##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        
|          
|           |  | For the fiscal year ended December 31,
    2003                                                 
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from           to                                                 

Commission File Number 0-28672

Optika Inc.

(Exact name of Registrant as Specified in its
Charter)


|                                                                                                        |  |                                                   
|------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or Other Jurisdiction of
    Incorporation or Organization)                              |  | 95-4154552(I.R.S. Employer
    Identification No.)
|                                                                                                       
|7450 Campus Drive, 2nd Floor
    Colorado Springs, Colorado(Address of Principal Executive
    Offices) |  | 80920(Zip Code)                                   

Registrants telephone number, including
area code:

(719) 548-9800


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

None


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

Common Stock, par value $0.001 per
share

(Title of Class)


Series B Preferred Stock Purchase
Rights

(Title of Class)


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

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes o          No þ

The aggregate market value of the voting stock
held by non-affiliates of the registrant, based upon the closing
sale price of the common stock on June 30, 2003 as reported
on the NASDAQ Small Cap Market, was approximately $13,389,327.
Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of
January 30, 2004, the registrant had outstanding
9,341,561 shares of common stock and 731,851 shares of
preferred stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.



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TABLE OF CONTENTS



|                                                |                                                                                                                        |  |  |  |  |  |  | 
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                         
|                                                | Item 1. Business                                                                                                      
|                                                | Risks Relating to the Merger                                                                                          
|                                                | Item 2. Properties                                                                                                    
|                                                | Item 3. Legal Proceedings                                                                                             
|                                                | Item 4. Submission of Matters to a Vote of Security Holders                                                           
|PART II                                        
|                                                | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
|                                                | Item 6. Selected Financial Data                                                                                       
|                                                | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                         
|                                                | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                   
|                                                | Item 8. Financial Statements and Supplementary Data                                                                   
|                                                | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          
|                                                | Item 9A. Controls and Procedures                                                                                      
|PART III                                       
|                                                | Item 10. Directors and Executive Officers of Registrant                                                               
|                                                | Item 11. Executive Compensation                                                                                       
|                                                | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               
|                                                | Item 13. Certain Relationships and Related Transactions                                                               
|                                                | Item 14. Principal Accountant Fees and Services                                                                       
|PART IV                                        
|                                                | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                                              
|SIGNATURES                                     
|EXHIBIT INDEX                                  
|Employment Agreement with Mr. Mark K. Ruport   
|Employment Agreement with Mr. Steven M. Johnson
|Loan Modification Agreement                    
|Consent of Independent Accountants             
|Rule 13a-14(a) Certification of CEO            
|Rule 13a-14(a) Certification of CFO            
|Section 1350 Certification of CEO              
|Section 1350 Certification of CFO              



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OPTIKA INC.

2003 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|           |  |                                                                                                                        |    |      |    | 
|---------- |  | ---------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                                        |    | Page
|           |  |                                                                                                                        |    |     
|PART I    
|Item 1.    |  | Business                                                                                                               |    |      | 2  | 
|Item 2.    |  | Properties                                                                                                             |    |      | 20 | 
|Item 3.    |  | Legal Proceedings                                                                                                      |    |      | 20 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                                                |    |      | 20 | 
|PART II   
|Item 5.    |  | Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Repurchases of Equity
    Securities |    |      | 21 | 
|Item 6.    |  | Selected Financial Data                                                                                                |    |      | 22 | 
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                              |    |      | 23 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                         |    |      | 30 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                                                            |    |      | 30 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure                               |    |      | 31 | 
|Item 9A.   |  | Controls and Procedures                                                                                                |    |      | 31 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of Registrant                                                                         |    |      | 31 | 
|Item 11.   |  | Executive Compensation                                                                                                 |    |      | 33 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters                     |    |      | 37 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                                                         |    |      | 39 | 
|Item 14.   |  | Principal Accountant Fees and Services                                                                                 |    |      | 39 | 
|PART IV   
|Item 15.   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                                    |    |      | 40 | 
|Signatures |  |                                                                                                                        | 59 |     

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PART I

This annual report on Form 10-K contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those
discussed under the caption Risk Factors in
Item 1.






|        |         
|------- | --------
|Item 1. | Business

Introduction

Optika® Inc. is a leading provider of
enterprise content management (ECM) technology, including
document imaging, workflow, collaboration and records management
software. Our Acorde family of ECM software solutions, including
Acorde ContextTM, Acorde ProcessTM, Acorde
ResolveTM, Acorde Application LinkTM and
Acorde Records ManagementTM, allows companies to
streamline their business processes, eliminate paper, increase
operational efficiencies and effectively leverage their
enterprise resource planning (ERP) and line-of-business (LOB)
systems. Acorde provides the ability to manage compliance
requirements, access and store multiple formats of business
content, both digital and non-digital; automate processes across
the organization and externally with partners and customers; and
enable online collaboration around these paper-intensive or
complex processes in real and near time. Acorde supports a wide
spectrum of critical business operations, including accounts
payable, accounts receivable, claims processing, expense
reporting, records management and human resources.

Built on a three-tier, scalable and extensible
platform, Acorde easily integrates and interfaces with
third-party applications. Acorde is certified with PeopleSoft,
J.D. Edwards and Microsoft Business Solutions, and has
performed integrations with many other major ERP and LOB
systems, including Oracle, SAP, JDA and Lawson. The Acorde
product family makes extensive use of Web Services to ensure
seamless movement of transaction data and documents between
applications and across the enterprise. The Acorde product
allows organizations to improve processing efficiency, reduce
operating costs and increase customer, partner, and employee
service and satisfaction, resulting in a significant return on
investment.

Recent Developments

On January 12, 2004, we announced that we
had entered into a definitive agreement to merge with Stellent,
Inc. Under the terms of the merger agreement, each share of
Optika common stock would be converted into .44 shares of
Stellent common stock (subject to adjustment in certain
circumstances as described below) and the holders of our
preferred stock would receive $10 million in cash. If,
based on the average closing price of Stellents common
stock over a ten day period immediately prior to the closing of
the merger, the .44 to one exchange ratio would result in our
common stockholders receiving in excess of $4.00 per share
of Stellent common stock, the exchange ratio will be adjusted so
that 20% of the aggregate merger consideration in excess of
$4.00 per share would be allocated to the holders of our
preferred stock and 80% of the aggregate merger consideration in
excess of $4.00 per share would be allocated to the holders
of the common stock. The merger will be accounted for as a
purchase transaction by Stellent, and is expected to be
completed late in the first calendar quarter or early in the
second calendar quarter of 2004. The closing is subject to
regulatory approval, Optika and Stellent stockholder approval
and customary closing conditions. In connection with the
proposed merger, Stellent and Optika will file a joint proxy
statement/ prospectus with the Securities and Exchange
Commission. Investors and security holders of Stellent and
Optika are urged to read the joint proxy statement/ prospectus
and other relevant materials when they become available because
they will contain important information about Stellent, Optika
and the proposed merger. Investors and security holders may
obtain without charge copies of the joint proxy statement/
prospectus and other relevant materials (when they become
available), and any other documents filed by Stellent or Optika
with the Securities and Exchange Commission at the SECs
web site at http://www.sec.gov. A free copy of the joint
proxy statement/ prospectus and other relevant materials (when
they become available), and any other documents filed by
Stellent or Optika with the

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SEC, may also be obtained from Stellent and
Optika. In addition, investors and security holders may access
copies of the documents filed with the SEC by Stellent on
Stellents website at www.Stellent.com. Investors
and security holders may obtain copies of the documents filed
with the SEC by Optika on Optikas website at
www.Optika.com.


Background

For some time, private and public sector
organizations have felt increasing pressure to deliver process
efficiency and service improvements. These organizations have
attempted to optimize core transaction processes to respond to
competition, enhance service to customers, vendors and
employees, and improve their operating margins.

Over the past few years an additional major
requirement has emerged  the need to comply with
government mandates for records retention and compliance
monitoring. Our goal is to answer both marketplace needs and
make organizations more efficient by decreasing the cost of
business transactions and their associated cycle-times and
increasing the productivity of their workforces, while at the
same time, automating the capture, retention, management, and
disposition of documents that are required to be maintained for
compliance purposes.

We are able to achieve these important objectives
by leveraging and integrating ERP and other critical LOB
applications with our document imaging, workflow and records
management software products, and extending them outside the
organization with collaboration tools. By doing this, we help
our customers leverage the strategic investments they have
already made in business systems, reduce their cost of
operations, satisfy compliance mandates, and provide security
for their critical business documents. This not only has a large
favorable impact on the financial aspects of our customers
businesses, but it also helps them increase vendor, customer and
employee satisfaction.

These benefits are available for organizations
that have high volumes of transactions as well as those that
have the need to manage and store data and documents in multiple
formats in a variety of locations throughout their
organizations. We are also able to manage the secure storage,
retention and disposition of both electronic and physical
documents.

Business drivers are those factors that compel a
customer to look for a solution such as Optikas Acorde
family of products to satisfy their business requirements.
Business drivers are often described by chief financial
officers, chief information officers, compliance officers, and
business managers as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase process and transaction
    efficiency.This need is defined in
    terms of lowered costs of doing business and generating higher
    levels of service. The need for transaction efficiency
    especially applies to processes that have high transaction
    volumes along with content and supporting documents beyond the
    transaction itself.             
|
| |  | Reduce transaction cycle
    times.Time is money and the ability
    to process transactions in an expedited fashion is imperative.
    Due to the enormous costs involved, this is particularly
    important when dealing with transactions that are out of
    tolerance or those that need to be addressed in a unique fashion.                                         
|
| |  | Decrease operating
    expenses.During the past few years of
    limited or stagnant growth, the need to hold the line on
    expenses became paramount. During those times when shareholder
    value cant be enhanced by growing revenues, it becomes
    necessary to focus on improving business processes in order to
    drive down costs and improve profit margins.
|
| |  | Accomplish the same amount of work with fewer
    people or more work with the same number of
    people.Companies that are able to
    accelerate their growth without a corresponding increase in
    personnel have a distinct competitive advantage. Obviously, this
    goal cannot be achieved without an improvement in business
    process management.             
|
| |  | Control the proliferation of
    paper.Some companies are virtually
    drowning in a sea of paper  paper that can be lost or
    temporarily displaced. Such organizations need to evolve to
    electronic                                                                                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | methods to speed processes and reduce storage
    requirements. This is not only a cost imperative, but a security
    imperative as well.                                                                                                                                                                                                                                                             
|
| |  | Manage multiple sources of business
    data.It is not unusual to find
    companies where the transaction data needs to be supported by
    documents and data from several systems. The task of managing
    this data and the multiple systems that contain it can be
    daunting.                                                                                                                 
|
| |  | Protect critical business assets 
    corporate information.Organizations
    in every industry must protect corporate information through
    records management. Furthermore, they must properly dispose of
    records in a timely manner and produce the retained documents
    and data on request. Factors driving companies to deploy a
    compliance and records management strategy include:



| |   |                                          
| | - | -----------------------------------------
| |  | Litigation                               
|
| |  | Risk Management                          
|
| |  | Cost of Discovery                        
|
| |  | Mergers & Acquisitions                   
|
| |  | Globalization                            
|
| |  | Security                                 
|
| |  | Privacy                                  
|
| |  | Public and Private Sector Access Policies

Another important business driver is the
increasing focus on integrating an organizations key
business partners, such as vendors and customers, into the
organizations traditional business processes. Although
e-business was initially thought of as a revolutionary way to
market, sell and purchase goods and services, the industry is
now realizing the even greater potential of e-business in
changing the way businesses work with their supply chain
partners as well as providing information and interaction for
employees, customers and partners. These factors are helping Web
Services and portals emerge as key components in most
organizations strategic technology plans.

Because of the trend to e-business, organizations
must find ways to not only manage their electronic and
paper-intensive transactions more efficiently, but also to
involve each constituency by extending enterprise applications
to remote users via the Internet. We help to facilitate this
need with our workflow and collaboration tools. By providing
solutions that enable more efficient processes, seamless
integration with existing infrastructures and interaction among
all related participants, we are delivering operational savings
throughout the back-office.

Optika Acorde

The Acorde product family is changing the way
organizations process, fulfill and support business transactions
through the following solutions:



| |               
| | --------------
| | Acorde Context

To efficiently conduct business transactions,
both between internal departments and externally with vendors
and customers, organizations need immediate access to all
relevant transaction information, regardless of how it is
executed. Acorde Context enables companies to securely capture,
store, retrieve and display transaction documents and
information, regardless of source or type. Acorde Context can
manage both paper and electronic documents, as well as
electronic reports, and provide seamless integration to a
companys critical LOB applications. Acorde Context is
designed to help organizations increase user productivity and
improve information sharing across the enterprise.

4



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| |               
| | --------------
| | Acorde Process

Many companies have pared resources to the point
where employee frustration is at a high level. Corporate
executives and stockholders consistently want more: more
revenues, more profitability and more with less from
all departments. To help organizations achieve operational
efficiency and cost savings, we provide Acorde Process, a
sophisticated Business Process Management (BPM) workflow
technology for automating processes and delivering business
transaction information both within the enterprise and over the
Internet to external users. Acorde Process helps organizations
execute a greater number of transactions with fewer resources,
resulting in more effective back-office operations and
significantly enhanced transaction efficiency.



| |                          
| | -------------------------
| | Acorde Records Management

Due to recent corporate financial scandals,
Sarbanes-Oxley legislation and many new SEC and industry
regulations, records management is a crucial issue for many
private companies and public sector organizations. Our Acorde
Records Management product responds to this critical need by
enabling the identification, classification, tracking and
management of all forms of information from inception through
destruction or archival. With Acorde Records Management,
companies can achieve legal compliance with the requirements for
the maintenance and destruction of business records. Acorde
Records Management is fully integrated with Acorde Context and
Process, and manages all types of electronic and physical
records.



| |               
| | --------------
| | Acorde Resolve

Analyst reports show that approximately 11% of
organizations business transactions have problems or
discrepancies. For example, in the accounts payable area this
could mean short shipments, quantity mismatches or
substitutions. The resolution of these failures typically
requires time-intensive, manual processes involving research and
approval on a number of levels within multiple organizations. In
addition, the cost to process these problem transactions is
nearly equal to the cost to process all transactions that
complete successfully. Acorde Resolve allows businesses to build
collaboration hubs, which deliver interactive tools in a virtual
Web-based office environment, for resolving and collaborating
around transactions and their inherent discrepancies internally
and with trading partners. As a result, companies can more
efficiently resolve transaction issues to cut costs and improve
relationships with key customers and vendors.



| |                        
| | -----------------------
| | Acorde Application Link

Leveraging industry standards and providing a
variety of client desktops, Acorde also enables companies to
integrate with ERP systems and other third-party LOB
applications. With pre-built integrations for PeopleSoft, Oracle
E-Business Suite, and Microsoft Business Solutions, we deliver a
seamless way to extend the functionality of these enterprise
business applications with minimal implementation time and
effort. Acorde Application Link also allows organizations to
seamlessly integrate with any existing infrastructure or system,
enabling them to cost-effectively take advantage of and leverage
the investments they have already made in their crucial business
systems.

