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

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY AND TOTAL COMPREHENSIVE INCOME*

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

1. ~~BASIS OF PREPARATION AND ACCOUNTING POLICIES:~~Basis of Preparation and Accounting Policies

In this document, ~~“we”, “our”,~~“we,” “our,” “us”, and the “Company” refer to Captiva Software Corporation, formerly known as ActionPoint, Inc., 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. The December 31, ~~2002~~2003 balance sheet data was derived from audited financial statements contained in the Company’s ~~2002~~2003 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 and nine-month~~three-month periods ended ~~September 30,~~March 31, 2004 and 2003 ~~and 2002~~ include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information set forth herein. These consolidated condensed financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2002.~~2003. The results of operations for the interim periods presented in this quarterly report on Form 10-Q are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year and should not be relied upon as such.

Revenue is generated primarily from three sources: (i) software, which is primarily software license revenue, software subscription license revenue, which includes subscriptions to information databases, 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 nine~~ months ended ~~September 30,~~March 31, 2004 and 2003. Software license revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, fees are fixed ~~and~~or determinable, collection is probable and no significant undelivered obligations remain. Software subscription license revenue is recognized over the term of the license, generally twelve months. 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. Revenue for hardware and other products 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;~~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,~~software, combined software and service revenue is recognized ~~over~~as the ~~service period.~~services are performed. 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.

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 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~~$2.6 million, ~~$2.1~~$1.9 million, ~~$1.3~~$0.7 million, ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million for the years ending December 31, ~~2003,~~ 2004, 2005, 2006, 2007 and ~~2007,~~2008 and thereafter, respectively.

In addition, the value of the Company’s intangible assets, including goodwill, is subject to future ~~impairment~~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.

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.

Significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business;

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 iswould be recognized if the carrying amount exceeds its fair value. The Company performed its annual impairment review in the quarter ended June 30, 2003 and determined there was no impairment.

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”)~~(SFAS) No. 123 and Emerging Issues Task Force ~~(“EITF”)~~(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.

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):

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.

On February 1, 2004, the Company completed the acquisition of ADP Context, Inc., an Illinois corporation (Context). The Company acquired Context to expand the Company’s product offerings and application expertise

to the provider side of the healthcare market. The Context products complement the Company’s existing ClaimPack product line and enhance the Company’s product offerings to its claim processing customers. The acquisition was effected in accordance with a stock purchase agreement dated as of February 1, 2004 by and among the Company, ADP Integrated Medical Solutions, a Delaware corporation (ADP), and ADP Claims Solutions Group, Inc. (CSG), pursuant to which the Company purchased all of the issued and outstanding capital stock of Context from ADP and paid to ADP approximately $5.2 million in immediately available cash. The sole source of the cash consideration the Company paid in the acquisition was the Company’s cash and cash equivalents. There were no material relationships between the Company or any of the Company’s affiliates, directors or officers, on the one hand, and ADP or CSG, on the other hand, at the time of the acquisition.

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

In ~~November 2002,~~connection with 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 unitsacquisition, the Company wrote off the purchased in-process research and development of ~~accounting if the deliverables~~$0.1 million, which was charged to operations in the ~~arrangement meet specific criteria. In addition, arrangement consideration must~~three months ended March 31, 2004. A final purchase price adjustment of approximately $0.2 million, which was recorded as goodwill, will be ~~allocated among~~paid to ADP in the ~~separate units~~second quarter of ~~accounting based~~2004. The results of operations of Context are included in the three months ended March 31, 2004 starting from February 1, 2004, the date of acquisition. The following table summarizes unaudited pro forma financial information assuming the acquisition had occurred on their relative fair values, with certain limitations. The Company was required to adopt the provisions of this consensus for revenue arrangements entered into in interim periods beginning after June 15, 2003 (the quarter beginning JulyJanuary 1, 2003, and includes the amortization of purchased intangible assets from the beginning of each of the periods presented and excludes a write-off of in-process research and development of $0.1 million in the three months ended March 31, 2004 (in thousands, except per share information):

This pro forma financial information is for informational purposes only and does not reflect any operating efficiencies or inefficiencies which may result from the ~~Company). The adoption~~acquisition and, therefore, is not necessarily indicative of ~~this accounting pronouncement did not~~results that would have ~~a material impact on~~been achieved had the ~~Company’s consolidated financial position or results of operations.~~businesses been combined during the periods presented.

~~2. MERGER OF ACTIONPOINT AND CAPTIVA SOFTWARE:~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

On July 31, 2002, the Company completed the merger with privately-held Captiva Software Corporation, a California corporation ~~(“Old Captiva”)~~(Old Captiva), of San Diego, ~~California (the “Merger”).~~California. Old Captiva was a provider of forms input management software and related services. Under the terms of the ~~Merger~~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 2.2 million shares of common stock, of which options to purchase 772,000 ~~options~~shares of common stock were vested, and issued warrants to purchase approximately 8,000 shares of common stock. The ~~2.2 million~~ options to purchase 2.2 million shares of common stock have exercise prices ranging from $0.52 to $2.43 per share and a weighted-average exercise price of $1.94 per share. The warrants to purchase common stock ~~have~~had an exercise price of $2.43 per share. In November 2003, these warrants were converted in a net exercise, in accordance with the warrant agreements, into approximately 6,000 shares of the Company’s common stock.

The ~~Merger~~merger was accounted for as a purchase. The fair value of the Company’s common stock issued in the ~~Merger~~merger of $1.11 per share was determined based on the average closing price three days prior to the completion date of the ~~Merger.~~merger. The fair value of the vested replacement options ~~were~~was 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, 2002. The purchased in-process research and development (“IPR&D”) is solely related to the next version of Old Captiva’s Formware software. The latest release of Old Captiva’s Formware software was introduced in March 2002. Based on time spent on the next version of Old Captiva’s Formware software system and costs incurred, this project was estimated to be approximately 44% complete as of the merger date. At the date of acquisition, the total cost to complete the project was estimated to be approximately $0.8 million, primarily consisting of salaries, and the project 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 nine months ended September 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,~~operations, the Company adopted a plan which included a reduction of its workforce and office space made redundant by the ~~Merger.~~merger. This plan ~~is expected to~~was 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~~related to the consolidation of the Company’s continuing operations resulting in the impairment of an asset, excess lease costs and employee severance costs related to a reduction in ~~workforce.~~workforce.In the three months ended March 31, 2004, the Company paid $0.1 million in satisfaction of its remaining excess lease obligation resulting from the merger.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL ~~STATEMENTS~~STATEMENTS—(Continued)

4. ~~COMPUTATION OF NET INCOME (LOSS) PER SHARE:~~Composition of Certain Balance Sheet Captions (in thousands)

Basic net income per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for that period. Diluted net income per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options and warrants.

Dilutive securities include options subject to vesting and warrants on an as-if-converted-to-common stock basis. Dilutive securities of ~~1.9~~2.0 million shares and ~~1.3~~0.5 million shares are included in the diluted earnings per share calculation for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2004 and 2003, respectively. Potentially dilutive securities totaling 0.2 million shares and ~~1.5~~3.9 million shares for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2004 and 2003, respectively, were excluded from basic and diluted earnings per share because of their anti-dilutive effect. ~~For the three and nine months ended September 30, 2002, dilutive securities of 4.4 million shares were excluded from the calculation of net loss per share because of their anti-dilutive effect.~~

Comprehensive income ~~(loss)~~ consists of the following components (in thousands):


	Three Months Ended March 31,
	2004			2003
Foreign currency translation adjustment	$	(13	)	$	68
Net income as reported		477			82

Total comprehensive income	$	464		$	150

~~In August 2003, the~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

The Company ~~extended the term of its~~has a bank line of ~~credit. The line of~~ credit that will expire in August 2004. On ~~September 30, 2003, the~~March 31, 2004, there was no outstanding principal balance under the line of ~~credit was $1.0 million.~~credit. Borrowings under the line of credit are limited to the lesser of $3.0 million or 80% of eligible accounts receivable. ~~Outstanding~~Any outstanding balances under the line of credit ~~and the term loan~~would bear interest at the bank’s prime rate plus 0.5%. ~~All~~The line of credit is secured by all assets of the ~~Company collateralize the line of credit.~~Company. 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 the Company’s operating results. As of ~~September 30, 2003~~March 31, 2004 the Company was ~~compliant~~in compliance with all loan covenants.

