in all industries; it is particularly problematic in services industries such as financial services, insurance, health care, telecommunications, transportation and government. Paper- and fax-based information from customers and partners is vital to running these businesses, but this information is incompatiblefunctionality required with the installed enterprise computer systems making it difficult to provide the desired levels of customer service and operating efficiencies.remainder being implemented by our customers, resellers, system integrators or professional services staff.

Information capture solutions enable organizations to collect, organize and input paper and fax-based information into their installed computing systems, providing a critical bridge between the paper world and the digital world. The result is improved customer satisfaction, increased productivity and reduced operating costs.

InputAccel

Technology and Products

InputAccel has, in recent years, been our main software product. InputAccel began shipping in November 1995. With InputAccel, enterprisesIt offers a comprehensive set of various sizesfully compatible modules that work in conjunction with one another to capture data from paper, faxed and document capture volume requirements can standardize their systems on our enterprise information capture solution, yet customizescanned forms, documents and attachments and electronic data in a XML format. While it includes the systemability to meetprocess more structured forms, it is optimized for the needsprocessing of either a transaction or content processing operation at various levels of input volume. We have selling relationships with established providers such as Documentum, IBM and Tower Systems.less structured documents.

InputAccel is a client server application that utilizes an open integration architecture and includes a set of software modules designed to automate the conversion and indexing of paper documents into formats compatible with computerized business systems.InputAccel is a client server application. The ActionPoint Enterprise Server is the system's architectural backbone. InputAccel modules plug into the Enterprise Server platform and perform specific information capture tasks such as scanning, image enhancement, or data extraction.

management systems. The Windows NT-based Enterprise Server is the foundation of our InputAccel system. It manages and controls various scanning processes--processes, acting as a work-queue manager, performing automatic workload balancing and collecting performance data that system managers need to control the capture processprocessing and insure efficiency and productivity. When captureInputAccel 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 as required to address more complex processing or greater throughput requirements. As various tasks are completecompleted the Enterprise Server provides the connectivity between paper format and digital formatformats by delivering data and images to selected enterprise databaseinformation management systems.

InputAccel modules plug intois only available in English, but we may provide localized versions as part of our strategy to increase our international presence and revenues. Depending upon the Enterprise Server platform and perform such image enhancementclient server module, this software is licensed on either a per server, per transaction or data capture tasks including the following:

per concurrent user basis. In addition to ActionPoint'sour InputAccel modules, over a dozen third-party technology developers offer InputAccel-compatible modules worldwide. These technology developers help make InputAccel a standard platform and as a result of the variety of available modules for building information capture solutions givingand give customers the flexibility they need. These third-party relationships also help extend ActionPoint'sour reach into many niche marketsto market segments requiring such specialized functionality as handprint or bar code recognition.functionality.

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 by a variety of applications, and that their imaging applications will support a wide variety of scanners.

Our PixTools software toolstoolkits provide users the most efficient means possible for adding ISIS-based imaging functions to software applications and are designed to enable hardware and software application developers to write custom, commercial-level document imaging applications. They save developers both time and money by using stable librariesreducing time to market, lowering application support costs, and lowering research and development costs. It is a collection of software code, supportedmodules, each of which performs a specific imaging related function. PixTools modules are available to control scanners, assist in the viewing of images, compress and maintained by ActionPoint,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 drive document-perform specific imaging hardware peripherals suchfunctions. PixTools is only available in English, but we may provide localized versions as scanners, printers and displays. We provide PixTools software tools that allow imaging software applications to work with virtually any scanner, controller board, or display.

Customers

The customerspart of our InputAccel products are primarily Global 1000 companiesstrategy to increase our international presence and government entities. Somerevenues. 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 program allows us to better address the implementation needs of our larger U.S. customers, include: Delta Airlines, Wachovia Bank, Fidelity Investments, Metropolitan Life, Amgen, Searle, Prudentialresellers and system integrators and achieve a greater level of customer satisfaction. This program includes a comprehensive range of services provided by our professional and technical services staff, which consisted of 76 employees as of December 31, 2002.

Our professional services staff provides project management, functional and detailed specification preparation, application development, form redesign, system configuration, quality assurance, installation and application specific training services to customers. While our resellers and system integrators can and do provide these services to their customers, they often also ask us to provide these services to their customers on a subcontract basis. We generally charges 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 for the U.S. Patent Office.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. We offer several levels of these technical services, with the most comprehensive option covering 24 hours a day, seven days a week. We generally charge for customer support based upon a percentage of the related software license fees and classroom training on a per attendee basis.

Our Customers

As of December 31, 2002 we had licensed our software to over 1,000 customers. Our software is designed to address the needs of a broad range of businesses, including those in the insurance, financial services, banking, government, business process outsourcing, retail and other markets. The following is a partial list of customers that have licensed our software:

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

Sales, Marketing & Business Development

We sell input management software and services through our direct sales staff, often in conjunction with cooperative marketing partners. Approximately 29% of our sales are made through resellers and system integrators and the remainder comes from our direct sales staff. 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, our sales, marketing and business development staff consisted of 95 employees and we had over 100 resellers, system integrators and cooperative marketing partners. We intend to expand our sales and marketing staff and activities and to increase the number of our resellers, system integrators and strategic marketing partners.

Our sales strategy involves targeting organizations with forms or licensedocument capture needs that either already recognize or can be educated about their input management problems. Because our software toolscan increase an organization’s revenue, reduce its expenses and improve its relationships with customers, suppliers and employees, we direct our selling efforts to hardwaresenior 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, suppliers such as Fujitsu, Canon, IBMassess the specific needs of the organizations, create demonstrations and FileNet.provide proposals, including return on investment analyses, to satisfy the prospective customer’s requirements. The sales cycle typically ranges from 60 to 180 days.

SalesWe use a variety of marketing programs to build awareness of input management problems and our software and brand name, including product and strategy updates with industry analysts, public relations activities, direct mail and relationship marketing programs, seminars, advertising, trade shows, speaking engagements and Internet site marketing. Our marketing staff also produces collateral materials to support sales to prospective customers that include brochures, data sheets, white papers, customer success stories, presentations and demonstrations.

Our revenues largely come fromresellers 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 saleyears ended December 31, 2002, 2001 and 2000 none of InputAccel product licenses. We offer to sell InputAccel using volume-based perpetual licenses, meaning customers may process pre-determined volumes of documents on a per day basis,our resellers or transaction-based licenses, and meaning customers may process a pre- determined volume of documents over any period of time. As these licenses are volume-based, customers are able to make initial purchases at attractive prices. As a customer's system expands, as defined by document volume throughput, purchases of additional licenses are required. Historically, our customers have predominantly been Global 1000 companies and governmental agencies.

Additionally revenues are obtained from annual software maintenance subscriptions and professional consulting/implementation services. These service/support revenues represented 30%integrators accounted for more than 10% of our total revenuesrevenues.

We believe cooperative marketing partners who offer synergistic products are important in 2001, with the majorityselling and marketing our solution. We benefit from a multiplier effect as these partners expose Captiva’s products to more of this coming from software maintenance.

InputAccel software is typically used in connection with complex enterprise computer systems that include important softwaretheir customers and hardware components supplied by other vendors.prospects. As a result, purchasers of these enterprise computer systems often rely on system integratorswe have developed such arrangements with numerous cooperative marketing partners, including Eastman Kodak, FileNET, IBM, IBML, Information Management Resources, Interwoven, Open Text, Optika and value-added resellers to oversee the acquisition and installation of key hardware and software components of the overall system. Most of our products are sold by a combination of direct and indirect channels. We employ a sales force of approximately thirteen account representatives and nine sales engineers located across several U.S. and two international field offices. Historically worldwide, approximately one-half of our InputAccel sales are made directly to end-users and one-half through an established channel of systems integration companies such as EDS, IBM, and Xerox. International revenues represented 30% of total revenues in 2001.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.

Marketing

Our marketing objectives include building market awareness and acceptance of ActionPoint and our products, as well as generating qualified customer leads. We attend industry trade shows and seminars, such as the Association for Information and Image Management International's annual conference, and provide information about our company and our products on our Web site. Our executives speak at industry events and provide briefings to industry analysts and trade press. We also conduct public relations activities, advertise in trade publications to promote our products to our target markets and host an annual user's conference.

Our marketing goals include the following:

• to plan and build an integrated program addressing both internal and external audiences, including prospects, customers, business and trade press, industry analysts and investors;
• to position us as a leader in providing information capture applications;
• to design and implement media and tactical programs that communicate effectively with our target audiences; and
• to clearly and consistently communicate our positioning in our marketing programs.

Research and Development

We believe that our future success will depend in large part on our ability to enhance our current product line, develop new products, maintain technological competitiveness and satisfy an evolving range of customer requirements. We have assembled a team of skilled software developers and software quality assurance engineers with significant industry experience. This development group is responsible for exploring new directions and applications of core technologies, incorporating new technologies into products and maintaining strong research relationships with other software developers. We seek to build upon our direct investment in research and development by supporting efforts by independent software vendors to develop complementary products and participate actively in the development of industry standards.

Technical Support and Professional Services

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. We provide support for our products primarily through our customer support staff based in our San Jose, California facility. Our support activities includeprovide telephone support via a help desk, e-mail support and remote support that provide direct access from our support staff to our customerscustomers’ 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. We also provide telephone support via help desk, e-mail support and remote control support that provide direct access from our support personnelCustomers are required to our customers' systems for problem diagnosis and resolution. Most customers 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 the majoritymany of our customers, which assist them to more efficiently implement their systems.

We typically provide a ninety-day warranty program from defects foron all of 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 significantly in the development of proprietary technology for our products and our operations frequently incorporate proprietary and confidential information. We rely upon a combination of copyright and 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 do not hold any patentsone patent and currently have no patent applications pending. We also enter into confidentiality or license agreements with our employees, consultants and corporate partners and control access to and distribution of our software, documentation and other proprietary information.

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 useUse by customers of our productssoftware is difficult and we cannot be certain that the steps we have taken will prevent misappropriationgoverned by shrink-wrap or executed license agreements. We also enter into written agreements with each of our technology, particularly in foreign countries whereresellers and system integrators for the laws may not protect our proprietary rights as fully as in the United States. In addition, our competitors might independently develop similar technology or duplicate our product or circumvent any patents or our other intellectual property rights. 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 skillsdistribution of our personnel, new product developments and enhancements to existing products.software.

Competition

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

We believe that we currently competecompare favorably in these areas.with our competitors with respect to each of the above factors.

Our principal competitors are establishedare:

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, 2001,2002, we had 129271 employees. We employ 19175 people in finance and administrative functions; 79 in marketing, sales, services; and support and 31services, technical support; 60 in engineering and product development. In addition, we hire temporary employees on an as-needed basis to meet production requirements.development and 36 in finance and administration. None of the employees are represented by a labor union or are subject to a collective bargaining agreement. We believe that our employee relations are good.

