UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 0-22292

CAPTIVA SOFTWARE CORPORATIONCaptiva Software Corporation
(Exact name of Registrant as specified in its Charter)charter)

Delaware	77-0104275
(StateDelaware	77-0104275
(State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization) organization)	(I.R.S. Employer Identification Number)No.)

10145 Pacific Heights Blvd.,
San Diego, California    95121CA 92121
(858) 320-1000
(Address, including zip code, and telephone number, including area code, of Principal Executive Offices including Zip Code)Registrant’s principal executive offices)

(858)320-1000
(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report: ActionPoint, Inc.; 1299 Parkmoor Ave., San Jose, CA 95126

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

APPLICABLE ONLY TO CORPORATE ISSUERSYes  xNo  o

The number         Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   oNo  x

         As of July 31, 2003, there were 9,477,231 shares of the issuer's Common Stock outstanding as of July 30, 2002 was 4,424,849

CAPTIVA SOFTWARE CORPORATION
Index

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
INDEX

2

PARTPart I -- FINANCIAL INFORMATION

- Financial Information
Item 1.1 - Financial Statements

CAPTIVA SOFTWARE CORPORATION
CONSOLIDATED CONDENSED CONSOLIDATED BALANCE SHEETS*
(UNAUDITED)
(IN THOUSANDS)

                                             June 30,     December 31,
                                                2002          2001
					    (Unaudited)
                                           -------------  -----------

                       ASSETS
Current assets:
  Cash and cash equivalents ...............      $8,979       $8,325
  Accounts receivable, net.................       4,183        4,845
  Other current assets.....................         565          935
                                           -------------  -----------
    Total current assets...................      13,727       14,105

Property and equipment, net................         614          808
Other assets...............................         863          415
                                           -------------  -----------
                                                $15,204      $15,328
                                           =============  ===========

       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable.........................        $177         $440
  Deferred revenue.........................       3,488        3,400
  Accrued liabilities......................       1,360        2,166
                                           -------------  -----------
    Total current liabilities..............       5,025        6,006

Long term liabilities......................       1,147        1,165
                                           -------------  -----------
Total liabilities..........................       6,172        7,171
                                           -------------  -----------
Stockholders' equity:
  Common stock.............................          44           44
  Paid-in capital..........................      10,198       10,130
  Accumulated deficit......................      (1,210)      (2,017)
                                           -------------  -----------
    Stockholders' equity...................       9,032        8,157
                                           -------------  -----------
                                                $15,204      $15,328
                                           =============  ===========

*The accompanying notes are an integral part of these consolidated condensed consolidated financial statements


statements.

3

CAPTIVA SOFTWARE CORPORATION
CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS*
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                              Three Months Ended  Six Months Ended
                                                    June 30,            June 30,
                                             ------------------- -------------------
                                                2002      2001      2002      2001
                                             --------- --------- --------- ---------
Net revenues:
  License...................................   $3,769    $3,211    $7,566    $8,146
  Service...................................    1,939     1,652     3,934     3,312
                                             --------- --------- --------- ---------
Total revenues..............................    5,708     4,863    11,500    11,458

Cost of revenues:
  License...................................      263       211       481       386
  Service...................................      681       712     1,373     1,566
                                             --------- --------- --------- ---------
Total cost of revenues......................      944       923     1,854     1,952
                                             --------- --------- --------- ---------
Gross profit                                    4,764     3,940     9,646     9,506
                                             --------- --------- --------- ---------
Research and development....................    1,305     1,450     2,546     3,133
Sales and marketing.........................    2,639     3,141     5,635     6,434
General and administrative..................      711       805     1,352     1,745
                                             --------- --------- --------- ---------
Operating profit (loss).....................      109    (1,456)      113    (1,806)

Interest and other income....................     681     5,123       694     5,158
                                             --------- --------- --------- ---------
Income before provision
   for income taxes.........................      790     3,667       807     3,352
Provision for income taxes..................       --     4,103        --     4,103
                                             --------- --------- --------- ---------
Net income (loss)...........................     $790     ($436)     $807     ($751)
                                             ========= ========= ========= =========

Basic and diluted EPS:
 Basic......................................    $0.18    ($0.10)    $0.18    ($0.18)
 Diluted....................................    $0.18    ($0.10)    $0.18    ($0.18)
                                             ========= ========= ========= =========

Shares used in basic EPS calculations: .....    4,375     4,276     4,375     4,275
Shares used in diluted EPS calculations: ...    4,420     4,276     4,425     4,275

*The accompanying notes are an integral part of these consolidated condensed consolidated financial statements

statements.

4

CAPTIVA SOFTWARE CORPORATION
CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS*STOCKHOLDERS’ EQUITY AND TOTAL
COMPREHENSIVE INCOME*
(UNAUDITED)
(UNAUDITED & IN THOUSANDS)

                                                             Six Months Ended
                                                                  June 30,
                                                           -------------------
                                                             2002      2001
                                                           --------- ---------
Cash flows from operating activities:
 Net income (loss)........................................     $807     ($751)
 Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Depreciation and amortization..........................      307       424
   Provision for doubtful accounts receivable.............      (68)       --
   Net gain on sale of Dialog Server assets...............     (608)   (2,689)
   Valuation allowance on deferred tax assets.............       --     1,664
 Change in assets and liabilities:
    Accounts receivable...................................      730     4,176
    Other assets..........................................      (78)      855
    Accounts payable......................................     (263)     (160)
    Deferred revenue......................................      135      (168)
    Accrued and other long-term liabilities...............     (871)   (1,631)
                                                           --------- ---------
    Net cash provided by operating activities.............       91     1,720
                                                           --------- ---------
Cash flows from investing activities:
 Property and equipment additions.........................     (113)      (73)
 Proceeds from sale of Dialog Server assets...............      608       887
                                                           --------- ---------
    Net cash provided by investing activities.............      495       814
                                                           --------- ---------
Cash flows from financing activities:
  Net proceeds from issuance of common stock..............       68        80
                                                           --------- ---------
    Net cash provided by financing activities.............       68        80
                                                           --------- ---------
Net increase in cash and cash equivalents.................      654     2,614

Cash and cash equivalents at beginning of period..........    8,325     2,242
                                                           --------- ---------
Cash and cash equivalents at end of period................   $8,979    $4,856
                                                           ========= =========

*The accompanying notes are an integral part of these consolidated condensed consolidated financial statements


statements.

5

CAPTIVA SOFTWARE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS*
(UNAUDITED)
(IN THOUSANDS)

*The accompanying notes are an integral part of these consolidated condensed financial statements.

6

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(UNAUDITED)

1.       BASIS OF PREPARATION:PREPARATION AND ACCOUNTING POLICIES:

Unaudited Interim Financial Information:

The accompanying unaudited interim condensed consolidated financial statements of         In this document, “we”, “our”, “us”, and the “Company” refer to Captiva Software Corporation, formerly known as ActionPoint, Inc. (the "Company"), and its subsidiaries, unless the context otherwise requires. The accompanying unaudited interim consolidated condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC.Commission. The December 31, 20012002 balance sheet data was derived from audited financial statements contained in the Company's 2001Company’s 2002 Annual Report on Form 10-K but does not include all disclosures required by accounting principles generally accepted in the United States of America.

         The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

         In the opinion of management, the unaudited consolidated condensed financial statements for the three-three and six-month periods ended June 30, 2003 and 2002 and 2001 include in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information set forth herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for anany other interim period or the entire fiscal year and should not be relied onupon as such.

         Revenue Recognition:

         Revenue is generated primarily from three sources: (i) software, which is primarily software license and royalty revenue, (ii) services, which includes software license maintenance fees, training and professional services revenue and (iii) hardware and other products, which were primarily sales of digital scanners in the three and six months ended June 30, 2003. Software license revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, fees are fixed and determinable, collection is probable and no significant undelivered obligations remain. Royalty revenue is recognized when partners ship or pre-purchase rights to ship products incorporating the Company’s software, provided collection of such revenue is determined to be probable and the Company has no further obligations. Services 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. Hardware and other products sales revenue is recognized when the following criteria are met: (i) persuasive evidence of 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), the Company allocates revenue to each element of the arrangement based on the fair value of the undelivered elements, which is specific to the Company, 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 prices of these services when sold separately to other customers. Deferred revenue is primarily comprised of undelivered maintenance services and in some cases hardware and other products delivered but not yet accepted. When software licenses are sold with professional services and such services are deemed essential to the functionality of the overall solution, combined software 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 revenue is recognized when the above criteria are met and service revenue is recognized as the services are performed.

7

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

         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 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 the Company in this process, the Company used an independent valuation firm. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets acquired, the Company 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 that the Company has used are consistent with the plans and estimates that the Company uses to manage its 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 the Company’s net operating results. Amortization of purchased intangibles is expected to be $2.1 million, $2.1 million, $1.3 million, $0.2 million and $0.1 million for the years ending December 31, 2003, 2004, 2005, 2006 and 2007, respectively.

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

         Valuation of Goodwill:

         The Company assesses 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.

         Important factors that could trigger an impairment include the following:

         When there is an 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.

         Stock-Based Compensation:

         The Company has elected to utilize the intrinsic value method to account for its employee stock option plans. When the exercise price of the Company’s employee stock options equals the fair value price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s financial statements. Compensation expense for options granted to non-employees is determined in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 and Emerging Issues Task Force (“EITF”) No. 96-18 as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Deferred charges for options granted to non-employees are periodically remeasured as the underlying options vest.