~~Income tax~~The provision for ~~the~~income taxes for interim periods is based on estimated effective income tax rates for the year. The Company’s estimated effective tax rate for 2004 is ~~40%~~39%, which was applied to the results for the three ~~and nine~~ months ended ~~September 30, 2003.~~March 31, 2004. The Company’s estimated effective income tax rate for ~~the three and nine months ended September 30, 2003~~2004 differs from the U.S. federal statutory rate of ~~35%~~34% primarily due to state income taxes. ~~No income~~The Company’s estimated effective tax ~~benefit was recorded~~rate for the three ~~and nine~~ months ended ~~September 30, 2002 due to the uncertainty of the realization of the Company’s deferred tax assets.~~

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 1.7 million shares of Chordiant common stock, whichMarch 31, 2003 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 nine months ended September 30, 2002.40%.

9. ~~SEGMENTS AND GEOGRAPHIC REPORTING:~~Business Segments and Geographic Reporting

The Company has a single reportable segment consisting of the development, marketing and servicing of input management 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’s subsidiaries in the United Kingdom, Germany and Australia, which are responsible for sales to international customers. The international subsidiaries do not carry any significant tangible long-lived assets, and the total assets of the Company’s international subsidiaries were not significant for any period presented.

The following table presents revenue derived from domestic and international sales, based on location of customer for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2004 and 2003, ~~and 2002,~~ respectively (in thousands, except percentage data):

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability 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 liability at inception of the 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.

Item ~~2 -~~ 2—Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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~~Risks that may cause actual results to differ materially from the forward-looking statements are described in the section 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 activity, performance or achievements. We assume no obligation to update any of the forward-looking statements contained in this ~~report.~~Quarterly Report on Form 10-Q.

OnWe are a leading provider of input management solutions designed to manage business-critical information from paper, faxed and electronic forms, documents and transactions into the enterprise. Our solutions automate the processing of billions of forms, documents and transactions annually, converting their content into information that is usable in database, document, content and other information management systems. We believe that our products and services enable organizations to reduce operating costs, obtain higher information accuracy rates and speed processing times. Our objective is to extend our position as a leading provider of input management solutions. Key elements of our growth strategy include leveraging our existing customer base, broadening our sales channels and expanding our markets, expanding our international presence, broadening our product offerings and pursuing strategic acquisitions.

Our products offer organizations a cost-effective, accurate and automated alternative to both manual data entry and electronic data interchange (EDI). These traditional approaches are typically labor intensive, time consuming and costly methods of managing the input of information into the enterprise. Organizations can utilize our products to capture information digitally, extract the meaningful content or data, and apply business rules that ensure the data’s accuracy.

In the three months ended March ~~4, 2002, ActionPoint, Inc. (“ActionPoint”) entered into a merger agreement with privately-held Captiva Software Corporation (“Old Captiva”).~~ 31, 2004, our revenues increased to $15.9 million from $12.6 million in the three months ended March 31, 2003. In addition, in the three months ended March 31, 2004, our net income increased to $0.5 million from $0.1 million in the three months ended March 31, 2003.

On July 31, 2002, ~~the Company completed the merger~~ActionPoint, Inc. merged with ~~Old~~ Captiva Software Corporation, a California corporation. As a result of this transaction (the ~~“Merger”). In the Merger,~~Merger), Old Captiva became a ~~wholly owned~~wholly-owned subsidiary of ActionPoint, and ActionPoint changed its name to Captiva Software Corporation and remained a Delaware corporation.

~~As a result~~On February 1, 2004, we completed the acquisition of all of the issued and outstanding capital stock of Context for approximately $5.2 million of cash derived from our existing cash and cash equivalents. We will pay a final purchase price adjustment of approximately $0.2 million in the second quarter of 2004. Under generally accepted accounting ~~that applies to the Merger,~~principles, the results of operations of ~~Old Captiva~~Context are included in our results of operations for the ~~year~~three months ended ~~December~~March 31, ~~2002 only~~2004 starting from ~~August~~February 1, ~~2002.~~2004. We acquired Context to expand our product offerings and application expertise to the provider side of the healthcare market. The Context products complement our existing ClaimPack product line and enhance our product offerings to our claim processing customers. We are not planning to make significant changes to Context’s cost structure, and we expect both our consolidated revenues and expenses to increase in the future as a result of this acquisition.

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

~~Revenue~~Our revenue is generated primarily from three sources: (i) software, ~~which is~~ primarily software license revenue, software subscription license revenue, which includes subscriptions to information databases, and royalty revenue, (ii) services, ~~which includes~~including software license maintenance fees, training fees and professional services revenue and (iii) hardware and other products, ~~which were~~ primarily sales of digital scanners in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2004 and 2003. Software license revenue is recognized upon shipment provided that persuasive evidence of an arrangement exists, fees are fixed ~~and~~or determinable, collection is probable and no significant undelivered obligations remain. Software subscription license revenue is recognized over the term of the license, generally twelve months. Royalty revenue is recognized when ~~partners~~our resellers ship or pre-purchase rights to ship products incorporating our software, provided collection of ~~such~~the revenue is determined to be probable and we have 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. Revenue for hardware and other products 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;~~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~~those services are deemed essential to the functionality of the ~~overall solution,~~software, combined software and service revenue is recognized ~~over~~as the ~~service period.~~services are performed. When software licenses are sold with professional services and ~~such~~those 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.

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~~in forecasting the future operating results used in the analysis. ~~In addition,~~This method also requires other significant estimates, ~~are required,~~ such as residual growth rates and discount factors. The estimates we have used are consistent with the plans and estimates that we use to manage our business, based on available historical information and industry averages. The judgments made in determining the estimated useful lives assigned to each class of assets acquired can ~~also~~ significantly affect our net

operating results. Amortization of purchased intangibles is expected to be ~~$2.1~~$2.6 million, ~~$2.1~~$1.9 million, ~~$1.3~~$0.7 million, ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million for the years ending December 31, ~~2003,~~ 2004, 2005, 2006, 2007 and ~~2007,~~2008 and thereafter, respectively.

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

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~~that could trigger an impairment include the following:

~~When~~If there iswere an indication that the carrying value of goodwill ~~may~~might not be recoverable based upon the existence of one or more of the above indicators, we would recognize an impairment loss ~~is recognized~~ if the carrying ~~amount~~value exceeds its fair value. We performed our annual impairment review in the quarter ended June 30, 2003 and determined there was no impairment.

On a quarterly basis, management evaluates the realizability of our net deferred tax assets and assesses the need for a valuation allowance. Realization of our net deferred tax assets is dependent on our ability to generate sufficient future taxable income. The ~~results~~amount of ~~operations~~the net deferred tax assets actually realized could vary if there are differences in the timing or amount of ~~Old Captiva are included~~future reversals of existing deferred tax liabilities or changes in the actual amounts of future taxable income. If we do not generate our forecasted taxable income, we may be required to establish a valuation allowance against all or part of our net deferred tax assets based upon applicable accounting criteria. To the extent we establish a valuation allowance, an expense will be recorded within the provision for income taxes line in our ~~historical results beginning August 1, 2002 for the three and nine months ended September 30, 2002 in accordance with generally accepted accounting principles (“GAAP”).~~Statement of Operations. As of March 31, 2004, management has determined that it is more likely than not that our net deferred tax assets will be realized based on forecasted taxable income.

Total revenues increased ~~36% for~~26% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$14.5~~$15.9 million from ~~$10.7~~$12.6 million ~~for~~in the three months ended ~~September 30, 2002.~~

Our software revenues increased ~~16% for~~20% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$7.1~~$6.7 million from ~~$6.1~~$5.6 million ~~for~~in the three months ended ~~September 30, 2002.~~March 31, 2003. As a percentage of total revenues, software revenues

accounted for ~~49% and 57% for~~42% in the three months ended ~~September 30, 2003~~March 31, 2004 and ~~2002, respectively.~~44% in the three months ended March 31, 2003. The increase in software revenues in absolute terms was primarily attributable to the acquisition of Context. 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~~was primarily attributable to the increase in hardware and other revenues as a percentage of total revenues ~~for~~in the three months ended ~~September 30, 2003~~March 31, 2004 as a result of an increase in sales of digital scanners.