Sales and Marketing



| |      
| | -----
| | Sales

We employ a blended sales model, consisting of a
worldwide indirect sales network of Advantage Partners (APs),
and a direct sales force that covers North American territories
and territories in South America and Europe. We also deploy a
solution services team of system architects and program managers
to support our account executives and APs in enterprise system
design, planning, implementation, and rollout.

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| |               
| | --------------
| | Indirect Sales

Our APs are value-added resellers responsible for
identifying potential end-users, selling our products to the
end-users as part of a complete hardware and software solution,
customizing and integrating our products at the end-users
sites, and providing support and maintenance to the end-users
following the sale. Our APs currently include large
organizations selling a wide variety of products, smaller
organizations focused on imaging implementations,
application-oriented organizations, and geographically focused
organizations.

Our written agreements with our APs establish a
price at which the AP is eligible to license our software for
resale to end-users, the maintenance fee revenues that must be
remitted back to us, and other material terms and conditions.
These agreements generally do not grant exclusivity to APs, do
not prevent APs from carrying competing product lines and do not
require APs to sell any particular dollar amount of our
software. However, the agreements may be terminated at our
election if specified annual sales targets are not attained.
Actual sales contracts are between the APs and the end-users,
although we directly license our software to end-users through
their acceptance of a standard shrink-wrapped license agreement.

We support our APs through dedicated personnel at
our headquarters in Colorado Springs, Colorado, and a network of
field offices. Services range from joint marketing efforts, to
assistance with pricing and proposals, to technical product
support. Our strategy is to target specific marketing activities
toward our most productive APs, and to recruit additional APs in
key geographical and vertical markets. Our AP program is a
crucial element of our business strategy. License revenues from
APs accounted for approximately 47% of our license revenues for
the year ended December 31, 2003.



| |             
| | ------------
| | Direct Sales

Our North American direct sales team focuses on
developing relationships with large corporate end-users. The
direct sales team is divided into regional territories that
cover the United States. The direct sales force typically sells
to a different customer base than our indirect sales force.
Included in our direct sales force is our solution services team
that initiates contact directly with the end-users. The solution
services teams sometimes assists our APs to provide installation
and integration services at the end-users site, not only
facilitating particular implementations, but transferring
valuable product and installation expertise to the APs.



| |                    
| | -------------------
| | International Sales

For the years ended December 31, 2003, 2002
and 2001, we generated approximately 10%, 9% and 12%,
respectively, of our total revenues from international sales. We
currently maintain an office in the United Kingdom to support
our European APs, and an office in Brazil, to support our Latin
American APs.



| |          
| | ---------
| | Marketing

Optika has a fully integrated marketing program
to support our sales strategy. Marketing efforts are organized
into marketing communications, product marketing, strategic
alliances, lead generation, channel marketing, event marketing,
and Internet marketing. We support these efforts by issuing
frequent announcements to the press, communicating with key
industry analysts, participating in tradeshows, telemarketing,
email marketing and direct mailing to prospective customers,
developing and maintaining Internet services, and co-marketing
with strategic, reseller and technology partners. We also
participate with our APs in joint marketing efforts. The
targeted audience ranges from Fortune 1000 and
Global 2000 companies in the manufacturing, retail,
distribution, architecture/ engineering/ construction and
financial services industries, higher education, and public
sector organizations.

6



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| |          
| | ---------
| | Customers

As of December 31, 2003, we have sold to an
established base of over 2,000 customers through our
blended sales model of APs and direct sales force. Our solutions
are applicable and have been installed in a wide variety of
industries to process, fulfill and support business transactions.

No AP or end-user accounted for more than 10% of
our total revenues for the years ended December 31, 2003,
2002 or 2001.

Service and Support

We believe that a high level of customer service
and support is critical to our performance. We provide technical
support, maintenance, training and consulting to our APs, who
are in turn primarily responsible for providing technical
support services directly to end-users. We also provide such
support directly to our end-users on an as-needed basis. These
services are designed to increase end-user satisfaction, provide
feedback to us as to end-users demands and requirements,
and generate recurring revenue. We plan to continue expanding
our services and support programs as the depth and breadth of
our products increase.



| |           
| | ----------
| | AP Support

We maintain pre-sales technical support personnel
who work directly with the APs to provide technical responses to
sales inquiries. We offer educational and training programs, as
well as customized consulting services, to our APs. Fees for
training and consulting services are generally charged on a per
diem basis. We also provide product information bulletins on an
ongoing basis, including bulletins posted on our Internet site
and through periodic informational updates about the products
and installation methodologies. These bulletins generally answer
frequently asked questions and provide information about new
product features.



| |                                               
| | ----------------------------------------------
| | Technical Support and Software
    Maintenance

In conjunction with our APs, we offer end-users a
software maintenance program. The maintenance program includes
software updates provided by us to the end-user, and technical
support provided by the AP. We provide telephone consultation
services to the AP to respond to end-user technical questions
that the AP is unable to answer. Internet support services are
also available that provide access to important technical
support information, streamline the process of interacting with
the support organization and provide access to the technical
support knowledge base. An AP typically charges the end-user a
fee for maintenance and support of the entire system, including
software and hardware. In turn we charge the AP a fee of between
10% and 17% on an annual basis of the then-current list prices
of the licensed software.



| |         
| | --------
| | Warranty

We generally include a 90-day limited warranty
with the software license. During the warranty period, the
end-user is entitled to corrections for documented program
errors.

Research and Development

We have committed, and expect to continue to
commit, substantial resources to research and development. Our
research and development organization is based on the product
team concept. Each product team has an engineering team leader,
a product manager, development engineers and quality assurance
engineers. The team is entirely responsible for the design,
implementation and quality of our products. Product development
efforts are directed at increasing product functionality,
improving product performance, and expanding the capabilities of
the products to integrate with third-party software and hardware
products. In particular, we devote substantial development
resources to develop additional functionality for our products,
and the capability to support additional platforms, databases,
graphical user interfaces, toolsets and emerging technologies.

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As of January 20, 2004, our research and
development organization consisted of 34 full-time
employees in Colorado Springs, Colorado. During 2003, 2002 and
2001, research and development expenses were $4.7 million,
$5.1 million and $5.6 million, respectively. As of
December 31, 2003, we have expensed all of our internal
software development costs as incurred.

Competition

The market for Optikas Acorde product is
intensely competitive and can be significantly affected by new
product introductions and other market activities of industry
participants. We believe that the principal competitive factors
affecting our market include product features such as
adaptability, scalability, ability to integrate with third-party
products, functionality, ease of use, product reputation,
quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts, and company
reputation. Our principal direct competitors for our Acorde
products include FileNet Corporation, IBM Corporation, EMC
Corporation (which includes Documentum, Legato Systems Inc. and
OTG Software Inc.) and Hyland Software Inc. We also compete with
industry-specific application vendors. Numerous other software
vendors also compete in each product area. Potential competitors
include, without limitation, providers of document management
software products, providers of document archiving products,
providers of BPM and workflow products, and Relational Database
Management System, or RDBMS, vendors. In addition, we may face
competition from other established and emerging companies in new
market segments, such as e-business.

Many of our current and potential competitors
have longer operating histories, greater resources and name
recognition, and a larger installed base of customers than we
do. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements, or may be able to devote greater resources to the
development, promotion and sale of their products, than we can.
We also face indirect competition from value added resellers,
distributors and system integrators. We rely on a number of
these resellers for implementation and other customer support
services, as well as recommendations of our products during the
evaluation stage of the purchase process. Although we seek to
maintain close relationships with these resellers, many of these
third parties have similar, and often more established,
relationships with our principal competitors.

Proprietary Rights

We rely upon a combination of trade secret,
copyright and trademark laws, software licenses and
nondisclosure agreements, to establish and protect our
proprietary rights in our products. We enter into
confidentiality and/or license agreements with all of our
employees and distributors, as well as with our customers and
potential customers seeking proprietary information, and limit
access to and distribution of, our software, documentation and
other proprietary information. Despite these precautions, it may
be possible for unauthorized third parties to copy aspects of
our products or to obtain and use information that we regard as
proprietary. We have certain registered and other trademarks. We
believe that our products, trademarks and other proprietary
rights do not infringe the proprietary rights of third parties.
We cannot assure you, however, that third parties will not
assert infringement claims in the future.

Employees

At January 20, 2004, we had
128 full-time employees in 19 cities. Of these
employees, 34 were involved in research and development, 62 in
sales and marketing, 20 in technical support and training, and
12 in administration and finance. No employees are covered by
collective bargaining agreements. We believe that our
relationship with our employees is good.

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Executive Officers of the Company

Optikas executive officers and key
employees, and their ages as of January 31, 2004 are:

|                    |  |     |    |          |  |                                                                              
|------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|Mark K. Ruport      |  |     | 51 |          |  | President, Chief Executive Officer and Chairman
    of the Board of Directors
|Steven M. Johnson   |  |     | 41 |          |  | Executive Vice President, Chief Financial Officer
    and Secretary          
|Randall S. Weakly   |  |     | 37 |          |  | Vice President  Research and
    Development                                
|Christopher J. Ryan |  |     | 49 |          |  | Vice President  Marketing                                                   
|James A. Franklin   |  |     | 47 |          |  | Vice President  North American Direct
    Sales                             
|Greg D. Cooke       |  |     | 40 |          |  | Vice President  North American Channel
    Sales                            

Mark K. Ruporthas
served as our President and Chief Executive Officer and a
Director since February 1995. He has served as Chairman of the
Board of Directors since May 1996. From June 1990 to July 1994,
Mr. Ruport served as President and Chief Operating Officer,
and later Chief Executive Officer, of Interleaf, Inc., a
publicly held software and services company that develops and
markets document management, distribution and related software.
From 1989 to 1990, Mr. Ruport was Senior Vice President of
Worldwide Sales of Informix Software, where he was responsible
for direct and indirect sales and original equipment
manufacturers. From 1985 to 1989, Mr. Ruport served as Vice
President North American Operations for Cullinet Software.

Steven M. Johnsonhas served as our Executive Vice President, Chief Financial
Officer since February 2001, and as our Secretary since May
1996. He also served as our Vice President  Finance
and Administration and Chief Financial Officer from September
1992 to February 2001, as our interim Chief Executive Officer
from October 1994 to February 1995 and as our interim Vice
President of North American Channel Sales from July 1998 through
December 1998. Prior to joining us, from February 1988 to
September 1992, Mr. Johnson was Vice President 
Finance and Chief Financial Officer, of Insurance Auto Auctions,
Inc., a publicly held company.

Randall S. Weaklyhas served as our Vice President  Research and
Development since September 2003. Mr. Weakly joined us in
August 1995 and also served as Vice President 
Development, Chief Research Engineer and Engineering Manager.
Prior to joining us, Mr. Weakly worked as a technical
contractor for MCI from August 1994 to August 1995. From August
1992 to August 1994, Mr. Weakly worked in internal Research
and Development for GTE Government Systems. From June 1988 to
August 1992, Mr. Weakly performed Guidance, Navigation and
Control Research for Rockwell Space Operations Corporation.

Christopher J. Ryanhas served as our Vice President  Marketing since
July 2001. Prior to joining us, Mr. Ryan was Vice President
of Worldwide Product Marketing for FrontRange, Inc., an
international supplier of CRM solutions from October 2000 to
June 2001. From August 1998 to September 2000, he served as
Co-founder and Chief Marketing Officer of deuxo, Inc. (formerly
Saligent Software, Inc.), a supplier of lead management and
marketing automation software. From October 1997 to August 1998,
Mr. Ryan was Director of Industry and Integrated Marketing
for PeopleSoft, Inc., a supplier of human resource management
and enterprise resource planning solutions. From May 1993 to
October 1997, he served as Director of Field Marketing and
Director of Product Marketing for Sybase, Inc., a
$1 billion supplier of database and middleware solutions.
From February 1988 to October 1993, Mr. Ryan served as
President of IdeaWorks Marketing, a direct marketing services
firm he co-founded.

James A. Franklinhas served as Vice President  North American Direct
Sales West since February 2001. He also served as our Western
Regional Vice President of Sales from January 1999 to February
of 2001. Prior to joining us, Mr. Franklin was the Western
Region District Manager for GIGA Information Group, Inc., a
publicly held information technology analyst firm from 1996 to
1998. From 1994 to 1996, Mr. Franklin was the Director of
Business Development for Geo/ SQL Corporation, a leading vendor
of

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enterprise geographic information systems, in
Denver, Colorado. Mr. Franklin was responsible for direct
and OEM sales. From 1988 to 1994, Mr. Franklin held senior
sales and executive management positions for multiple
information technology consulting and software firms.


Greg D. Cookehas
served as Vice President  North American Channel
Sales since March 2003. Mr. Cooke also worked at Optika
from 1991 to 1999. While previously with us, Mr. Cooke has
held a variety of sales and business development positions
including Vice President of North American Sales. Prior to
re-joining Optika in 2003. Mr. Cooke was a principal for
Channel Magic LLC, a unique provider of channel development,
management consulting and outsourcing service to high technology
companies from October 2002 through March 2003. From
April 2001 to July 2002, Mr. Cooke was the Vice
President of Worldwide Sales and Partner Development for
Teamshare (now a wholly-owned subsidiary of Serena Software,
Inc.) From December 1999 to April 2001, Mr. Cooke was Vice
President of Worldwide Field Operations for American Fundware
(now a wholly-owned subsidiary of Intuit). From 1986 to 1991,
Mr. Cooke was Vice President of Sales and Marketing for FSE
Corporation, a leading financial services systems integration
company and Optika business partner in Dallas, Texas. He also
held a sales management position at The Synergistic Group, where
he was responsible for the sales of business planning software
packages to leading manufacturers, wholesale distributors and
retailers.

Risk Factors

As described herein in the section entitled
Recent Developments, we announced that we entered
into a merger agreement with Stellent, Inc. on January 12,
2004. Completion of the merger is subject to approvals of the
stockholders of each of Optika and Stellent, regulatory
approvals and other customary closing conditions. The following
risk factors relate to the business of Optika, and the merger
between Optika and Stellent. For risks about Stellents
business, see its Registration Statement on Form S-4 filed
on, or about, February 4, 2004 and its Annual Report on
Form 10-K for the year ended March 31, 2003 and
subsequently filed Quarterly Reports on Forms 10-Q and Current
Reports on Forms 8-K.

Business Risks of Optika

In evaluating our business, you should carefully
consider the business risks discussed in this section.



| |                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant portion of our revenues has
    been, and we believe will continue to be, derived from a limited
    number of orders, and the timing of such orders and their
    fulfillment have caused, and are expected to continue to cause,
    material fluctuations in our operating results.