8

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

         Had compensation cost for the Company’s stock-based compensation to employees been determined based on the fair value method, the amount of stock-based employee compensation cost and the Company’s pro forma results would have been as indicated below (in thousands, except per share data):

         Reclassifications:

         Certain prior period items have been reclassified to conform with the current period’s presentation. These reclassifications had no impact on total assets, net revenues, operating income or net income as previously reported.

         New Accounting Pronouncements:

         In November 2002, the EITF reached consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This consensus requires that revenue arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. The Company will be required to adopt the provisions of this consensus for revenue arrangements entered into in interim periods beginning after June 15, 2003 (the quarter beginning July 1, 2003 for the Company). The adoption of this accounting pronouncement is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

2.       LIQUIDITY:MERGER OF ACTIONPOINT AND CAPTIVA SOFTWARE:

For         On July 31, 2002, the Company completed the merger with privately-held Captiva Software Corporation, a California corporation (“Old Captiva”), of San Diego, California (the “Merger”). Old Captiva was a provider of forms information capture software and related services. Under the terms of the Merger agreement, the Company exchanged all of Old Captiva’s outstanding common stock for 4.4 million shares of the Company’s common stock and 2.2 million replacement options to purchase common stock, of which 772,000 options were vested, and issued warrants to purchase approximately 8,000 shares of common stock. The 2.2 million options to purchase common stock have exercise prices ranging from $0.52 to $2.43 per share and a weighted-average

9

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

exercise price of $1.94 per share. The warrants to purchase common stock have an exercise price of $2.43 per share.

         The Merger was accounted for as a purchase. The fair value of the Company’s common stock issued in the Merger of $1.11 per share was determined based on the average closing price three days prior to the completion date of the Merger. The fair value of the vested replacement options were estimated based on a Black-Scholes model utilizing the following assumptions: fair value of common stock of $1.11 per share, expected term of two years, expected volatility of 90%, expected dividend yield of 0%, and a risk-free interest rate of 2.3%.

         On the date of the Merger the purchase price was allocated as follows (in thousands):

         In connection with the Merger, the Company wrote-off the purchased in-process research and development of $0.9 million, which was charged to operations for the year ended December 31, 2001,2002. The purchased in-process research and development (“IPR&D”) is solely related to the Companynext version of Old Captiva’s Formware software. The latest release of Old Captiva’s Formware software was introduced in March 2002. Based on time spent on the next version of Old Captiva’s Formware software system and costs incurred, a net loss of $1.9 million but generated positive cash flows from operating activities of $859,000this project was estimated to be approximately 44% complete as a result of the salemerger date. At the date of its Dialog Server product lineacquisition, the total cost to complete the project was estimated to be approximately $0.8 million, primarily consisting of salaries, and other cost reduction measures. For the project was completed during the second quarter of 2003, as expected. The results of operations of Old Captiva are included in the year ended December 31, 2002 only from August 1, 2002. If the Merger had occurred on January 1, 2002, pro forma financial information for the three and six months ended June 30, 2002 would have been as follows (in thousands, except per share information):

         During the year ended December 31, 2002, as the result of a review of the combined operation, the Company generatedadopted a net incomeplan which included a reduction of $807,000its workforce and positive cash flow fromoffice space made redundant by the Merger. This plan is expected to largely be completed during 2003. As a result of the adoption of this plan, the Company 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 resulting in the impairment of $91,000. Atan asset, excess lease costs and employee severance costs related to a reduction in workforce.

10

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

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

3.    COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS (IN THOUSANDS):

11

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

4.    COMPUTATION OF NET INCOME PER SHARE:

         Dilutive securities include options subject to vesting and warrants as if converted. Dilutive securities of 1.3 million and 0.9 million are included in the diluted earnings per share calculation for the three and six months ended June 30, 2003, respectively. Dilutive securities of 0.05 million are included in the diluted earnings per share calculation for both the three and six months ended June 30, 2002. Potentially dilutive securities totaling 1.0 million and 2.0 million for the three and six months ended June 30, 2003, respectively, and 2.7 million for both the three and six months ended June 30, 2002, were excluded from basic and diluted earnings per share because of their anti-dilutive effect.

5.    LINE OF CREDIT:

         In connection with the Merger, the Company had cash and cash equivalentsassumed a line of approximately $9.0credit with a bank. The line of credit will expire in August 2003. On June 30, 2003, the outstanding principal balance under the line of credit was $1.8 million.

On March 4, 2002, ActionPoint, Inc. (before Borrowings under the merger with Old Captiva, referred to herein as "actionPoint") entered into a merger agreement with Captiva Software Corporation, a privately held company that provided forms processing software products and services ("Old Captiva"). The merger was completed on July 31, 2002. Pursuantline of credit are limited to the merger, Old Captiva became a wholly-owned subsidiarylesser of ActionPoint$3.0 million or 80% of eligible accounts receivable. Outstanding balances under the line of credit and ActionPoint changed its namethe term loan bear interest at the bank’s prime rate plus 0.5%. All assets of the Company collateralize the line of credit. The Company is restricted from paying dividends under the terms of the line of credit. The line of credit includes various financial covenants related to Captiva Software Corporation. The recently completed merger resulted in and will continue to result in some non-recurring transaction and integration expenses and increasedthe Company’s operating expensesresults. As of June 30, 2003 the Company was compliant with all loan covenants.

6.    INCOME TAXES:

         Income tax provision for the Company.Ininterim periods is based on estimated effective income tax rates for the event that existing funds are not sufficient to meet the Company's obligations, the Company may need to seek additional financing. There can be no assurance that such additional financing will be available or will be available on terms acceptableyear. The Company’s effective tax rate is 40%, which was applied to the Company, which could have a material adverse effect onresults for the Company's business,three and six months ended June 30, 2003. The Company’s estimated effective income tax rate for the three and six months ended June 30, 2003 differs from the U.S. federal statutory rate of 35% primarily due to state income taxes. No tax provision was made for the three and six months ended June 30, 2002 due to the Company’s net operating results and financial condition.loss carryforwards.

3.7.    SALE OF THE DIALOG SERVER PRODUCT LINE:

The Company sold its Dialog Server product line to Chordiant Software, Inc. (“Chordiant”) on May 17, 2001 for approximately $7.1 million consisting of $2.0 million in cash and 1,700,000 shares of Chordiant common stock, which was valued at $3.00 per share at the closing sale date. The Company 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 $400,000 in the third quarter of 2001. For the year ended December 31, 2001, the Company recognized a pretax gain of approximately $4.6 million ($2.3 million net of tax) on the transaction, comprised of proceeds other than amounts in escrow and less transaction expenses. A portion of the total proceeds, $637,000 in cash, remained in escrow for one year following the closing date pursuant to the asset sale agreement with Chordiant. Accordingly, this amount was not included on the balance sheet or in the initial computation of gain on sale. The Company received $608,000 of the escrow funds in May 2002 and the Company recognized this amount as other income in the quarter ended June 30, 2002.

4. COMPUTATION OF NET INCOME (LOSS) PER SHARE:

For the three months ended June 30, 2002, there were 44,460 common shares attributable to shares issuable under employee stock plans included in the computation of net income per share. As of June 30, 2002, options to purchase 2,703,149 shares of common stock with a weighted average exercise price of $4.49 were considered anti-dilutive because the exercise prices for such options were greater than the average fair market value of the Company's common stock for the period then ended and were not included in the computation of net income per share. As of June 30, 2001, options to purchase approximately 3,044,595 shares of common stock with a weighted average exercise price of $6.78 were similarly considered anti-dilutive and were not included in the computation of net loss per share.

5. STOCK OPTION EXCHANGE PROGRAM:

On August 3, 2001, the Company's Board of Directors approved a stock option exchange program (the "Exchange Program"). Under the Exchange Program, employees were given the opportunity to exchange one or more stock options held by them for a right to receive one or more new stock options to be granted at least six months and one day after the old options were cancelled, provided the optionee was still employed or providing services to the Company on such date. The new options commence vesting on the same date as the old options and are immediately exercisable as to the vested shares when granted. In total, options to purchase 1,137,629 shares of common stock at a weighted average exercise price per share of $6.87 were returned to the Company and cancelled as a result of the Exchange Program. On March 2, 2002, options to purchase 1,137,629 shares of common stock were issued under the Exchange Program at an exercise price of $2.43 per share.

6.8.    SEGMENTS AND GEOGRAPHIC REPORTING:

The Company has determined that it has a single reportable segment consisting of the development, marketing and servicing of information capture software. Management uses one measurement of profitability and does not disaggregate its business for internal reporting. Operations outside the United States primarily consist of sales offices of the Company'sCompany’s subsidiaries in the United Kingdom, Germany and GermanyAustralia, which are responsible for sales to foreign customers, which customers are invoiced at the Company's headquarters in the United States.customers. The foreign subsidiaries do not carry any significant tangible long-lived assets and income andthe total assets of the Company'sCompany’s foreign subsidiaries were not significant for any period presented.