Our service revenues increased ~~30% for~~21% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$5.6~~$6.9 million from ~~$4.3~~$5.7 million ~~for~~in the three months ended ~~September 30, 2002.~~March 31, 2003. As a percentage of total revenues, services accounted for ~~38% and 40% for~~44% in the three months ended ~~September 30, 2003~~March 31, 2004 and ~~2002, respectively.~~45% in the three months ended March 31, 2003. The increase in service revenues ~~is due to the Merger and due to~~in absolute terms reflects both a growing installed base of customers, most of which purchase ongoing software maintenance ~~support.~~support, and approximately $0.2 million in maintenance reinstatement fees revenue in the first quarter of 2004. The decrease in service revenues as a percentage of total revenues iswas primarily attributable to the increase in hardware and other revenues as a percentage of total revenues ~~for~~in the three months ended ~~September 30, 2003~~March 31, 2004 as a result of an increase in sales of digital scanners.

Our hardware and other revenues increased ~~560% for~~71% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$1.9~~$2.3 million from ~~$0.3~~$1.3 million ~~for~~in the three months ended ~~September 30, 2002.~~March 31, 2003. As a percentage of total revenues, hardware and other revenues accounted for ~~13% and 3% for~~14% in the three months ended ~~September 30, 2003~~March 31, 2004 and ~~2002, respectively.~~11% in the three months ended March 31, 2003. The ~~increase was primarily attributable to~~increases in hardware and other revenues in absolute terms and as a percentage of total revenues reflect an increase in sales of digital scanners.

Gross profit increased ~~18% for~~23% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$9.3~~$9.9 million from ~~$7.8~~$8.0 million ~~for~~in the three months ended ~~September 30, 2002.~~March 31, 2003. Gross profit as a percentage of total revenues decreased to ~~64% from 74% for~~63% in the three months ended ~~September 30, 2003 and 2002, respectively.~~March 31, 2004 from 64% in the three months ended March 31, 2003. The decrease in gross profit as a percentage ~~terms~~of total revenues was ~~primarily attributable~~due to a combination of a shift in revenue mix ~~in Old Captiva that equated~~due to ~~a lower gross margin percentage than our historical gross margin and~~ the increase in hardware and other revenues, which have lower gross margins than software and service revenues, and an increase in intangibles amortization of approximately $0.1 million in the three months ended ~~September 30,~~March 31, 2004 compared to the three months ended March 31, 2003 ~~which have lower gross margins relative~~related to ~~software and service revenues.~~the Context acquisition.

Research and development expenses increased ~~32% for~~27% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$2.2~~$2.7 million from ~~$1.6~~$2.1 million ~~for~~in the three months ended ~~September 30, 2002. The increase is primarily attributable to the Merger, increases in headcount and related labor costs.~~March 31, 2003. As a percentage of total revenues, research and development expenses ~~remained consistent at 15% for~~were 17% in both the three months ended ~~September 30, 2003~~March 31, 2004 and ~~2002.~~2003. The increase in research and development expenses in absolute terms was primarily attributable to increases in headcount and related labor costs needed to meet product development requirements and also attributable to an increase of approximately $0.2 million related to localizing products for international markets. The consistency in research and development expenses as a percentage of total revenues was due to the increase in absolute terms being offset by the increase in ~~hardware and other~~total revenues in the three months ended ~~September 30, 2003~~March 31, 2004 compared to the three months ended ~~September 30, 2002.~~March 31, 2003. We expect research and development expenses to continue to increase in absolute terms in 2004 due to an expansion of our research and development staff.

Sales and marketing expenses increased ~~14% for~~19% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$4.3~~$5.2 million from ~~$3.8~~$4.4 million ~~for the three months ended September 30, 2002.~~in March 31, 2003. As a percentage of total revenues, sales and marketing expenses were ~~30% and 35% for~~33% in the three months ended ~~September 30, 2003~~March 31, 2004 and ~~2002, respectively.~~35% in the three months ended March 31, 2003. The increase in sales and marketing expenses in absolute terms ~~is primarily attributable~~was due to an expansion of our sales force and revenue growth resulting in higher commissions and to $0.2 million of expenses relating to a large trade show in the ~~Merger.~~first quarter of 2004, which took place in the second quarter of the prior year. The decrease in sales and marketing expenses

as a percentage of total revenues was due to the increase in absolute terms being more than offset by the increase in ~~hardware and other~~total revenues in the three months ended ~~September 30, 2003~~March 31, 2004 compared to the three months ended ~~September 30, 2002.~~

~~General and administrative~~March 31, 2003. We expect sales expenses ~~increased 24% for the three months ended September 30, 2003~~ to $1.6 million from $1.3 million for the three months ended September 30, 2002. As a percentage of total revenues, general and administrative expenses were 11% and 12% for the three months ended September 30, 2003 and 2002, respectively. Thecontinue to increase in absolute terms ~~was primarily attributable to increases~~ in ~~staffing resulting from the Merger. The decrease in general and administrative expenses as a percentage of total revenues was~~2004 due to ~~the~~

~~increase in absolute terms being offset by the increase in hardware and other revenues in the three months ended September 30, 2003 compared to the three months ended September 30, 2002.~~

We recorded Merger costs of $2.1 million during the three months ended September 30, 2002, including 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 three months ended September 30, 2003, we recorded sublease receipts in excess of estimated receipts of $10,000.

~~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 three months ended September 30, 2002.~~

~~The income tax provision for the three months ended September 30, 2003 is based on~~ an estimated effective income tax rate for the year. Our effective tax rate for the three months ended September 30, 2003 was 40%. No income tax benefit was recorded for the three months ended September 30, 2002 due to the uncertainty of the realizationexpansion of our ~~deferred tax assets.~~sales force and revenue growth.

~~Total revenues increased 85% for the nine months ended September 30, 2003 to $41.0 million from $22.2 million for the nine months ended September 30, 2002.~~

Our software revenues increased 44% for the nine months ended September 30, 2003 to $19.5 million from $13.5 million for the nine months ended September 30, 2002. As a percentage of total revenues, software revenues accounted for 47% and 61% for the nine months ended September 30, 2003 and 2002, respectively. The increase in software revenues for the nine months ended September 30, 2003 compared to the nine months ended September 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 as a percentage of total revenues for the nine months ended September 30, 2003 as a result of an increase in sales of digital scanners.

Our service revenues increased 96% for the nine months ended September 30, 2003 to $16.5 million from $8.4 million for the nine months ended September 30, 2002. As a percentage of total revenues, services accounted for 40% and 38% for the nine months ended September 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, offset by the increase in hardware and other revenues as a percentage of total revenues for the nine months ended September 30, 2003 as a result of an increase in sales of digital scanners.

Our hardware and other revenues increased 1,701% for the nine months ended September 30, 2003 to $5.1 million from $0.3 million for the nine months ended September 30, 2002. As a percentage of total revenues, hardware and other revenues accounted for 12% and 1% for the nine months ended September 30, 2003 and 2002, respectively. The increase was primarily attributable to an increase in sales of digital scanners.

Gross profit increased 51% for the nine months ended September 30, 2003 to $25.9 million from $17.2 million for the nine months ended September 30, 2002. Gross profit as a percentage of total revenues decreased to 63% from 77% for the nine months ended September 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 of $1.6 million also related to the Merger. The decrease in percentage terms was

primarily attributable to a revenue 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 nine months ended September 30, 2003, which have lower gross margins relative to software and service revenues.

Research and development expenses increased 65% for the nine months ended September 30, 2003 to $6.4 million from $3.9 million for the nine months ended September 30, 2002. The increase is primarily attributable to the Merger. As a percentage of total revenues, research and development expenses decreased to 16% for the nine months ended September 30, 2003 from 18% for the nine months ended September 30, 2002. The decrease in research and development expenses as a percentage of revenues primarily reflects a lower percentage of research and development expense to revenue for the Old Captiva business and the increase in absolute terms being offset by the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

Sales and marketing expenses increased 40% for the nine months ended September 30, 2003 to $13.2 million from $9.4 million for the nine months ended September 30, 2002. As a percentage of total revenues, sales and marketing expenses were 32% and 42% for the nine months ended September 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 increase in absolute terms being offset by the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

General and administrative expenses increased 71% for the nine months ended September 30, 2003 to $4.5 million from $2.6 million for the nine months ended September 30, 2002. As a percentage of total revenues, general and administrative expenses were 11% and 12% for the nine months ended September 30, 2003 and 2002, respectively. The increase in absolute terms was primarily attributable to increases in staffing resulting from the Merger. The decrease in general and administrative expenses as a percentage of total revenues was due to cost efficiencies that have been realized post-Merger and the increase in absolute terms being offset by the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

We recorded Merger costs of $2.1 million during the nine months ended September 30, 2002, including 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 nine months ended September 30, 2003, we recorded sublease receipts in excess of estimated receipts of $54,000.