A significant portion of our revenues has been,
and we believe will continue to be, derived from a limited
number of orders, and the timing of such orders and their
fulfillment have caused, and are expected to continue to cause,
material fluctuations in our operating results. Revenues are
also difficult to forecast because the markets for our products
are rapidly evolving, and our sales cycle and the sales cycle of
our value added resellers is lengthy and varies substantially
from end-user to end-user. To achieve our quarterly revenue
objectives, we depend upon obtaining orders in any given quarter
for shipment in that quarter. Product orders are typically
shipped shortly after receipt. Consequently, order backlog at
the beginning of any quarter has in the past represented only a
small portion of that quarters revenues. Furthermore, we
have often recognized most of our revenues in the last month, or
even in the last weeks or days, of a quarter. Accordingly, a
delay in shipment near the end of a particular quarter may cause
revenues in a particular quarter to fall significantly below our
expectations and may materially adversely affect our operating
results for such quarter. Conversely, to the extent that
significant revenues occur earlier than expected, operating
results for subsequent quarters may fail to keep pace with
results of previous quarters or even decline. We also have
recorded generally lower sales in the first quarter than in the
immediately preceding fourth quarter, as a result of, among
other factors, end-users purchasing and budgeting
practices and our sales commission practices. To the extent that
future international operations constitute a higher percentage
of total revenues, we anticipate that we may also experience
relatively weaker demand in the third quarter as a result of
reduced sales in Europe during the summer months. Significant
portions of our expenses are relatively fixed in the short term.
Accordingly, if revenue levels fall

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below expectations, operating results are likely
to be disproportionately and adversely affected. As a result of
these and other factors, we believe that our quarterly operating
results will vary in the future, and that period-to-period
comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of
future performance. Furthermore, due to all of the foregoing
factors, it is likely that in some future quarter our operating
results will be below the expectations of public market analysts
and investors. In such event, the price of our common stock
would likely decline and such decline could be significant.




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Substantially all of our current license
    revenue is derived from one product.

The Optika Acorde family of products accounts for
substantially all of our current license revenue. Our future
financial performance will depend in general on the acceptance
of our product offerings, and in particular on the successful
development, introduction and customer acceptance of new and
enhanced versions of our products.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Capital market conditions could materially
    and adversely affect our ability to raise additional needed
    capital.

Current capital market conditions have materially
and adversely affected the ability of many technology companies
to raise additional capital in both private and public markets.
Although we believe that our existing cash balances and liquid
resources will be sufficient to fund our operating activities,
capital expenditures and other obligations through at least the
next twelve months, if market conditions do not improve and we
are not successful in generating sufficient cash flow from
operations or in raising additional capital when required in
sufficient amounts and on terms acceptable to us, we may be
required to reduce our planned expenditures and scale back the
scope of our business plan.



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to compete effectively and to
    manage any future growth will require that we continue to
    attract and assimilate new personnel and to train and manage our
    work force.

Most of our senior management team has joined us
within the last five years. These individuals may not be able to
achieve and manage growth, if any, or build an infrastructure
necessary for us to operate. Our ability to compete effectively
and to manage any future growth will require that we continue to
assimilate new personnel and to train and manage our work force.
Our future performance depends to a significant degree upon the
continuing contributions of our key management, sales,
marketing, customer support, and product development personnel.
We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel, particularly in
sales, software development and customer support. We believe
that there may be only a limited number of persons with the
requisite skills to serve in those positions, and that it may
become increasingly difficult to hire such persons. Competitors
and others have in the past, and may in the future, attempt to
recruit our employees. We have from time to time experienced
turnover of key management, sales and technical personnel. The
loss of key management, sales or technical personnel, or the
failure to attract and retain key personnel, could harm our
business.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future results of operations will
    depend on the success of our marketing and distribution
    strategy, which relies, to a significant degree, upon third
    parties.

Our future results of operations will depend on
the success of our marketing and distribution strategy, which
relies, to a significant degree, upon value added resellers to
sell and install our software, and provide post-sales support.
These relationships are usually established through formal
agreements that generally do not grant exclusivity, do not
prevent the distributor from carrying competing product lines
and do not require the distributor to purchase any minimum
dollar amount of our software. Some value added resellers may
not continue to represent us or sell our products. Other value
added resellers, some of which have significantly greater
financial, marketing and other resources than we have, may
develop or market software products that compete with our
products or may otherwise discontinue their relationship with,
or support of, us. Some of our value added resellers are small
companies that have limited financial and other resources that
could impair their ability to pay us. Selling through indirect
channels may hinder our ability

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to forecast sales accurately, evaluate customer
satisfaction or recognize emerging customer requirements. Our
future results of operations also depend on the success of our
continuing efforts to build a direct sales force.




| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future performance will depend in
    significant part upon our ability to respond effectively to
    rapid technological change and changes in customer
    requirements.

The markets for our products are characterized by
rapid technological change, changes in customer requirements,
frequent new product introductions and enhancements, and
emerging industry standards. Our future performance will depend
in significant part upon our ability to respond effectively to
these developments. The introduction of products embodying new
technologies and the emergence of new industry standards can
render existing products obsolete, unmarketable or
noncompetitive. We are unable to predict the future impact of
such technology changes on our products. Moreover, the life
cycles of our products are difficult to estimate. Our future
performance will depend in significant part upon our ability to
enhance current products, and to develop and introduce new
products and enhancements that respond to evolving customer
requirements. The inability, for technological or other reasons,
to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements,
technological change or emerging industry standards, or maintain
compatibility with heterogeneous computing environments, would
have a material adverse effect on our business and results of
operations.



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on third-party software licenses,
    the loss of which could materially and adversely affect our
    business and financial condition.

We license software from third parties, which is
incorporated into our products. These licenses expire from time
to time. These third-party software licenses may not continue to
be available to us on commercially reasonable terms. The loss
of, or inability to maintain, any such software licenses could
result in shipment delays or reductions until equivalent
software could be developed, identified, licensed and
integrated, which in turn could materially and adversely affect
our business and financial condition. In addition, we generally
do not have access to source code for the software supplied by
these third parties. Certain of these third parties are small
companies that do not have extensive financial and technical
resources. If any of these relationships were terminated or if
any of these third parties were to cease doing business, we may
be forced to expend significant time and development resources
to replace the licensed software.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Licensing our software products requires a
    lengthy and complex sales cycle.

The license of our software products is typically
an executive-level decision by prospective end-users, and
generally requires our value added resellers and us to engage in
a lengthy and complex sales cycle (typically between six and
twelve months from the initial contact date). In addition, the
implementation by customers of our products may involve a
significant commitment of resources by such customers over an
extended period of time. For these and other reasons, the sales
and customer implementation cycles are subject to a number of
significant delays over which we have little or no control. Our
future performance also depends upon the capital expenditure
budgets of our customers and the demand by such customers for
our products. Certain industries to which we sell our products,
such as the financial services industry, are highly cyclical.
Our operations may in the future be subject to substantial
period-to-period fluctuations as a consequence of such industry
patterns, domestic and foreign economic and other conditions,
and other factors affecting capital spending. Such factors may
have a material adverse effect on our business and results of
operations.



| |                                                                   
| | ------------------------------------------------------------------
| | The market for our product offerings is
    intensely competitive.

The market for our product offerings is intensely
competitive and can be significantly affected by new product
introductions and other market activities of industry
participants. Our competitors offer a variety of products and
services to address the electronic content management market and
the emerging market for e-business solutions. Because our
products are designed to operate in non-proprietary computing

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environments and because of low barriers to entry
in the marketplace, we expect additional competition from
established and emerging companies, as the market for our
products continues to evolve. 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 the needs of our prospective
customers. In addition, several competitors have recently made,
or attempted to make, acquisitions to enter the market or
increase their market presence. Accordingly, new competitors or
consolidation and alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition
may result in price reductions, reduced gross margins and loss
of market share.


Many of our current and potential competitors are
substantially larger than we are, have significantly greater
financial, technical and marketing resources and have
established more extensive channels of distribution. As a
result, such competitors may be able to respond more rapidly to
new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development,
promotion and sale of their products than we can. We expect our
competitors to continue to improve the performance of their
current products and to introduce new products or new
technologies that provide added functionality and other
features. Our failure to keep pace with our competitors through
new product introductions or enhancements could cause a
significant decline in our sales or loss of market acceptance of
our products and services, result in continued intense price
competition, or make our products and services or technologies
obsolete or noncompetitive. To be competitive, we will be
required to continue to invest significant resources in research
and development, and in sales and marketing.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We rely on our ability to protect our
    proprietary rights to the technologies used in our principal
    products.

Our performance depends in part on our ability to
protect our proprietary rights to the technologies used in our
principal products. We rely on a combination of copyright and
trademark laws, trade secrets, confidentiality provisions and
other contractual provisions to protect our proprietary rights,
which are measures that afford only limited protection. Despite
our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products, or to
obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States.
Our means of protecting our proprietary rights in the United
States or abroad may not be adequate, and competitors may
independently develop similar technologies. Third parties may
claim infringement by our products of their intellectual
property rights. We expect that software product developers will
increasingly be subject to infringement claims if the number of
products and competitors in our industry segment grows and the
functionality of products in different industry segments
overlaps. Any such claims, with or without merit, and regardless
of the outcome of any litigation, will be time-consuming to
defend, result in costly litigation, divert managements
attention and resources, cause product shipment delays, or
require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. A successful
claim of infringement against our products and failure or
inability to license the infringed or similar technology may
adversely affect our business and results of operations.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our inability to successfully expand our
    international operations in a timely manner, or at all, could
    materially and adversely affect our business and results of
    operations.

Sales outside the United States accounted for
approximately 10%, 9% and 12% of our revenues in 2003, 2002 and
2001, respectively. We have only limited experience in
developing localized versions of our products and we may not be
able to successfully localize, market, sell and deliver our
products internationally. Our inability to successfully expand
our international operations in a timely manner, or at all,
could materially and adversely affect our business and results
of operations. Our international revenues may be denominated in
foreign currencies or the U.S. dollar. We do not currently
engage in foreign currency hedging transactions; as a result, a
decrease in the value of foreign currencies relative to the
U.S. dollar could result in losses from transactions
denominated in foreign currencies and could make our software
less price-competitive.

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| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | A successful product liability claim
    against us could have a material adverse effect upon our
    business and results of operations.

Our license agreements typically contain
provisions designed to limit our exposure to potential product
liability claims. These limitations of liability provisions may
not be effective under the laws of certain jurisdictions. The
sale and support of our products may entail the risk of such
claims, and we could be subject to such claims in the future. A
successful product liability claim against us could have a
material adverse effect upon our business and results of
operations. Software products such as those we offer frequently
contain errors or failures, especially when first introduced or
when new versions are released. We have in the past released
products that contained defects, and have discovered software
errors in certain of our new products and enhancements after
introduction. We could in the future lose or delay recognition
of revenues as a result of software errors or defects, the
failure of our products to meet customer specifications or
otherwise. Our products are typically intended for use in
applications that may be critical to a customers business.
As a result, we expect that our customers and potential
customers have a greater sensitivity to product defects than the
market for general software products. Despite our testing and
testing by current and potential customers, errors or defects
may be found in new products or releases after commencement of
commercial shipments, and our products may not meet customer
specifications, resulting in loss or deferral of revenues,
diversion of resources, damage to our reputation, or increased
service and warranty and other costs.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We must continue to successfully integrate
    the people, products and business lines of our
    acquisitions.

We have acquired, and we may in the future
acquire, businesses, products or technologies that we believe
compliment or expand our existing business. For example in May
2003, we acquired Select Technologies, Inc., a records
management software company based in Boise, Idaho. Our ability
to achieve favorable results in 2004 and beyond will be
dependent in part upon our ability to continue to successfully
integrate the people, products and business lines of our
acquisitions. In addition, we will need to work with our
acquired companies customers and business partners, as
well as our current customers and business partners, to expand
relationships based upon the broader range of products and
services available from us. In some instances, we may need to
discontinue relationships with business partners whose interests
are no longer aligned with ours. We must accomplish the
synergies we identified during the acquisition process. Failure
to execute on any of these elements and accomplish the favorable
financial results from the integration process could adversely
affect our business and results of operations.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The market price of our shares of common
    stock has been, and is likely to continue to be, highly
    volatile.

Effective February 4, 2003, our common stock
began trading on the Nasdaq SmallCap Market under the symbol
OPTK. Previously, our stock was traded on the Nasdaq
National Market under the same symbol. The market price of our
shares of common stock has been, and is likely to continue to
be, highly volatile and may be significantly affected by factors
such as:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | Actual or anticipated fluctuations in our
    operating results            
|
| |  | Announcements of technological innovations                                 
|
| |  | New products or new contracts by us or our
    competitors                 
|
| |  | Sales of common stock by management, directors or
    other related parties
|
| |  | Sales of significant amounts of common stock into
    the market           
|
| |  | Developments with respect to proprietary rights                            
|
| |  | Conditions and trends in the software and other
    technology industries  
|
| |  | Adoption of new accounting standards affecting
    the software industry   
|
| |  | Changes in financial estimates by securities
    analysts and others       

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| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | General market conditions                                       
|
| |  | Other factors that may be unrelated to us or our
    performance

In addition, the stock market has from time to
time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common
stock of technology companies. These broad market fluctuations
may adversely affect the market price of our common stock. In
the past, following periods of volatility in the market price of
a particular companys securities, securities class action
litigation has often been brought against such company. Such
litigation may be brought against us in the future. Such
litigation, regardless of its outcome, would result in
substantial costs and a diversion of managements attention
and resources that could have a material adverse effect upon our
business and results of operations.



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain provisions of our certificate of
    incorporation, equity incentive plans, bylaws, and Delaware law
    may discourage certain transactions involving a change in
    control of Optika.

Certain provisions of our certificate of
incorporation, equity incentive plans, bylaws, and Delaware law
may discourage certain transactions involving a change in
control of our company, even if such a transaction would be in
the best interest of our stockholders. Our classified board of
directors and the ability of the board of directors to issue
blank check preferred stock without further
stockholder approval, may have the effect of delaying, deferring
or preventing a change in our control and may also affect the
market price of our stock. We also have a stockholders rights
plan under which all stockholders of record as of July 18,
2001 received one right for each share of common stock then
owned by them to purchase, upon the occurrence of certain
triggering events, one one-hundredth of a share of Series B
preferred stock at a price of $30, subject to adjustment. The
rights are exercisable only if a person or group acquires 15% or
more of our common stock in a transaction not approved by our
Board of Directors. These provisions and certain other
provisions of our amended and restated certificate of
incorporation and certain provisions of our amended and restated
bylaws and of Delaware law, could delay or make more difficult a
merger, tender offer or proxy contest.

Risks Relating to the Proposed Merger with
Stellent






Risks Relating to the Merger


The merger involves risk for Stellent and Optika
shareholders. Optika stockholders will be choosing to invest in
Stellent common stock by voting in favor of the merger. In
addition to other information included in the joint proxy
statement/ prospectus filed with the Securities and Exchange
Commission on or about February 4, 2004, including the
matters addressed in the section of the joint proxy statement/
prospectus Cautionary Statement Concerning Forward-Looking
Statement you should carefully consider the following
risks before deciding whether to vote in favor of the merger
proposal and the amendment to the certificate of designation, in
the case of Optika stockholders, or for the issuance of shares
of Stellent common stock pursuant to the merger agreement, in
the case of Stellent shareholders. Please refer to the section
of the joint proxy statement/ prospectus entitled Where
You Can Find More Information. Additional risks and
uncertainties not presently known to Stellent or Optika or that
are not currently believed to be important to you also may
adversely affect the merger and the combined company following
the merger.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Stellent and Optika may be unable to obtain
    the shareholder approvals required to complete the
    merger.