Executive Officers

Our executive officers are as follows:

Name                Age Position
- ------------------- --- ----------------------------------
Stephen Francis     40  President, Chief Executive Officer
                        and Director

Matt Albanese       43  Vice President-Professional Servic

John Finegan        52  Chief Financial Officer, Secretary
                        and Director

David Sharp         37  Vice President-Engineering

John Stetak         43  Vice President-Marketing

Jim Vickers         42  Vice President-Sales

Stephen Francis joined ActionPoint in 1994 as Vice President when the company he co-founded, Pixel Translations, was acquired by ActionPoint. Mr. Francis became Vice President, Business Development in 1999 after serving as General Manager of the Pixel Division since 1997 and was elected President and CEO in June 2001. Prior to joining Pixel Translations, Mr. Francis held engineering and marketing management roles at Calera, now part of ScanSoft Corporation, a developer of recognition software. Mr. Francis holds a BS in Electrical Engineering/Computers from Stanford University.

Matt Albanese joined ActionPoint as Director of Engineering for the Software Division in 1995 and was promoted to Vice President, Professional Services in December 1997. Prior to joining ActionPoint, Mr. Albanese was the Director of Engineering for Plexus Software, a Division of Banctec, a computer products firm. Mr. Albanese holds a BS in Computer Science from San Jose National University.

John Finegan joined ActionPoint in 1989 as Vice President-Finance, was elected Chief Financial Officer in 1990, Secretary in 1993, and Director in 1997. Prior to joining ActionPoint he was Vice President of Finance for the Paradise Systems Division of Western Digital Corporation, a developer of computer peripherals. Mr. Finegan holds an MBA from the University of Massachusetts and a BS in Engineering from Tufts University.

David Sharpjoined ActionPoint in 1994 as senior software engineer when the company with which he was previously employed, Pixel Translations, was acquired by ActionPoint. Mr. Sharp became Director of software Quality Assurance in 1998 after serving as SQA Manager since 1996 and was promoted to Vice President of Engineering in June, 2001. Mr. Sharp holds a BS in Computer Science from California Polytechnic State University in San Luis Obispo.

John Stetak joined ActionPoint as Vice President of Marketing in May 1998. From 1992 to 1998 he served as Director of Marketing for the Data Management Market Group of Autodesk, a software developer. Previously Mr. Stetak was Manager of Product Marketing for EDS.

James Vickers joined ActionPoint as Vice President of Sales in December 2001. Prior to joining ActionPoint, Mr. Vickers served as Executive Vice President for Sales and Marketing at TR Systems, a provider of software solutions for digital document communications. From 1995 to 2000 Mr. Vickers served in a variety of senior sales positions for Electronics for Imaging. Mr. Vickers holds a BS in Business Administration from California State University at Long Beach.

Risk Factors

RISK FACTORS

In addition to the other information in this Report,You should carefully consider the following risk factors shouldand 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 considered carefully in evaluating us and our business.

Risks Related to our Financial Results

We have recently experienced losses and may continue to incur losses forharmed, the foreseeable future, which may harm the market price of our common stock.stock could decline and you may lose all or part of your investment.

We incurred a net lossThe merger of $1.9 million for 2001. In recent periods we have not generally generated cash from operations. Even if we achieve profitability, givenActionPoint 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 competitive and evolving nature of our industry we may not be able to sustain or increase profitability on a quarterly or annual basis. As a result, we will need to generate higher revenues while containing costs and operating expenses to become and remain profitable. Our failure to do somerger. 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 pricemerger, 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 stock to decline.business.

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

Our

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

• the introduction of new or enhanced products;
• fluctuations in the size and timing of significant orders;
• uncertainty in the budgeting cycles of our customers; and
• possible delays in recognizing licensing revenues and revenues;
  the trend within the software industry for a large portion of orders to be booked late in a given calendar quarter.
quarter;

We currently operate with virtually no software order backlog because our software products are shipped shortly after orders are received. ThatThis fact makes productsoftware revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, we achieveobtain a significant portion of our revenues from indirect sales channels over which we have little control. Moreover, our expense levels are based to a significant extent on our expectations of future revenues and therefore are relatively fixed in the short term. If revenue levels are below expectations, our operating results are likely to be harmed because only small portions of the expenses vary with revenues.

Also, in recent years, we have had relatively stronger demand for our products during the quarter ending December 31 and relatively weaker demand in the quarter ending March 31. We believe that, adjusting for the negative impact in late 1999 caused by Year 2000 concerns, this pattern will continue. This seasonality makes it more difficult to forecast quarterly revenues. Therefore, it is likely that in some future quarter operating results will fall below expectations and as a result, the price of our common stock may be harmed.

As a result of these factors, we believe that quarter-to- quarter comparisons of our revenue,revenues, expenses and operating results are likely to vary significantly between quarters in the future and that period-to-period comparisons of our operating results arefrom period-to-period will not necessarily be meaningful. In any event,As such, these comparisons should not be relied upon as indicationsthe sole measure of our future performance. In addition, ourOur operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we could experience an immediate and significant decline in the trading price of our stock.

Risks RelatedThe loss of key employees pursuant to the Information Capture Software Industrymerger 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 effectivelysustain 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 other software providerscurrent and potential competitors.

We believe competition in the information captureinput management software industry our revenues will not increase and may decrease.

intensify in the future. The market for our productsforms processing and document capture solutions is intenselyvery competitive and subject to rapid change. In addition, because there are relatively low barriers to entry ininto the software market, we may encounter additional competition from manyboth established and emerging companies. Many of ourpotential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than us,ours, in addition to significantly greater name recognition and a largelarger installed base of customers. As a result, ourthese 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 largepotential competitors could result in the delay or postponement of customer orders in anticipation of the introduction of suchthe 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 expect that competition will increase as a result of software industry consolidation. Increased competition 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 business.results.

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

The market for information captureinput management software is fragmented and extremely competitive. We have spent, and intend to continue to spend;spend, considerable resources educating potential customers about our software products

and the information captureinput management market generally. Ourin general. These expenditures may fail to achieve any additional degree of market acceptance for our products. The rate at which organizations have adopted our existingActionPoint and Old Captiva products has varied significantly in the past, and we expect to continue to experience such variations in the future. If the market for ourinput management products grows more slowly than we currently anticipate, our revenues will not grow and our operating results will suffer.

Risks Related to Our Business

Significantly all of our revenues are currently derived from sales of our InputAccel product and related software tools, and if demand for these products declines or fails to grow as we expect, our revenues will be harmed.

We derive substantially all of our revenues from the InputAccel product family and Pixtools software tools. Therefore, our future operating results depend heavily upon continued and widespread market acceptance for our InputAccel products and enhancements to those products. A decline in the demand for InputAccel products as a result of competition, technological change or other factors, would cause our revenues to suffer.

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

If we face 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 information captureinput 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 to develop and introduceintroducing 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. As a result, significantSignificant delays in the general availability of such new releases or significant problems in the installation or implementation of such new releases could harm our operating results and financial condition. We haveBoth ActionPoint and Old Captiva 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 theseour products or reduce the likelihood that our new products and product enhancements will achieve market acceptance.

Software defects that are discovered in our products could harm our business by damagingdamage our reputation, causing us to losea loss of customers and resulting in significant costs and liabilities.

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, we haveboth ActionPoint and Old Captiva discovered software errors in certain of our newtheir products after their introduction.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 problem.problems. Defects and errors, or end-user perception of defects and errors, found in current versions, new versions or enhancements of ourthese products after commencement of commercial shipments may result in:

• loss of customers;
• damage to our brand reputation;
• delay in market acceptance of our current and future products;
• diversion of development and engineering resources; and
• legal actions by our customers.

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

If we cannot manage and expand our international operations, our revenues may not increase and our business and results of operations would be harmed.

In 2001,2002, our international sales represented approximately 30%25% of our revenues, and werevenues. We anticipate that, for the foreseeable future, a significant portion of our revenues will be derived from sources outside North America. In addition, we the United States. We

intend to continue to expand our sales and support operations internationally. In order to successfully expand international sales, we may establish additional foreign operations, expand our 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 these thingsany 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 would be harmed. Even if we are able to successfully expand our international operations, 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:

• costs of customizing products for foreign countries;
• protectionist laws and business practices favoring local competition;
• compliance with multiple, conflicting and changing government laws and regulations;
• longer sales cycles;
• greater difficulty or delay in accounts receivable collection;
• difficulties in staffing and managing foreign operations;
• foreign currency exchange rate fluctuations; and
• political and economic instability.

To date, theThe majority of ourActionPoint’s and Old Captiva’s historical revenues and costs have been denominated in U.S.United States dollars. However, we expect that in the future an increasing portion of our revenues and costs willcould be denominated in foreign currencies. Although we maydo not currently undertake foreign exchange hedging transactions to reduce our foreign currency transaction exposure, we may do so in the future. However, we do not currently attempthave 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.

Our future success is dependent on the services of our key management, sales and marketing, technical support and research and development personnel, and those persons'persons’ 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 our existing key management, sales and marketing, technical support and research and development personnel. Substantially allAll of ourthese key employees do not have employment agreements.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 ourthese key employees could harm our business and slow our product development processes or sales and marketing efforts.

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

We require the services of a substantial number of qualified technical support and research and development personnel. The market for these personnelhighly skilled employees is characterized by intense competition, as well as awhich is heightened by their high level of employee mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel we require.required. We have experienced, and we 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, 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, itthey may require greater than expected compensation packages thatwhich would increase our operating expenses.

If our products fail

We could be subject to perform properly, our customers may assertpotential product liability claims for damages and third party litigation related to our products and services, and as a result 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 we includeincluded 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 notneither ActionPoint nor Old Captiva experienced any material product liability claims to date,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 ourthose products in business-critical applications. Liability claims could require us to spendexpenditure of significant time and money in litigation or to paypayment of significant damages. Any claims for damages, whether or not successful, could seriously damage our reputation and our business.

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 foreign countries where the laws may not protect our proprietary rights as fully as in the United States. In addition, our competitors might independently develop similar technology or duplicate our product or circumvent any patents or our other intellectual property rights. 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.

Risks RelatedSubstantial 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 Our Product's Dependencebe 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 Intellectual Propertycommercially 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 we license from 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 Our Useused in our products to perform key functions. There can be no assurance that these third-party software licenses will continue to be available to us on commercially reasonable terms, if at all. The loss of Our Brandor 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 would materially adversely affect our business, operating results and financial condition.

If we were subject to a protracted infringement claim or one with a significant damage award, our operating results would 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 different 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. 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, we need to continue to improve and implement financial and managerial controls and continue to improve our reporting systems and procedures. If we are unable to do so successfully, we may not be able to manage growth effectively and our operating results may be harmed.

Our relianceexpected growth 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 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.

If we are unable to build awareness of our brand, 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 or 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. If demand for these products declines or fails to grow as expected, our revenues will be harmed.

Historically, ActionPoint derived substantially all of its revenues from the InputAccel product and PixTools software, and substantially all of Old Captiva’s revenues were generated from the FormWare product. Our future operating results continue to depend heavily upon continued and widespread market acceptance for the InputAccel, PixTools and FormWare products 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 be unable to meet our future capital requirements and any inability to finance our operations could harm our business.

We cannot be certain that financing will be available to us on favorable terms 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 rightsrights. 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. Competitorsagreements 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 trade secrets, 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 unablenot able to determine the extent to which piracy of our software products and proprietary information exists, softwaresuch piracy can beis expected to be a persistent problem.

In addition, the laws of somemany foreign countries do not protect our proprietary rights and intellectual property as fully as do the laws of the U.S. In those countries, reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it, which would significantly harm our business.