12

CAPTIVA SOFTWARE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents revenue derived from domestic and international sales for the three and six months ended June 30, 20022003 and 2001,2002, respectively (in thousands, except percentage data):

                             Three Months Ended     Six Months Ended
                                  June 30,             June 30,
                            -------------------  -------------------
                                2002      2001       2002      2001
                            --------- ---------  --------- ---------
United States..............   $3,881    $4,085     $7,358    $8,752
 % of total................       68%       84%        64%       76%

International..............   $1,827      $778     $4,142    $2,706
 % of total................       32%       16%        36%       24%

7. RECENT ACCOUNTING PRONOUNCEMENTS:9.    GUARANTEES:

In the first quarter ofNovember 2002, the Company adopted Emerging Issues Task Force ("EITF"Financial Accounting Standards Board (“FASB”) Issueissued FASB Interpretation No. 01-09, "Accounting45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Consideration Given byGuarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a Vendorliability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued. The provisions related to recognizing a Customer or a Resellerliability at inception of the Vendor's Products",guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.

         From time to time, the Company provides indemnifications of varying scope to customers against claims of intellectual property infringement made by third parties arising from the use of the Company’s products. To date, the Company has not encountered material costs as a result of such obligations and has not accrued any liabilities related to such indemnifications in its financial statements.

13

Item  2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q 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 differ materially. Important factors which is a codification of EITF Issues No. 00-14, No. 00-25 and No. 00-22. The adoption of this EITF did not have a material impact onmay cause actual results to differ materially from the Company's financial statements. Alsoforward-looking statements are described in the first quartersection entitled “Risk Factors” in this Quarterly Report on Form 10-Q and other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications.

Although we believe that the estimates and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of 2002, we adopted EITF Issue No. 01-14, "Income Statement Characterizationactivity, performance or achievements. We assume no obligation to update any of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred," which did not have a material impact on the Company's financial statements.forward-looking statements contained in this report.

OVERVIEW:

8. SUBSEQUENT EVENTS

On March 4, 2002, ActionPoint, Inc. (“ActionPoint”) entered into a merger agreement with privately-held Captiva Software Corporation (“Old Captiva. The merger was completed onCaptiva”). On July 31, 2002. Pursuant to2002, the Company completed the merger approximately 4,400,000 shares of ActionPoint common stock were issued to the former shareholders ofwith Old Captiva in exchange for all outstanding shares of Old Captiva common stock. Additionally,(the “Merger”). In the Merger, Old Captiva became a wholly-ownedwholly owned subsidiary of ActionPoint, and ActionPoint changed its name to Captiva Software Corporation. The and remained a Delaware corporation.

         As a result of the purchase accounting that applies to the Merger, the results of operations of Old Captiva'sCaptiva 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 infor an entire reporting period.

CRITICAL ACCOUNTING POLICIES:

         A critical accounting policy is one which is both important to the Company's consolidated financial statements subsequent to July 31, 2002.

The merger will be accounted for using purchase method accounting. The preliminary estimateportrayal of the aggregate purchase price was approximately $7.9 million, including common stock valued at $4.67 million as of the closing date. The value of the approximately 4,400,000 shares was based on the closing price of ActionPoint's common stock two days before and the day of the completion of the merger of $1.13 using the average of the closing price for the three trading days ending on the merger completion date. The Company estimates, based upon June 30, 2002 information, that the fair value of the tangible assets acquired was approximately $8.0 million, the fair value of the liabilities assumed was approximately $13.3 million and the fair value of acquired intangible assets was approximately $13.2 million. The Company is in process of obtaining detailed asset and liability valuations as of July 31, 2002 and a third-party valuation of certain intangible assets; thus, the allocation of the purchase price is subject to adjustment.

One million dollars of the estimated $13.2 million of acquired intangible assets was assigned to research and development assets that will be written off at the date of acquisition in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method." The remaining estimated $12.0 million of acquired intangible assets include developed technology of $6.2 million (3-year weighted-average useful life), trademarks and tradenames valued at $900,000 (5-year weighted-average useful life), other amortizable assets of $800,000 (3-year weighted-average useful life) and goodwill of $4.3 million.

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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain information in this quarterly report on Form 10-Q, including the discussion below, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this quarterly report on Form 10-Q other than statements of historical fact are forward-looking statements. Examples of forward-looking statements include statements regarding the Company's future financial results, operating results, projected costs, revenue, markets for products, competition, products, plans, objectives and strategy, as well as other statements that include words such as anticipate, believe, plan, should, would, could, expect, intend, believe, estimate, predict, potential and other similar words. These forward-looking statements are inherently uncertain and are subject to business, economic and other risks. Accordingly, actual results could differ materially from expectations based on forward-looking statements made in this quarterly report on Form 10-Q and elsewhere by the Company or on its behalf due to various factors, including, but not limited to, those set forth under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" and elsewhere contained in this quarterly report on Form 10-Q. The Company does not undertake any obligation to update its forward-looking statements to reflect future events or circumstances.

The following discussion of thecompany’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 three sources: (i) software, which is primarily software license and royalty revenue, (ii) services, which includes software license maintenance fees, training and professional services revenue and (iii) hardware and other products, which were primarily sales of digital scanners in the three and six months ended June 30, 2003. Software license revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, fees are fixed and determinable, collection is 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 revenue is recognized ratably over the period of the Company should be readmaintenance contract or as the services are provided. Payments for maintenance fees are generally made in conjunctionadvance and are non-refundable. Hardware and other products sales revenue is recognized when the following criteria are met: (i) persuasive evidence of 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 prices of these services when sold separately to other customers. Deferred revenue is primarily comprised of undelivered maintenance services and in some cases hardware and other products delivered but not yet accepted. When software licenses are sold with professional services and such services are deemed essential to the functionality of the overall solution, combined software and service revenue is recognized over the service period. When software licenses are sold with professional services and such services

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are not considered essential to the functionality of the software, software 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 Company's consolidated financial statementsplans and notes thereto included elsewhereestimates that we use to manage our business, based on available historical information and industry averages. The judgments made in this quarterly report on Form 10-Qdetermining the estimated useful lives assigned to each class of assets acquired can also significantly affect our net operating results. Amortization of purchased intangibles is expected to be $2.1 million, $2.1 million, $1.3 million, $0.2 million and its consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K$0.1 million for the year endedyears ending December 31, 2001.

OVERVIEW:

The Company is a leading provider of enterprise input management software solutions. Since 1989, the Company's award-winning products have been used to manage business critical information from paper, faxed2003, 2004, 2005, 2006 and scanned forms and documents, Internet forms and XML data streams into the enterprise in a more accurate, timely and cost-effective manner. These products automate the processing of billions of forms and documents annually, converting their contents into information that is usable in database, document, content and other information management systems. The Company's technology serves thousands of users in insurance, financial services, government, business process outsourcing, direct marketing and various other markets. Additionally, the Company markets software tools under the Pixel Translations brand to various hardware and software providers.

On March 4, 2002, ActionPoint entered into a merger agreement with 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. The merger will be accounted for using purchase method accounting.

2007, respectively.

         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 an 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.

RESULTS OF OPERATIONS:

Revenues

The Company's license revenues increased 17% inresults of operations of Old Captiva are excluded from our historical results for the second quarter of 2002 to $3.8 million from $3.2 million in the second quarter of 2001. For thethree and six months ended June 30, 2002 licensein accordance with generally accepted accounting principles (“GAAP”).

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Three Months Ended June 30, 2003 and 2002

Revenues

         Total revenues decreased 7%increased 143% for the three months ended June 30, 2003 to $7.6$13.9 million from $8.1$5.7 million infor the first sixthree months of 2001.ended June 30, 2002.

         Our software revenues increased 85% for the three months ended June 30, 2003 to $6.8 million from $3.7 million for the three months ended June 30, 2002. As a percentpercentage of total revenue, licensesrevenues, software revenues accounted for 66%49% and 64% for the second quarter of each ofthree months ended June 30, 2003 and 2002, and 2001, and 66% and 71%respectively. The increase in software revenues for the sixthree months ended June 30, 2003 compared to the three months ended June 30, 2002 and 2001, respectively.is primarily due to the Merger. The decrease in license revenuesoftware revenues as a percentage of total revenues reflects the lower software revenues as a percentage of total revenues for the six-month period ended June 30, 2002 compared toOld Captiva business and the same periodincrease in 2001 is due in part to a weaker economy in 2002, which has led to extended sales cycleshardware and general slowdowns in information technology spending.

The Company's serviceother revenues increased 17% in the second quarter of 2002 to $1.9 million from $1.7 million in2003.

         Our service revenues increased 155% for the second quarter of 2001. For the sixthree months ended June 30, 2002, service revenues increased 34%2003 to $3.9$5.2 million from $3.3$2.0 million in the first six months of 2001. As a percent of total revenue, services accounted for 34% for the second quarter each of 2002 and 2001, and 34% and 29% for the sixthree months ended June 30, 20022002. As a percentage of total revenues, services accounted for 37% and 2001,36% for the three months ended June 30, 2003 and 2002, respectively. The increase in service revenues both in absolute and percentage terms was attributable primarily to the Merger. The increase in service revenues as a larger installed basepercentage of customers purchasing annual software maintenance.

Gross Profit

Gross profit increased 21%total revenues is attributable to the higher service revenues as a percentage of total revenues for the second quarterOld Captiva business.

         Our hardware and other revenues were $1.9 million or 14% of 2002 to $4.8 million from $3.9 milliontotal revenues for the second quarter of 2001. For the sixthree months ended June 30, 2002, gross2003. No hardware and other revenues were reported for the three months ended June 30, 2002. The increase was primarily attributable to sales of digital scanners.