The closing of the merger is subject to approvals
by the shareholders of Optika and Stellent, which might not be
obtained. The issuance of shares of Stellent common stock
pursuant to the merger agreement requires the affirmative vote
of a majority of the total votes cast at the Stellent special
meeting, provided a quorum is present at the meeting. Approval
of the Optika merger proposals requires the affirmative vote of
a majority of the outstanding shares of Optika common stock and
Optika preferred stock (voting together with the Optika common
stock on an as-converted-to-common-stock basis). If the
requisite shareholder

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approvals are not obtained, the conditions of
closing of the merger will not be satisfied and the closing of
the merger will not occur. If the merger is not completed, the
business and operations of Stellent and Optika may be harmed to
the extent that customers, suppliers and others believe that the
companies cannot effectively compete in the marketplace without
the merger and the market prices of Stellent common stock and
Optika common stock may decline.




| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The number of shares that holders of Optika
    common stock will be entitled to receive is fixed; if the market
    price of Stellents common stock declines, Optika
    stockholders will be entitled to receive less in value for their
    shares of Optika common stock.

Upon the closing of the merger, each holder of
shares of Optika common stock will be entitled to receive a
fixed portion of a share of Stellent common stock for each share
of Optika common stock held by such stockholder at the closing
of the merger. The market value of Stellents shares
fluctuates based upon general market and economic conditions,
Stellents business and prospects and other factors, as
discussed in this joint proxy statement/ prospectus. Because of
these fluctuations and because the total number of shares of
Stellent common stock to be received as consideration by holders
of Optika common stock in the merger may be decreased if shares
of Stellent common stock are allocated to holders of the Optika
preferred stock, as discussed in this joint proxy statement/
prospectus, but will not, in any case be increased, the exact
value of the consideration that holders of Optika common stock
will be entitled to receive in the merger cannot be determined
until the closing of the merger.

There will be no increase to the exchange ratio
(except for reclassifications to reflect the effect of any stock
split, reverse stock split, stock dividend, reorganization,
recapitalization, reclassification or other like change with
respect to Stellent common stock or Optika common stock), and
the parties do not have the right to terminate the merger
agreement based upon changes in the market price of either
Stellent common stock or Optika common stock. Accordingly, if
Stellents stock price decreases, Optikas
stockholders will be entitled to receive less in value for their
shares of Optika common stock.



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some of the directors and executive
    officers of Stellent and Optika have interests and arrangements
    that could have affected their decisions to support or approve
    the transaction.

All Stellent officers and directors will serve in
their current capacity for the combined company.

The directors and executive officers of Optika
will receive continuing indemnification against liabilities and
some of the directors and executive officers of Optika have
Optika stock options that potentially provide them with
interests in the merger, such as accelerated vesting upon
completion of the merger in certain cases, that are different
from, or are in addition to, your interests in the merger. An
Optika director will serve on the board of directors of the
combined company. In addition, Mark K. Ruport has entered into
an employment agreement with Stellent that will become effective
upon the consummation of the merger. Under the agreement,
Mr. Ruport is entitled to receive compensation and benefits
as described under the section of the joint proxy statement/
prospectus The Merger  Interests of Directors
and Executive Officers of Optika in the Merger.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The stock prices and businesses of Stellent
    and Optika may be adversely affected if the merger is not
    completed.

If the merger is not completed, the market prices
of Stellent common stock and Optika common stock may decline. In
addition, Stellents and Optikas businesses and
operations may be harmed to the extent that customers, suppliers
and others believe that the companies cannot effectively compete
in the marketplace without the transaction, or there is customer
or employee uncertainty surrounding the future direction of the
product and service offerings and strategy of Stellent or Optika
on a standalone basis. Completion of the merger is subject to
several closing conditions, including obtaining requisite
regulatory and shareholder approvals, and Stellent and Optika
may be unable to obtain such approvals on a timely basis or at
all. If the transaction is not completed, Stellent and Optika
would not derive the strategic benefits expected to result from
the transaction. Stellent and Optika will also be required to
pay significant

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costs incurred in connection with the
transaction, including legal, accounting and financial advisory
fees, and certain fees and expenses of TWCP and certain of it
affiliates, whether or not the transaction is completed.
Moreover, under specified circumstances described in this joint
proxy statement/ prospectus, Stellent may be required to pay
Optikas expenses incurred in connection with the merger
agreement or the merger of up to $750,000 in connection with the
termination of the merger agreement, or Optika may be required
to pay Stellent a termination fee of $1.6 million and
Stellents expenses incurred in connection with the merger
agreement or the merger of up to $750,000 pursuant to the merger
agreement, in connection with the termination of the merger
agreement.




| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The combined company may not realize
    benefits from the merger because of integration and other
    challenges.

Any failure of the combined company to meet the
challenges involved in integrating the operations of Stellent
and Optika successfully or to realize any of the anticipated
benefits or synergies of the merger could seriously harm the
results of the combined company. Realizing the benefits of the
merger will depend in part on the ability of the combined
company to overcome significant challenges, including timely,
efficient and successful execution of post-merger strategies,
including:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | combining the operations of two companies;                                                     
|
| |  | integrating and managing the combined company;                                                 
|
| |  | retaining and assimilating the key personnel of
    each company;                              
|
| |  | integrating the sales channels of each company;                                                
|
| |  | retaining existing customers of each company and
    attracting new customers;                 
|
| |  | retaining strategic partners of each company and
    attracting new strategic partners; and    
|
| |  | creating and maintaining uniform standards,
    controls, procedures, policies and information.

The risks related to the execution of these
post-merger strategies include:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the potential disruption of the combined
    companys on-going business and distraction of its
    management;                                                            
|
| |  | difficulties inherent in combining product
    offerings, coordinating sales and marketing efforts to
    effectively communicate the capabilities of the combined company;
|
| |  | the potential need to demonstrate to customers
    that the merger will not result in adverse changes in customer
    service standards or business; and                   
|
| |  | impairment of relationships with employees,
    suppliers and customers as a result of any integration of new
    management personnel.                                    



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Charges to earnings resulting from the
    application of the purchase method of accounting may adversely
    affect the market value of the combined companys common
    stock following the merger.

In accordance with accounting principles
generally accepted in the United States of America, the combined
company will account for the merger using the purchase method of
accounting, which will result in charges to earnings that could
have a material adverse effect on the market value of Stellent
common stock following the closing of the merger. Under the
purchase method of accounting, the combined company will
allocate the total estimated purchase price to Optikas net
tangible assets, amortizable intangible assets, intangible
assets with indefinite lives and in-process research and
development, if any, based on their fair values as of the date
of the closing of the merger, and record the excess of the
purchase price over those fair values as goodwill. The portion
of the estimated purchase price allocated to purchased
in-process technology, if any, will be expensed by the combined
company in the quarter in which the merger is completed. The
combined company will incur additional depreciation and
amortization expense over the useful lives of certain of the net
tangible and intangible assets acquired in connection with the

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merger. In addition, to the extent the value of
goodwill or intangible assets with indefinite lives becomes
impaired, the combined company may be required to incur material
charges relating to the impairment of those assets. These
depreciation, amortization and potential impairment charges
could have a material impact on the combined companys
results of operations.




| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In order to be successful, the combined
    company must retain and motivate key employees, which will be
    more difficult in light of uncertainty regarding the merger, and
    failure to do so could seriously harm the combined
    company.

In order to be successful, the combined company
must retain and motivate executives and other key employees,
including those in managerial, sales and technical positions.
Employees of Stellent or Optika may experience uncertainty about
their future role with the combined company until or after
strategies with regard to the combined company are announced or
executed. In addition, a portion of Optikas employee
options have exercise prices in excess of the current value of
the merger consideration. These circumstances may adversely
affect the combined companys ability to attract and retain
key management, sales and technical personnel. The combined
company also must continue to motivate employees and keep them
focused on the strategies and goals of the combined company,
which may be particularly difficult due to the potential
distractions of the merger.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | The market price of Stellents common
    stock may decline as a result of the merger.

The market price of Stellents common stock
may decline as a result of the merger for a number of reasons,
including if:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the integration of Stellent and Optika is not
    completed in a timely and efficient manner;                                                                
|
| |  | the combined company does not achieve the
    perceived benefits of the merger as rapidly or to the extent
    anticipated by financial or industry analysts;
|
| |  | the effect of the merger on the combined
    companys financial results is not consistent with the
    expectations of financial or industry analysts; or   
|
| |  | significant shareholders of Stellent or Optika
    decide to dispose of their stock following completion of the
    merger.                                  



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Uncertainty regarding the merger and the
    effects of the merger could cause each companys customers
    or strategic partners to delay or defer decisions.

Stellents and/or Optikas customers
and strategic partners, in response to the announcement of the
merger, may delay or defer decisions regarding the license of
the combined companys products and services, which could
have a material adverse effect on the business of the combined
company or the relevant company if the merger is not completed.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Optika could lose an opportunity to enter
    into a merger or business combination with another party on more
    favorable terms as the merger agreement restricts Optika from
    soliciting such proposals.

While the merger agreement is in effect, subject
to certain limited exceptions, Optika is restricted from
entering into or soliciting, initiating or encouraging any
inquiries or proposals that may lead to a proposal or offer for
a merger with any persons other than Stellent. As a result of
the restriction, Optika may lose an opportunity to enter into a
transaction with another potential partner on more favorable
terms. If Optika terminates the merger agreement to enter into
another transaction, Optika likely would be required to pay a
termination fee to Stellent that may make an otherwise more
favorable transaction less favorable. See The Merger
Agreement  Termination Fee and Expenses of the
joint proxy statement/ prospectus. In addition, if the merger
agreement is terminated and the Optika board of directors
determines that it is in the best interests of the Optika
stockholders to seek a merger or business combination with
another strategic partner, Optika cannot assure you that it will
be able to find a partner offering terms equivalent or more
attractive than the price and terms offered by Stellent.

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| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stellent and Optika may be unable to obtain
    the regulatory approvals that may be required to complete the
    merger or, in order to obtain such approvals, the combined
    company may be required to comply with material restrictions or
    conditions.

The merger may be subject to review by the United
States Federal Trade Commission under the HSR Act. In addition,
the merger may be subject to review by the governmental
authorities of various other jurisdictions under the antitrust
laws of those jurisdictions.

The reviewing authorities may not permit the
merger at all or may impose restrictions or conditions on the
merger that may seriously harm the combined company if the
merger is completed. These conditions could include a complete
or partial license, divestiture, spin-off or the holding
separate of assets or businesses. Stellent may refuse to
complete the merger if material restrictions or conditions are
required by governmental authorities. Any delay in the
completion of the merger could diminish the anticipated benefits
of the merger, result in additional transaction costs or result
in loss of revenue or other effects associated with uncertainty
about the transaction.

Stellent and Optika also may agree to
restrictions or conditions imposed by antitrust authorities in
order to obtain regulatory approval, and these restrictions or
conditions could harm the combined companys operations.
Unless required by law, no additional shareholder approval is
expected to be required for any decision by Stellent and Optika,
after the special meetings of Stellent shareholders and Optika
stockholders, to agree to any terms and conditions necessary to
resolve any regulatory objections to the merger.

In addition, during or after the statutory
waiting periods, and even after the completion of the merger,
governmental authorities could seek to block or challenge the
merger as they deem necessary or desirable in the public
interest. Moreover, in some jurisdictions, a competitor,
customer or other third party could initiate a private action
under the antitrust laws challenging or seeking to enjoin the
merger, before or after it is completed. Stellent, Optika or the
combined company may not prevail, or may incur significant
costs, in defending or settling any action under the antitrust
laws.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The combined company is not profitable on a
    pro forma basis and may not be profitable in the
    future.

On a pro forma basis, the combined company had a
net loss of approximately $12.4 million for the nine months
ended December 31, 2003. We cannot assure you that the
combined companys revenue will increase or continue at
current levels or growth rates or that the combined company will
achieve profitability or generate cash from operations in future
periods. In view of the rapidly evolving nature of the combined
companys business and the limited histories of Stellent
and Optika in producing many of their current products,
period-to-period comparisons of operating results are not
necessarily meaningful and you should not rely on them as
indicating what the combined companys future performance
will be. We expect that the combined company will continue to
incur significant sales, marketing, product development and
administrative expenses. As a result, the combined company will
need to generate significant revenue to achieve profitability
and we cannot assure you that it will achieve profitability in
the future.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The merger may be completed even though
    material adverse changes may result from the announcement of the
    merger, industry-wide changes and other causes.

In general, either party may refuse to complete
the merger if there is a material adverse change affecting the
other party before the closing. However, certain types of
changes will not prevent the completion of the offer or the
merger, even if they would have a material adverse effect on
Stellent or Optika, including:



| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes or conditions generally affecting the
    industries or segments in which Stellent and Optika operate
    unless the change or condition has a materially disproportionate
    effect on Stellent or Optika, as the case may be;
|
| |  | changes in general economic, market or political
    conditions unless the change has a materially disproportionate
    effect on Stellent or Optika, as the case may be;                                                               

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| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or threatened litigation by stockholders
    of Stellent or Optika relating to the announcement or completion
    of the offer or the merger (unless the offer or the merger is
    enjoined);
|
| |  | any disruption of customer, business partner,
    supplier or employee relationships that resulted from the
    announcement of the merger agreement or the completion of the
    merger; and        
|
| |  | changes in Stellents or Optikas
    common stock market price or trading volume, in and of
    themselves.                                                                                         

If material adverse changes occur but we must
still complete the merger, Stellents stock price may
suffer. This in turn may reduce the value of the merger to
Stellents and Optikas shareholders.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our focus on integrating the combined
    companies may divert us from other potential
    transactions.

Our industry has experienced recent
consolidation. Even after the merger, many competitors of the
combined company will have substantially more resources than it
has. Managements focus on realizing the benefits of the
merger for the combined companies may divert us from pursuing
other potential transactions that could further increase the
resources an marketing opportunities of the combined companies.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | There is a risk of potentially unfavorable
    United States federal income tax consequences to Optika
    stockholders.

Optika stockholders may be subject to potentially
material adverse United States federal income tax consequences
if the Internal Revenue Service were to successfully contend
that the consideration transferred by Stellent to the Optika
common and preferred stockholders should be treated not as it
was actually received, but rather as it would have been received
by such stockholders prior to the amendment of the certificate
of designation of the Optika preferred stock, pursuant to which
the stated liquidation preference of the Optika Preferred Stock
will be terminated. To review the material United States federal
income tax consequences to stockholders in greater detail, see
The Merger  Material United States Federal
Income Tax Consequences of the Merger in the joint proxy
statement/prospectus.






|        |           
|------- | ----------
|Item 2. | Properties

Our principal administrative, sales and
marketing, research and development and support facilities
consist of approximately 39,000 square feet of office space
in Colorado Springs, Colorado. We occupy these premises under a
lease expiring in March of 2007. In support of our field sales
and support organization, we also lease several facilities in
the United States, an office in the United Kingdom and an office
in Brazil.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are currently not a party to any material
litigation, and we are currently not aware of any pending or
threatened litigation that we believe would or is reasonably
likely to have a material adverse effect upon our business,
operating results, or financial condition.






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

We did not submit any matters to a vote of our
security holders during the fourth quarter of the fiscal year
ended December 31, 2003.