We depend upon software we license from third parties, the loss of which could harm our revenues.

We rely upon certain software that we license 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 software licenses will continue to be available to the Company 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 would materially adversely affect our business, operating results and financial condition.

We have invested substantial resources in developing our products and our brand, and our operating results would suffer if we were subject to a protracted infringement claim or one with a significant damage award.

Substantial litigation regarding intellectual property rights and brand names exists in our industry. We expect that software product developers increasingly will be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different 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 us, may claim infringement by our products of their intellectual property rights. Any such claims, with or without merit, could:

• be time consuming to defend;
• result in costly litigation;
• divert management's attention and resources;
• cause product shipment delays; or
• require us to enter into royalty or licensing agreements.

United States.

If we are requiredIn the past, ActionPoint and Old Captiva depended heavily on service and other revenues to enter into royalty or licensing agreements to resolve an infringement claim,increase overall revenues, and we may not be able to entersustain the existing levels of profitability of this part of our business.

Many ActionPoint and Old Captiva customers entered into theseservice agreements on terms acceptable to us,which made up a significant portion of each company’s revenue in the past. Service and other revenues represented 43% 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, 2001 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 implementation services and ongoing renewals of customer support contracts by our growing installed customer base. Our service revenues could decline if at all. A successful claimthird-party organizations such as systems integrators compete for the installation or servicing of product infringement against us or our failure or inability to either license the infringed or similar technology or develop alternative technology on a timely basis, may harmproducts. In addition, our operating results, and our financial condition could be harmed because we wouldcustomer support contracts might not be able to sellrenewed in the impacted product without redeveloping it or incurring significant additional expenses.

Risks Relatedfuture. Due to the Market for Our Common Stock and Our Business

We experience volatility in our share price, and investorsincreasing costs of operating a professional services organization, we may not be able to resell sharessustain profitability in this part of our business in the near future, or ever.

Our executive officers 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.

Our executive officers and directors, and entities affiliated with them, beneficially own a significant percentage of our common stock at or above the purchase price.

The market price of our common stock has historically varied from time to time. An investor in shares of our common stock may notstock. These parties acting together would be able to resell those shares at or abovesignificantly influence any matters requiring approval of our stockholders, including the price paid. Our common stock price may fluctuate significantly inelection of directors and the future due to:

• any deviations in our revenues, gross margins or net losses from levels expected by securities analysts;
• changes in financial estimates by securities analysts;
• changes in market valuationsapproval of other information capture software companies; and
• our future sales of common stockmergers or other securities.

business combination transactions.

In addition, The Nasdaq National Market has experienced extreme volatility in recent years that has often been unrelated to the performance of particular companies. Future market fluctuations may cause our stock price to fall regardless of our performance.

Provisions of 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 suppressdepress our stock price or cause it to decline.

Provisions of our certificate of incorporation and bylaws and a stockholder rights plan adopted by our board of directors may discourage, delay or prevent a merger or acquisition of us that the majority of our common stockholders may consider favorable. Provisions of our Certificatecertificate of Incorporationincorporation and bylaws:

• prohibit cumulative voting in the election of directors;

• eliminate the ability of stockholders to call special meetings; and
• establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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 entered into as part of our rights plan have anti-takeover effects. The rightseffects, which may cause substantial dilution to a person or groupany party that attempts to acquire ActionPointus 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 someonea 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.

Item 2. Properties

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 administrative, sales, marketing and research and development facility isoffices are located in San Diego, California and consist of approximately 25,000 square feet of office space held under a building oflease that expires in January 2009. We also lease approximately 46,000 square feet of office space in San Jose, California. This facilityCalifornia under a lease expiring in February 2004, of which approximately half is leased through February 2004. Allsubleased to a third party, approximately 8,200 square feet of our functions except certainoffice space in Park City, Utah and 4,600 square feet of office space in Waltham, Massachusetts under a lease expiring in March 2007, both of which house a portion of Captiva’s professional and technical services and software development employees. We also lease office space for sales activities are performed at this facility. Our European sales activities are conducted from leased facilities nearand professional and technical services employees in Guildford, United Kingdom; Freiburg, Germany; Munich, Germany and London, England. Certain other sales activities are conducted from rented offices in various states in the U.S.Toorak, Australia. We believe that our facilitiesthese offices are adequate to meet our needs for our current needs.

the foreseeable future.

There are no material pending legal proceedings to which we areCaptiva is not a party or to which our subsidiaries are subject.

any material legal proceedings.

Item 4.Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2001.2002.

PART II

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholders Matters

Price range of common stock

                                      Quarter Ended
                          ------------------------------------------
2001                      March 31,    June 30, Sept. 30,  Dec. 31,
- ------------------------  ---------  ---------  ---------  ---------

Stock prices:
  High                        6.19       5.16       3.00       1.80
  Low                         1.75       2.59       1.16       1.25

2000                      March 31,  June 30,   Sept. 30,  Dec. 31,
- ------------------------  ---------  ---------  ---------  ---------

Stock prices:
  High                       34.25      20.25       8.44       5.38
  Low                        10.88       7.00       4.13       2.00

Common stock market price

Our common stock is traded on Thethe Nasdaq National Market under the symbol ACTP. Our“CPTV.” The common stock began tradingwas initially offered to the public in September 1993. There were approximately105 stockholdersThe following table sets forth the range of recordhigh and approximately 2,500 beneficial shareholderslow sales prices on the Nasdaq National Market of record at February 28, 2002.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.

To date, we have notneither declared ornor paid any cash 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 anticipate payingexpect to declare or pay any cash dividends on ourthe 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.

Item 6. Selected Consolidated Financial Data.

The followinginformation required to be disclosed by Item 201(d) of Regulation S-K “Securities Authorized for Issuance Under Equity Compensation Plans 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, 2002, 2001, 2000, 1999 and 1998. When you read this selected historical consolidated financial data, should beit is important that you read in conjunction with the historical consolidated financial statements and related Notes and "Management'snotes as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” included elsewhere in this document. The consolidated statement of operations data for each of the three years in the period ended December 31, 2001, and the balance sheet at December 31, 2001 and 2000, are derived from the audited consolidated financial statements included elsewhere in this document. The consolidated statement of operations data for the years ended December 31, 1998 and 1997 and the balance sheet at December 31, 1999, 1998 and 1997, are derived from the audited consolidated financial statements not included in this document. Our historicalForm 10-K. Historical results are not necessarily indicative of future results. Amounts below are in thousands, except per share data.

OVERVIEW:

On March 4, 2002, ActionPoint, Inc. entered into a merger agreement with Captiva Software Corporation or Old Captiva. The merger was completed on July 31, 2002. In the merger, Old Captiva became a wholly-owned subsidiary of ActionPoint and ActionPoint changed its name to Captiva Software Corporation.

As a result of the purchase accounting that applies to the merger of ActionPoint and Old Captiva, the results of operations of Old Captiva are included in our results of operations for the year ended December 31, 2002 only from August 1, 2002. Therefore, we expect to report increased revenues and increased costs in future periods as the operations of Old Captiva will be included for an entire reporting period.

CRITICAL ACCOUNTING POLICIES:

A critical accounting policy is one which is both important to the portrayal of a company’s financial condition and results of operations and requires significant judgment or complex estimation processes. We believe that the following accounting policies fit this definition:

Revenue Recognition

Revenue is generated primarily from two sources (i) software licenses, which includes software license and royalty revenue, and (ii) services and other, which includes software license maintenance fees, training and professional services revenue and sales of third party products, primarily digital scanners. License revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, collection is determined to be probable and no significant undelivered obligations remain. Royalty revenue is recognized when partners ship or pre-purchase rights to ship products incorporating our software, provided collection of such revenue is determined to be probable and we have no further obligations. Services and support revenue is recognized ratably over the period of the maintenance contract or as the services are provided. Payments for maintenance fees are generally made in advance and are non-refundable. Third party hardware sales revenue is recognized when the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable and; (iv) collectibility is reasonably assured.

For arrangements with multiple elements (e.g. delivered and undelivered products, maintenance and other services), we allocate revenue to each element of the arrangement based on the fair value of the undelivered elements, which is specific to us, using the residual value method. The fair values for ongoing maintenance and support obligations are based upon separate sales of renewals to customers or upon substantive renewal rates quoted in the agreements. The fair values for services, such as training or consulting, are based upon sales prices of these services when sold separately to other customers. When software licenses are sold without services, revenue is recognized when the above criteria are met. Deferred revenue is primarily comprised of undelivered maintenance services. When software licenses are sold with professional services and such services are deemed essential to the functionality of the overall solution, combined software license and service revenue is recognized over the service period. When software licenses are sold with professional services and such services are not considered essential to the functionality of the software, software license revenue is recognized when the above criteria are met and service revenue is recognized as the services are performed.

Intangible Assets

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized, but is tested at least annually for impairment. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from less than one year to five years.

The determination of the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions. Determining the fair values and useful lives of

intangible assets especially requires the exercise of judgment. To assist us in this process, we used an independent valuation firm. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets acquired, we primarily used the discounted cash flow method. This method requires significant management judgment to forecast the future operating results used in the analysis. In addition, other significant estimates are required such as residual growth rates and discount factors. The estimates we have used are consistent with the plans and estimates that we use to manage our business, based on available historical information and industry averages. The judgments made in determining the estimated useful lives assigned to each class of assets acquired can also significantly affect our net operating results.

In addition, the value of our intangible assets, including goodwill, is subject to future impairments if we experience declines in operating results or negative industry or economic trends or if our future performance is below our projections and estimates.

Valuation of Goodwill

We assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is reviewed at least annually.

Factors we consider important which could trigger an impairment, include the following:

When there is indication that the carrying value of goodwill may not be recoverable based upon the existence of one or more of the above indicators, an impairment loss is recognized if the carrying amount exceeds its fair value.

Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“FAS 146”). This statement supercedes Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3). FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We recently initiated certain exit activities and are accounting for those activities under EITF 94-3. Accordingly, adoption of FAS 146 will not have a material impact on our results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 (“FAS 148”). This statement amends SFAS No. 123, Accounting for Stock Based Compensation (“FAS 123”) to provide alternative methods of voluntarily transitioning to the fair value based method of accounting for stock-based employee compensation. FAS 148 also amends the disclosure requirements of FAS 123 to require disclosure of the method used to account for stock-based employee compensation and the effect of the method on reported results in both annual and interim financial statements. The quarterly disclosure provisions will be effective for us beginning with the quarter ending March 31, 2003. We will continue to utilize the intrinsic value method and accordingly, adoption of FAS 148 has no impact on our results of operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the “Interpretation”). The Interpretation requires companies to recognize, at inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee and also requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. The Interpretation provides specific guidance identifying the characteristics of contracts that are subject to its guidance in its entirety from those only subject to the initial recognition and measurement provisions. The recognition and measurement provisions of the Interpretation are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements of the Interpretation are effective for interim and annual period financial statements ending after December 15, 2002. Although we have issued guarantees and will likely continue to issue guarantees that we believe are within the scope of the Interpretation, the fair value associated with such guarantees is not expected to be material. Accordingly, adoption of the Interpretation is not currently expected to have a material impact on our results of operations.