~~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 nine months ended September 30, 2002.~~

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 2002 and recognized as other income in the nine months ended September 30, 2002.

~~income tax benefit was recorded for the nine months ended September 30, 2002 due to the uncertainty of the realization of our deferred tax assets.~~

The results of operations of Old Captiva are included in our historical results beginning August 1, 2002 for the three and nine months ended September 30, 2002 in accordance with GAAP. As a result, we are providing a pro forma presentation of our results for the three and nine months ended September 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 nine months ended September 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”.

The pro forma financial information presented below for the three and nine months ended September 30, 2002 includes the results of operations for Old Captiva as if the Merger had occurred on January 1, 2002 and includes the amortization of purchased intangible assets beginning January 1, 2002 (in thousands).

~~Total revenues increased 26% for the three months ended September 30, 2003 to $14.5 million from $11.5 million for the three months ended September 30, 2002.~~

Our software revenues increased 16% for the three months ended September 30, 2003 to $7.1 million from $6.1 million for the three months ended September 30, 2002. As a percentage of total revenues, software revenues accounted for 49% and 53% for the three months ended September 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 September 30, 2003 as a result of an increase in sales of digital scanners.

Our service revenues increased 9% for the three months ended September 30, 2003 to $5.6 million from $5.1 million for the three months ended September 30, 2002. As a percentage of total revenues, services accounted for 38% and 44% for the three months ended September 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. 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 September 30, 2003 as a result of an increase in sales of digital scanners.

Our hardware and other revenues increased 569% for the three months ended September 30, 2003 to $1.9 million from $0.3 million for the three months ended September 30, 2002. As a percentage of total revenues, hardware and other revenues accounted for 13% and 2% for the three months ended September 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 increased 16% for the three months ended September 30, 2003 to $9.3 million from $8.0 million for the three months ended September 30, 2002. Gross profit as a percentage of total revenues decreased to 64% for the three months ended September 30, 2003 from 69% for the three months ended September 30, 2002. The decrease in gross profit as a percentage of total revenues for the third quarter of 2003 is due primarily to the change in revenue mix due to the increase in hardware and other revenues, which have lower gross margins relative to software and service revenues.

Research and development expenses increased 14% for the three months ended September 30, 2003 to $2.2 million from $1.9 million for the three months ended September 30, 2002. As a percentage of total revenues, research and development expenses were 15% and 17% for the three months ended September 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 revenues was due to the increase in absolute terms being offset by the increase in hardware and other revenues in the three months ended September 30, 2003 compared to the three months ended September 30, 2002.

Sales and marketing expenses decreased 6% for the three months ended September 30, 2003 to $4.3 million from $4.6 million for the three months ended September 30, 2002. As a percentage of total revenues, sales and marketing expenses were 30% and 40% for the three months ended September 30, 2003 and 2002, respectively. The decrease in sales and marketing expenses in total 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. The decrease in sales and marketing expenses as a percentage of total revenues was due to the increase in hardware and other revenues in the three months ended September 30, 2003 compared to the three months ended September 30, 2002.

General and administrative expenses decreased ~~8% for~~14% in the three months ended ~~September 30, 2003~~March 31, 2004 to ~~$1.6~~$1.3 million from ~~$1.7~~$1.5 million ~~for the three months ended September 30, 2002.~~in March 31, 2003. As a percentage of total revenues, general and administrative expenses decreased to ~~11% for~~8% in the three months ended ~~September 30, 2003~~March 31, 2004 from ~~15% for~~12% in the three months ended ~~September 30, 2002.~~March 31, 2003. The decrease in general and administrative expenses in ~~total is primarily attributable to the cost efficiencies that have been realized post-Merger. The decrease in general~~absolute terms and ~~administrative expenses~~ as a percentage of total revenues was primarily due to ~~the increase~~a decrease in ~~hardware and other revenues~~professional fees in the three months ended ~~September 30, 2003~~March 31, 2004 compared to the three months ended ~~September 30, 2002.~~March 31, 2003.

~~The~~ costs ~~related~~relate to the ~~Merger were recorded in the year ended December 31, 2002. As part~~merger 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~~ActionPoint, Inc. and ~~sublease receipts that could be realized on a potential sublease.~~Old Captiva. In the three months ended ~~September 30,~~March 31, 2003, we recorded sublease receipts in excess of estimated receipts of ~~$10,000.~~$44,000 related to an excess lease obligation recorded upon the merger.

~~The income tax provision for~~In the three months ended ~~September 30, 2003 is based on~~March 31, 2004, we recorded a tax provision of $0.3 million, which represented an ~~estimated effective income tax rate for the year. Our~~ effective tax rate ~~for~~of 39%. In the three months ended ~~September 30,~~March 31, 2003, ~~was~~we recorded a tax provision of $0.1 million, which represented an effective tax rate of 40%. ~~No income tax benefit was recorded for the three months ended September 30, 2002 due to the uncertainty of the realization of our deferred tax assets.~~

~~Nine Months Ended September 30, 2003~~Liquidity and ~~2002 - Pro Forma Combined Company~~

~~Total revenues increased 17% for the nine months ended September 30, 2003 to $41.0 million from $35.1 million for the nine months ended September 30, 2002.~~

Our software revenues increased 3% for the nine months ended September 30, 2003 to $19.5 million from $18.9 million for the nine months ended September 30, 2002. As a percentage of total revenues, software revenues accounted for 47% and 54% for the nine months ended September 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 nine months ended September 30, 2003 as a result of an increase in sales of digital scanners.

Our service revenues increased 7% for the nine months ended September 30, 2003 to $16.5 million from $15.3 million for the nine months ended September 30, 2002. As a percentage of total revenues, services accounted for 40% and 44% for the nine months ended September 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. 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 nine months ended September 30, 2003 as a result of an increase in sales of digital scanners.

Our hardware and other revenues increased 467% for the nine months ended September 30, 2003 to $5.1 million from $0.9 million for the nine months ended September 30, 2002. As a percentage of total revenues, hardware and other revenues accounted for 12% and 3% for the nine months ended September 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 increased 7% for the nine months ended September 30, 2003 to $25.9 million from $24.2 million for the nine months ended September 30, 2002. Gross profit as a percentage of total revenues decreased to 63% for the nine months ended September 30, 2003 from 69% for the nine months ended September 30, 2002. The decrease

in gross profit as a percentage of total revenues for the nine months ended September 30, 2003 is due primarily to the change in revenue mix due to the increase in hardware and other revenues, which have lower gross margins relative to software and service revenues.

Research and development expenses increased 12% for the nine months ended September 30, 2003 to $6.4 million from $5.7 million for the nine months ended September 30, 2002. As a percentage of total revenues, research and development expenses were 16% for both the nine months ended September 30, 2003 and 2002. The increase in research and development expenses in total is attributable to increases in headcount and related labor costs. The consistency in research and development expenses as a percentage of total revenues was due to the increase in absolute terms being offset by the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

Sales and marketing expenses decreased 9% for the nine months ended September 30, 2003 to $13.2 million from $14.5 million for the nine months ended September 30, 2002. As a percentage of total revenues, sales and marketing expenses were 32% and 41% for the nine months ended September 30, 2003 and 2002, respectively. The decrease in sales and marketing expenses in total and as a percentage of total revenues for the nine months ended September 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. The decrease in sales and marketing expenses as a percentage of total revenues was also due to the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

General and administrative expenses remained consistent at $4.5 million for the nine months ended September 30, 2003 and 2002. As a percentage of revenue, general and administrative expenses decreased to 11% for the nine months ended September 30, 2003 from 13% for the nine months ended September 30, 2002. The decrease in general and administrative expenses as a percentage of total revenues was due to the increase in hardware and other revenues in the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002.

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 nine months ended September 30, 2003, we recorded sublease receipts in excess of estimated receipts of $54,000.

The income tax provision for the nine months ended September 30, 2003 is based on an estimated effective income tax rate for the year. Our effective tax rate for the nine months ended September 30, 2003 was 40%. No income tax benefit was recorded for the nine months ended September 30, 2002 due to the uncertainty of the realization of our deferred tax assets.

At ~~September 30, 2003,~~March 31, 2004, we had cash and cash equivalents of ~~$12.4~~$16.2 million, compared to ~~$7.5~~$16.0 million at December 31, ~~2002. We currently have no plans to fund our business with~~2003. On February 1, 2004, we completed the acquisition of all of the issued and outstanding capital of Context for approximately $5.2 million in cash derived from ~~sources other than operations and~~ our existing cash and cash equivalents. We will pay a final purchase price adjustment of approximately $0.2 million in the second quarter of 2004.