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##### Table of Contents






PART II






|        |                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Repurchases of Equity
    Securities

Effective February 4, 2003, our common stock
began trading on the NASDAQ Small Cap Market under the symbol
OPTK. Previously, our common stock was traded on the
NASDAQ National Market under the same symbol. The following
table sets forth the high and low closing sale prices per share
of the common stock for the periods indicated, as reported on
the NASDAQ.

|                   |  |      |      |     |  |   |      | 
|------------------ |  | ---- | ---- | --- |  | - | ---- | 
|Quarter Ended      |  | High |      | Low
|                   |  |      |      |    
|December 31, 2003  |  | $    | 5.11 |     |  | $ | 2.08 | 
|September 30, 2003 |  | $    | 2.62 |     |  | $ | 1.42 | 
|June 30, 2003      |  | $    | 1.58 |     |  | $ | 1.09 | 
|March 31, 2003     |  | $    | 1.53 |     |  | $ | .98  | 
|December 31, 2002  |  | $    | 1.20 |     |  | $ | .64  | 
|September 30, 2002 |  | $    | 1.68 |     |  | $ | .85  | 
|June 30, 2002      |  | $    | 2.34 |     |  | $ | 1.47 | 
|March 31, 2002     |  | $    | 2.74 |     |  | $ | 1.00 | 

As of January 30, 2004, we estimate there
were approximately 158 holders of record of our common
stock. This does not include the number of persons whose stock
is in nominee or street name accounts through
brokers.

We have never declared or paid any cash dividends
on our capital stock since our inception, and we do not expect
to pay cash dividends on our common stock in the foreseeable
future. Our bank line of credit currently prohibits the payment
of cash dividends without the consent of the bank.

The information required by Item 201(d) of
Regulation S-K (Securities Authorized for Issuance Under
Equity Compensation Plans) is included in Item 12 of this
report.

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data should be read in conjunction with our consolidated
financial statements and related notes thereto, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in this
Report. The consolidated statement of operations data for each
of the three years in the period ended December 31, 2003
and the consolidated balance sheet data at December 31,
2003 and 2002, are derived from the audited consolidated
financial statements included in this Report. The consolidated
statement of operations data for the two years ended
December 31, 2000 and 1999, and the consolidated balance
sheet data at December 31, 2001, 2000 and 1999, are derived
from audited consolidated financial statements not included in
this Report.

|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |        |        | 
|---------------------------------------------------------------------------------------------- | ------------------------------- | ---------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                               |                                 |                                         
|                                                                                               |                                 | Year Ended December 31,                 
|                                                                                               |                                 |                                         
|                                                                                               |                                 | 2003                                     |        | 2002   |        | 2001 |        | 2000   |        | 1999
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |     
|                                                                                               |                                 |                                         
|                                                                                               |                                 | (In thousands, except per share amounts)
|Consolidated Statement of
    Operations:                                                      |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Revenues:                                                                                      |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               | Licenses                        |                                          | $      | 6,833  |        |      | $      | 5,655  |        |      | $      | 6,306  |        |   | $       | 5,241  |        |   | $      | 11,457 |       
|                                                                                               | Maintenance and other           |                                          |        | 13,084 |        |      |        | 12,218 |        |      |        | 10,354 |        |   |         | 10,865 |        |   |        | 10,585 |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               |                                 | Total revenues                           |        |        | 19,917 |      |        |        | 17,873 |      |        |        | 16,660 |   |         |        | 16,106 |   |        |        | 22,042 | 
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Cost of revenues:                                                                              |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               | Licenses                        |                                          |        | 790    |        |      |        | 575    |        |      |        | 873    |        |   |         | 562    |        |   |        | 821    |       
|                                                                                               | Maintenance and other           |                                          |        | 3,627  |        |      |        | 3,674  |        |      |        | 3,669  |        |   |         | 4,961  |        |   |        | 4,224  |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               |                                 | Total cost of revenues                   |        |        | 4,417  |      |        |        | 4,249  |      |        |        | 4,542  |   |         |        | 5,523  |   |        |        | 5,045  | 
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Gross profit                                                                                   |                                 |                                          | 15,500 |        |        |      | 13,624 |        |        |      | 12,118 |        |        |   | 10,583  |        |        |   | 16,997 |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Operating expenses:                                                                            |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               | Sales and marketing             |                                          |        | 9,272  |        |      |        | 7,533  |        |      |        | 8,198  |        |   |         | 13,672 |        |   |        | 10,963 |       
|                                                                                               | Research and development        |                                          |        | 4,725  |        |      |        | 5,128  |        |      |        | 5,591  |        |   |         | 8,434  |        |   |        | 5,635  |       
|                                                                                               | General and administrative      |                                          |        | 1,977  |        |      |        | 1,612  |        |      |        | 1,792  |        |   |         | 2,392  |        |   |        | 1,997  |       
|                                                                                               | Restructuring and other charges |                                          |        |       |        |      |        |       |        |      |        | 1,071  |        |   |         |       |        |   |        |       |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|                                                                                               |                                 | Total operating expenses                 |        |        | 15,974 |      |        |        | 14,273 |      |        |        | 16,652 |   |         |        | 24,498 |   |        |        | 18,595 | 
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Loss from operations                                                                           |                                 |                                          | (474   | )      |        |      | (649   | )      |        |      | (4,534 | )      |        |   | (13,915 | )      |        |   | (1,598 | )     
|Other income                                                                                   |                                 |                                          | 90     |        |        |      | 128    |        |        |      | 368    |        |        |   | 852     |        |        |   | 300    |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Loss before income tax expense (benefit)                                                       |                                 |                                          | (384   | )      |        |      | (521   | )      |        |      | (4,166 | )      |        |   | (13,063 | )      |        |   | (1,298 | )     
|Income tax expense (benefit)                                                                   |                                 |                                          |       |        |        |      | (3     | )      |        |      | 8      |        |        |   | 2,978   |        |        |   | (454   | )     
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Net loss                                                                                       |                                 |                                          | (384   | )      |        |      | (518   | )      |        |      | (4,174 | )      |        |   | (16,041 | )      |        |   | (844   | )     
|Preferred stock dividend                                                                       |                                 |                                          |       |        |        |      |       |        |        |      | (447   | )      |        |   | (1,037  | )      |        |   |       |       
|Accretion of preferred stock and beneficial
    conversion feature                             |                                 |                                          |       |        |        |      |       |        |        |      | (250   | )      |        |   | (5,027  | )      |        |   |       |       
|Increase to income available to common
    stockholders from the conversion of preferred stock |                                 |                                          |       |        |        |      |       |        |        |      | 6,196  |        |        |   |        |        |        |   |       |       
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Net income (loss) applicable to common
    stockholders                                        |                                 | $                                        | (384   | )      |        | $    | (518   | )      |        | $    | 1,325  |        |        | $ | (22,105 | )      |        | $ | (844   | )     
|                                                                                               |                                 |                                          |        |        |        |      |        |        |        |      |        |        |        |   |         |        |        |   |        |       
|Basic net income (loss) per common share                                                       |                                 | $                                        | (0.04  | )      |        | $    | (0.06  | )      |        | $    | 0.16   |        |        | $ | (2.78   | )      |        | $ | (0.12  | )     
|Basic weighted average number of common shares
    outstanding                                 |                                 |                                          | 8,741  |        |        |      | 8,292  |        |        |      | 8,184  |        |        |   | 7,948   |        |        |   | 7,192  |       
|Diluted net loss per common share                                                              |                                 | $                                        | (0.04  | )      |        | $    | (0.06  | )      |        | $    | (0.46  | )      |        | $ | (2.78   | )      |        | $ | (0.12  | )     
|Diluted weighted average number of common shares
    outstanding                               |                                 |                                          | 8,741  |        |        |      | 8,292  |        |        |      | 8,984  |        |        |   | 7,948   |        |        |   | 7,192  |       

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|                                                  |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                  |  |               
|                                                  |  | December 31,  
|                                                  |  |               
|                                                  |  | 2003           |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                  |  |                |        |      |  |      |        |      |  |     
|                                                  |  |               
|                                                  |  | (In thousands)
|Consolidated Balance Sheet Data:                  |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and short-term investments |  | $              | 9,082  |      |  | $    | 8,408  |      |  | $    | 7,696  |  |  | $ | 11,704 |  |  | $ | 7,182  | 
|Working capital                                   |  |                | 5,280  |      |  |      | 5,860  |      |  |      | 5,762  |  |  |   | 8,512  |  |  |   | 5,737  | 
|Total assets                                      |  |                | 17,055 |      |  |      | 13,889 |      |  |      | 13,901 |  |  |   | 18,524 |  |  |   | 18,097 | 
|Redeemable convertible preferred stock            |  |                |       |      |  |      |       |      |  |      |       |  |  |   | 10,849 |  |  |   |       | 
|Total stockholders equity                        |  |                | 7,934  |      |  |      | 6,988  |      |  |      | 7,395  |  |  |   | 769    |  |  |   | 11,356 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

This managements discussion and analysis of
financial condition and results of operations includes a number
of forward-looking statements which reflect our current views
with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and
uncertainties, including those discussed below and those under
the caption Business Risks of Optika in Item 1,
that could cause actual results to differ materially from
historical results or those anticipated.

Overview

Optika® Inc. is a leading provider of
enterprise content management (ECM) technology, including
document imaging, workflow, collaboration and records management
software. Our Acorde family of ECM software solutions,
including Acorde ContextTM, Acorde
ProcessTM, Acorde ResolveTM, Acorde
Application LinkTM and Acorde Records
ManagementTM, allows companies to streamline their
business processes, eliminate paper, increase operational
efficiencies and effectively leverage their enterprise resource
planning (ERP) and line-of-business (LOB) systems. Acorde
provides the ability to manage compliance requirements, access
and store multiple formats of business content, both digital and
non-digital; automate processes across the organization and
externally with partners and customers; and enable online
collaboration around these paper-intensive or complex processes
in real and near time. Acorde supports a wide spectrum of
critical business operations, including accounts payable,
accounts receivable, claims processing, expense reporting,
records management and human resources.

Built on a three-tier, scalable and extensible
platform, Acorde easily integrates and interfaces with
third-party applications. Acorde is certified with PeopleSoft,
J.D. Edwards and Microsoft Business Solutions, and has
performed integrations with many other major ERP and
LOB systems, including Oracle, SAP, JDA and Lawson. The
Acorde product family makes extensive use of Web Services to
ensure seamless movement of transaction data and documents
between application and across the enterprise. The Acorde
product allows organizations to improve processing efficiency,
reduce operating costs and increase customer, partner, and
employee service and satisfaction, resulting in a significant
return on investment.

The license of our software products is typically
an executive-level decision by prospective end-users and
generally requires our sales staff and/or our Advantage Partners
(APs) to engage in a lengthy and complex sales cycle (typically
between six and twelve months from the initial contact date). We
distribute our products through a direct sales force and a
network of APs. For 2003, approximately 47% of our license
revenues were derived from our APs and the remaining license
fees were derived from direct sales. However, no individual
customer or AP accounted for more than 10% of our total
revenues. For the years ended December 31, 2003, 2002 and
2001, we generated approximately 10%, 9% and 12%, respectively,
of our total revenues from international sales. Our revenues
consist primarily of license revenues, which are comprised of
one-time fees for the license of our products, service revenues,
and maintenance revenues, which are comprised of fees for
upgrades and technical support. Our APs, which are responsible
for the installation and integration of the software for their
customers, enter into sales agreements with the end-user, and
license software directly from us. We license software directly
to the end-user through software license agreements. Annual
maintenance agreements are also entered into between the APs and
the end-

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user, and the APs then purchase maintenance
services directly from us. For 2003, 2002 and 2001,
approximately 34%, 32% and 38%, respectively, of our total
revenues were derived from software licenses and approximately
47%, 43% and 43%, respectively, of our total revenues were
derived from maintenance agreements. For 2003, 2002 and 2001,
other revenues, which are comprised of training, consulting and
implementation services, and third-party hardware and software
products, accounted for 19%, 25% and 19%, respectively, of our
total revenues.


Critical Accounting Policies

This section discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the period.

On an on-going basis, we evaluate our estimates
and judgments, including those related to revenue recognition,
income taxes, bad debts, restructuring charges, contingencies
and litigation. We base our estimates and judgments on
historical experience, forecasts and on various other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We
believe that the following critical accounting policies affect
our more significant judgments and estimates used in the
preparation of our consolidated financial statements.



| |                    
| | -------------------
| | Revenue Recognition

We earn our revenue primarily from software
licenses and related services. Our revenue is recognized in
accordance with Statement of Position 97-2 (SOP 97-2),
as amended by Statement of Position 98-9. For sales made
either through our APs or by us, we generally recognize license
revenue upon shipment when a non-cancelable license agreement
has been signed or a purchase order has been received, delivery
has occurred, the fee is fixed or determinable and
collectibility is probable. The license fees are not assumed to
be fixed or determinable if the fees are due more than
12 months after delivery or are based on achievement of a
milestone. Where applicable, fees from multiple element
arrangements are unbundled and recorded as revenue as the
elements are delivered to the extent that vendor specific
objective evidence, or VSOE, of fair value exists for the
various elements. We establish VSOE of fair value on maintenance
and professional services elements based on prices charged when
the same elements are sold in separate transactions. We have not
established VSOE on license elements. Revenue on undelivered and
delivered elements is recorded using the residual method in
accordance with SOP 97-2, as amended.

Software maintenance revenues are deferred and
recognized ratably over the maintenance period, which is
generally one year. The unrecognized portion of software
maintenance revenues is recorded in the accompanying balance
sheets as deferred revenue. Other revenues are recognized as
services are performed.

We generally do not grant rights to return
products, except for defects in the performance of the products
relative to specifications and pursuant to standard industry
shrink-wrapped license agreements which provide for a 30-day
right of return if an end-user does not accept the terms of the
shrink-wrapped license agreements. The 30-day right of return
begins upon product shipment. Our software license agreements
generally do not provide price adjustments or rotation rights.
We generally include a 90-day limited warranty with the software
license, which entitles the end-user to corrections for
documented program errors.



| |                            
| | ---------------------------
| | Accounting for Income Taxes

We have recorded a valuation allowance against
our carryforward tax benefits to the extent that we believe that
it is more likely than not all of such benefits will not be
realized in the near term. We perform

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our assessment of benefit realization and the
associated valuation allowance on a quarterly basis. Our
assessment of this valuation allowance was made using all
available evidence, both positive and negative. In particular we
considered both our historical results and our projections of
profitability for only reasonably foreseeable future periods.
Our recent net losses provide objective evidence that is
difficult to overcome in the assessment of recoverability of
deferred taxes. While management expects net income in the
imminent future, until we generate net income for a meaningful
number of consecutive quarters, management expects the deferred
tax assets to be fully reserved. Our realization of the recorded
net deferred tax assets is dependent on future taxable income
and therefore, we cannot be assured that such benefits will be
realized. Based on managements current projections, we
will continue to evaluate releasing a portion of the valuation
allowance over the next year if planned operating results are
achieved.




| |                                   
| | ----------------------------------
| | Accounting for Preferred
    Stock

In 2000 we completed the sale of
731,851 shares of Series A Convertible Preferred
Stock, and warrants to purchase an aggregate of
307,298 shares of our common stock to an investor group
consisting principally of Thomas Weisel Capital Partners and
affiliated entities for an aggregate purchase price of
$15 million. The preferred stock was subject to mandatory
redemption provisions on the eighth anniversary of the issuance
for cash equal to the stated liquidation preference plus
accumulated unpaid dividends. The preferred stock was
convertible to common stock at the holders option based
upon the conversion formula as defined in the preferred stock
Certificate of Designation. The $15 million in gross
proceeds received was allocated as follows: approximately
$5.5 million for the preferred stock, approximately
$4.4 million for the beneficial conversion feature, and
approximately $5.1 million for the warrants. The initial
carrying amount of the preferred stock was increased by periodic
accretions so that the carrying amount would have been equal to
the redemption amount ($15 million) at the redemption date
in 2008. The periodic increases in the carrying amount were
effected by charges against additional paid in capital. As the
preferred stock was convertible into common stock at any time,
the beneficial conversion amount was accreted in its entirety at
the date of issuance of the preferred stock. The warrants were
to expire in 2008 and as of May 7, 2001 no warrants were
exercised. The fair value of the warrants was separately
recorded as warrants for the purchase of our common stock and as
a reduction to the Series A Convertible Preferred Stock.