Pro Forma Results of Operations

The results of operations of Old Captiva are included in the year ended December 31, 2002 only from August 1, 2002. Accordingly, the following pro forma presentation is included to assist in making comparisons of our results on a combined basis. This pro forma presentation is prepared in accordance with Accounting Principles Board No. 16,Business Combinations.

The pro forma financial information is not necessarily indicative of the results to be expected for future periods. Seean entire year and should not be relied upon as such. The pro forma financial information below includes the Notes to Consolidated Financial Statements for a detailed explanationresults of operations from the Old Captiva business from January 1, 2001. In addition, the pro forma financial information above includes the amortization of purchased intangible assets from the beginning of each of the determination ofperiods presented and $2.1 million in merger costs in the shares used to compute basic and diluted net loss per share.

                                               Year Endedyear ended December 31, -------------------------------------------------
                                   2001      2000      1999      1998      1997
                                 --------- --------- --------- --------- ---------
                                         (in thousands, except per share amounts)
                                
Consolidated Statements2002 and excludes a write-off of Operations Data:            
- ----------------------------    
For continuing operations:      
Net revenues....................  $22,035   $25,042   $22,178   $17,409   $12,240
Gross profit....................   18,296    20,621    18,964    15,661    11,359
Operatingin-process research and development of $0.9 million in the year ended December 31, 2002. The following table sets forth certain pro forma income (loss).........   (2,551)   (8,353)     (848)      832       (91)
Net income (loss)...............   (1,915)   (8,758)     (141)    1,039       394
Basic and diluted net income
   (loss) per share.............   ($0.45)   ($2.09)   ($0.03)    $0.18     $0.05
                                
For discontinued operations:    
Net income (loss)...............                                ($1,351)     $687
Basic and diluted net income
   (loss) per share.............                                 ($0.24)    $0.10

Net income (loss)...............  ($1,915)  ($8,758)    ($141)    ($312)   $1,081
Basic and diluted net income
   (loss) per share.............   ($0.45)   ($2.09)   ($0.03)   ($0.06)    $0.15
Shares used in per share
   calculations.................    4,300     4,190     4,370     5,657     7,285
                                
Consolidated Balance
   Sheets Data:                 
- ----------------------------
Working capital *...............   $8,099    $4,960   $13,863   $19,030   $16,981
Total assets....................   15,328    17,801    23,178    26,877    37,693
Stockholders' equity............    8,157     9,922    17,378    21,357    33,923

* Working capital is current assets minus current liabilities including current portion of deferred revenue.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

		Year Ended December 31,
		2002				2001
Net revenues:
Software licenses		$	25,529			$	25,455
Services and other			23,054				20,841
Total revenues			48,583				46,296
Cost of revenues:
Software licenses			1,520				1,714
Services and other			11,725				10,903
Amortization of purchased intangibles			2,076				2,175
Total cost of revenues			15,321				14,792
Gross profit			33,262				31,504
Operating expenses:
Research and development			7,749				7,828
Sales and marketing			18,863				20,691
General and administrative			6,140				6,704
Merger costs			2,148				—
Loss from operations			(1,638	)			(3,719	)
Other income (expense), net			(113	)			4,851
Income (loss) before income taxes			(1,751	)			1,132
Provision for income taxes			(345	)			2,074
Pro forma net loss			(1,406	)			(942	)

The following table sets forth, for the periods indicated, certain financial data from our consolidated statements of operations as a percentage of revenues.total revenues, certain pro forma income data for the periods indicated.

                                                         Year
 
  
Year Ended December 31,
 
 
  
2002
 
  
2001
 
Net revenues:
  
 
 
  
 
 
Software licenses
  
53
%
  
55
 %
Services and other
  
47
%
  
45
 %
 
  
  
Total revenues
  
100
%
  
100
 %
Cost of revenues:
  
 
 
  
 
 
Software licenses
  
3
%
  
4
 %
Services and other
  
24
%
  
24
 %
Amortization of purchased intangibles
  
4
%
  
5
 %
 
  
  
Total cost of revenues
  
31
%
  
33
 %
 
  
  
Gross profit
  
69
%
  
67
 %
 
  
  
Operating expenses:
  
 
 
  
 
 
Research and development
  
16
%
  
17
 %
Sales and marketing
  
39
%
  
45
 %
General and administrative
  
13
%
  
14
 %
Merger costs
  
4
%
  
—  
 
 
  
  
Loss from operations
  
(3
)%
  
(9
)%
Other income (expense), net
  
(1
)%
  
11
 %
 
  
  
Income (loss) before income taxes
  
(4
)%
  
 
2 %
Provision for income taxes
  
(1
)%
  
4
 %
 
  
  
Pro forma net loss
  
(3
)%
  
(2
)%
 
  
  
PRO FORMA RESULTS OF OPERATIONS:
Years Ended December 31, --------------------------2002 and 2001     2000     1999
                                                      -------- -------- --------

ForRevenues
Our license revenues were consistent at $25.5 million in 2002 and 2001. As a percent of total revenue, licenses accounted for 53% and 55% in 2002 and 2001, respectively. The decrease in license revenues as a percentage of total revenues reflects an increase in third party product sales.
Our service and other revenues increased 11% in 2002 to $23.1 million from $20.8 million in 2001. As a percentage of total revenue, services accounted for 47% and 45% for 2002 and 2001, respectively. The increases in service and other revenues in total and as a percentage of total revenues reflect an increase in third party product sales.
Gross Profit
Gross profit increased 6% for 2002 to $33.3 million from $31.5 million for 2001. Gross profit as a percentage of revenue increased to 69% from 67% for 2002 and 2001, respectively. The increase in gross profit for 2002 is due primarily to the increase in revenues and reflects decreases in combined headcount for 2002, which is partially offset by the increase in third party product sales, which have lower margins.
Research and Development
Research and development expenses were $7.7 million and $7.8 million in 2002 and 2001, respectively. As a percent of revenue, research and development expenses were 16% for 2002 and 17% for 2001. The decrease in research and development expenses as a percentage of revenue reflects the increase in revenues.
Sales and Marketing
Sales and marketing expenses decreased 9% in 2002 to $18.9 million from $20.7 million in 2001. As a percent of revenue, sales and marketing expenses decreased to 39% for 2002 from 45% in 2001. The higher cost in 2001 is primarily attributable to marketing expenses incurred in early 2001 for the launch of our Dialog Server product, which was sold in May 2001.
General and Administrative
General and administrative expenses decreased 8% for 2002 to $6.1 million from $6.7 million in 2001. As a percentage of revenue, general and administrative expenses decreased to 13% for 2002, from 14% for 2001. The decrease is attributable to professional fees and expenses incurred in 2001 in conjunction with various strategic initiatives.
Merger Costs
Details of the merger costs are as follows (in thousands):
 
  
Cash/
Non-cash
  
Estimated Cost
  
Completed Activity
 
    
Reserve
Balance at
December 31,
2002
Impairment of assets
  
Non-cash
  
$
471
  
$
(471
)
    
$
 —  
Excess lease costs
  
Cash
  
 
798
  
 
(139
)
    
 
659
Reduction in workforce
  
Cash
  
 
879
  
 
(660
)
    
 
219
 
  
 
  
  
    
 
  
 
  
$
2,148
  
$
(1,270
)
    
$
878
 
  
 
  
  
    
During the year ended December 31, 2002, as the result of a review of the combined operation, we adopted a plan which included a reduction of our workforce and office space made redundant by the merger. Implementation of this plan is expected to largely be completed during 2003. As a result of the adoption of this plan, we recorded charges of $2.1 million during the year ended December 31, 2002. These charges primarily relate to the consolidation of the Company’s continuing operations only                                                  
Net revenues
  License...........................................       70%      78%      81%
  Service...........................................       30%      22%      19%
                                                      -------- -------- --------
Total  revenues.....................................      100%     100%     100%

Costresulting in the impairment of revenues....................................
  License...........................................        4%       2%       3%
  Service...........................................       13%      16%      12%
                                                      -------- -------- --------
Costan asset, excess lease costs and a reduction in workforce, resulting in costs incurred for employee severance.
Employee reductions occurred primarily in marketing and administrative areas. As a result of revenues....................................       17%      18%      15%
                                                      -------- -------- --------
    Gross profit....................................       83%      82%      85%
                                                      -------- -------- --------

Researchthis plan, we reduced our work force by approximately 20 employees. Substantially all workforce reductions occurred during 2002. During the year ended December 31, 2002, charges related to the reduction of workforce totaling $0.9 million were recorded and development............................       25%      31%      25%
Salesactivities costing $0.7 million were completed.
As a part of this plan, the carrying value of a prepaid royalty fee was written off. The technology associated with this royalty fee was utilized in certain of our products and marketing.................................       55%      66%      50%
Generalbecause of technology acquired in the merger it will no longer be utilized. In the third quarter, we recorded a loss from impairment of an asset of $0.5 million, which was classified as a merger cost.
Also as part of this plan, we elected to consolidate our operations and administrative..........................       15%      19%      14%
                                                      -------- -------- --------
    Operating loss..................................      -12%     -33%      -4%

Interestattempt to sublease certain of our facilities which housed portions of our operations, marketing, sales and otheradministrative activities. During the year ended December 31, 2002, we recorded estimated excess lease costs of $0.8 million which were recorded as merger costs. Estimated excess lease costs are based on assumptions of differences between lease payments and
sublease receipts that could be realized on a potential sublease and assumed carrying terms. In January 2003, we entered into an agreement to sublease the excess facility space. The sublease commenced in February 2003 and expires in February 2004. Future expected receipts under the sublease are $0.2 million and $40,000 for the years ending December 31, 2003 and 2004, respectively. These expected receipts are in excess of the estimated receipts used to estimate the merger costs recorded during the year ended December 31, 2002, however, due to the uncertainty of collectibility of these amounts, the estimated merger costs will be reduced as the sublease receipts are collected or reasonably expected to be collected.
Future cash outlays related to this plan of $0.9 million are expected to be completed in 2003.
Provision for Income Taxes
A tax benefit of $0.3 million has been recorded for 2002, which represents an effective tax rate of 20%. As a result of the merger, we recorded a substantial amount of non-deductible amortization charges and a non-deductible in-process research and development write-off. In addition, as a result of the merger, our ability to utilize its historical net operating losses and tax credits as well as the historical net operating losses and tax credits of the Old Captiva business may have become limited and therefore it is more likely than not that a substantial portion of those deferred tax assets will not be realized. The income (expense).................       22%      -2%       3%
                                                      -------- -------- --------
    Income (loss) beforetax provision of $4.0 million recorded during the year ended December, 2001 is comprised of the following: tax on the gain from the sale of our Dialog Server product of $1.7 million, the change in valuation allowance of approximately $3.1 million to reduce net deferred tax assets based on management’s assessment of the uncertainty of the realizability of such assets, and a provision for income taxes.       10%     -35%      -1%
Provision (benefit) for income taxes................       19%       0%      -0%
                                                      -------- -------- --------
    Net loss from continuing operations.............       -9%     -35%      -1%
                                                      ======== ======== ========

Overviewforeign taxes of approximately $0.2 million offset by the utilization of net operating losses of $1.0 million.