Net cash provided by operating activities was $3.1 million in the three months ended March 31, 2004 and $0.9 million in the three months ended March 31, 2003. The net cash provided by operating activities in the three months ended March 31, 2004 was primarily attributable to net income of $0.5 million, depreciation and amortization of $0.7 million and a decrease in accounts receivable of $2.4 million, offset by decreases in liabilities and deferred revenue of $1.6 million. In ~~August~~addition, the tax benefit of $1.1 million we received from stock option exercises had a positive effect on our net cash provided by operating activities and could continue to have a positive effect if stock options continue to be exercised. The net cash provided by operating activities in the three months ended March 31, 2003 was primarily attributable to net income of $0.1 million, depreciation and amortization of $0.7 million and a decrease in accounts receivable of $2.2 million, offset by decreases in liabilities and deferred revenue of $1.7 million.

Net cash used in investing activities was $5.5 million in the ~~Company extended~~three months ended March 31, 2004 and $0.2 million in the ~~term~~three months ended March 31, 2003. Net cash used in investing activities in the three months ended March 31, 2004 included $5.2 million of ~~its~~cash used in the acquisition of Context, direct costs of the acquisition of $0.1 million and additions to property and equipment of $0.2 million. The $0.2 million of additions to property and equipment in the three months ended March 31, 2004 is consistent with our expected rate of capital expenditures in the short-term. Net cash used in investing activities in the three months ended March 31, 2003 was exclusively for additions to property and equipment.

Net cash provided by financing activities was $2.5 million in the three months ended March 31, 2004 compared to net cash used in financing activities of $0.1 million in the three months ended March 31, 2003. Net

cash provided by financing activities in the three months ended March 31, 2004 consisted of $2.5 million of proceeds from the exercise of common stock options. Net cash used in financing activities in the three months ended March 31, 2003 consisted of a $0.1 million discretionary principal repayment against our line of credit. In the future, we expect to generate further net cash from financing activities from the sale of common stock under our employee stock purchase plan and the exercise of stock options.

We have a bank line of ~~credit. The line of~~ credit that will expire in August 2004. On ~~September 30, 2003, the~~March 31, 2004, there was no outstanding principal balance under the line of ~~credit was $1.0 million.~~credit. Borrowings under the line of credit are limited to the ~~greater~~lesser of $3.0 million or 80% of eligible accounts receivable. ~~Outstanding~~Any outstanding balances under the line of credit would 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~~The line of credit ~~we are restricted~~is secured by all assets of the Company. The line of credit restricts us from paying dividends on our common stock. The line of credit also includes various financial covenants related to our operating results. As of ~~September 30, 2003~~March 31, 2004, we ~~are compliant~~were in compliance with all loan covenants.

~~Net cash provided by operating activities was $3.3 million for~~ We expect to renew the nine months ended September 30, 2003 compared to net cash used in operating activities of $1.2 million for the nine months ended September 30, 2002. The net cash provided by operating activities for the nine months ended September 30, 2003 was attributable to net income of $1.1 million, the recording of $1.1 million of tax benefit of stock option exercises, and depreciation and amortization of $2.0 million, offset by the increase in deferred income taxes of $0.7 million. The net cash used in operating activities for the nine months ended September 30, 2002 was largely the result of payments of advisory costs and expenses, such as legal and accounting, associated with the Merger, increased accounts receivable and net changes to other working capital accounts.

Net cash used in investing activities was $0.3 million for the nine months ended September 30, 2003 compared to net cash used in investing activities of $0.7 million for the nine months ended September 30, 2002. Net cash used in investing activities for the nine months ended September 30, 2003 was exclusively for additions to property and equipment, and is consistent with expected capital expenditures in the short-term. Net cash used in investing activities for the nine months ended September 30, 2002 included direct costs of the Merger and purchases of property and equipment, partially offset by proceeds from the Dialog Server escrow account and cash received in the Merger.

Net cash provided by financing activities was $1.8 million for the nine months ended September 30, 2003, and consisted of $2.8 million of proceeds from the exercise of common stock options and $0.1 million of proceeds from the sale of stock under our Employee Stock Purchase Plan, offset by discretionary principal repayments totaling $1.1 million against our line of credit. Net cash provided by financing activities was $0.1 million for the nine months ended September 30, 2002, and consisted of proceeds from the exercise of common stock options and sale of stock under our Employee Stock Purchase Plan. In the future, cash from financing activities may continuecredit prior to its expiration, however, there is no assurance that we will be ~~effected by receipts from sale of stock under our Employee Stock Purchase Plan and from the exercise of stock options, and by any discretionary~~able to do so on comparable terms or ~~maturity repayments on our line of credit.~~at all.

Our principal sources of liquidity are cash and cash equivalents, ~~on hand,~~ as well as expected cash flows from operations and ~~our~~the line of credit. We may also continue to receive and use proceeds from the sale of common stock under our employee stock purchase plan and the exercise of stock options. We believe that our cash, cash equivalents and cash flows from operations will be sufficient to meet our liquidity and capital requirements for at least the next 12 months. We may, however, seek additional equity or debt financing to fund further expansion. There can be no assurance that additional financing will be available on terms favorable to us or at all.

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

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

Our quarterly revenues, expenses and operating results have varied significantly in the past, and our quarterly revenues, expenses and operating results ~~are likely~~may fluctuate significantly from period to ~~vary significantly~~period in the future due to a variety of factors, including:

the ~~trend within the software industry for~~fact that a large portion of our orders ~~to be~~are generally booked late in ~~a given calendar~~each quarter;

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

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

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

Our future success depends on the services of our ~~expenses vary~~key management, sales and marketing, professional services, technical support and research and development personnel, whose knowledge of our business and technical expertise would be difficult to replace.

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

development personnel. All of these key employees are employees “at will” and can resign at any time. The loss of the services of one or more of these key employees could slow product development processes or sales and marketing efforts or otherwise harm our business.

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

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

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

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

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

Given the high average selling price of, and the cost and time required to implement, our solutions, a customer’s decision to license our products typically involves a significant commitment of resources and is influenced by the customer’s budget cycles and internal approval procedures for IT purchases. In addition, selling our solutions requires us to educate potential customers on our solutions’ uses and benefits. As a result, our solutions have a long sales cycle, which can take three to six months or more. Consequently, we have difficulty predicting the quarter in which sales to expected customers may occur. The sale of our solutions is also subject to delays from the lengthy budgeting, approval and competitive evaluation processes of our customers, which typically accompany significant capital expenditures.

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

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

~~We believe competition in the~~The input management software industry ~~may~~is currently fragmented and extremely competitive, with no one company having a significant market share. We expect that competition in this industry will intensify in the future. The market for forms processing and document capture solutions is very competitive and subject to rapid change. In addition, because there are relatively low barriers to entry into the software market, we may encounter additional competition from both established and emerging companies. Our current competitors could be acquired by larger companies and could become more formidable competitors. Many potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than ~~ours,~~we do, in addition to significantly greater name recognition and a larger installed base of customers. As a result,

these potential competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of competitive products than we can. There is also a substantial risk that announcements of competing products by current or potential competitors could result in the delay or postponement of customer orders in anticipation of the introduction of the competitors’ new products.

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

Increased competition ~~will increase~~ as a result of ~~software industry consolidation. Increased competition~~any combination of the above factors is

likely to result in price reductions, fewer customer orders, reduced margins and loss of market share, any of which could harm our revenues, business and operating results.

We incurred losses of $0.5 million and $1.9 million for the years 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 input management software does not grow, our revenues ~~may not~~are unlikely to grow.

The market for input management software has had limited, if any, growth in recent years. In addition, the concept of input management software is ~~fragmented and extremely competitive.~~not widely understood in the marketplace. We have spent, and intend to continue to spend, considerable resources educating potential customers about our software products and the input management market in general. These expenditures may fail to achieve any broadening of the market or additional degree of market acceptance for our products. The rate at which organizations have adopted our products has varied significantly in the past, and we expect to continue to experience ~~such~~ variations in the future. If the market for input management products grows more slowly than we anticipate or not at all, our revenues ~~will not~~are unlikely to grow and our operating results will suffer.