On May 7, 2001, we entered into an Exchange
Agreement with Thomas Weisel Capital Partners L.P., a Delaware
limited partnership, certain of its affiliates and RKB Capital,
L.P. (the Purchasers) pursuant to which we have
issued Series A-1 Convertible Preferred Stock, having the
terms and provisions set forth in the Certificate of Designation
designating the Series A-1 Convertible Preferred Stock, on
a one-for-one basis, in return for the exchange, surrender and
cancellation of the Series A Redeemable Convertible
Preferred Stock. The Series A-1 Preferred issued in
exchange for the Series A Preferred is substantially
identical to the Series A Preferred. The Series A-1
Preferred contains certain changes from the Series A which
include eliminating the dividend and redemption requirements and
modifying the protective and liquidation provisions thereof. In
connection with this transaction, we also purchased the warrants
associated with the Series A Preferred for an aggregate of
$0.01. The Series A-1 Preferred is convertible to common
stock at the holders option based upon the conversion
formula as defined in the Certificate of Designation. Upon the
occurrence of a change of control event, such as a sale of
assets or merger in which the consideration to be received
consists solely of stock, the holders of the Series A-1
Preferred Stock are entitled to receive the greater of
(i) a liquidation preference of approximately
$22.5 million in stock or (ii) the amount of stock
they would have otherwise received upon conversion to common
stock, prior to any distribution to the holders of our common
stock. Upon the occurrence of any change of control event which
includes a cash component, the holders of the Series A-1
Preferred Stock are entitled to convert their shares into enough
common shares to enable them to receive at least
$22.5 million in cash following such conversion. The
holders of the Series A-1 Preferred must approve any stock
or cash based change of control event in which they would not
receive at least $22.5 million in the form of a liquid
security, provided that in the event that the holders of the
Series A-1 Preferred stock elect not to approve a change of
control event, we have the option of repurchasing the
Series A-1 Preferred Stock for $22.5 million and
proceeding with the transaction. After February 23, 2003
the conversion formula was set at 1.5 shares of

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common for every share of preferred so the
preferred is presently convertible into an aggregate of
1,097,777 shares of our common stock.


The Series A-1 Preferred was recorded in
stockholders equity at its fair value. The difference
between the carrying value of the Series A Preferred at the
time of the exchange and the fair value of the Series A-1
Preferred of $5.35 million (as determined by an independent
valuation) was recorded as an increase in additional paid-in
capital and as a one-time adjustment to net income (loss)
applicable to common stockholders. As a result of the Exchange
Agreement, future periods will not have adjustments to income
for accumulating dividends or allocations of the discounts
associated with the Series A Preferred Stock.



| |                                            
| | -------------------------------------------
| | Accounting for Restructuring
    Activities

During February 2001, we reduced our workforce by
approximately 25%. This reduction in force resulted in
approximately $1.1 million of restructuring charges to
earnings in the first quarter of 2001; primarily to cover
severance and severance related costs. We realized both expense
savings and reduced cash outflows during fiscal year 2001 from
the reduction in salary costs, office space and related overhead
expenses as a result of the restructuring plan.

Results of Operations



| |                                                                     
| | --------------------------------------------------------------------
| | Comparison of Years Ended December 31,
    2003 to December 31, 2002



| |         
| | --------
| | Revenues

Total revenues increased 11% to
$19.9 million for the year ended December 31, 2003,
from $17.9 million for the year ended December 31,
2002.

Licenses.License
revenues increased 21% to $6.8 million for the year ended
December 31, 2003, from $5.7 million for the year
ended December 31, 2002, representing approximately 34% and
32% respectively, of total revenues for the applicable period.
The increase in license revenues during the year ended
December 31, 2003 from December 31, 2002 is primarily
due to increases in sales made by our direct sales staff and APs
in North America as we continue to increase our sales and
marketing spending and to increase our presence in the North
American market. License revenues generated outside of the
United States increased to approximately 12% of license revenues
for the year ended December 31, 2003 from approximately 10%
of license revenues for the year ended December 31, 2002.
This increase in the percentage of license revenue generated
outside the United States is attributable to increased Asian
license revenue in 2003.

Maintenance and Other.Maintenance revenues, exclusive of
other revenues, increased to $9.4 million for the year
ended December 31, 2003 from approximately
$7.8 million during the year ended December 31, 2002,
representing approximately 47% and 43% of total revenues for the
years ending December 31, 2003 and 2002, respectively. This
increase was primarily a result of increased pricing for
value-added services provided to our customer base, the addition
of new customers and the impact of our maintenance contracts
acquired in May 2003 from Select Technologies, Inc. Other
revenue, consisting primarily of consulting services and
training, decreased to $3.7 million during the year ended
December 31, 2003 from approximately $4.4 million
during the year ended December 31, 2002, representing 19%
and 25% of total revenue for the years ended December 31,
2003 and 2002, respectively. The decrease in other revenue as a
percentage of total revenue was primarily due to downward price
pressure in our consulting, project management and
implementation services market in 2003.



| |                 
| | ----------------
| | Cost of Revenues

Licenses.Cost of
licenses consists primarily of royalty payments to third-party
software vendors and costs of product media, duplication,
packaging and fulfillment. Cost of licenses increased to
$790,000, or 12% of license revenues, for the year ended
December 31, 2003 from $575,000, or 10% of license revenues,

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for the year ended December 31, 2002, as a
result of increased software sales that included third party
products, primarily our Acorde Capture product.


Maintenance and Other.Cost of maintenance and other consists
of the direct and indirect costs of providing software
maintenance and support, training and consulting services, to
our APs and end-users. Cost of maintenance and other decreased
to $3.6 million, or 28% of maintenance and other revenues
for the year ended December 31, 2003 from
$3.7 million, or 30% of maintenance and other revenues, for
the year ended December 31, 2002. Cost of maintenance and
other decreased as a result of a greater portion of service work
being performed by internal personnel as opposed to outsourcing.



| |                   
| | ------------------
| | Operating Expenses

Sales and Marketing.Sales and marketing expenses consist
primarily of salaries, commissions and other related expenses
for sales and marketing personnel, marketing, advertising, and
promotional expenses. Sales and marketing expenses increased to
$9.3 million, or 47% of total revenues, for the year ended
December 31, 2003 from $7.5 million, or 42% of total
revenues, for the year ended December 31, 2002. The
increase in sales and marketing expenses is due to continued
investment in sales and support staff in our North American
sales channels and the addition of Select Technologies, Inc.
staff in May 2003. We currently anticipate that sales and
marketing expenses are likely to increase in absolute dollars in
the foreseeable future as we invest in our infrastructure.

Research and Development.Research and development expenses
consist primarily of salaries and other related expenses for
research and development personnel, and the cost of facilities
and equipment. Research and development expenses decreased to
$4.7 million, or 24% of total revenues, for the year ended
December 31, 2003, from $5.1 million, or 29% of total
revenues, for the year ended December 31, 2002. The
decrease in research and development is primarily the result of
our planned efficiencies in our development organization. We
anticipate that research and development expenses in absolute
dollars will be flat in future periods.

General and Administrative.General and administrative expenses
consist primarily of salaries and other related expenses of
administrative, executive and financial personnel, and outside
professional fees. General and administrative expenses increased
to $2.0 million, or 10% of total revenues, for the year
ended December 31, 2003, from $1.6 million, or 9% of
total revenues, for the year ended December 31, 2002. The
increase in general and administrative expenses is due to
administrative costs due to the incorporation of Select
Technologies, Inc., legal, accounting and other transaction
costs associated with the announced definitive agreement with
Stellent, Inc. and overall increased costs for insurance and
administrative activities. We anticipate that general and
administrative expenses will continue to increase in future
periods as we will continue to have expenses related to the
proposed transaction with Stellent, Inc.

Other income.Other
income consists primarily of interest due to our investing
activities. We recognized other income of $90,000 during the
year ended December 31, 2003, compared to other income of
$128,000 during the year ended December 31, 2002. The
decrease is due to generally lower interest rate returns on our
invested balances.

Income Tax Expense.We have recorded a valuation allowance against our carryforward
tax benefits to the extent that we believe that it is more
likely than not all of such benefits will not be realized in the
near term. We perform our assessment of benefit realization and
the associated valuation allowance on a quarterly basis. Our
assessment of this valuation allowance was made using all
available evidence, both positive and negative. In particular we
considered both our historical results and our projections of
profitability for only reasonably foreseeable future periods.
Our recent net losses provide objective evidence that is
difficult to overcome in the assessment of recoverability of
deferred taxes. While management expects net income in the
imminent future, until we generate net income for a meaningful
number of consecutive quarters, management expects the deferred
tax assets to be fully reserved. Our realization of the recorded
net deferred tax assets is dependent on future taxable income
and therefore, we cannot be assured that such benefits will be
realized. Based on managements current projections, we
will continue to

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evaluate releasing a portion of the valuation
allowance over the next year if planned operating results are
achieved.




| |                                                                     
| | --------------------------------------------------------------------
| | Comparison of Years Ended December 31,
    2002 to December 31, 2001



| |         
| | --------
| | Revenues

Total revenues increased 7% to $17.9 million
for the year ended December 31, 2002 from
$16.7 million for the year ended December 31, 2001.

Licenses.License
revenues decreased 10% to $5.7 million for the year ended
December 31, 2002 from $6.3 million for the year ended
December 31, 2001, representing approximately 32% and 38%
respectively, of total revenues for the applicable period. The
decrease in license revenues during the year ended
December 31, 2002 from December 31, 2001 is primarily
due to decreases in sales made by APs in North America as a
result of the sluggish economy. License revenues generated
outside of the United States decreased to approximately 10% of
license revenues for the year ended December 31, 2002 from
approximately 13% of license revenues for the year ended
December 31, 2001. This decrease is attributable to
decreased European license revenue in 2002.

Maintenance and Other.Maintenance revenues, exclusive of
other revenues, increased to $7.8 million for the year
ended December 31, 2002 from approximately
$7.2 million during the year ended December 31, 2001,
representing approximately 43% of total revenues for each of the
years ending December 31, 2002 and 2001. This absolute
dollar annual increase was primarily a result of the maintenance
revenues received from new customers and the impact of an
overall pricing increase implemented at the beginning of 2002.
Other revenue, consisting primarily of consulting services and
training, increased to $4.4 million for the year ended
December 31, 2002 from approximately $3.2 million for
the year ended December 31, 2001, representing 25% and 19%
of total revenue for the years ended December 31, 2002 and
2001, respectively. The increase in other revenue as a
percentage of total revenue was primarily due to increased
consulting, project management and implementation services
resulting from our strong direct license revenue in 2002.



| |                 
| | ----------------
| | Cost of Revenues

Licenses.Cost of
licenses consists primarily of royalty payments to third-party
software vendors and costs of product media, duplication,
packaging and fulfillment. Cost of licenses decreased to
$575,000, or 10% of license revenues, for the year ended
December 31, 2002 from $873,000, or 14% of license
revenues, for the year ended December 31, 2001, primarily
as a result of the decreased license revenue for the year ended
December 31, 2001 and the elimination of certain fixed
third party royalty payments associated with our Acorde Resolve
product during the year ended December 31, 2001.

Maintenance and Other.Cost of maintenance and other consists
of the direct and indirect costs of providing software
maintenance and support, training and consulting services, to
our APs and end-users. Cost of maintenance and other remained
flat at $3.7 million, or 30% of maintenance and other
revenues, for the year ended December 31, 2002 from
$3.7 million, or 35% of maintenance and other revenues, for
the year ended December 31, 2001. Cost of maintenance and
other decreased as a percentage of maintenance and other revenue
as a result of flat internal costs to fulfill increased
maintenance and other revenue in 2002.



| |                   
| | ------------------
| | Operating Expenses

Sales and Marketing.Sales and marketing expenses consist
primarily of salaries, commissions and other related expenses
for sales and marketing personnel, marketing, advertising, and
promotional expenses. Sales and marketing expenses decreased to
$7.5 million, or 42% of total revenues, for the year ended
December 31, 2002 from $8.2 million, or 49% of total
revenues, for the year ended December 31, 2001. This
decrease in sales and marketing expenses is due to our
restructuring activities in February 2001.

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Research and Development.Research and development expenses
consist primarily of salaries and other related expenses for
research and development personnel, and the cost of facilities
and equipment. Research and development expenses decreased in
absolute dollars to $5.1 million, or 29% of total revenues,
for the year ended December 31, 2002 from
$5.6 million, or 34% of total revenues, for the year ended
December 31, 2001. The decrease in research and development
is primarily the result of restructuring activities in February
2001.

General and Administrative.General and administrative expenses
consist primarily of salaries and other related expenses of
administrative, executive and financial personnel, and outside
professional fees. General and administrative expenses decreased
to $1.6 million, or 9% of total revenues, for the year
ended December 31, 2002 from $1.8 million, or 11% of
total revenues, for the year ended December 31, 2001. The
decrease in general and administrative costs primarily is the
result of the restructuring activities in February 2001.

Other income.Other
income consists primarily of interest due to our investing
activities. We recognized other income of $128,000 during the
year ended December 31, 2002 compared to other income of
$368,000 during the year ended December 31, 2001. The
decrease is due to generally lower interest rate returns on our
invested balances.



| |                                    
| | -----------------------------------
| | Liquidity and Capital
    Resources

Cash and cash equivalents, including short-term
investments, at December 31, 2003 were $9.1 million,
increasing by approximately $674,000 from December 31,
2002. For the year ended December 31, 2003, net cash
provided by operating activities was $1.3 million, compared
to net cash provided by operating activities of $797,000 for the
year ended December 31, 2002. Cash provided by operating
activities for the year ended December 31, 2003 is
primarily due to the increase in deferred revenue associated
with our prepaid maintenance contracts, the non-cash effect of
depreciation and amortization offset by our net loss. The
increase in deferred revenue is primarily the result of growth
in our base of annual support contracts resulting from new
customer sales, sales of additional products to the existing
base and the addition of accounts from Select Technologies, Inc.

Cash used in investing activities was $135,000
for the year ended December 31, 2003, compared to cash used
in investing activities of $196,000 for the year ended
December 31, 2002. Cash flows used in investing activities
for the year ended December 31, 2002 included net cash paid
for Select Technologies, Inc. of $759,000. Other cash provided
by investing activities includes the sale of marketable
securities offset by capital expenditures. Capital expenditures
were $176,000 for the year ended December 31, 2003 as
compared to $205,000 for the year ended December 31, 2002.