We develop, market and service information capture software. Our customers have traditionally been large global 1000 businesses and governmental agencies that use our InputAccel software to convert transaction-related documents, such as order forms, claim forms, or loan applications, into an appropriate electronic format and to transport images

Sale of and information from these documents to storage on Web sites, compact disks, or internal databases for subsequent search, retrieval or further processing. Additionally, we market software tools under our Pixel Translations brand to various hardware and software providers.the Dialog Server Product

We sold our Dialog Server product line to Chordiant Software, Inc. on May 17, 2001 for approximately $7.1 million consisting of $2.0 million in cash and 1.7 million shares of Chordiant common stock, which was valued at $3.00 per share at the transaction date. We sold all of our Chordiant common stock in July 2001 for a price of approximately $2.73 per share and, as a result, recognized a loss of approximately $0.4 million in the third quarter of 2001. We recognized a pretax gain on the transaction, comprised of proceeds, excluding amounts in escrow and less transaction expenses, of approximately $4.6 million. We also establishedmillion ($2.3 million net of tax). A portion of the total proceeds remained in escrow for one year pursuant to the asset sale agreement with Chordiant and $0.6 million of this amount was received by us in May 2002. The escrow funds were not included on the balance sheet or in the computation of gain on sale; hence, the receipt of funds in May 2002 was recognized as other income for the year ended December 31, 2002.

Results of Operations

The following table sets forth, as a percentage of total revenues, certain income data for the periods indicated.

RESULTS OF OPERATIONS:

Years Ended December 31, 2002 and 2001

Revenues

Our license revenues increased 35% in 2002 to $20.2 million from $15.0 million in 2001. As a percent of total revenue, licenses accounted for 57% and 68% in 2002 and 2001, respectively. The increase in license revenue for the year ended December 31, 2002 compared to 2001 is primarily due to the merger of ActionPoint and Old Captiva. The decreases in license revenues as a percentage of total revenues reflect the lower license revenues as a percentage of total revenues for the Old Captiva business.

Our service and other revenues increased 119% in 2002 to $15.4 million from $7.1 million in 2001. As a percentage of total revenue, services accounted for 43% and 32% for 2002 and 2001, respectively. The increase in service revenues both in absolute and percentage terms was attributable primarily to the merger of ActionPoint and Old Captiva. The increases in service and other revenues as a percentage of total revenues reflect the higher service revenues as a percentage of total revenues for the Old Captiva business and an increase in third party product sales.

Gross Profit

Gross profit increased 48% for 2002 to $26.1 million from $17.7 million for 2001. The increase in gross profit for 2002 is due primarily to the increase in revenues, partially offset by the amortization of intangible assets resulting from the merger of ActionPoint and Old Captiva and the increase of service and other revenue as a percentage of total revenue, which carries lower gross profit.

Gross profit as a percentage of revenue decreased to 73% from 80% for 2002 and 2001, respectively. The decrease is primarily attributable to the amortization of purchased intangibles which resulted from the merger of ActionPoint and Old Captiva and the increase of service revenue as a percentage of total revenues. Since the periods presented only reflect amortization of purchased intangibles from August 1, 2002, management expects this amortization to have a more significant impact in future periods. Initially, in future periods, amortization of purchased intangibles will further decrease gross profit.

Research and Development

Research and development expenses increased 20% in 2002 to $5.9 million from $4.9 million in 2001. The increase is attributable to the merger of ActionPoint and Old Captiva.

As a percent of revenue, research and development expenses decreased to 17% for 2002 from 22% for 2001. The decrease in research and development expenses as a percentage of revenue reflects a lower percentage of research and development expense to revenue for the Old Captiva business, and to a higher percentage of research and development expense to revenue for the Dialog Server product line which was sold in May 2001. Management expects research and development expense to increase in absolute dollars in reporting periods that include the Old Captiva business for the entire period.

Sales and Marketing

Sales and marketing expenses increased 14% in 2002 to $13.7 million from $12.0 million in 2001. The increase is primarily attributable to the merger of ActionPoint and Old Captiva which is partially offset by reductions in marketing expenses incurred in 2001 for the launch of the Company’s Dialog Server product, which was sold in May 2001.

As a percent of revenue, sales and marketing expenses decreased to 39% for 2002 from 55% in 2001.The decreases in sales and marketing expenses as a percentage of revenue reflect a lower percentage of marketing expense to revenue for the Old Captiva business. Management expects sales and marketing expense to increase in absolute dollars in reporting periods that include the Old Captiva business for the entire period.

General and Administrative

General and administrative expenses increased 33% for 2002 to $4.3 million from $3.3 million in 2001. The increase is attributable to the merger of ActionPoint and Old Captiva and is partially offset by professional fees and expenses incurred in 2001 in conjunction with various strategic initiatives.

As a percentage of revenue, general and administrative expenses decreased to 12% for 2002, from 15% for 2001. The decrease in general and administrative expenses as a percentage of revenue reflects a lower percentage of general and administrative expense to revenue for the Old Captiva business. Management expects general and administrative expense to increase in absolute dollars in reporting periods that include the Old Captiva business for the entire period.

Merger Costs

Details of the merger costs are as follows (in thousands):

During the year ended December 31, 2002, as the result of a review of the combined operation, we adopted a plan which included a reduction of our workforce and office space made redundant by the merger. Implementation of this plan is expected to largely be completed during 2003. As a result of the adoption of this plan, we recorded charges of $2.1 million during the year ended December 31, 2002. These charges primarily relate to the consolidation of our continuing operations resulting in the impairment of an asset, excess lease costs and a reduction in workforce, resulting in costs incurred for employee severance.

Employee reductions occurred primarily in marketing and administrative areas. As a result of this plan, we reduced our workforce by approximately 20 employees. Substantially all workforce reductions occurred during 2002. During the year ended December 31, 2002, charges related to the reduction of workforce totaling $0.9 million were recorded and activities costing $0.7 million were completed.

As a part of this plan, the carrying value of a prepaid royalty fee was written off. The technology associated with this royalty fee was utilized in certain of our products and because of technology acquired in the merger it will no longer be utilized. In the third quarter, we recorded a loss from impairment of an asset of $0.5 million, which was classified as a merger cost.

Also as part of this plan, we elected to consolidate our operations and attempt to sublease certain of its facilities which housed portions of its operations, marketing, sales and administrative activities. During the year ended December 31, 2002, we recorded estimated excess lease costs of $0.8 million which were recorded as merger costs. Estimated excess lease costs are based on assumptions of differences between lease payments and sublease receipts that could be realized on a potential sublease and assumed carrying terms. In January 2003, we entered into an agreement to sublease the excess facility space. The sublease commenced in February 2003 and expires in February 2004. Future expected receipts under the sublease are $0.2 million and $40,000 for the years ending December 31, 2003 and 2004, respectively. These expected receipts are in excess of the estimated receipts used to estimate the merger costs recorded during the year ended December 31, 2002, however, due to the uncertainty of collectibility of these amounts, the estimated merger costs will be reduced as the sublease receipts are collected or reasonably expected to be collected.

Future cash outlays related to this plan of $0.9 million are expected to be completed in 2003.

In-Process Research and Development

In connection with the merger, we wrote-off the purchased in-process research and development of $0.9 million, which was charged to operations for the year ended December 31, 2002. The purchased in-process research and development is solely related to the next version of Old Captiva’s FormWare software. The latest release of Old Captiva’s Formware software was introduced in March 2002. Old Captiva’s forms processing solutions complement our existing line of document capture solutions to create a more complete input

management solution. Based on time spent on the next version of Old Captiva’s FormWare software system and costs incurred, this project was estimated to be approximately 44% complete as of the merger date. At the date of acquisition, the total cost to complete the project was estimated to be approximately $0.8 million, primarily consisting of salaries, and the project is expected to be completed during the second quarter of 2003. The estimated fair value of the project was estimated utilizing a discounted cash flow model which was based on estimates of operating results and capital expenditures for the period from August 1, 2002 to December 31, 2006 and a risk adjusted discount rate of 30%.

Provision for Income Taxes

A tax provision of $0.3 million has been recorded for 2002, which represents an effective tax rate of (118)%. As a result of the merger, we recorded a substantial amount of non-deductible amortization charges and a non-deductible in-process research and development write-off. In addition, as a result of the merger, our ability to utilize our historical net operating losses and tax credits as well as the historical net operating losses and tax credits of the Old Captiva business may have become limited and therefore it is more likely than not that a substantial portion of those deferred tax assets will not be realized. The income tax provision of $4.2 million recorded during the year ended December, 2001 is comprised of the following: tax on the gain from the sale of our Dialog Server product of $1.7 million, the change in valuation allowance against the remainingof approximately $3.3 million to reduce net deferred tax assets based on ourmanagement’s assessment of the uncertainty of the realizability of such assets.assets, and a provision for foreign taxes of approximately $0.2 million offset by the utilization of net operating losses of $1.0 million.

Critical Accounting Policies

We have identified revenue recognition and accounting for income taxes as critical accounting policies to our company.

Revenue recognition:

We derivesold our revenue primarily from two sources (i)Dialog Server product revenue,to Chordiant Software, Inc. on May 17, 2001 for approximately $7.1 million consisting of $2.0 million in cash and 1.7 million shares of Chordiant common stock, which includes software licensewas valued at $3 per share at the transaction date. We sold all of our Chordiant common stock in July 2001 for a price of approximately $2.73 per share and, royalty revenue, and (ii) services and support revenue which includes software license maintenance fees, training and professional services revenue. As described below, significant management judgments and estimates must be made and used in connection with the revenueas a result, recognized in any accounting period. Material differences may resulta loss of approximately $0.4 million in the amountthird quarter of 2001. We recognized a pretax gain on the transaction, comprised of proceeds, excluding amounts in escrow and timingless transaction expenses, of our revenue for any period if our management made different judgments or utilized different estimates.

We license our InputAccel software products to end-users on a perpetual basis and our Pixtools software to OEMs on a royalty basis. We apply the provisionsapproximately $4.6 million ($2.3 million net of Statement of Position 97-2, Software Revenue Recognition. We recognize InputAccel product revenues upon shipment provided that persuasive evidence of an arrangement exists, collection is determined to be probable and no significant undelivered obligations remain. We recognize Pixtools licensing revenue, primarily royalties, when OEM partners ship or pre- purchase rights to ship products incorporating Pixtools software, provided collection of such revenue is determined to be probable. We have no remaining obligations in relation to such licensing revenue. If a significanttax). A portion of a fee is due after our normal payment terms, which are 30the total proceeds remained in escrow for one year pursuant to 90 days from invoice date, we accountthe asset sale agreement with Chordiant and $0.6 million of this amount was received by us in May 2002. The escrow funds were not included on the balance sheet or in the computation of gain on sale; hence, the receipt of funds in May 2002 was recognized as other income for the fee as not being fixed and determinable. In these cases, we recognize revenue as the fees become due and payable. We assess collectibility based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.year ended December 31, 2002.

For all sales, except those completed over the Internet, we use either a binding purchase order or signed license agreement as persuasive evidence of an arrangement. For sales over the Internet, we use a credit card authorization as persuasive evidence of an arrangement. Sales through our resellers are evidenced by a reseller agreement governing the relationship together with binding purchase orders on a transaction-by-transaction basis.