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

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

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

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

We currently expect to release a number of new products and enhancements to existing products in 2004 and anticipate that a substantial portion of our product revenue growth will come from these new releases. If we ~~face~~

experience material delays in introducing new ~~services,~~ products ~~and~~or product enhancements, our customers may forego the use of our products ~~and services~~ and use those of our competitors. The market for input management is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. Our future success will depend upon our ability to continue to enhance our current products while developing and introducing new products on a timely basis that keep pace with technological developments and satisfy increasingly sophisticated customer requirements. As a result of the complexities inherent in our software, new products and product enhancements can require long development and testing periods. Significant delays in the general availability of ~~such~~these new releases or significant problems in the installation or implementation of ~~such~~these new releases could harm our operating results and financial condition. We have experienced delays in the past in the release of new products and ~~new~~ product enhancements. We may fail to develop and market on a timely and ~~cost effective~~cost-effective basis new products or ~~new~~ product enhancements that respond to technological change, evolving industry standards or customer requirements. We may also experience difficulties that could delay or prevent the successful development, introduction or marketing of our products or reduce the likelihood that our new products and product enhancements will achieve market acceptance. Any such failures or difficulties would harm our business and operating results.

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

We have only recently become profitable, with net income of $0.5 million for the three months ended March 31, 2004 and $2.6 million for the year ended December 31, 2003. We incurred a net loss of $0.5 million in 2002 and $1.9 million in 2001. Given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis, which would likely cause our stock price to decline.

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

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

Software defects could also damage our reputation, causing a loss of customers and resulting in significant costs.

Our software products are complex and may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, ~~both ActionPoint and Old Captiva~~we have discovered software

errors in certain ~~of their~~ products after they were released to the market. In addition, our products are combined with complex products developed by other vendors. As a result, should problems occur, it may be difficult to identify the source or

sources of the problems. Defects and errors, or end-user perception of defects and errors, found in current versions, new versions or enhancements of these products after commencement of commercial shipments may result in:

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

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

We currently have international operations, including offices in the United Kingdom, Germany and Australia. For the ~~three~~quarters ended March 31, 2004 and ~~nine months ended September 30,~~ 2003, ~~our~~ international sales represented approximately ~~18%~~19% and ~~21%~~20% of our revenues, respectively. We anticipate that international sales will increase as a percentage of our revenues and that, for the foreseeable future, a significant portion of our revenues will be derived from sources outside the United States. We intend to continue to expand sales and support operations internationally. ~~In order to successfully~~We could enter additional international markets, which would require significant management time and financial resources and which, in turn, could adversely affect our operating margins and earnings. To expand international sales, we may establish additional international operations, expand international sales channel management and support organizations, hire additional personnel, customize our products for local markets, recruit additional international resellers and attempt to increase the productivity of existing international resellers. If we are unable to do any of the foregoing in a timely and cost-effective manner, our international sales growth, ~~internationally,~~ if any, will be limited, and our business, operating results and financial condition may be harmed. Even if we are able to ~~successfully~~ expand international operations successfully, we may not be able to maintain or increase international market demand for our products. Our international operations are generally subject to a number of risks, including:

difficulties in staffing and managing international ~~operations;~~operations and in establishing and managing sales channels;

The majority of our ~~historical~~international revenues and costs ~~have been denominated in United States dollars. However, we expect that in the future an increasing portion of revenues and costs could be~~are denominated in foreign currencies. Although we do not currently undertake foreign exchange hedging transactions to reduce foreign currency transaction exposure, we may do so in the future. However, we do not have any plans to eliminate all foreign currency transaction exposure. Foreign currency exchange rate fluctuations and other risks associated with international operations

could increase our costs, which, in turn, could harm our business. If we are unable to expand and manage our international operations effectively, our business would be harmed.

~~Our~~Failure to further develop and sustain our indirect sales channels could limit or prevent future success is dependent on the services of our key management, sales and marketing, technical support and research and development personnel, whose knowledge of our business and technical expertise would be difficult to replace.growth.

Our ~~products and technologies are complex, and we are substantially dependent upon the continued service of existing key management,~~strategy for future growth depends in part on our ability to increase sales and marketing, technical support and research and development personnel. All of these key employees are employees “at will” and can resign at any time. The loss of the services of one or more of these key employees could harmthrough our ~~business and slow product development processes or~~indirect sales ~~and marketing efforts.~~

~~If we fail to recruit and retain~~channels. We have a ~~significant~~limited number of ~~qualified technical personnel,~~distribution relationships for our products with systems integrators and other resellers, and we may not be able to ~~develop, introduce~~maintain our existing relationships or ~~enhance products on a timely basis.~~form new relationships. Competitors may have existing relationships with various systems integrators and other resellers that could make it difficult for us to form new relationships in some cases. If our indirect sales channels do not continue to grow, our ability to generate revenues may be harmed.

WeOur current agreements with our indirect sales channels typically do not prevent these companies from selling products of other companies, including products that may compete with our products, and they do not generally require these companies to purchase minimum quantities of our products. Some of these relationships are governed by agreements that can be terminated by either party with little or no prior notice. These indirect sales channels could give higher priority to the ~~services~~products of ~~a substantial number of qualified technical support and research and development personnel.~~other companies or to their own products than they give to our products. The market for these highly skilled employees is characterized by intense competition, which is heightened by their high level of mobility. These factors make it particularly difficult to attract and retain the qualified technical personnel required. We have experienced, and expect to continue to experience, difficulty in

hiring and retaining highly skilled employees with appropriate technical qualifications. If we are unable to recruit and retain a sufficient number of technical personnel, we may not be able to complete developmentloss of, or ~~upgrade~~significant reduction in, sales volume from any of our current or ~~enhance,~~future indirect sales channels as a result of any of these or other factors could harm our ~~products in a timely manner. Even if we are able to expand our staff of qualified technical personnel, they may require greater than expected compensation packages that would increase~~revenues and operating ~~expenses.~~results.

If we are unable to protect our intellectual property, our business may be harmed.

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

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

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

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

If we are subject to a claim that we infringe a third party’s intellectual property, our operating results could suffer.

Substantial litigation regarding intellectual property rights and brand names exists in the software industry. We expect that software product developers increasingly will be subject to infringement claims as the number of products and competitors in ~~this~~our industry ~~segment~~ grows and the functionality of products in ~~different industry segments~~related industries overlaps. ~~We are not aware that any of our products infringe any proprietary rights of third parties. However, third~~Third parties, some with far greater financial resources than ours, may claim infringement of their intellectual property rights by our ~~products.~~ products, both those developed by us and those obtained through the acquisition of other businesses.

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

If we are unable to continue to ~~improve~~implement and ~~implement~~improve financial and managerial controls and continue to improve our reporting systems and procedures, we may not be able to manage growth effectively and our operating results may be harmed.

~~Our expected growth~~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 our reporting systems and procedures. Any inability of our management to integrate employees, products, technology advances and customer service into our 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 brands, we may not be able to compete effectively against competitors with greater name recognition and our sales could be adversely affected.

If we are unable to economically achieve orand maintain a leading position in input management software or to promote and maintain our ~~brands,~~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 other 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.~~results of operations.

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

Historically, we have derived substantially all of our revenues from the ~~Formware, InputAccel~~FormWare, InputAccel and PixTools ~~products.~~product lines. Our future operating results ~~continue to~~will depend heavily upon continued and widespread market acceptance

for the ~~Formware, InputAccel~~FormWare, InputAccel and PixTools ~~products~~product lines and enhancements to those products. A decline in the demand for any of these ~~products~~product lines as a result of competition, technological change or other factors may cause our revenues to decrease.

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

Our failure to manage risks associated with acquisitions could harm our business. A component of our business strategy is to expand our presence in new or existing markets by acquiring complementary technologies that allow us to expand our product offerings, augment our distribution channels, expand our market opportunities or broaden our customer base. For example, we acquired Context in February 2004. Acquisitions involve a number of risks, including:

difficulty in integrating and absorbing the acquired business and its employees, corporate culture, managerial systems and processes, technology, products and services;

challenges in retaining customers of the acquired business and customer dissatisfaction or performance problems with an acquired firm;

We may be unable to meet our future working capital requirements, ~~and any inability to finance our operations~~which could harm our business.

We could experience negative cash flow from operations in the future and could require substantial working capital to fund our business. We cannot be certain that financing will be available to us on favorable terms if and when required, or at all. 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, we have depended heavily on service revenues to increase overall revenues, and we may not be able to sustain the existing levels of profitability of this part of our business.