Cash provided by financing activities was
$317,000 for the year ended December 31, 2003. Cash
provided by financing activities was $111,000 for the year ended
December 31, 2002. Cash provided by financing activities in
2003 resulted primarily from the proceeds of sales of common
stock through our employee stock purchase and option plans,
offset by the payment of debt assumed in connection with the
acquisition of Select Technologies, Inc.

At December 31, 2003, our principal sources
of liquidity included cash and short-term investments of
$9.1 million. In addition, we have a secured credit
facility for up to $3.0 million, bearing interest at the
banks prime rate. As of December 31, 2003, we had
approximately $2.5 million available for borrowing and no
debt outstanding.

As of December 31, 2003, the only
significant contractual obligations or commercial commitments
consisted of our facility lease commitments totaling
$2.3 million (See Note 5 to the Notes to the
Consolidated Financial Statements for further details.)

We believe that our current cash and short-term
investments, together with anticipated cash flows from our
operations and the availability of our bank credit facility,
will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements
that have, or are reasonably likely to have, a current or future
effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources that is
material.

Contractual Obligations

|                                                                                       |  |                        |       |           |  |           |     |           |  |         |       |  |  |   |   |  |  |   |   | 
|-------------------------------------------------------------------------------------- |  | ---------------------- | ----- | --------- |  | --------- | --- | --------- |  | ------- | ----- |  |  | - | - |  |  | - | - | 
|                                                                                       |  |                       
|                                                                                       |  | Payments Due by Period
|                                                                                       |  |                       
|                                                                                       |  |                        |       | Less Than |  |           |     | More Than
|Contractual Obligations                                                                |  | Total                  |       | 1 Year    |  | 1-3 Years |     | 3-5 Years |  | 5 Years
|                                                                                       |  |                        |       |           |  |           |     |           |  |        
|                                                                                       |  |                       
|                                                                                       |  | (000s)               
|Long Term Debt Obligations                                                             |  | $                      |      |           |  | $         |    |           |  | $       |      |  |  | $ |  |  |  | $ |  | 
|Capital Lease Obligations                                                              |  | $                      |      |           |  | $         |    |           |  | $       |      |  |  | $ |  |  |  | $ |  | 
|Operating Lease Obligations                                                            |  | $                      | 2,330 |           |  | $         | 786 |           |  | $       | 1,544 |  |  | $ |  |  |  | $ |  | 
|Purchase Obligations                                                                   |  | $                      |      |           |  | $         |    |           |  | $       |      |  |  | $ |  |  |  | $ |  | 
|Other Long-Term Liabilities Reflected on the
    Registrants Balance Sheet Under GAAP |  | $                      |      |           |  | $         |    |           |  | $       |      |  |  | $ |  |  |  | $ |  | 



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In May 2003, the FASB issued
SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for
how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity
and is effective for financial instruments entered into or
modified after May 31, 2003. We do not expect the adoption
of this standard to have a material impact on our results of
operations or financial position.

In January 2003, the FASB issued Interpretation
No. 46, or FIN 46, Consolidation of Variable
Interest Entities which requires the consolidation of
variable interest entities. Variable interest entities created
prior to February 1, 2003 must be consolidated effective
December 31, 2003. We do not expect the adoption of this
standard to have an impact on our results of operations or
financial position.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

As of December 31, 2003, we had
$5.2 million in short-term investments that are sensitive
to market risks. Our investment portfolio is used to preserve
our capital until it is required to fund operations, including
our research and development activities. We do not own any
derivative financial instruments. Due to the nature of our
investment portfolio we are primarily subject to interest rate
risk.

Our investment portfolio includes fixed rate debt
instruments that are primarily municipal bonds with maturity
periods within one-year. The market value of these bonds is
subject to interest rate risk, and could decline in value if
interest rates increase. A hypothetical increase or decrease in
market interest rates by 10% from December 31, 2003, would
cause the fair value of these short-term investments to change
by an insignificant amount. Although the fair value of these
short-term investments would change due to the interest rate
fluctuation, we have the ability to hold the investments to
maturity, which reduces overall market risk.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

See Item 15(a) for an index to the financial
statements and supplementary financial information that is filed
with this report.

30



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As of December 31, 2003, we carried out an
evaluation, under the supervision and with the participation of
our Chief Executive Officer and our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures. Our disclosure controls and procedures
are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions (SEC) rules and forms.
Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that our disclosure controls
and procedures are effective in timely alerting them to material
information required to be included in our periodic SEC filings.
There has been no change in our internal control over financial
reporting that occurred during the quarter ended
December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting. Our internal control over financial
reporting is designed with the objective of providing reasonable
assurance regarding the reliability of our financial reporting
and preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.

It should be noted that the design of any system
of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.




PART III






|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of
    Registrant

Directors

Set forth below is information regarding our
directors, including information furnished by them as to
principal occupations, certain other directorships held by them,
any arrangements pursuant to which they are selected as
directors and their ages as of January 30, 2004:

|                      |  |     |    |                              |  |                                                                               |  |  |      | 
|--------------------- |  | --- | -- | ---------------------------- |  | ----------------------------------------------------------------------------- |  |  | ---- | 
|                      |  | Age |    | Position(s) with the Company |  | Director Since                                                               
|                      |  |     |    |                              |  |                                                                              
|Mark K. Ruport        |  |     | 51 |                              |  | President, Chief Executive Officer and Chairman
    of the Board of Directors |  |  | 1995 | 
|Alan B. Menkes        |  |     | 44 |                              |  | Director                                                                      |  |  | 2000 | 
|James T. Rothe, Ph.D. |  |     | 60 |                              |  | Director                                                                      |  |  | 1999 | 
|Edwin C. Winder       |  |     | 56 |                              |  | Director                                                                      |  |  | 2002 | 



| |                                     
| | ------------------------------------
| | Business Experience of
    Directors

Mark K. Ruporthas
served as our President and Chief Executive Officer and a
director since February 1995. He has served as Chairman of the
Board of Directors since May 1996. From June 1990 to July 1994,
Mr. Ruport served as President and Chief Operating Officer,
and later Chief Executive Officer, of Interleaf, Inc., a
publicly held software and services company that develops and
markets document management, distribution and related software.
From 1989 to 1990, Mr. Ruport was Senior Vice President of
Worldwide Sales of Informix Software, where he was responsible
for direct and indirect sales and original equipment
manufacturers. From 1985 to 1989, Mr. Ruport served as Vice
President North American Operations for Cullinet Software.

Alan B. Menkeshas
served as a director since March 2000. Since March 2002,
Mr. Menkes has been the Managing Partner of Empeiria
Capital, a private equity investing firm. From 1998 through
March 2002, he was a Partner of Thomas Weisel Partners,
Co-Director of Private Equity and a member of

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Thomas Weisels Executive Committee.
Previously, Mr. Menkes was a Partner with Hicks, Muse,
Tate & Furst, where he was employed from 1992 to 1998.
Mr. Menkes also serves on the Board of Directors of
CS Technologies.


James T. Rothe,
Ph.D.,has served as a director since
May 1999. He is a Professor of Business at the University of
Colorado at Colorado Springs where he also served as Dean of the
College of Business from 1986-1994. Until March 2002,
Mr. Rothe served as a member of the Board of Directors for
Analytical Surveys, Inc., (ANLT), and as a member of the Board
of Directors of NeoCore LLC through July 2003, and he is a
Trustee of the Janus Funds. Mr. Rothe was a Principal of
the Phillips-Smith Group, a venture capital partnership from
1988 through 1999.

Edwin C. Winderhas
served as a director since August 2002. He is currently a
private equity investor and has functioned solely in this
capacity since July 2003. Immediately prior, he was the
President and Chief Executive Officer of TRADEC since joining
them in October 2000. Prior to joining TRADEC, Mr. Winder
was Senior Vice President of Worldwide Sales and Business
Development at Active Software. From 1990 to 1997,
Mr. Winder worked for Informix Software in several
executive roles including SVP Americas Sales from 1991 to 1994,
SVP Intercontinental from 1994 to 1995, and SVP Japan Operations
from 1996 to 1997. Prior to Informix, Mr. Winder was a Vice
President at Cullinet Software from 1983 to 1989, where he
managed operations in Canada, Japan and the United States.

There are no family relationships among the
members of our Board of Directors or our officers.

Executive Officers

Information with respect to executive officers is
included at the end of Part I, Item 1 of this Report
under the caption Executive Officers of the Company.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934 and the rules thereunder require our officers and
directors, and persons who beneficially own more than ten
percent of a registered class of our equity securities, to file
reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish us with copies.

Based on our review of the copies of the
Section 16(a) forms we have received, or written
representations from certain reporting persons, we believe that,
during the last fiscal year, our officers, directors and greater
than ten percent beneficial owners complied with all
Section 16(a) filing requirements, with the exception of
one late report for James A. Franklin. James A. Franklin
inadvertently did not report the receipt of a stock options
grant on January 23, 2003 until a Form 4 filing made
on February 14, 2003.

Code of Ethics

We have adopted a code of ethics that applies to
our principal executive officer, principal financial officer,
principal accounting officer and controller, and persons
performing similar functions. We undertake to provide to any
person without charge, upon request, a copy of our code of
ethics. Requests may be directed to Optika Inc.,
7450 Campus Drive, 2nd Floor, Colorado Springs,
Colorado 80920; attention Steven M. Johnson, or by calling
(719) 548-9800.

32



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The following table provides certain information
summarizing the compensation earned by our Chief Executive
Officer and each of our other four most highly compensated
executive officers whose salary and bonus was in excess of
$100,000 for the fiscal year ended December 31, 2003 (the
Named Executive Officers), for services rendered to
us and our subsidiaries in all capacities for each of the last
three fiscal years.

Summary Compensation Table

|                            |                                     |      |      |                     |  |              |         |                 |  |              |        |         |     |   |        |        |     |  |         |         | 
|--------------------------- | ----------------------------------- | ---- | ---- | ------------------- |  | ------------ | ------- | --------------- |  | ------------ | ------ | ------- | --- | - | ------ | ------ | --- |  | ------- | ------- | 
|                            |                                     |      |      |                     |  |              |         |                 |  | Long-Term   
|                            |                                     |      |      |                     |  |              |         |                 |  | Compensation
|                            |                                     |      |      |                     |  |              |         |                 |  | Awards      
|                            |                                     |      |      |                     |  |              |         |                
|                            |                                     |      |      | Annual Compensation |  |              |         | Securities     
|                            |                                     |      |      |                     |  | Other Annual |         | Underlying     
|Name and Principal Position |                                     | Year |      | Salary($)           |  | Bonus($)(1)  |         | Compensation($) |  | Option (#)  
|                            |                                     |      |      |                     |  |              |         |                 |  |             
|Mark K. Ruport              |                                     |      | 2003 |                     |  | $            | 240,000 |                 |  | $            | 65,891 |         |     | $ | 16,104 | (4)    |     |  |        |        
|                            | Chairman, Chief Executive Officer   |      |      | 2002                |  |              |         | 240,000         |  |              |        | 42,020  |     |   |        | 14,704 | (4) |  |         | 70,000  | 
|                            | and President                       |      |      | 2001                |  |              |         | 240,000         |  |              |        | 84,000  |     |   |        | 12,925 | (4) |  |         | 140,000 | 
|Steven M. Johnson           |                                     |      | 2003 |                     |  | $            | 160,000 |                 |  | $            | 63,927 | (2)     |     | $ | 14,890 | (4)    |     |  |        |        
|                            | Chief Financial Officer, Executive  |      |      | 2002                |  |              |         | 160,000         |  |              |        | 28,013  |     |   |        | 13,206 | (4) |  |         | 45,000  | 
|                            | Vice President, Secretary and Chief |      |      | 2001                |  |              |         | 160,000         |  |              |        | 104,924 | (3) |   |        | 11,976 | (4) |  |         | 90,000  | 
|                            | Accounting Officer                  |      |      |                     |  |              |         |                 |  |              |        |         |     |   |        |        |     |  |         |         | 
|Randall S. Weakly           |                                     |      | 2003 |                     |  | $            | 150,000 |                 |  | $            | 23,490 |         |     | $ | 15,107 | (4)    |     |  | 25,000  |        
|                            | Vice President  Research and       |      |      | 2002                |  |              |         | 150,000         |  |              |        | 15,000  |     |   |        | 13,752 | (4) |  |         |        | 
|                            | Development                         |      |      | 2001                |  |              |         | 143,288         |  |              |        | 28,125  |     |   |        | 11,889 | (4) |  |         | 42,500  | 
|Christopher J. Ryan         |                                     |      | 2003 |                     |  | $            | 150,000 |                 |  | $            | 41,182 |         |     | $ | 11,324 | (4)    |     |  |        |        
|                            | Vice President  Marketing(5)       |      |      | 2002                |  |              |         | 150,000         |  |              |        | 26,262  |     |   |        | 12,340 | (4) |  |         | 25,000  | 
|                            |                                     |      | 2001 |                     |  |              | 66,538  |                 |  |              | 14,375 |         |     |   | 2,858  | (4)    |     |  | 120,000 |        
|James A. Franklin           |                                     |      | 2003 |                     |  | $            | 135,000 |                 |  | $            | 90,217 |         |     | $ | 3,235  | (4)    |     |  | 25,000  |        
|                            | Vice President  North America      |      |      | 2002                |  |              |         | 130,000         |  |              |        | 99,074  |     |   |        | 2,996  | (4) |  |         | 10,000  | 
|                            | Direct Sales                        |      |      | 2001                |  |              |         | 130,000         |  |              |        | 51,258  |     |   |        | 2,261  | (4) |  |         | 35,000  | 



---



|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Bonuses earned in 2001, 2002 and 2003 were paid
    in 2002, 2003 and 2004, respectively.                                                                                                                    
|   
|(2) | Mr. Johnsons bonus for 2003 includes a
    commission of $20,000 earned in his role overseeing the
    companys indirect sales organization.                                                               
|   
|(3) | Mr. Johnsons bonus for 2001 includes a
    commission of $67,964 earned in his role overseeing the
    companys indirect sales organization. Mr. Johnson has
    occupied this role since February 6, 2001.
|   
|(4) | Represents matching contributions received under
    our 401(k) plan and insurance costs paid by the company.                                                                                                
|   
|(5) | Mr. Ryan joined us as Vice President of
    Marketing on July 23, 2001.                                                                                                                                      

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##### Table of Contents



Option Grants in Last Fiscal Year

The following table contains information
concerning the stock option grants made to each of the Named
Executive Officers for the fiscal year ended December 31,
2003. No stock appreciation rights were granted to these
individuals during 2003.