For arrangements with multiple obligations (for example, undelivered maintenance and support), we allocate revenue to each component of the arrangement using the residual method under SOP 97-2 based on the fair value of the undelivered elements, which is specific to ActionPoint. This means that we defer revenue from the arrangement fee equivalent to the fair value of the undelivered elements. Fair values for the ongoing maintenance and support obligations are based upon separate sales of renewals to other customers or on renewal rates quoted in the contracts. Fair value of services, such as training or consulting, is based upon separate sales by us of these services to other customers.

Our arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

We recognize revenue for maintenance services ratably over the contract term, which are generally either one or three years. Our training and consulting services are generally billed based on hourly rates, and we recognize revenue as these services are performed. Our deferred revenue is largely comprised of undelivered maintenance services.

Accounting for income taxes:

As part of the process of preparing our consolidated financial statements we estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance for the full value of our deferred tax assets as ofYears Ended December 31, 2001 due to recent operating losses that create uncertainty in our ability to utilize these deferred tax assets, primarily consisting of certain net operating losses carried forward and R&D tax credits, before they expire.2000

---------------------Revenues

Revenues

We derive the majority of our revenues from product licensing and royalties. Our license revenues decreased by 21% in 2001 to $15.4$15.0 million from $19.4$19.0 million in 2000 and increased by 8% in 2000 from $17.9 million in 1999.2000. The decrease in license revenue for 2001 iswas due to information technology spending on internet related products and services and in part to a weak economy, which led to extended sales cycles and general slowdowns in information technology spending. This contrasts to an increase in license revenue for 2000, which was derived primarily from increased revenues from ourInputAccelproduct line.License and royalties accounted for 70%, 78%68% and 81%76% of 2001 2000 and 19992000 total revenues, respectively.

Our service revenues, which are derived from software maintenance and professional consulting, increased by 19%18% in 2001 to $6.7$7.1 million from $5.6$6.0 million in 2000 and increased by 30% in 2000 from $4.3 million in 1999.2000. This represents 30%, 22%32% and 19%24% of 2001 and 2000 and 1999 total revenues.revenues, respectively. The increase in service revenues in both absolute and percentage terms was primarily attributable to a growing installed base of customers, most of which purchase ongoing software maintenance support.

Gross Profit

Gross profit decreased by 11% to $18.3$17.7 million in 2001 from $20.6$19.8 million in 2000 and increased 9% in 2000 from $19.0 million in 1999.2000. Gross profit margin increased to 83%80% in 2001 from 82%79% in 2000 and decreased in 2000 from 85% in 1999.2000. Fluctuations in gross profit margins are generally attributable to the

mix of productsoftware license revenues and lower margin services revenues. We expect revenues from maintenance and services to continue to increase as a percentage of overall revenues. Gross profit margin for product license revenues decreased to 94% from 97% in 2000 and 1999 as a result of additional use of third-party technology. Gross profit margin for services revenues increased to 57%51% in 2001 compared to 33% and 40%21% in 2000 and 1999 respectively, largely as a result of expense reductions.

Research and Development

Research and development expenses decreased by 29%30% in 2001 to $5.6$4.9 million from $7.9$7.0 million in 2001 and increased by 41% in 2000 from $5.6 million in 1999.2000. The decrease in 2001 is largely related to the sale of the Dialog Server product line in May 2001. The increase in 2000 included significant expenditures incurred for the Dialog Server product line and a one- time stock related bonus expense of $710,000.

Research and development expenses decreased as a percentage of revenue to 25%22% in 2001, from 31%28% in 2000, whichincreased from 25% in 1999.2000.

Sales and Marketing

Sales and marketing expenses decreased by 27% in 2001 to $12.0 million from $16.4 million in 2000 and increased by 47% in 2000 from $11.2 million in 1999.2000. The decrease in 2001 is largely due to reductions in programmatic and product marketing expenses incurred in 2000 and early 2001 for the Dialog Server product, line, which was sold in May 2001. Additionally, there was a one-time stock related bonus expense of $638,000$0.6 million in 2000.

Sales and marketing expenses decreased as a percentage of revenue to 55% in 2001, from 66% in 2000, which increased from 50% in 1999.2000.

General and Administrative

General and administrative expenses decreased by 31% in 2001 to $3.3 million from $4.7 million in 2000 and increased by 54% in 2000 from $3.0 million in 1999. Much of the fluctuation in this period relatesto2000. This decrease is primarily attributable to a $1.1 million of stock related bonus expense incurred in 2000.

General and administrative expenses decreased as a percentage of revenue to 15% in 2001, from 19% in 2000, which increased from 14% in 1999.2000.

Sale of the Dialog Server Product Line

We sold our Dialog Server product line to Chordiant Software, Inc. on May 17, 2001 for approximately $7.1 million consisting of $2.0 million in cash and 1.7 million shares of Chordiant common stock, and recognized a pretax gain of approximately $4.6 million. The Chordiant common stockwhich was valued at $3 per share at the transaction date. We sold all of the Chordiant common stock, including the shares held in escrow, in July 2001 at approximately $2.73 per share and recognized a loss of approximately $0.4 million. We recognized a pretax gain on the transaction, comprised of proceeds, excluding amounts in escrow and less transaction expenses, of approximately $4.6 million ($2.3 million net of tax). Of thesethe total proceeds, $637,000$0.6 million in cash remainsremained in escrow at December 31, 2001 pursuant to the asset sale agreement and will bewas not released inuntil May 2002.

Minority Equity Investment

Based Accordingly, this amount was not included on its assessment of the likelihood to realize value, the Company wrote off a $500,000 minority equity interestbalance sheet at December 31, 2001 or in the first quartercomputation of 2000. That minority equity investment was obtained in 1998 in conjunction withgain on sale for the year ended December 31, 2001.

As a result of the sale of Dialog Server, we will forgo future revenue opportunities but will significantly reduce expenses. Historical revenues and expenses, in thousands of dollars, for the Company's hardware division.Dialog Server Product line were as follows:

Interest and Other Income

Interest and other income increased in 2001 to $239,000$0.2 million from $95,000$0.1 million in 2000 and decreased in 2000 from $631,000 in 1999.2000. The increase in 2001 is due to the additional cash generated by the sale of the Dialog Server product line. The decreaseFunds held in 2000 was due toescrow as a reductionresult of cash balances.the

the sale of the Dialog Server product, $0.6 million, net of fees, as of December 31, 2001, were received in May 2002 and recorded as other income in the year ended December 31, 2002.

Provision (Benefit) for Income Taxes

The income tax provision recorded in fiscal 2001 of $4.2 million is comprised of the following: tax on the gain from the sale of the Dialog Server product line of $1.7 million, the change in valuation allowance of $3.3 million to reduce net deferred tax assets based on management'smanagement’s assessment of the uncertainty of the realizability of such assets and the provision for foreign taxes of $169,000$0.2 million offset by the utilization of net operating losses of $1.0 million. In 2000 there was no benefit for income taxes recorded as a result of the pretax losses generated during the year. In 1999,

Liquidity and Capital Resources

We have has incurred losses and negative cash flows from operations in prior periods. For the year ended December 31, 2002, we incurred a benefitnet loss of $76,000 was recorded$0.5 million and used $0.1 million cash in operations. For the year ended December 31, 2001, we incurred a net loss of $1.9 million, but generated positive cash flows from operating activities of $0.9 million as a result of pretax losses.the sale of the Dialog Server product and other cost reduction measures. For the year ended December 31, 2000, we incurred negative cash flows from operations of $6.9 million. We may incur additional operating losses and negative cash flows in the future. Failure to generate sufficient revenues, raise additional capital or reduce spending could adversely affect our ability to achieve our intended business objectives. We currently have no plans to fund our business with cash from sources other than operations and its existing cash and cash equivalents. A substantial portion of our annual revenues are realized during the fourth quarter of its fiscal year. We believe that this is caused by its customers’ spending and budget patterns. This seasonality causes variability in our working capital needs during the year, however, we believe that our existing cash and cash equivalents and availability under our line of credit are sufficient to manage this variability.

Liquidity and Capital Resources

At December 31, 2001,2002, we had cash and cash equivalents of $7.5 million, compared to $8.3 million an increase of $6.1 million fromat December 31, 2000.2001.

In connection with the merger, we assumed a line of credit with a bank. On the merger date, July 31, 2002 and on December 31, 2002, the outstanding principal balance was $2.1 million. Borrowings under the line of credit are limited to the greater of $3.0 million or 80% of eligible accounts receivable. Outstanding balances under the line of credit bear interest at the bank’s prime rate plus 0.5%. All of our assets collateralize the credit facility. The increase is largely a resultline of credit expires in August 2003. Pursuant to the terms of the cash generatedline of credit, we are restricted from paying dividends on our common stock. We expect to renew the saleline of the Dialog Server product line. At December 31, 2000,credit prior to its expiration, however, there is no assurance that we had cash and cash equivalents of $2.2 million, a decrease of $7.0 million from December 31, 1999.will be able to do so under comparable terms or at all.

At December 31, 2001, working capital totaled $8.1 million, an increase of $3.1 million from December 31, 2000. At December 31, 2000, the working capital totaled $5.0 million, a decrease of $8.9 million from December 31, 1999.

Net cash used in operating activities was $0.1 million in 2002 compared to net cash provided by operating activities was $859,000of $0.9 million in 2001 compared to2001. The net cash used byin operating activities in 2002 was largely due to the payment of $6.9 million in 2000merger costs, increased accounts receivable and $413,000 in 1999.deferred revenue and net changes to other components of working capital. The increase in net cash provided by operationsoperating activities in 2001 iswas primarily due to reductionsa reduction in operating expenses together with favorable net movementschanges in working capital. In 2000As of December 31, 2002, we believe that cash payments of certain professional fees and 1999,related transaction costs associated with the funds were utilized to support increased expenses, substantiallyrecently completed merger and costs related to ourintegration activities are substantially complete.

Net cash used in investing activities in 2002 was $0.9 million, including direct costs of the merger and purchases of property and equipment, partially off set by proceeds from the Dialog Server product family,escrow account and cash received in 2000, for cash payments made under a stock-based incentive plan.

Netthe merger. This compares to net cash provided by investing activities wasof $5.1 million in 2001 made up

which included proceeds from net sales of proceeds frommarketable investments and the sale of the Dialog Server product line that were partially off set by purchases of property and related Chordiantequipment. We do not anticipate that there will be substantial cash used or generated from investing activities for the short-term.

Net cash provided by financing activities was $47,000 for 2002 and $0.2 million for 2001, primarily from purchases of common stock under our employee stock purchase plan and partially offset by additionsfrom the proceeds from exercises of employee stock options. We expect that cash provided from financing activities, primarily semi-annual sales of stock under the Employee Stock Purchase Plan, will be comparable to property and equipmentthat of $112,000. This compares to cash used for investing activities, exclusively additions to property and equipment of $921,000recent periods in 2000 and $827,000 in 1999.the short-term.

Our Boardprincipal sources of Directors authorized the use of up to $25 million to repurchase our common stock. The repurchased stock is expected to be held by the companyliquidity are cash and may be used to meet our obligations under our stock plans and for other corporate purposes. Since inception of the plan in 1997 to December 31, 1999, 3.8 million shares have been repurchased for a total of $23.6 million. 1999 repurchases totaled $4.5 million. No purchases were made in 2001 and 2000 respectively. We used cash equivalents on hand, to fundas well as expected cash flows from operations and the purchases.