Many of our customers ~~entered~~enter into ~~service~~professional services and maintenance agreements, which ~~made up~~together comprise a significant portion of our ~~revenue in the past.~~revenues. Service revenues represented ~~38%~~44% and ~~40%~~45% of our total revenues for the ~~three~~quarters ended March 31, 2004 and ~~nine months ended September 30,~~ 2003, respectively. The level of service revenues in the future will depend largely upon growing our ~~implementation~~professional services group and ongoing renewals of customer ~~support~~maintenance contracts by our growing installed customer base. Our ~~service~~professional services revenues could decline if third-party organizations such as systems integrators compete for the installation or servicing of our products. In addition, our customer ~~support~~maintenance contracts might be reduced in size or scope or might not be renewed in the future. ~~Due~~

We are subject to the ~~increasing costs~~effects of ~~operating a professional services organization,~~general economic and geopolitical conditions.

Our business is subject to the effects of general economic conditions and, in particular, market conditions in the industries that we serve. Recent political turmoil in many parts of the world, including terrorist and military actions, may ~~not~~put pressure on global economic conditions. Our customers’ decisions to purchase our products are discretionary and subject to their internal budget and purchasing processes, which may be ~~able to sustain profitability in this part of~~affected by the above factors. If economic conditions deteriorate, our business ~~in the near future, or ever.~~and operating results are likely to be adversely impacted.

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

~~The Merger has~~Our business resulted from the July 2002 merger of ActionPoint, Inc. and Old Captiva. This merger resulted in our recording approximately ~~$13~~$13.0 million of goodwill and other intangible ~~assets being recorded on the books~~assets. In addition, we acquired Context in February 2004 that resulted in our recording approximately $6.2 million of ~~the combined company. Of this amount,~~goodwill and other intangible assets. We expect amortization of purchased intangibles, which ~~will be~~is included as part of our cost of revenues, ~~is expected~~ to be ~~$2.1~~$2.6 million, ~~$2.1~~$1.9 million, ~~$1.3~~$0.7 million, ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million for the years ending December 31, ~~2003,~~ 2004, 2005, 2006, 2007 and ~~2007,~~2008 and thereafter, respectively. These non-cash charges will negatively affect earnings during ~~the~~these amortization ~~period,~~periods, which could have a negative effect on our stock price.

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 relationshipsProvisions in ~~a manner unfavorable to us. Any changes in these relationships could harm our business.~~

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

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

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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

We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters and public disclosure.

Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, rules adopted or proposed by the SEC and by the Nasdaq National Market and new accounting pronouncements will result in increased costs to us as we evaluate the implications of these laws, regulations and standards and respond to their requirements. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonable necessary resources to comply with evolving standards. This investment may result in increased general and administrative expenses and a diversion of management time and attention from strategic revenue generating and cost management activities. In addition, these new laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements.

Item ~~3 –~~ 3—Quantitative and Qualitative Disclosures ~~about~~About Market ~~Risk.~~Risk

~~The Company’s~~Our exposure to market risk for changes in interest rates relates primarily to ~~its~~our investment portfolio. ~~The Company maintains~~We maintain an investment policy ~~which~~that is intended to ensure the safety and preservation of ~~its~~our invested funds by

limiting ~~default~~market risk, ~~market~~default risk and reinvestment risk. ~~The Company does~~We do not currently use, nor ~~has it~~have we historically used, derivative financial instruments to manage or reduce market risk. ~~The Company mitigates~~We mitigate default risk for our investments by investing in high credit quality securities such as debt instruments of the United States government and its agencies and high quality corporate issuers, as well as money market funds. ~~The~~Our investment portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity and maintains a prudent amount of diversification. As of ~~September 30, 2003, the Company~~March 31, 2004, we had approximately ~~$12.4~~$16.2 million in cash and cash equivalents.

~~The Company has~~We have significant international operations and, as a result, isare subject to various risks, including foreign currency risks. ~~The Company has~~We have not entered into foreign currency contracts for purposes of hedging or speculation. To date, ~~the Company has~~we have not realized any significant gain or loss from ~~its~~ transactions denominated in foreign currencies. For the three ~~and nine~~ months ended ~~September 30, 2003,~~March 31, 2004, approximately ~~18% and 21%, respectively,~~19% of ~~the Company’s~~our sales and approximately ~~16%~~15% of ~~the Company’s~~our operating expenses ~~for both the three and nine months ended September 30, 2003~~ were denominated in currencies other than our functional currency, the ~~Company’s functional currency.~~United States dollar. These foreign currencies ~~are~~were primarily British pounds, Euros and Australian dollars. Additionally, substantially all of the receivables and payables of ~~the Company’s~~our international subsidiaries are denominated in ~~currencies other than the Company’s reporting currency.~~their respective local currencies.

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

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~~our management, including ~~the Company’s~~our Chief Executive Officer, Mr. Bish, and Chief Financial Officer, Mr. Russo, of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls and ~~procedures.~~procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, Mr. Bish and Mr. Russo concluded that ~~the Company’s~~our disclosure controls and procedures are effective in causing material information relating to us to be collected,

communicated and analyzed by management ~~of the Company~~ on a timely basis and ~~to ensure that the Company’s public disclosures are~~disclosed in a timely ~~filed and comply~~manner in compliance with SEC disclosure obligations.

There ~~has been~~was no change in our internal ~~control over financial reporting~~controls that occurred during the ~~fiscal quarter ended September 30, 2003~~period covered by this report that has materially affected, or is reasonably likely to ~~materially~~ affect, our internal ~~control~~controls over financial reporting.

~~Captiva Software Corporation is not a party to any material legal proceedings.~~None.

Item 2. Changes in Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities

We filed Current Reports on Form 8-K on both January 12, 2004 and February 4, 2004 to furnish disclosure of our unaudited financial information for the fourth quarter of 2004.

We filed a Current Report on Form 8-K on ~~July 29, 2003~~February 13, 2004 to ~~furnish~~disclose our ~~disclosure~~acquisition of ~~unaudited financial information for the second quarter of 2003.~~ADP Context, Inc.

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: November 12, 2003~~		/s/S/ REYNOLDS C. BISH

			Reynolds C. Bish Chief Executive Officer

		/s/S/ RICK E. RUSSO

			Rick E. Russo Chief Financial Officer


Delaware		77-0104275
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	10145 Pacific Heights Boulevard
	San Diego, CA 92121
	(858) 320-1000


		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets at ~~September 30, 2003~~March 31, 2004 and December 31, ~~2002~~2003 (unaudited)	3

	Consolidated Condensed Statements of Operations for the ~~Three and Nine-Month~~Three-Month Periods Ended ~~September 30,~~March 31, 2004 and 2003 ~~and 2002~~ (unaudited)	4

	Consolidated Condensed ~~Statements~~Statement of Stockholders’ Equity and Total Comprehensive Income for the ~~Three and Nine-Month Periods~~Three-Month Period Ended ~~September 30, 2003~~March 31, 2004 (unaudited)	5

	Consolidated Condensed Statements of Cash Flows for the ~~Nine-Month~~Three-Month Periods Ended ~~September 30,~~March 31, 2004 and 2003 ~~and 2002~~ (unaudited)	6

	Notes to Consolidated Condensed Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	~~Risk Factors~~	2415

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	2930

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 2.	Changes in Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Submission of Matters to a Vote of Security Holders	3031

Item 5.	Other Information	3031

Item 6.	Exhibits and Reports on Form 8-K	3031

Signatures			3132


	September 30, 2003			December 31, 2002			March 31, 2004		December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	12,428		$	7,453		$	16,215	$	16,038
Accounts receivable, net		10,439			11,764			9,759		10,780
Deferred tax assets		1,578			839
Prepaid expenses and other current assets		1,693			1,725			2,617		3,314

Total current assets		26,138			21,781			28,591		30,132
Property and equipment, net		846			1,014			1,088		924
Other assets		385			402			2,387		2,354
Goodwill		6,082			6,082			10,312		6,082
Other intangible assets, net		4,286			5,857			5,088		3,762

Total assets	$	37,737		$	35,136		$	47,466	$	43,254

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	626		$	699		$	495	$	891
Accrued compensation and related liabilities		2,790			2,914			2,597		2,793
Other liabilities		3,647			4,439			2,970		3,166
Line of credit		1,000			2,145
Deferred revenue		10,463			10,371			12,335		11,264

Total current liabilities		18,526			20,568			18,397		18,114

Deferred revenue		625			956			398		519
Other liabilities		358			521			227		235
Commitments
Stockholders’ equity:
Preferred stock		—			—			—		—
Common stock		100			89			113		108
Additional paid in capital		19,552			15,499
Accumulated deficit		(1,460	)		(2,549	)
Additional paid-in capital								27,760		24,171
Retained earnings								515		38
Accumulated other comprehensive income		36			52			56		69