Gross Profit

         Gross profit increased 1%86% for the three months ended June 30, 2003 to $9.6$8.6 million from $9.5$4.6 million in the first six months of 2001. The increase in gross profit for the second quarter of 2002 is due primarily to the corresponding increase in revenues.

three months ended June 30, 2002. Gross profit as a percentage of revenue increasedtotal revenues decreased to 83%62% from 81% for the second quarter of 2002 and 2001, respectively, and increased to 84% from 83% for the sixthree months ended June 30, 2003 and 2002, respectively. The increase in absolute terms was primarily attributable to the increased revenues related to the Merger and 2001, respectively. This is consistent withpartially offset by the recentamortization of intangible assets also related to the Merger. The decrease in percentage terms was primarily attributable to a product mix in Old Captiva that equated to a lower gross margin percentage than our historical range forgross margin and the Company's gross profit as a percentage of revenue.

Research and Development

Research and development expenses decreased 10%increase in hardware revenue in the second quarter of 2002 to $1.3 million from $1.5 million in2003, which carries a lower gross profit percentage than the second quarter of 2001. Forother revenue categories.

Research and Development

         Research and development expenses increased 84% for the sixthree months ended June 30, 2002, research and development expenses decreased 19%2003 to $2.5$2.1 million from $3.1$1.1 million infor the first sixthree months of 2001.ended June 30, 2002. The decreaseincrease is largely relatedattributable to the sale of the Company's Dialog Server product line in May 2001, as substantial development expenses were incurred for this product line during the first half of 2001.

Merger. As a percentpercentage of revenue,total revenues, research and development expenses decreased to 23%15% for the second quarter of 2002 from 30% in the second quarter of 2001 and decreased to 22% from 27% for the sixthree months ended June 30, 20022003 from 20% for the three months ended June 30, 2002. The decrease in research and 2001, respectively.

development expenses as a percentage of revenues reflects a lower percentage of research and development expense to revenue for the Old Captiva business.

Sales and Marketing

Sales and marketing expenses decreased 16% inincreased 72% for the second quarter of 2002 to $2.6 million from $3.1 million in the second quarter of 2001. For the sixthree months ended June 30, 2002,2003 to $4.5 million from $2.6 million for the three months ended June 30, 2002. As a percentage of total revenues, sales and marketing expenses decreased 12%were 33% and 46% for the three months ended June 30, 2003 and 2002, respectively. The increase in absolute terms is attributable to $5.6 million from $6.4 million in the first six months of 2001.Merger. The decrease is largely related to reductions in programmatic and product marketing expenses incurred in 2001 for the launch of the Company's Dialog Server product line, which was sold in May 2001.

As a percent of revenue,sales and marketing expenses decreasedas a percentage of total revenues reflects the lower percentage of sales and marketing expense to 46%revenue for the second quarterOld Captiva business and the cost efficiencies that have been realized post-Merger through combining the sales and marketing operations of 2002 from 65% in the second quarter of 2001,Old Captiva and decreased to 49% from 56%ActionPoint.

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General and Administrative

           General and administrative expenses increased 102% for the sixthree months ended June 30, 2002 and 2001, respectively.

General and administrative

General and administrative expenses decreased 12%2003 to $1.4 million from $0.7 million for the second quarter of 2002 to $711,000 from $805,000 in the second quarter of 2001. For the sixthree months ended June 30, 2002,2002. As a percentage of total revenues, general and administrative expenses decreased 23% to $1.4 million from $1.7 million for the first six months of 2001. The decrease is largely due to a reduction in professional feeswere 10% and expenses incurred in 2001 in conjunction with various strategic initiatives.

As a percentage of revenue, general and administrative expenses decreased to 12% for the second quarter of 2002, from 17% for the second quarter of 2001 and decreased to 12% from 15% for the sixthree months ended June 30, 2003 and 2002, respectively. The increase in absolute terms was primarily attributable to increases in staffing and 2001, respectively.professional fees related to the Merger.

Other Income, Net

Interest Income/Other

Approximately $608,000$0.6 million of amounts held in escrow in conjunction with the May 2001 sale of the Dialog Server business to Chordiant Software, Inc. were received in the second quarter of 2002 and recognized as other income. A gain of $4.6 million was recognized as other income in second quarter of 2001.

Provision for Income Taxes

         The income tax provision for the three months ended June 30, 2003 is based on an estimated effective income tax rate for the year. Our effective tax rate for the three months ended June 30, 2003 was 40%. No income tax provision was made for the second quarter ofthree months ended June 30, 2002 due to the availability of the Company'sour net operating loss carryforwards.

Six Months Ended June 30, 2003 and 2002

Revenues

         Total revenues increased 130% for the six months ended June 30, 2003 to $26.5 million from $11.5 million for the six months ended June 30, 2002.

         Our software revenues increased 68% for the six months ended June 30, 2003 to $12.4 million from $7.4 million for the six months ended June 30, 2002. As a percentage of total revenues, software revenues accounted for 47% and 64% for the six months ended June 30, 2003 and 2002, respectively. The income tax provisionincrease in software revenues for the six months ended June 30, 2003 compared to the six months ended June 30, 2002 is primarily due to the Merger. The decrease in software revenues as a percentage of total revenues reflects the lower software revenues as a percentage of total revenues for the Old Captiva business and the increase in hardware and other revenues in the six months ended June 30, 2003.

         Our service revenues increased 164% for the six months ended June 30, 2003 to $10.9 million from $4.1 million for the six months ended June 30, 2002. As a percentage of total revenues, services accounted for 41% and 36% for the six months ended June 30, 2003 and 2002, respectively. The increase in service revenues both in absolute and percentage terms was attributable primarily to the Merger. The increase in service revenues as a percentage of total revenues is attributable to the higher service revenues as a percentage of total revenues for the Old Captiva business.

         Our hardware and other revenues were $3.2 million or 12% of total revenues for the six months ended June 30, 2003. No hardware and other revenues were reported for the six months ended June 30, 2002. The increase was primarily attributable to sales of digital scanners.

Gross Profit

         Gross profit increased 78% for the six months ended June 30, 2003 to $16.6 million from $9.3 million for the six months ended June 30, 2002. Gross profit as a percentage of total revenues decreased to 63% from 81% for the six months ended June 30, 2003 and 2002, respectively. The increase in absolute terms was primarily attributable to the increased revenues related to the Merger and partially offset by the amortization of intangible assets also related to the Merger. The decrease in percentage terms was primarily attributable to a product mix in Old Captiva that equated to a lower gross margin percentage than our historical gross margin and the increase in hardware and other revenues in the six months ended June 30, 2003, which carries a lower gross profit percentage than the other revenue categories.

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Research and Development

           Research and development expenses increased 89% for the six months ended June 30, 2003 to $4.2 million from $2.2 million for the six months ended June 30, 2002. The increase is attributable to the Merger. As a percentage of total revenues, research and development expenses decreased to 16% for the six months ended June 30, 2003 from 19% for the six months ended June 30, 2002. The decrease in research and development expenses as a percentage of revenues reflects a lower percentage of research and development expense to revenue for the Old Captiva business.

Sales and Marketing

           Sales and marketing expenses increased 58% for the six months ended June 30, 2003 to $8.9 million from $5.6 million for the six months ended June 30, 2002. As a percentage of total revenues, sales and marketing expenses were 34% and 49% for the six months ended June 30, 2003 and 2002, respectively. The increase in absolute terms is attributable to the Merger. The decrease in sales and marketing expenses as a percentage of total revenues reflects the lower percentage of sales and marketing expense to revenue for the Old Captiva business and the cost efficiencies that have been realized post-Merger through combining the sales and marketing operations of Old Captiva and ActionPoint.

General and Administrative

         General and administrative expenses increased 115% for the six months ended June 30, 2003 to $2.9 million from $1.4 million for the six months ended June 30, period in 2002. As a percentage of total revenues, general and administrative expenses were 11% and 12% for the six months ended June 30, 2003 and 2002, respectively. The increase in absolute terms was primarily attributable to increases in staffing and professional fees related to the Merger.

Merger Costs

         The costs related to the Merger were recorded in the year ended December 31, 2002. As part of those Merger costs we recorded estimated excess lease costs of $0.8 million. Estimated excess lease costs were based on the expected differences between lease payments and sublease receipts that could be realized on a potential sublease. In the six months ended June 30, 2003, we recorded sublease receipts in excess of estimated receipts of $44,000.

Other Income, Net

         Approximately $0.6 million of amounts held in escrow in conjunction with the May 2001 sale of the Dialog Server business to Chordiant Software, Inc. were received in the second quarter of 20012002 and recognized as other income.

Provision for Income Taxes

         The income tax provision for the six months ended June 30, 2003 is comprisedbased on an estimated effective income tax rate for the year. Our effective tax rate for the six months ended June 30, 2003 was 40%. No tax provision was made for the six months ended June 30, 2002 due to our net operating loss carryforwards.

Results of Operations - Pro Forma Combined Company

         The results of operations of Old Captiva are excluded from our historical results for the three and six months ended June 30, 2002 in accordance with GAAP. As a result, we are providing a pro forma presentation of our results for the three and six months ended June 30, 2002 to assist in making comparisons of our results on a combined company basis. The combined company pro forma results for the three and six months ended June 30, 2002 include the results of ActionPoint and Old Captiva as if the Merger occurred on January 1, 2002. This pro forma information is presented in a manner consistent with the disclosure requirements of SFAS No. 141, “Business Combinations”.