The Company believesline of credit. Although transaction and integration expenses associated with the recently completed merger have reduced cash, we believe that itsour cash, and cash equivalents and cash flows from operations will be sufficient to meet the Company'sour liquidity and capital requirements for at least the next 12 months. The CompanyWe may, however, seek additional equity or debt financing to fund further expansion. There can be no assurance that additional financing will be available at all or that it, if available, will be obtainable on terms favorable to the Companyus and would not be dilutive. Our only future commitment for cash in the next 12 months consists of

We have entered into various operating leases (see Note 5.for our facilities and sales offices, which as of December 31, 2002 expired at various dates through 2007. We have entered into capital leases for certain of our property and equipment which expire in 2004. Future minimum lease commitments at December 31, 2002 due under these non-cancelable operating and capital leases are as follows (in thousands).:

Subsequent Events

On March 4, 2002,In January 2003, we enteredextended the term of a merger agreement with Captiva Software Corporation,facility lease to January 2009 at a privately held company that provides forms processing software products and services. Pursuant toreduced rental rate. As of the merger agreement, Captiva will become a wholly owned subsidiary and we will changedate of the amendment, our name to Captiva Software Corporation. The merger is subject to necessary approvals from the stockholders of both companies and is expected to be completed future minimum lease commitments due under non-cancelable operating leases are as follows (in the second quarter of 2002.thousands):

Summarized Quarterly Operating ResultsData (Unaudited)

The following table sets forth ourtables present unaudited quarterly financial information, for the eight quarters in the period ended December 31, 2001. This2002. We believe this information has been prepared onreflects all adjustments (consisting only of normal recurring adjustments, except for merger costs of $2.1 million and a write-off of in-process research and development of $0.9 million for the same basis as the audited financial statements and, in the opinion of management, contains all adjustmentsquarter ended September 30, 2002) that we consider necessary for a fair presentation thereof.

ACTIONPOINT, INC.
CONSOLIDATED FINANCIAL INFORMATION
(unaudited -of such information in accordance with generally accepted accounting principles. The results for any quarter are not necessarily indicative of results for any future period. (in thousands, except per share data)

                                      Quarter Ended
                          ------------------------------------------
2001                      March 31,  June 30,   Sept. 30,  Dec. 31,
- ------------------------  ---------  ---------  ---------  ---------

Net revenues                $6,595     $4,863     $4,694     $5,883
Gross profit                 5,566      3,940      3,800      4,990
Operating income (loss)       (350)    (1,456)    (1,065)       320
Net income (loss)             (315)    (436)     (1,471)        307
Basic and Diluted EPS:       (0.07)     (0.10)     (0.34)      0.07

2000
- ------------------------
Net revenues                $4,613     $6,026     $5,967     $8,436
Gross profit                 3,785      5,056      4,723      7,195
Operating income (loss)     (4,738)    (1,787)    (1,925)        97
Net income (loss)           (5,139)   (1,750)    (1,974)        105
Basic and Diluted EPS:       (1.24)     (0.42)     (0.47)      0.02

Item 7a. QuantitativeWe have significant foreign operations and, Qualitative Disclosures About Market Riskas a result, are subject to various risks, including, foreign currency risks. We have not entered into foreign currency contracts for purposes of hedging or speculation. To date, we have not realized any significant gain or loss from transactions denominated in foreign currencies. For the year ended December 31, 2002, approximately 25% of our sales were denominated in currencies other than our functional currency, the United States dollar. These foreign currencies are primarily British pounds, Euros and the Australian dollar. Additionally, substantially all of the receivables and payables of our foreign subsidiaries are denominated in currencies other than our functional currency.

The Company's

Our exposure to market risk for changes in interest rates relaterelates primarily to its investment portfolio. The Company maintainsportfolio and its line of credit. We maintain an investment policy which is intended to ensure the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. The Company doesWe do not currently use, nor has ithave we historically used, derivative financial instruments to manage or reduce market risk. The Company mitigatesWe mitigate default risk for our investments by investing in high credit quality securities such as debt instruments of the United States government and its agencies and high quality corporate issuers, as well as money market funds. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and maintains a prudent amount of diversification. As of December 31, 2001, the Company2002, we had $8.3approximately $7.5 million ofin cash and cash equivalents.

The Company does not currently transact any significant portion of its business in functional currencies other than the United States dollar. To the extent that it continues to transact its business using the United States dollar as its functional currency, the Company does not believe that the fluctuations in foreign currency exchange rates will have a material adverse effect on the Company's results of operations.

Item 8. Financial StatementsOur financial statements at December 31, 2002 and Supplementary Data.

Financial statements required pursuant to this item are presented on page 22 of this report.

Item 9. Changes in2001, and Disagreements with Accountants on Accounting and Financial Disclosures.

Not applicable.

PART III

Certain information required by Part III of this Form 10-K is omitted because we will file a definitive proxy statement pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after the endfor each of the fiscal year covered bythree years in the period ended December 31, 2002, and the Report of Independent Accountants, are included in this Form 10-K, and certain information to be included therein is incorporated herein by reference.Report on pages F-1 through F-18.

Item 10. Directors and Officers of the Registrant.

None.

PART III

The information required by this item relating to our directors and nominees and disclosure relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 is included inwill be set forth under the captions "Other Stockholder Proposals for the 2002 Annual Meeting“Election of ActionPoint Stockholders -- ProposalDirectors” and “Executive Officers” in our definitive Proxy Statement to Elect Directors", "Information Concerning the Combined Company - - Management of the Combined Company" and "Information Concerning ActionPoint -- Compliancebe filed with Section 16(a) of the Securities and Exchange Act of 1934"Commission in our Proxy Statement forconnection with the 20022003 Annual Meeting of Stockholders and(the “Proxy Statement”), which is incorporated herein by reference. The information required by this item relating to our executive officers and key employees is included under the caption "Executive Officers and Key Employees" in Part I of this Form 10-K Annual Report.reference herein.

Item 11. Executive Compensation.

The information required by this item is includedincorporated by reference to the Proxy Statement under the caption "Information Concerning ActionPoint -- Executive Compensationheading “Executive Compensation.”

The information required by this item under the heading “Security Ownership of Certain Beneficial Owners and Related Information for ActionPoint's Executive Officers"Management” in ourthe Proxy Statement for the 2002 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12. Security OwnershipInformation about our equity compensation plans at December 31, 2002 was as follows (000s omitted):

For more information on our equity compensation plans, see note 7 to the consolidated financial statements. The table above includes approximately 108,000 shares of Certain Beneficial Owners and Management.common stock reserved for issuance pursuant to our 1998 Employee Stock Purchase Plan.

The information required by this item is includedincorporated by reference to the Proxy Statement under the caption "Security Ownershipheading “Certain Transactions.”

Evaluation of Certain Beneficial HoldersControls and ManagementProcedures

We maintain controls and procedures, which have been designed to ensure that material information related to Captiva Software Corporation, including our consolidated subsidiaries, is made known to management on a timely and consistent basis. In response to recent legislation and proposed regulations, we have been reviewing its internal control structure and has established a disclosure committee, which consists of ActionPoint Priorcertain members of our management. Although we believe our existing disclosure controls and procedures are adequate to enable us to comply with its current disclosure obligations, the review and documentation of our internal control structure is a process that will continue in conjunction with other integration activities.

After the formation of the disclosure committee and within 90 days prior to the Merger" in our Proxy Statement for the 2002 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information required by this item is included under the caption "Information Concerning ActionPoint - ActionPoint's Related Transactions" in our Proxy Statement for the 2002 Annual Meeting of Stockholders and is incorporated herein by reference.

(a) The following documents are filed as partfiling of this Annual Report, the disclosure committee carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Mr. Bish, and Chief Financial Officer, Mr. Russo, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation,

Mr. Bish and Mr. Russo concluded that our disclosure controls and procedures are effective in causing material information to be collected, communicated and analyzed by management on Form 10-K ata timely basis and to ensure that our public disclosures are timely filed and comply with SEC disclosure obligations.

Changes in Controls and Procedures

There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls after the enddate of this item 14:our most recent evaluation.

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

(2)  Exhibits

1. Reports on Form 8-K.

                                                               December 31,
                                                            -------------------
                                                              2001      2000
                                                            --------- ---------
                         ASSETS
Current assets:
  Cash and cash equivalents...............................    $8,325    $2,242
  Accounts receivable, net of allowance for doubtful
     accounts of $249 in 2001 and $200 in 2000............     4,845     7,912
  Prepaid expenses and other current assets...............       935     1,510
  Deferred income taxes...................................                 375
                                                            --------- ---------
      Total current assets................................    14,105    12,039

Property and equipment, net...............................       808     1,585
Deferred income taxes and other assets....................       415     4,177
                                                            --------- ---------
Total assets..............................................   $15,328   $17,801
                                                            ========= =========

          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable........................................      $440      $414
  Accrued compensation and related liabilities............       982     2,055
  Deferred revenue........................................     3,400     3,202
  Other accrued liabilities...............................     1,184     1,408
                                                            --------- ---------
       Total current liabilities..........................     6,006     7,079

  Long term deferred revenue..............................       989       800
  Other long term liabilities.............................       176
                                                            --------- ---------
Total liabilities.........................................     7,171     7,879
Commitments (see Note 5)                                    --------- ---------

Stockholders' equity:
Common stock, $0.01 par value; authorized: 25,000,000
   shares; issued and outstanding: 4,375,000 shares
   and 4,274,000 shares at December 31, 2001 and
   2000, respectively.....................................        44        43
Paid-in capital...........................................    10,130     9,981
Accumulated deficit.......................................    (2,017)     (102)
                                                            --------- ---------
     Stockholders' equity.................................     8,157     9,922
                                                            --------- ---------
Total liabilities and stockholders' equity................   $15,328   $17,801
                                                            ========= =========

                                                       Year Ended December 31,
                                                      --------------------------
                                                        2001     2000     1999
                                                      -------- -------- --------
Net revenues:
  License...........................................  $15,353  $19,421  $17,858
  Service...........................................    6,682    5,621    4,320
                                                      -------- -------- --------
   Total  revenues..................................   22,035   25,042   22,178
                                                      -------- -------- --------
Cost of revenues:
  License...........................................      885      525      616
  Service (inclusive of stock related bonus
      expense of $138 in 2000)......................    2,854    3,896    2,598
                                                      -------- -------- --------
    Total cost of revenues..........................    3,739    4,421    3,214
                                                      -------- -------- --------
Gross profit........................................   18,296   20,621   18,964
                                                      -------- -------- --------
Operating expenses:
Research and development (inclusive of stock
       related bonus expense of $710 in 2000).......    5,552    7,854    5,586
Sales and marketing (inclusive of stock
       related bonus expense of $638 in 2000).......   12,045   16,437   11,182
General and administrative (inclusive of stock
       related bonus expense of $1,090 in 2000).....    3,250    4,683    3,044
                                                      -------- -------- --------
   Total  operating expenses........................   20,847   28,974   19,812
                                                      -------- -------- --------
    Operating loss..................................   (2,551)  (8,353)    (848)
Interest and other income...........................      239       95      631
Gain on sale of Dialog Server (see Note  2).........    4,612
Write-off of minority investment ...................              (500)
                                                      -------- -------- --------
    Income (loss) before provision for income taxes.    2,300   (8,758)    (217)
Provision (benefit) for income taxes................    4,215               (76)
                                                      -------- -------- --------
    Net loss........................................  ($1,915) ($8,758)   ($141)