Total stockholders’ equity		18,228			13,091			28,444		24,386

Total liabilities and stockholders’ equity	$	37,737		$	35,136		$	47,466	$	43,254

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net revenues:
Software	$	7,092		$	6,097		$	19,452		$	13,468
Services		5,558			4,283			16,455			8,412
Hardware and other		1,867			283			5,096			283

Total revenues		14,517			10,663			41,003			22,163
Cost of revenues:
Software		741			379			1,881			860
Services		2,502			1,864			7,540			3,549
Hardware and other		1,465			192			4,106			192
Amortization of purchased intangible assets		523			389			1,571			389

Total cost of revenues		5,231			2,824			15,098			4,990

Gross profit		9,286			7,839			25,905			17,173
Operating expenses:
Research and development		2,181			1,648			6,406			3,882
Sales and marketing		4,294			3,753			13,188			9,388
General and administrative		1,609			1,293			4,521			2,645
Merger costs		(10	)		2,148			(54	)		2,148
In-process research and development		—			856			—			856

Total operating expenses		8,074			9,698			24,061			18,919

Operating income (loss)		1,212			(1,859	)		1,844			(1,746	)
Other income (expense), net		(35	)		(22	)		(28	)		672

Income (loss) before income taxes		1,177			(1,881	)		1,816			(1,074	)
Provision for income taxes		471			—			727			—

Net income (loss)	$	706		$	(1,881	)	$	1,089		$	(1,074	)

Basic net income (loss) per share	$	0.07		$	(0.26	)	$	0.12		$	(0.20	)

Diluted net income (loss) per share	$	0.06		$	(0.26	)	$	0.10		$	(0.20	)

Basic common equivalent shares		9,607			7,338			9,162			5,373

Diluted common equivalent shares		11,516			7,338			10,442			5,373

	Common Stock			Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Number of Shares	Amount		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2002	8,860	$	89	$	15,499	$	(2,549	)	$	52		$	13,091
Exercise of stock options	4		—		10								10
Comprehensive income:
Foreign currency translation adjustment										68			68
Net income							82						82

Total comprehensive income													150

Balance at March 31, 2003	8,864	$	89	$	15,509	$	(2,467	)	$	120		$	13,251
Exercise of stock options	295		3		712								715
Issuance of common stock under employee stock purchase plan	82		1		111								112
Comprehensive income:
Foreign currency translation adjustment										(55	)		(55	)
Net income							301						301

Total comprehensive income													246

Balance at June 30, 2003	9,241	$	93	$	16,332	$	(2,166	)	$	65		$	14,324
Exercise of stock options	708		7		2,113								2,120
Tax benefit of stock option exercises					1,107								1,107
Comprehensive income:
Foreign currency translation adjustment										(29	)		(29	)
Net income							706						706

Total comprehensive income													677

Balance at September 30, 2003	9,949	$	100	$	19,552	$	(1,460	)	$	36		$	18,228


	Three Months Ended March 31,
	2004		2003
Net revenues:
Software	$	6,678	$	5,581
Services		6,917		5,699
Hardware and other		2,267		1,324

Total revenues		15,862		12,604
Cost of revenues:
Software		846		400
Services		2,647		2,511
Hardware and other		1,824		1,120
Amortization of purchased intangible assets		611		524

Total cost of revenues		5,928		4,555

Gross profit		9,934		8,049
Operating expenses:
Research and development		2,691		2,111
Sales and marketing		5,198		4,362
General and administrative		1,268		1,476
Merger costs		—		(44	)
Write-off of in-process research and development		66		—

Total operating expenses		9,223		7,905

Income from operations		711		144
Other income (expense), net		71		(7	)

Income before income taxes		782		137
Provision for income taxes		305		55

Net income	$	477	$	82

Basic and diluted net income per share	$	0.04	$	0.01

Basic common equivalent shares		11,002		8,860

Diluted common equivalent shares		12,981		9,336


	Common Stock
	Number of Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2003	10,790	$	108	$	24,171	$	38	$	69		$	24,386
Exercise of stock options	512		5		2,512							2,517
Tax benefit of stock option exercises					1,077							1,077
Comprehensive income:
Equity adjustment from foreign currencies									(13	)		(13	)
Net income							477					477

Total comprehensive income												464

Balance at March 31, 2004	11,302	$	113	$	27,760	$	515	$	56		$	28,444


Identified intangibles	$	1,936
Goodwill		4,230
In-process research and development		66
Current assets		1,456
Non-current assets		133
Current liabilities		(1,766	)
Non-current liabilities		(580	)
Direct acquisition and equity issuance costs		(116	)

Equity consideration	$	5,359


Identified intangibles	$	6,737
Goodwill		6,082
In-process research and development		856
Current assets		4,771
Non-current assets		542
Current liabilities		(11,889	)
Non-current liabilities		(150	)
Direct acquisition and equity issuance costs		(1,659	)

Equity consideration	$	5,290

	Three Months Ended September 30, 2002			Nine Months Ended September 30, 2002
Net revenue	$	11,529		$	35,143
Net loss		(276	)		(4,402	)
Basic and diluted net loss per share		(0.03	)		(0.50	)

	Cash/Non-cash	Estimated Cost		Completed Activity 2002			Completed Activity 2003			Adjustments 2003			Accrual Balance at September 30, 2003
Impairment of assets	Non-cash	$	471	$	(471	)	$	—		$	—		$	—
Excess lease costs	Cash		798		(139	)		(353	)		(54	)		252
Reduction in workforce	Cash		879		(660	)		(219	)		—			—

		$	2,148	$	(1,270	)	$	(572	)	$	(54	)	$	252

	September 30, 2003			December 31, 2002
	(Unaudited)
Accounts receivable, net:
Accounts receivable	$	11,163		$	12,519
Allowance for doubtful accounts		(724	)		(755	)

	$	10,439		$	11,764

Property and equipment, net:
Office equipment and machinery	$	2,535		$	2,255
Computer software		908			908
Leasehold improvements		555			533

		3,998			3,696
Less accumulated depreciation and amortization		(3,152	)		(2,682	)

	$	846		$	1,014

Other intangible assets, net:
Existing technology	$	4,813		$	4,813
Tradename and trademarks		679			679
Core technology		551			551
Maintenance agreements		479			479
Channel partner relationships		116			116
Order backlog		99			99
Patents		92			92
Accumulated amortization		(2,543	)		(972	)

	$	4,286		$	5,857


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible assets, net:
March 31, 2004:
Existing technology	$	5,820	$	(2,730	)	$	3,090
Tradename and trademarks		766		(229	)		537
Core technology		551		(230	)		321
Maintenance agreements		479		(266	)		213
Channel partner relationships		148		(65	)		83
Customer lists		810		(27	)		783
Patents		92		(31	)		61

	$	8,666	$	(3,578	)	$	5,088

December 31, 2003:
Existing technology	$	4,813	$	(2,273	)	$	2,540
Tradename and trademarks		679		(193	)		486
Core technology		551		(195	)		356
Maintenance agreements		479		(226	)		253
Channel partner relationships		116		(55	)		61
Patents		92		(26	)		66

	$	6,730	$	(2,968	)	$	3,762

	Nine Months Ended September 30,
	2003			2002
Foreign currency translation adjustment	$	(16	)	$	8
Net income (loss) as reported		1,089			(1,074	)

Total comprehensive income (loss)	$	1,073		$	(1,066	)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2003			2002			2003			2002			2004			2003
United States and Canada	$	11,865		$	8,022		$	32,266		$	15,380		$	12,851		$	10,025
% of total		82	%		75	%		79	%		69	%		81	%		80	%
International (excluding Canada)	$	2,652		$	2,641		$	8,737		$	6,783		$	3,011		$	2,579
% of total		18	%		25	%		21	%		31	%		19	%		20	%


Exhibit Number		Description
10.1		Lease dated August 6, 1999 between Pacific Sorrento Mesa Holdings, L.P. and Pacific Stonecrest Holdings, L.P. and the registrant for property at 10145 Pacific Heights Boulevard, San Diego, CA.

10.2		First Amendment dated February 6, 2003 to the registrant’s lease for property at 10145 Pacific Heights Boulevard, San Diego, CA.

21.1		List of significant subsidiaries of Captiva Software Corporation.

31.1		Certification by Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).

31.2		Certification by Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).

32.1		Certification by Chief Executive Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by Chief Financial Officer ~~pursuant~~Pursuant to 18 U.S.C. Section 1350, as ~~adopted pursuant~~Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.