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         This financial information is not necessarily indicative of the following: taxresults to be expected for an entire year and should not be relied upon as such. The pro forma financial information presented below for the three and six months ended June 30, 2002 includes the results of operations for Old Captiva as if the Merger had occurred on January 1, 2002 and includes the gainamortization of purchased intangible assets beginning January 1, 2002 (in thousands).

Three Months Ended June 30, 2003 and 2002 - Pro Forma Combined Company

Revenues

         Total revenues increased 18% for the Company's Dialog Server product linethree months ended June 30, 2003 to $13.9 million from $11.7 million for the three months ended June 30, 2002.

         Our software revenues increased 6% for the three months ended June 30, 2003 to $6.8 million from $6.4 million for the three months ended June 30, 2002. As a percentage of $1.7total revenues, software revenues accounted for 49% and 55% for the three months ended June 30, 2003 and 2002, respectively. The decrease in software revenues as a percentage of total revenues is primarily attributable to the increase in hardware and other revenues as a percentage of total revenues for the three months ended June 30, 2003 as a result of an increase in sales of digital scanners.

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         Our service revenues increased 2% for the three months ended June 30, 2003 to $5.2 million from $5.1 million for the three months ended June 30, 2002. As a percentage of total revenues, services accounted for 37% and 44% for the three months ended June 30, 2003 and 2002, respectively. The increase in service revenues in total reflects a growing installed base of customers, most of which purchase ongoing software maintenance support, partially offset by a reduction in professional services revenues of $0.3 million. The decrease in service revenues as a percentage of total revenues is primarily attributable to the increase in hardware and other revenues as a percentage of total revenues for the three months ended June 30, 2003 as a result of an increase in sales of digital scanners.

         Our hardware and other revenues increased 731% for the three months ended June 30, 2003 to $1.9 million from $0.2 million for the three months ended June 30, 2002. As a percentage of total revenues, third party products accounted for 14% and 2% for the three months ended June 30, 2003 and 2002, respectively. The increases in hardware and other revenues in total and as a percentage of total revenues reflect an increase in sales of digital scanners which Old Captiva introduced in the first quarter of 2002.

Gross Profit

         Gross profit was $8.6 million and $8.1 million for the three months ended June 30, 2003 and 2002, respectively. Gross profit as a percentage of total revenues decreased to 62% for the three months ended June 30, 2003 from 69% for the three months ended June 30, 2002. The decrease in gross profit as a percentage of total revenues for the second quarter of 2003 is due primarily to the change in valuation allowanceproduct mix due to the increase in hardware and other revenues, which have lower gross margins relative to software and service revenues.

Research and Development

         Research and development expenses increased 7% for the three months ended June 30, 2003 to $2.1 million from $2.0 million for the three months ended June 30, 2002. As a percentage of approximately $3.3total revenues, research and development expenses were 15% and 17% for the three months ended June 30, 2003 and 2002, respectively. The increase in research and development expenses in total is attributable to increases in headcount and related labor costs. The decrease in research and development expenses as a percentage of total revenues is a result of total revenues increasing at a higher rate than research and development expenses.

Sales and Marketing

         Sales and marketing expenses decreased 5% for the three months ended June 30, 2003 to $4.5 million from $4.8 million for the three months ended June 30, 2002. As a percentage of total revenues, sales and marketing expenses were 33% and 41% for the three months ended June 30, 2003 and 2002, respectively. The decrease in sales and marketing expenses in total and as a percentage of total revenues for the three months ended June 30, 2003 is primarily attributable to reduce net deferred tax assets based on management's assessmentthe cost efficiencies that have been realized post-Merger through combining the sales and marketing operations of the uncertainty of the realizability of such assets,Old Captiva and a provision for foreign taxes of approximately $100,000 offset by the utilization of net operating losses of $1.0 millionActionPoint.

General and Administrative

         General and administrative expenses were consistent at $1.4 million for the three months ended June 30, 2003 and 2002. As a percentage of total revenues, general and administrative expenses decreased to 10% for the three months ended June 30, 2003 from 12% for the three months ended June 30, 2002. The decrease in general and administrative expenses as a percentage of total revenues, is a result of total revenues increasing while general and administrative expenses remained constant.

SaleOther Income, Net

         Approximately $0.6 million of amounts held in escrow in conjunction with the May 2001 sale of the Dialog Server Product Line

The Company sold its Dialog Server product linebusiness 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. The Company sold all of its Chordiant common stock in July 2001 for a price of approximately $2.73 per share and, as a result, recognized a loss of approximately $400,000were received in the thirdsecond quarter of 2001. The Company recognized a pretax gain on the transaction, comprised of proceeds, excluding amounts in escrow2002 and less transaction expenses, of approximately $4.6 million ($2.3 million net of tax). A portion of the total proceeds, $637,000 in cash, remained in escrow for one year pursuant to the asset sale agreement with Chordiant and $608,000 of this amount was received by the Company 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 incomeincome.

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Merger Costs

         The costs related to the Merger were recorded in the year ended December 31, 2002. Merger costs of $0.3 million for the quarterthree months ended June 30, 2002 were primarily legal and accounting costs incurred by Old Captiva.

Provision for Income Taxes

         The income tax provision for the three months ended June 30, 2003 is based on an estimated effective income tax rate for the year. Our effective tax rate for the three months ended June 30, 2003 was 40%. No tax provision was made for the three months ended June 30, 2002 due to our net operating loss carryforwards.

Six Months Ended June 30, 2003 and 2002  -  Pro Forma Combined Company

Revenues

         Total revenues increased 12% for the six months ended June 30, 2003 to $26.5 million from $23.6 million for the six months ended June 30, 2002.

         Our software revenues decreased 3% for the six months ended June 30, 2003 to $12.4 million from $12.8 million for the six months ended June 30, 2002.  As a percentage of total revenues, software revenues accounted for 47% and 54% for the six months ended June 30, 2003 and 2002, respectively. The decrease in software revenues as a percentage of total revenues is primarily attributable to the increase in hardware and other revenues as a percentage of total revenues for the six months ended June 30, 2003 as a result of an increase in sales of digital scanners.

         Our service revenues increased 7% for the six months ended June 30, 2003 to $10.9 million from $10.2 million for the six months ended June 30, 2002.  As a percentage of total revenues, services accounted for 41% and 43% for the six months ended June 30, 2003 and 2002, respectively.  The increase in service revenues in total reflects a growing installed base of customers, most of which purchase ongoing software maintenance support, partially offset by a reduction in professional services revenues of $0.3 million. The decrease in service revenues as a percentage of total revenues is primarily attributable to the increase in hardware and other revenues as a percentage of total revenues for the six months ended June 30, 2003 as a result of an increase in sales of digital scanners.

         Our hardware and other revenues increased 422% for the six months ended June 30, 2003 to $3.2 million from $0.6 million for the six months ended June 30, 2002.  As a percentage of total revenues, hardware and other revenues accounted for 12% and 3% for the six months ended June 30, 2003 and 2002, respectively.  The increases in hardware and other revenues in total and as a percentage of total revenues reflect an increase in sales of digital scanners which Old Captiva introduced in the first quarter of 2002.

Gross Profit

         Gross profit was $16.6 million and $16.2 million for the six months ended June 30, 2003 and 2002, respectively.  Gross profit as a percentage of total revenues decreased to 63% for the six months ended June 30, 2003 from 68% for the six months ended June 30, 2002.  The decrease in gross profit as a percentage of total revenues for the six months ended June 30, 2003 is due primarily to the change in product mix due to the increase in hardware and other revenues, which have lower gross margins relative to software and service revenues.

Research and Development

         Research and development expenses increased 11% for the six months ended June 30, 2003 to $4.2 million from $3.8 million for the six months ended June 30, 2002.  As a percentage of total revenues, research and development expenses were 16% for both the six months ended June 30, 2003 and 2002.  The increase in research and development expenses in total is attributable to increases in headcount and related labor costs.

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Sales and Marketing

         Sales and marketing expenses decreased 10% for the six months ended June 30, 2003 to $8.9 million from $9.9 million for the six months ended June 30, 2002.  As a percentage of total revenues, sales and marketing expenses were 34% and 42% for the six months ended June 30, 2003 and 2002, respectively.  The decrease in sales and marketing expenses in total and as a percentage of total revenues for the six months ended June 30, 2003 is primarily attributable to the cost efficiencies that have been realized post-Merger through combining the sales and marketing operations of Old Captiva and ActionPoint.

General and Administrative

         General and administrative expenses increased 7% for the six months ended June 30, 2003 to $2.9 million from $2.7 million for the six months ended June 30, 2002.  As a percentage of revenue, general and administrative expenses decreased to 11% for the six months ended June 30, 2003 from 12% for the six months ended June 30, 2002. The increase in general and administrative expenses in total was primarily attributable to the increase in professional fees, mainly audit, tax and legal, and partially offset by a decrease in staffing and related compensation expense due to the Merger. The decrease in general and administrative expenses as a percentage of total revenues, is a result of total revenues increasing at a higher rate than general and administrative expenses.

Merger Costs

         The costs related to the Merger were recorded in the year ended December 31, 2002. As part of those Merger costs we recorded estimated excess lease costs of $0.8 million. Estimated excess lease costs were based on the expected differences between lease payments and sublease receipts that could be realized on a potential sublease. In the six months ended June 30, 2003, we recorded sublease receipts in excess of estimated receipts of $44,000. Merger costs of $0.6 million for the six months ended June 30, 2002 were primarily legal and accounting costs incurred by Old Captiva.