                                                      ======== ======== ========
Basic and diluted net loss per share................   ($0.45)  ($2.09)  ($0.03)
                                                      ======== ======== ========
Weighted average shares.............................    4,300    4,190    4,370
                                                      ======== ======== ========

                                                                  Retained    Total
                                      Common Stock   Additional   Earnings    Stock-
                                    ----------------  Paid-in    (Accumulate holders'
                                     Shares   Amount  Capital     Deficit)    Equity
                                    --------- ------ ----------  ---------- ----------

Balances, December 31, 1998.......     4,808     48     12,512       8,797     21,357
 Common stock issued under:
   Stock option plan..............        16               116                    116
   Employee Stock Purchase Plan...        70      1        339                    340
 Common stock repurchased.........      (818)    (8)    (4,462)                (4,470)
 Tax benefit from disqualifying
   dispositions of common stock...                          87                     87
 Stock-based compensation.........                          89                     89
 Net loss.........................                                    (141)      (141)
                                    --------- ------ ----------  ---------- ----------
Balances, December 31, 1999.......     4,076     41      8,681       8,656     17,378
 Common stock issued under:
   Stock option plan..............        85      1        596                    597
   Employee Stock Purchase Plan...        88      1        282                    283
   Stock related bonus plan.......        25               362                    362
 Stock-based compensation.........                          60                     60
 Net loss.........................                                  (8,758)    (8,758)
                                    --------- ------ ----------  ---------- ----------
Balances, December 31, 2000.......     4,274    $43     $9,981       ($102)    $9,922
 Common stock issued under:
   Stock option plan..............         1                 6                      6
   Employee Stock Purchase Plan...       100      1        143                    144
 Net loss.........................                                  (1,915)    (1,915)
                                    --------- ------ ----------  ---------- ----------
Balances, December 31, 2001.......     4,375    $44    $10,130     ($2,017)    $8,157
                                    ========= ====== ==========  ========== ==========

                                                               Year Ended December 31,
                                                            --------------------------
                                                              2001     2000     1999
                                                            -------- -------- --------
Cash flows from operating activities:
  Net loss................................................  ($1,915) ($8,758)   ($141)
  Adjustments to reconcile net loss
  to net cash proviced by (used in) operating activities:
     Change in provision for doubtful accounts............       49       (9)    (350)
     Stock-based compensation.............................                60       89
     Write-off of minority investment.....................               500
     Shares issued for stock related bonus................               362
     Net gain on sale of Dialog Server product
      line (see Note 2)...................................   (2,278)
     Loss on disposal of property and equipment...........       25
     Depreciation and amortization........................      763      815      556
     Discontinued operations..............................                        176
     Deferred income taxes................................    1,664      895     (275)
  Changes in operating assets and liabilities:
     Accounts receivable..................................    3,018   (2,603)    (460)
     Prepaid expenses and other current assets............      695     (251)    (375)
     Accounts payable.....................................       26     (100)    (138)
     Accrued compensation and related liabilities.........   (1,073)     838      248
     Deferred revenue.....................................      443    2,005      303
     Other accrued liabilities............................     (734)    (664)     (46)
     Other long term liabilities..........................      176
                                                            -------- -------- --------
       Net cash provided by (used in)
       operating activities...............................      859   (6,910)    (413)
                                                            -------- -------- --------
Cash flows from investing activities:
  Property and equipment additions........................     (112)    (921)    (827)
  Proceeds from sale of Dialog Server product line........      887
  Sales of marketable securities..........................    4,299
                                                            -------- -------- --------
       Net cash provided by (used in) investing activities    5,074     (921)    (827)
                                                            -------- -------- --------
Cash flows from financing activities:
  Repurchase of common stock..............................                     (4,470)
  Net proceeds from issuance of common stock..............      150      880      456
                                                            -------- -------- --------
       Net cash provided by (used in)
       financing activities...............................      150      880   (4,014)
                                                            -------- -------- --------
Net increase (decrease) in cash and
   cash equivalents.......................................    6,083   (6,951)  (5,254)
Cash and cash equivalents at beginning of period..........    2,242    9,193   14,447
                                                            -------- -------- --------
Cash and cash equivalents at end of period................   $8,325   $2,242   $9,193
                                                            ======== ======== ========
Supplemental cash flow disclosures:
Cash (received) paid during the year for taxes............     (410)      36      364
Tax benefit from disqualifying dispositions...............                         87

                                                       Year Ended December 31,
                                                      --------------------------
                                                        2001     2000     1999
                                                   -------- -------- --------
Numerator: 
  Net loss..........................................  ($1,915) ($8,758)   ($141)

Denominator: 
  Weighted average shares...........................    4,300    4,190    4,444

  Net loss per share, basic and diluted.............   ($0.45)  ($2.09)  ($0.03)

                                    2001          2000          1999
                                ------------- ------------- -------------

number of stock options.......         1,822         3,030         2,660
price range...................   $1.30-$31.00  $1.39-$31.00  $1.39-$15.75

                                          December 31,
        Property and equipment, net:        2001      2000
                                          --------- ---------
     Office equipment and machinery.....    $2,078    $2,828
     Software...........................       749       786
     Leasehold improvements.............       526       526
                                          --------- ---------
                                             3,353     4,140

     Less accumulated depreciation and
     amortization.......................    (2,545)   (2,555)
                                          --------- ---------
                                              $808    $1,585
                                          ========= =========

Year ending December 31,

     2002...............................    $1,251
     2003...............................     1,257
     2004...............................       305
     2005...............................       113
     2006...............................       113
     Subsequent years...................       249
                                          ---------
      Total.............................    $3,288
                                          =========

                                          Options Outstanding
                                          ----------------------
                                Shares               Weighted-
                               Available   Number     average
                                  for        of     Exercise pric
                                 Grant     Shares    per share
                               ---------  --------- ------------

Balance, December 31, 1998....      344      1,876        $7.39

   Plan Amendment.............      648
   Options granted............     (982)       982        $5.23
   Options canceled...........      124       (182)       $7.90
   Options exercised..........                 (16)       $7.25
                               ---------  ---------
Balance, December 31, 1999....      134      2,660        $6.56

   Plan Amendment.............      550
   Options granted............     (613)       613        $8.47
   Options canceled...........      158       (158)       $8.34
   Options exercised..........                 (85)       $7.02
                               ---------  ---------
Balance, December 31, 2000....      229      3,030        $6.84

   Plan Amendment.............      150
   Options granted............     (751)       751        $3.35
   Options canceled...........    1,958     (1,958)       $7.16
   Options exercised..........                  (1)       $6.00
                               ---------  ---------
Balance, December 31, 2001....    1,586      1,822        $5.06
                               =========  =========

                           Options Oustanding               Options Exercisable
                   ------------------------------------  ------------------------
                                   Weighted
                      Number       Average    Weighted      Number      Weighted
                    Outstanding   Remaining    Average    Exercisable    Average
    Range of           as of      Contractual Exercise       as of      Exercise
 Exercise Prices   December 31,   Life (Years)  Price    December 31,     Price
                       2001                                  2001
- -----------------  -------------  ----------  ---------  -------------  ---------
                       (000s)                               (000s)
  $1.39 -  $2.75            463         9.6      $2.16             40      $1.78
  $2.90 -  $4.94            278         7.1       4.20            125       4.37
  $5.00 -  $6.00            651         7.0       5.29            446       5.22
  $6.13 -  $8.00            241         6.0       7.42            214       7.46
  $8.06 - $31.00            189         4.4       9.64            179       9.39
                   -------------                         -------------
  $1.39 - $31.00          1,822         7.3      $5.06          1,004      $6.20
                   =============                         =============

                                      2001         2000         1999
                                   -----------  -----------  -----------
  Risk-free interest rates.......        4.10%        5.60%        5.50%
  Expected life..................    3.5 years    3.5 years    3.5 years
  Volatility.....................          50%          50%          50%
  Dividend yield.................        --           --           --

                                      2001         2000         1999
                                   -----------  -----------  -----------
  Risk-free interest rates.......        4.10%        5.60%        5.50%
  Expected life..................   0.50 years   0.50 years   0.50 years
  Volatility.....................          50%          50%          50%
  Dividend yield.................        --           --           --

                                      2001         2000         1999
                                   -----------  -----------  -----------
  Net loss - proforma............     ($2,737)    ($10,838)     ($1,443)
  Basic and diluted EPS - proform      ($0.64)      ($2.59)      ($0.33)

                       Year ended December 31,
                         2001      2000      1999
                       --------  --------  --------
United States          $15,425   $18,531   $16,189
   % of total               70%       74%       73%
International           $6,611     6,511     5,989
   % of total               30%       26%       27%

                                            Year ended December 31,
                                              2001       2000       1999
                                            ---------  ---------  ---------
Current:
  Federal.................................       $79
  State and local.........................        33                    $2
  Foreign.................................       169                   128
                                            ---------  ---------  ---------
                                                 281          0        130
                                            ---------  ---------  ---------
Deferred:
  Federal.................................     3,386                  (161)
  State and local.........................       548                   (45)
                                            ---------  ---------  ---------
                                               3,934          0       (206)
                                            ---------  ---------  ---------
Total:
  Federal.................................     3,465                  (161)
  State and local.........................       581                   (43)
  Foreign.................................       169                   128
                                            ---------  ---------  ---------
                                              $4,215         $0       ($76)
                                            =========  =========  =========

                                            Year ended December 31,
                                              2001       2000       1999
                                            ---------  ---------  ---------
Statutory federal income tax rate.........      34.0%     -33.5%     -34.0%
State taxes, net of federal benefit.......       6.0%      -5.1%       5.8%
Foreign taxes in excess of US rate........                            19.9%
Research and development credits..........                           -41.5%
Non-deductible expenses...................                            17.8%
Change in valuation allowance.............     143.2%      38.6%
Other, net................................                            -3.2%
                                            ---------  ---------  ---------
                                               183.2%      -0.0%     -35.2%
                                            =========  =========  =========

                                            December 31,
                                              2001       2000
                                            ---------  ---------
Deferred tax assets:
  Provision for doubtful accounts.........      $100        $84
  Accrued liabilities/deferred revenue....       814        746
  Net operating loss carryforwards........     4,378      5,318
  Tax credit carryforwards................     1,756      2,066
                                            ---------  ---------
       Total deferred tax assets..........    $7,048     $8,214

Deferred tax liabilities:

  Depreciation and basis differences......       (87)      (137)

  Valuation Allowance.....................    (6,961)    (3,665)
                                            ---------  ---------
Net deferred tax assets...................        $0     $4,412
                                            =========  =========

                                         Additions
                              Balance at Charged to             Balance
                              beginning  costs and              at end
Description of year   expenses   Write-Offs  of year
- ----------------------------  ---------  ---------  ---------  ---------
Year ended December 31, 2001
   Allowance for bad debt...      $200        $61       ($12)      $249

Year ended December 31, 2000
   Allowance for bad debt...      $209        $83       ($92)      $200

Year ended December 31, 1999
   Allowance for bad debt...      $559      ($350)        $0       $209