Other Income, Net

         Approximately $0.6 million of amounts held in escrow in conjunction with the May 2001 sale of its Dialog Server product line, the Company will forgo future revenue opportunities but will significantly reduce expenses. Revenues and expenses for the Dialog Server product linebusiness to Chordiant Software, Inc. were received in the second quarter of 2002 and recognized as follows (in thousands):other income.

                                2001      2000       1999
                            --------- ---------  ---------
Revenues...................     $275      $740
Cost of revenues...........       99       378
Research and development...      606     1,861        351
Sales and marketing........      566      2088        156

Provision for Income Taxes

         The income tax provision for the six months ended June 30, 2003 is based on an estimated effective income tax rate for the year. Our effective tax rate for the six months ended June 30, 2003 was 40%. No tax provision was made for the six months ended June 30, 2002 due to our net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES:

Liquidity and Capital Resources

At June 30, 2002, the Company2003, we had cash and cash equivalents of approximately $9.0$9.2 million, compared to $8.3$7.5 million at December 31, 2001.2002. We currently have no plans to fund our business with cash from sources other than operations and our existing cash and cash equivalents.

         In connection with the Merger, we assumed a line of credit with a bank.  On June 30, 2003, the outstanding principal balance under the line of credit was $1.8 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 line of credit.  Pursuant to the terms of the line of credit, we are restricted from paying dividends on our common stock.  The line of credit expires in August 2003. We expect to renew the line of credit prior to its expiration. However, there is no assurance that we will be able to do so under comparable terms or at all. The line of credit includes various financial covenants related to our operating results.  As of June 30, 2003 we are compliant with all loan covenants.

Net cash provided by operating activities was $91,000 in$1.4 million for the first six months of 2002ended June 30, 2003 compared to net cash provided by operating activities of $1.7$0.1 million infor the first six months of 2001.ended June 30, 2002.  The net cash provided by operating

22

activities infor the first six months of 2002ended June 30, 2003 was largely dueattributable to operating profit and reductionsfavorable net changes in working capital primarily resulting from reduced accounts receivable offset partially by payments of certain accrued liabilities.receivable. The lower net cash provided by operating activities infor the first six months of 2001ended June 30, 2002 was primarily due to reduction in operating expenses together with favorable net changes in working capital. The Company expects that cash will be used inlargely the third quarterresult of 2002 for payments of certain professional feesadvisory costs and related transaction costsexpenses, such as legal and accounting, associated with the recently completed merger. Additionally,Merger.

         Net cash used in investing activities was $0.2 million for the Company anticipates thatsix months ended June 30, 2003 compared to net cash will beprovided by investing activities of $0.5 million for the six months ended June 30, 2002. Net cash used in investing activities for payments of accounts payablethe six months ended June 30, 2003 was exclusively for additions to property and accrued liabilities assumedequipment, and is consistent with expected cash usage in the merger.

short-term. Net cash provided by investing activities for the first six months ofended June 30, 2002 was $495,000, includingincluded proceeds from the Dialog Server escrow account that were partially offset by additions to property and equipment. This compares to net cash provided by purchases of $814,000 in the first six months of 2001 which included proceeds from the sale of the Dialog Server product line that were partially offset by purchases of property and equipment. The Company does not anticipate substantial cash used or generated from investing activities for the short-term.

Net cash provided by financing activities was $68,000$0.5 million for the first six months ended June 30, 2003, and consisted of 2001 and $80,000 for$0.7 million of proceeds from the first six months of 2001, primarily from purchasesexercise of common stock under the Company's employee stock purchase planoptions and $0.1 million of proceeds from the proceeds from exercises of employee stock options. The Company expects that cash provided from financing activities, primarily semi-annual salessale of stock under theour Employee Stock Purchase Plan, offset by a discretionary principal repayment of $0.3 million against our line of credit. Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2002, and consisted of proceeds from the exercise of common stock options and sale of stock under our Employee Stock Purchase Plan. On a go-forward basis, cash from financing activities will continue to be comparable to thateffected by receipts from sale of recent periods instock under our Employee Stock Purchase Plan and from the short-term.exercise of stock options, and by any discretionary or maturity  repayments on our line of credit.

The Company's         Our principal sources of liquidity are cash and cash equivalents on hand, as well as expected cash flows from operations. Although transactionoperations and integration expenses associated with the recently completed merger will reduce cash, the Company believesour line of credit.  We believe that itsour cash, 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 us or at all.

RISK FACTORS:

You should carefully consider the Companyfollowing risk factors and would not be dilutive.

RISK FACTORS

In addition to theall other information contained in this quarterly reportQuarterly Report on Form 10-Q, the Company's annual report for the year ended December 31, 200110-Q. Investing in our common stock involves a high degree of risk. In addition to those we describe below, risks and other reports on file with the Securities and Exchange Commission, the following risk factors should be considered carefully in evaluating the Company and its business. The Company's business faces significant risks. The risks described below mayuncertainties that are not be the only risks the Company faces. Additional riskspresently known to us or that the Company does not yet know of orwe currently considersbelieve are immaterial may also impair the Company'sour business operations. If any of the events or circumstances described in the following risks actually occur, the Company'sour business financial condition or results of operations could suffer, andbe harmed, the trading price of the Company'sour common stock could decline.decline and you may lose all or part of your investment.

ActionPoint and Old Captiva incurred substantial losses in the past and the Company may continue to incur additional losses in the future.

ActionPoint incurred losses of $1.9 million for the year ended December 31, 2001, and Old Captiva incurred losses of $422,000 for the same period. In recent periods, ActionPoint and Old Captiva did not consistently generate positive cash flow from operations. Even if the Company achieves profitability, given the competitive and evolving nature of the industry in which it operates, the Company may not be able to sustain or increase profitability on a quarterly or annual basis. The Company will need to generate higher revenues while containing costs and operating expenses to become and remain profitable. Failure to do so may cause the Company's stock price to decline.

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

Both ActionPoint's and Old Captiva's         Our 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:

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



•          We believe that comparisons of operating results from period-to-period will not necessarily be meaningful and should not be relied upon as the introductionsole measure of newour future performance. Our operating results in one or enhanced products;
more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, the trading price of our stock could decline.
• fluctuations23

  ---

  If we fail to rapidly reduce expenses in the size and timing of significant orders;

event our revenues unexpectedly decline; our results may be harmed.  
• uncertainty in the budgeting cycles of customers; and
• possible delays in recognizing licensing revenues and the trend within the software industry for a large portion of orders to be booked late in a given calendar quarter.

The Company         We currently operatesoperate with virtually no software order backlog because software products are shipped shortly after orders are received. This fact makes productsoftware revenues in any quarter substantially dependent on orders booked and shipped throughout that quarter. In addition, the Company obtainswe obtain a significant portion of itsour revenues from indirect sales channels over which it haswe have little control. Moreover, expenseThe combination of these factors make our revenues exceedingly hard to predict from period-to-period. Expense levels are based to a significant extent on expectations of future revenues and therefore are relatively fixed in the short term. If revenue levels are below expectations, the Company'sour operating results are likely to be harmed because only small portions of expenses vary with revenues.

As a result of these factors, the Company believes that revenues, expenses and operating results are likely to vary significantly between quarters in the future and comparisons of operating results from period-to-period will not necessarily be meaningful. As such, these comparisons should not be relied upon as the sole measure of the Company's future performance. Operating results of the Company in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, the Company could experience an immediate and significant decline in the trading price of its stock.

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

The Company believes         We believe competition in the information captureinput management software industry may intensify in the future. The market for forms processing and document capture solutions is very competitive and subject to rapid change. In addition, because there are relatively low barriers to entry ininto the software market, the Companywe may encounter additional competition from both established and emerging companies. Many potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company,ours, in addition to significantly greater name recognition and a larger installed base of customers. As a result, these potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of competitive products than the Company.we can. There is also a substantial risk that announcements of competing products by potential competitors could result in the delay or postponement of customer orders in anticipation of the introduction of the competitors'competitors’ new products.

Current         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 the Company'sour ability to sell itsour products through particular reseller partners. Accordingly, new competitors or competitive cooperative relationships may emerge and rapidly gain significant market share. The CompanyWe also expectsexpect 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 the Company'sour revenues, business and operating results.

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

         We incurred losses of $0.5 million and $1.9 million for the year ended December 31, 2002 and 2001, respectively.  Even as we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis. We will need to generate higher revenues while containing costs and operating expenses to remain profitable. Failure to do so may cause our stock price to decline.

If the market for information captureinput management software does not grow, the Company'sour revenues may not grow.

The market for information captureinput management software is fragmented and extremely competitive. The Company hasWe have spent, and intendsintend to continue to spend, considerable resources educating potential customers about itsour software products and the information captureinput management market generally.in general. These expenditures may fail to achieve any additional degree of market acceptance for the Company'sour products. The rate at which organizations have adopted ActionPoint and Old Captivaour products has varied significantly in the past, and the Company expectswe expect to continue to experience such variations in the future. If the market for information captureinput management products grows more slowly than the Company currently anticipates, the Company'swe anticipate or not at all, our revenues will not grow and itsour operating results will suffer.

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

If the Company faceswe face material delays in introducing new services, products and enhancements, itsour customers may forego the use of itsour products and services and use those of itsour 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. The Company'sOur future success will depend upon itsour ability to continue to enhance itsour current products while developing and introducing new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in the Company'sour 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 the Company'sour operating results and financial condition.  Both ActionPoint and Old CaptivaWe have experienced delays in the past in the release of new products and new product enhancements. The CompanyWe 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. The CompanyWe may also experience difficulties that could delay or prevent the successful development, introduction or marketing of itsour products or reduce the likelihood that itsour new products and product enhancements will achieve market acceptance.

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

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

Software defects that are discovered in the Company's products could also damage itsour reputation, causing a loss of customers and resulting in significant costs and liabilities.costs.

The Company's         Our software products are complex and may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, both ActionPoint and Old Captiva have discovered software errors in certain of their new products after their introduction.they were released to the market. In addition, the Company'sour 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 these products after commencement of commercial shipments may result in:

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

The occurrence of any one or more of these factors could harm the Company'sour operating results and financial condition.

If the Companywe cannot manage and expand international operations, itsour revenues may not increase and itsour business and results of operations wouldcould be harmed.

In 2001, ActionPoint's         For the three and six months ended June 30, 2003, our international sales represented approximately 30%25% and 23% of itsour revenues, and Old Captiva's international sales represented approximately 14% of its revenues. The Company anticipatesrespectively. We anticipate that, for the foreseeable future, a significant portion of revenues will be derived from sources outside the United States. The Company intendsWe intend to continue to expand sales and support operations internationally. In order to successfully expand international sales, the Companywe may establish additional foreign operations, expand international sales channel management and support organizations, hire additional personnel, customize itsour products for local markets, recruit additional international resellers

25

and attempt to increase the productivity of existing international resellers. If the Company iswe are unable to do any of the foregoing in a timely and cost-effective manner, itsour sales growth internationally, if any, will be limited, and itsour business, operating results and financial condition wouldmay be harmed. Even if the Company iswe are able to successfully expand international operations, itwe may not be able to maintain or increase international market demand for itsour products. The Company'sOur 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;
	•	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.

• costs of customizing products for foreign countries;
• protectionist laws and business practices favoring local competition;
• 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.

The majority of ActionPoint's and Old Captiva'sour historical revenues and costs have been denominated in United States dollars. However, the Company expectswe expect that in the future an increasing portion of revenues and costs willcould be denominated in foreign currencies. Although the Company doeswe do not currently undertake foreign exchange hedging transactions to reduce foreign currency transaction exposure, itwe may do so in the future. However, it doeswe do not have any plans to eliminate all foreign currency transaction exposure. Foreign currency exchange rate fluctuations and other risks associated with international operations could increase our costs which, in turn, could harm our business.

TheOur future success of the Company is dependent on the services of itsour key management, sales and marketing, technical support and research and development personnel, and those persons'persons’ knowledge of the Company'sour business and technical expertise would be difficult to replace.

The Company's         Our products and technologies are complex, and the Company iswe are substantially dependent upon the continued service of existing key management, sales and marketing, technical support and research and development personnel. All of these key employees are employees "at will"“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 whichthat often results in changes in key employees. The loss of the services of one or more of these key employees could harm the Company'sour business and slow product development processes or sales and marketing efforts.

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

The Company requires         We require the services of a substantial number of qualified technical support and research and development personnel. The market for these highly skilled employees is characterized by intense competition, which is heightened by their high level of mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel required. The Company hasWe have experienced, and expectsexpect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate technical qualifications. If the Company iswe are unable to recruit and retain a sufficient number of technical personnel, itwe may not be able to complete development of, or upgrade or enhance, itsour products in a timely manner. Even if the Company iswe are able to expand itsour staff of qualified technical personnel, itthey may require greater than expected compensation packages whichthat would increase operating expenses.

The Company could be subjectIf we are unable to potential product liability claims and third party liability claims related to its products and services, and as a result its reputation and operating results may suffer.

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

To manage its expected growth and expansion, the Company needs to continue to improve and implement financial and managerial controls and continue to improve its reporting systems and procedures. If the Company is unable to do so successfully, it may not be able to manage growth effectively and its operating results would be harmed.

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

If the Company is unable to build awareness of its brand, it may not be able to compete effectively against competitors with greater name recognition and its sales could be adversely affected.

If the Company is unable to economically achieve or maintain a leading position in information capture software or to promote and maintain its brands, its business, results of operations and financial condition could suffer. Development and awareness of the Company's brands will depend largely on its success in increasing its customer base. In order to attract and retain customers and to promote and maintain its brands in response to competitive pressures, the Company plans to maintain its marketing and advertising budget. There can be no assurance that the Company's efforts will be sufficient or that the Company will be successful in attracting and retaining customers or promoting its brands. Failure in this regard could harm the Company's business and results.

Significantly all of the Company's revenues are currently derived from sales and service of three software products. If demand for these products declines or fails to grow as expected, revenues of the Company will be harmed.

Historically, ActionPoint derived substantially all of its revenues from the InputAccel product family and Pixtools software tools, and substantially all of Old Captiva's revenues were generated from the FormWare product family. The Company's future operating results 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 would cause the Company's revenues to suffer.

The Company may be unable to meet its future capital requirements.

The Company cannot be certain that financing will be available to it on favorable terms when required, or at all. If the Company raises 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 its common stock and its stockholders may experience dilution. The Company will require substantial working capital to fund its business. Each of ActionPoint and Old Captiva frequently experienced negative cash flows from operations in the past, and the Company may experience negative cash flow from operations in the future.

The Company relies upon contractual provisions and domestic copyright and trademark laws to protect its proprietary rights. Such laws may not be sufficient to protect the Company's intellectual property from others who may sell similar products.

The Company believes that the steps it has taken to safeguard its intellectual property afford only limited protection. The Company relies primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect its proprietary rights. The Company licenses its software products primarily under license agreements with its customers. The Company's trade secrets may be inadvertently or unlawfully disclosed. In addition, competitors may develop technologies that are similar or superior to the Company's technology or design that do not infringe the Company's copyrights and this could reduce demand for the Company's products.         Despite the Company'sour efforts to protect itsour proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or tootherwise obtain and use information that the Company regards as proprietary. Policing theour products or technology. Monitoring unauthorized use of the Company'sour products is difficult and althoughwe cannot be certain that the Company is not able to determine the extent to which piracysteps we have taken will prevent misappropriation of its software products exists, software piracy is be expected to be a persistent problem. In addition,our technology, particularly in foreign countries where the laws of many foreign countries domay not protect our proprietary rights and intellectual property as fully as the laws ofin 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.

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The Company depends

We depend upon software it licenseswe license from third parties, the loss of which could harm the Company'sour revenues.

The Company relies         We rely upon certain software licensed from third parties, including software that is integrated with the Company'sour internally developed software and used in itsour products to perform key functions. There can be no assurance that these third-party softwaretechnology licenses will not infringe the proprietary rights of others or will continue to be available to the Companyus 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 the Company'sour business, operating results and financial condition.

If the Company werewe are subject to a protracted infringement claim or one withthat we infringe a significant damage award, the Company'sthird party’s intellectual property, our operating results wouldcould suffer.

Substantial litigation regarding intellectual property rights and brand names exists in the software industry. The Company expectsWe 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. The Company isWe are not aware that any of itsour products infringe any proprietary rights of third parties. However, third parties, some with far greater financial resources than the Company,ours, may claim infringement of their intellectual property rights by the Company'sour products. 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.

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

If the Company iswe are required to enter into royalty or licensing agreements to resolve an infringement claim, itwe may not be able to enter into those agreements on favorable terms. A successful claim of product infringement against the Company,us, or its failure or inability to either license the infringed or similar technology or develop alternative technology on a timely basis, maycould harm the Company'sour operating results. This result could lead to the Company'sresults, financial condition or liquidity.

If we are unable to continue to improve and liquidity being harmed because it mightimplement financial and managerial controls and continue to improve our reporting systems and procedures, we may not be able to sellmanage growth effectively and our operating results may be harmed.

         Our expected 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, we have derived substantially all of our revenues from the impacted product without redeveloping itFormware, InputAccel and PixTools products. 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

27

competition, technological change or incurring significant additional expenses.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. We have 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.

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

Many ActionPoint and Old Captivaof our customers entered into service agreements which made up a significant portion of each company'sour revenue in the past. Service revenues represented 30%, 22%37% and 19%41% of ActionPoint'sour total revenues for the yearsthree and six months ended December 31, 2001, 2000 and 1999, respectively. Service revenues represented 54%, 48% and 55% of Old Captiva's total revenues for the years ended December 31, 2001, 2000, and 1999,June 30, 2003, respectively. The level of service revenues in the future will depend largely upon the Company'sour implementation services and ongoing renewals of customer support contracts by itsour growing installed customer base. The Company's implementationOur service revenues could decline if third-party organizations such as systems integrators compete for the installation or servicing of the Company'sour products. In addition, the Company'sour customer support contracts might not be renewed in the future. Due to the increasing costs of operating a professional services organization, the Companywe may not be able to sustain profitability in this part of itsour business in the near future, or ever.

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

Executive         The Merger 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.

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

         The Merger 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. In addition, executive officers are employees at will and may terminate their employment at any time.

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

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

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         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.

The Merger could harm key third party relationships.

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

Our executive officers and directors, of the Company, and entities affiliated with them, have substantial control over the Company,us, which could delay or prevent a change in the corporate control favored by its non-affiliate stockholders.

The Company's         Our executive officers and directors, and entities affiliated with them, beneficially own approximately 31%a significant percentage of the Company'sour common stock. These parties acting together would be able to significantly influence any matters requiring approval of theour stockholders, of the Company, including the election of directors and the approval of mergers or other business combination transactions.

Provisions of the Company'sour charter documents, Delaware law and the Company'sour rights plan may have anti-takeover effects that could discourage or prevent a change in control, which may suppress the Company'sdepress our stock price or cause it to decline.

Provisions of the Company'sour certificate of incorporation and bylaws and a stockholder rights plan adopted by the board of directors of the Company may discourage, delay or prevent a merger or acquisition of us that the Company'smajority of our stockholders may consider favorable. Provisions of the Company'sour certificate of incorporation 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.

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

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

The Company's         Our common stock is presently authorized for quotation on The Nasdaq National Market. Accordingly, the Company iswe are subject to all the requirements of itsour listing agreement with Nasdaq. TheCertain events that could cause the Companyus to have itsour status as a National Market Issuer terminated, include:including:

• 	•	failure to maintain a closing bid price for our common stock of at least $1.00 per share for 30 consecutive trading days;
  	•	failure to maintain stockholders’ equity of at least $10.0 million;
  	•	failure to maintain an audit committee that comports to the independence and other standards of The Nasdaq National Market and the Securities and Exchange Commission; and
  	•	failure to hold timely annual meetings of stockholders and comply with other corporate governance requirements.

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  ---

           Although our common stock had a minimumclosing bid price for the Company'sof $4.95 on June 30, 2003, our common stock of either $1.00 per share or $5.00 per share, depending on, among other things, whether or not tangible net assets of the Company are greater than or less than $4.0 million;

• failure to maintain an audit committee that comports to the independence and other standards of The Nasdaq National Market and the Securities and Exchange Commission; and
• failure to timely hold annual meetings of stockholders and comply with other corporate governance requirements.

The Company's common stock has not tradeddid have a closing bid price below the $1.00 minimum bid,in 2002, but on July 31, 2002 the closingfor fewer than 30 consecutive trading price was $1.08.days. If the Company'sour common stock fails to maintain a closing bid price drops belowof at least $1.00, it could result in the delisting of the Company'sour stock on The Nasdaq National Market or the need to complete a reverse stock split.Market. If the Company'sour stock is delisted and thus no longer eligible for quotation on The Nasdaq National Market, it wouldcould 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 the Company'sour listing on The Nasdaq National Market wouldcould reduce the liquidity and share price of theour common stock of the Company, as well asand would complicate compliance with state blue-sky laws.

Item 3 -– Quantitative and Qualitative Disclosures Aboutabout Market Risk.

The Company'sCompany’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company maintains 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 does not currently use, nor has it historically used, derivative financial instruments to manage or reduce market risk. The Company mitigates default risk 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 June 30, 2002,2003, the Company had approximately $9.0$9.2 million in cash and cash equivalents.

The Company doeshas significant foreign operations and, as a result, is subject to various risks, including foreign currency risks. The Company has not currently transactentered into foreign currency contracts for purposes of hedging or speculation. To date, the Company has not realized any significant portiongain or loss from its transactions denominated in foreign currencies. For the three and six months ended June 30, 2003, approximately 25% and 23%, respectively, of its businessthe Company’s sales and approximately 18% and 15%, respectively, of the Company’s operating expenses were denominated in functional currencies other than the United StatesCompany’s functional currency. These foreign currencies are primarily British pounds, Euros and the Australian dollar. ToAdditionally, substantially all of the extentreceivables and payables of the Company’s foreign subsidiaries are denominated in currencies other than the Company’s reporting currency.

Item 4 – Controls and Procedures.

Evaluation of Controls and Procedures

         The Company maintains controls and procedures, which have been designed to ensure that it continuesmaterial information related to transactCaptiva Software Corporation, including its business using the United States dollar as its functional currency,consolidated subsidiaries, is made known to management on a timely and consistent basis. In response to recent legislation and proposed regulations, the Company does not believehas been reviewing its internal control structure and has established a disclosure committee, which consists of certain members of the Company’s management. Although the Company believes its existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations, the review and documentation of its internal control structure is a process that will continue in conjunction with other integration activities.

         As of the end of the period covered by this report, the disclosure committee carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, Mr. Bish, and Chief Financial Officer, Mr. Russo, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, Mr. Bish and Mr. Russo concluded that the fluctuationsCompany’s disclosure controls and procedures are effective in foreign currency exchange rates will havecausing material information to be collected, communicated and analyzed by management of the Company on a material adverse effect ontimely basis and to ensure that the Company's results of operationsCompany’s public disclosures are timely filed and comply with SEC disclosure obligations.

Changes in Controls and Procedures

         There has been no change in our internal control over financial reporting during the fiscal quarter ended June 30, 2003 that has materially affected, or cash flows.is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.      Legal proceedings

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

Item 2.      Changes in Securities and Use of Proceeds

None.

Item 3.       Defaults Upon Senior Securities

None.

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

Item 5.      Other Information

None.

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a.  Exhibits

Exhibit
Number      Description
- ----------- -----------------------------------------------------------------
2.1          Agreement and Plan of Merger and Reorganization dated March 4, 2002, as
             amended, by and among the Company, Condor Merger Corp. and Captiva
             Software Corporation ("Old Captiva"). (1)
3.1          Amended and Restated Certificate of Incorporation of the Company, as
             amended. (2)
3.2          Bylaws of the Company. (3)
4.1          Reference is made to Exhibits 3.1 and 3.2.
4.2          Form of Investor Rights Agreement dated August 27, 1993 by and among
             the Company and the investors identified therein. (2)
4.3          Rights Agreement dated September 9, 1997. (4)
4.4          Amendment to Rights Agreement dated October 5, 2001 by and among the
             Company, Fleet National Bank and EquiServe Trust Company, N.A. (5)
4.5          Second Amendment to Rights Agreement dated March 4, 2002 between the
             Company and EquiServe Trust Company, N.A. (1)
10.1         Form of indemnification agreement entered into between the Company
             and its directors and executive officers. (2)
10.2         Form of the Company's Amended and Restated 1993 Stock Option/Stock
             Issuance Plan. (2)
10.3         Amendment No. 1 to the Company's Amended and Restated 1993 Stock
             Option/Stock Issuance Plan. (7)
10.4         Form of the Company's 1999 Stock Plan. (6)
10.5         Form of the Company's Amended and Restated 1998 Employee Stock Purchase
             Plan. (6)
10.6         Form of proposed Amended and Restated 1998 Employee Stock Purchase
             Plan. (7)
10.7         The Company's lease for property at 1299 Parkmoor Ave., San Jose, CA.(6)
10.8*        Form of Severance Agreement between the Company and certain of its
             executive officers. (5)
10.9*        Form of Severance Agreement between the Company and certain of its
             executive officers in connection with the merger of the Company and Old
             Captiva. (5)
10.10*       Form of Voting Agreement between each of the Company's executive
             officers and directors and Old Captiva. (1)
10.11*       Form of Voting Agreement between each of Captiva California's executive
             officers and directors and the Company. (1)
10.12*       Form of Lock-up Agreement from each of the Company's executive officers
             and directors and Old Captiva (5)
10.13*       Form of Lock-up Agreement between the Company and each of the executive
             officers, directors and certain affiliates and stockholders of Old
             Captiva. (7)
10.14*       Employment offer letter from ActionPoint, Inc. to Rick Russo dated
             March 4, 2002. (7)
10.15*       Employment offer letter from ActionPoint, Inc. to Reynolds Bish dated
             March 4, 2002. (7)
99.1         Certification.


____________________________________

(1) Incorporated by reference to the Company's Pre- Effective Amendment No.2 to Registration Statementb.  Reports on Form S-48-K

We filed with the Securities and Exchange Commission on June 24, 2002 (File No. 333- 87106).

(2) Incorporated by reference to an exhibit to the Company's Registration Statement on Form S-1, as amended (File No. 33- 66142).

(3) Incorporated by reference to an exhibit to the Company'sa Current Report on Form 8-K filed with the Securities and Exchange Commission on September 24, 1997.

(4) Incorporated by referenceApril 29, 2003 to an exhibit to the Company's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 10, 1997 (File No. 001-13347).

(5) Incorporated by reference to an exhibit to the Company's Annual Report on Form 10-Kannounce our disclosure of unaudited financial information for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 29, 2002.first quarter of 2003.

(6) Incorporated by reference to an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on April 2, 2001.32

(7) Incorporated by reference to an exhibit to the Company's Registration Statement on Form S-4 (File No. 333-87106).

* Indicates management contract.

b. Reports on Form 8-K

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CAPTIVA SOFTWARE CORPORATION

	(Registrant)

Date: August 14, 2002

	By:	/s/ John Finegan

	CAPTIVA SOFTWARE CORPORATION
	John FineganRegistrant
	Executive Vice President of Finance
	(Duly Authorized Officer)/s/ REYNOLDS C. BISH

Date:  August 13, 2003
	By:Reynolds C. Bish
	Chief Executive Officer
	/s/ RickRICK E. Russo

	RUSSO
	Rick E. Russo
	Chief Financial Officer and Secretary
	(Principal Financial and Accounting Officer)

33