|                    |  |                      |        |                      |  |           |     |                        |  |                   |      |     |  |  |         |  |  |   |        |  |  |   |        | 
|------------------- |  | -------------------- | ------ | -------------------- |  | --------- | --- | ---------------------- |  | ----------------- | ---- | --- |  |  | ------- |  |  | - | ------ |  |  | - | ------ | 
|                    |  |                      |        |                     
|                    |  | Individual Grants(3) |        | Potential Realizable
|                    |  |                      |        | Value at Assumed    
|                    |  | Number of            |        | Percent of           |  |           |     | Annual Rates of Stock 
|                    |  | Securities           |        | Total Options        |  |           |     | Price Appreciation for
|                    |  | Underlying           |        | Granted to           |  | Exercise  |     |                        |  | Option Term(1)($)
|                    |  | Options              |        | Employees in         |  | Price Per |     | Expiration             |  |                  
|Name                |  | Granted              |        | Fiscal Year          |  | Share(2)  |     | Date                   |  | 5%                |      | 10%
|                    |  |                      |        |                      |  |           |     |                        |  |                   |      |    
|Mark K. Ruport      |  |                      |       |                      |  |           |    |                        |  |                   |     |     |  |  |        |  |  |   |       |  |  |   |       | 
|Steven M. Johnson   |  |                      |       |                      |  |           |    |                        |  |                   |     |     |  |  |        |  |  |   |       |  |  |   |       | 
|Randall S. Weakly   |  |                      | 25,000 |                      |  |           | 5.8 | %                      |  | $                 | 2.37 |     |  |  | 9/5/13  |  |  | $ | 37,262 |  |  | $ | 94,429 | 
|Christopher J. Ryan |  |                      |       |                      |  |           |    |                        |  |                   |     |     |  |  |        |  |  |   |       |  |  |   |       | 
|James A. Franklin   |  |                      | 25,000 |                      |  |           | 5.8 | %                      |  | $                 | 1.00 |     |  |  | 1/23/13 |  |  | $ | 15,722 |  |  | $ | 39,844 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | There can be no assurance provided to any
    executive officer or any other holder of our securities that the
    actual stock price appreciation over the ten-year option term
    will be at the assumed 5% and 10% levels or at any other defined
    level. Unless the market price of the common stock appreciates
    over the option term, no value will be realized from the option
    grants made to the executive officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | The exercise price may be paid in cash, in shares
    of the common stock valued at fair market value on the exercise
    date or through a cashless exercise procedure involving a same
    day sale of the purchased shares. The Plan Administrator may
    also assist an optionee in the exercise of an option by
    (i) authorizing a loan from us in a principal amount not to
    exceed the aggregate exercise price plus any tax liability
    incurred in connection with the exercise or (ii) permitting
    the optionee to pay the option price in installments over a
    period of years upon terms established by the Compensation
    Committee. The Plan Administrator has the discretionary
    authority to reprice outstanding options under the Plan through
    the cancellation of those options and the grant of replacement
    options with an exercise price based on the lower fair market
    value of the option shares on the re-grant date. No options were
    repriced in 2003.
|   
|(3) | The options were granted pursuant to the 1994
    Stock Option Plan for Mr. Franklin and the 2003 Equity
    Incentive Plan for Mr. Weakly. Each option has a maximum
    term of ten years measured from the grant date, subject to
    earlier termination upon optionees cessation of service
    with us. The options vest equally over a four year annual
    period. The option shares will fully vest in the event we are
    acquired by merger or asset sale, unless the option is assumed
    by the acquiring company. In addition, if the option is assumed
    by the acquiring company, the option shares will vest in full
    upon the termination of the optionees service, whether
    involuntarily or through a resignation for good reason, within
    eighteen months following the acquisition.                                                                                                                                                                                           

Aggregated Option Exercises in 2003 and Fiscal
Year-End Option Values

The table below sets forth certain information
with respect to the Named Executive Officers concerning the
unexercised options they held as of the end of the fiscal year
ended December 31, 2003.

|                    |  |              |        |                |  |                        |         |                         |  |             |         |               |  |  |        |  |  |   |           |  |  |   |         | 
|------------------- |  | ------------ | ------ | -------------- |  | ---------------------- | ------- | ----------------------- |  | ----------- | ------- | ------------- |  |  | ------ |  |  | - | --------- |  |  | - | ------- | 
|                    |  |              |        |                |  |                        |         |                        
|                    |  |              |        |                |  | Number of Securities   |         | Value of Unexercised   
|                    |  |              |        |                |  | Underlying Unexercised |         | in-the-Money Options at
|                    |  | Shares       |        |                |  | Options at FY-End (#)  |         | FY-End($)(1)           
|                    |  | Acquired on  |        | Value Realized |  |                        |         |                        
|Name                |  | Exercise (#) |        | ($)(2)         |  | Exercisable            |         | Unexercisable           |  | Exercisable |         | Unexercisable
|                    |  |              |        |                |  |                        |         |                         |  |             |         |              
|Mark K. Ruport      |  |              |       |                |  |                        |        |                         |  |             | 499,171 |               |  |  | 47,600 |  |  | $ | 1,186,124 |  |  | $ | 183,260 | 
|Steven M. Johnson   |  |              |       |                |  |                        |        |                         |  |             | 240,036 |               |  |  | 30,600 |  |  | $ | 468,096   |  |  | $ | 117,810 | 
|Randall S. Weakly   |  |              | 7,000  |                |  | $                      | 22,680  |                         |  |             | 48,000  |               |  |  | 40,000 |  |  | $ | 96,630    |  |  | $ | 58,843  | 
|Christopher J. Ryan |  |              | 37,500 |                |  | $                      | 113,625 |                         |  |             | 38,000  |               |  |  | 69,500 |  |  | $ | 135,800   |  |  | $ | 249,200 | 
|James A. Franklin   |  |              | 17,500 |                |  | $                      | 41,194  |                         |  |             | 33,500  |               |  |  | 37,500 |  |  | $ | 59,885    |  |  | $ | 114,625 | 

34



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---



|    |                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the fair market value of the option
    shares at fiscal year-end ($4.55 per share on the basis of
    the closing selling price on the Nasdaq Small Cap Market at
    fiscal year-end) less the exercise price.                                                                             
|   
|(2) | The value realized for the exercise of shares is
    based upon the average of the high and low fair market values on
    the date of exercise less the exercise price. This does not
    necessarily reflect actual stock sales by the named individuals
    or the cash proceeds realized therefrom.

Employment Contracts, Termination of
Employment Arrangements and Change of Control
Agreements

Mark K. Ruport, our Chairman of the Board and our
Chief Executive Officer, entered into an employment agreement
with us on October 15, 2003, that provides for his
employment as our President and Chief Executive Officer at the
discretion of the Board of Directors. Mr. Ruports
base salary is $240,000, subject to annual review by the
Compensation Committee, and he is eligible to receive
performance bonuses which may be awarded by the Compensation
Committee. Mr. Ruport is eligible to receive severance
equal to one years base salary in the event he is
terminated by us without cause in the absence of a change of
control, and if he is involuntarily terminated without cause
within an eighteen month period following a change of our
control, he would be entitled to receive severance payments
equal to the greater of (i) $672,000 or (ii) thirty
three months of his then current base salary, 70% of which would
be payable on the date his employment terminated with the
balance payable on the twelve month anniversary of his
termination date. In addition, Mr. Ruport would be entitled
to continuing health benefits paid by us during the twelve month
period following the termination date and he would be treated as
in service to us during such period so any and all
stock options held by him would continue to vest and would not
have to be exercised. Mr. Ruport would be subject to a
noncompetition and nonsolicitation agreement for a twelve month
period following the termination of his employment under
circumstances where he would be entitled to receive the
compensation payable upon his involuntary termination following
a change of control. A change in control under
Mr. Ruports employment agreement includes the
consummation of a merger or consolidation with another company,
and would include the proposed merger between Stellent and us.

Steven M. Johnson, our Executive Vice President,
Chief Financial Officer, Secretary and Chief Accounting Officer,
entered into an employment agreement with us on October 15,
2003, that provides for his employment as our Chief Financial
Officer, at the discretion of the Board of Directors.
Mr. Johnsons base salary is $160,000, and he is
eligible to receive performance bonuses which may be awarded by
the Compensation Committee. Mr. Johnson is also eligible to
receive commissions in his role overseeing our indirect sales
efforts. Mr. Johnson is eligible to receive severance equal
to twelve months salary in the event he is terminated by
us without cause in the absence of a change of control, and if
he is involuntarily terminated without cause within an eighteen
month period following a change of our control, he would be
entitled to receive severance payments equal to the greater of
(i) $448,000 or (ii) thirty three months of his then
current base salary, 70% of which would be payable on the date
his employment terminated with the balance payable on the twelve
month anniversary of his termination date. In addition,
Mr. Johnson would be entitled to continuing health benefits
paid by us during the twelve month period following the
termination date and he would be treated as in
service to us during such period so any and all stock
options held by him would continue to vest and would not have to
be exercised. Mr. Johnson would be subject to a
noncompetition and nonsolicitation agreement for a twelve month
period following the termination of his employment under
circumstances where he would be entitled to receive the
compensation payable upon his involuntary termination following
a change in control. A change in control under
Mr. Johnsons employment agreement includes the
consummation of a merger or consolidation with another company,
and would include the proposed merger between Stellent
and us.

We also have severance agreements with each of
Christopher J. Ryan, our Vice President  Marketing,
James A. Franklin, our Vice President  North America
Direct Sales, Randall S. Weakly, our Vice President 
Research and Development, Patrick M. Donovan, our Director of
Finance and Administration, Derrick S. Crow, our Vice President,
Solution Services, and Greg D. Cooke, our Vice

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##### Table of Contents



President  Channel Sales, that each of
such individuals will receive six months severance in the
event that they are involuntarily terminated by us without cause.


In connection with an acquisition of us by merger
or asset sale, each outstanding option held by the Chief
Executive Officer and the other executive officers under our
stock plans will automatically accelerate in full and all
unvested shares of common stock issued to such individuals
pursuant to the exercise of options granted or direct stock
issuances made under such plan will immediately vest in full,
except to the extent such options are to be assumed by, and our
repurchase rights with respect to those shares are to be
assigned to, the successor corporation. Any options that are
assumed in an acquisition will automatically accelerate, and any
repurchase rights which are assigned will terminate, in the
event the executives service is terminated, whether
involuntarily or through a resignation for good reason, within
eighteen months following the acquisition. In addition, the
Compensation Committee as Plan Administrator of the stock plans
has the authority to provide for the accelerated vesting of the
shares of common stock subject to outstanding options held by
the Chief Executive Officer or any other executive officer or
the shares of common stock purchased pursuant to the exercise of
options or subject to direct issuances held by such individual,
in connection with the termination of the officers
employment following certain hostile changes in control of the
company. It is currently contemplated that Stellent would assume
all of our outstanding options in connection with the proposed
merger.

Director Compensation

Our directors receive compensation for services
rendered as a director. Mr. Rothe and Winder each receive a
fee of $10,000 for each year of service as a director. All
directors receive certain grants of stock options and
reimbursement of expenses. We do not pay compensation for
committee participation or special assignments of the Board of
Directors.

Under the Automatic Option Grant Program of our
stock plans, each individual who first joins the Board as a
non-employee Board member after July 25, 1996 will receive
an option grant for 10,000 shares of common stock at the
time of his or her commencement of Board service, provided such
individual has not otherwise been in the prior employ of the
company. In addition, at each annual stockholders meeting,
beginning with the 1997 annual meeting, each individual who is
to continue to serve as a non-employee Board member will receive
an option grant to purchase 2,500 shares of our common
stock, whether or not such individual has been in the prior
employ of the company.

Each automatic grant will have an exercise price
equal to the fair market value per share of our common stock on
the grant date and will have a maximum term of ten years,
subject to earlier termination following the optionees
cessation of Board service. Each automatic option will be
immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase, at the
option exercise price paid per share, should the optionees
service as a non-employee Board member cease prior to vesting in
the shares. The grant will vest in four equal and successive
annual installments over the optionees period of Board
service measured from the grant date. Each additional
2,500-share grant will vest upon the optionees completion
of one year of Board service measured from the grant date.
However, each outstanding option will immediately vest upon
(i) an acquisition of us by merger, asset sale or a hostile
takeover of us or (ii) the death or disability of the
optionee while serving as a Board member.

At our 2003 Annual Meeting of Stockholders,
Mr. Rothe, Menkes and Winder each received an option grant
to purchase 2,500 shares of common stock at an exercise
price of $1.23 per share, the fair market value per share
of our common stock on that date. In addition to the options
granted at our 2003 Annual Meeting of Stockholders,
Mr. Rothe and Menkes each received discretionary option
grants during 2003. Mr Rothe received a discretionary option
grant to purchase 30,000 shares of common stock at an
exercise price of $1.00 per share, the fair market value
per share of our common stock on that date. Mr. Menkes
received a discretionary option grant to purchase
40,000 shares of common stock at an exercise price of
$1.92 per share, the fair market value per share of our
common stock on that date. Both discretionary option grants have
a maximum term of ten years and vest in four equal and
successive annual installments over the optionees period
of Board service measured from the grant date.

36



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##### Table of Contents



Compensation Committee Interlocks and Insider
Participation

The Compensation Committee of the Board is
currently comprised of Messrs. Rothe and Menkes. None of
the present or former members of the Compensation Committee were
at any time during the fiscal year ended December 31, 2003
or at any other time one of our officers or employees.

None of our executive officers serves as a member
of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a
member of our Board of Directors or Compensation Committee.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The following table sets forth certain
information known to us with respect to the beneficial ownership
of our stock as of January 30, 2004 by (i) all persons
known to us who beneficially own five percent (5%) or more of
our stock, (ii) each director and nominee for director,
(iii) the executive officers named in the Summary
Compensation Table in Item 11., and (iv) all current
directors and executive officers as a group.

|                                                                     |                                   |              |           |                          |  |  |      |   | 
|-------------------------------------------------------------------- | --------------------------------- | ------------ | --------- | ------------------------ |  |  | ---- | - | 
|                                                                     |                                   | Shares       |           |                         
|                                                                     |                                   | Beneficially |           | Percentage of Shares    
|Name and Address of Beneficial Owner                                 |                                   | Owned(1)(2)  |           | Beneficially Owned(1)(2)
|                                                                     |                                   |              |           |                         
|Mark K. Ruport(3)                                                    |                                   |              | 560,636   |                          |  |  | 5.7  | %
|                                                                     | 7450 Campus Drive, Suite 200      |              |           |                          |  |  |      |   | 
|                                                                     | Colorado Springs, CO 80920        |              |           |                          |  |  |      |   | 
|Steven M. Johnson(4)                                                 |                                   |              | 272,285   |                          |  |  | 2.8  | %
|Randall S. Weakly(5)                                                 |                                   |              | 52,500    |                          |  |  | *    |  
|Christopher J. Ryan(6)                                               |                                   |              | 51,916    |                          |  |  | *    |  
|James A. Franklin(7)                                                 |                                   |              | 42,250    |                          |  |  | *    |  
|Edwin C. Winder(8)                                                   |                                   |              | 101,000   |                          |  |  | 1.1  | %
|James T. Rothe Ph.D.(9)                                              |                                   |              | 77,000    |                          |  |  | *    |  
|Alan B. Menkes(10)                                                   |                                   |              | 17,500    |                          |  |  | *    |  
|Thomas Weisel Capital Partners, L.P.(11)                             |                                   |              | 1,042,887 |                          |  |  | 10.0 | %
|                                                                     | One Montgomery Street, Suite 3700 |              |           |                          |  |  |      |   | 
|                                                                     | San Francisco, CA 94104           |              |           |                          |  |  |      |   | 
|Stellent, Inc.(12)                                                   |                                   |              | 2,316,324 |                          |  |  | 20.2 | %
|                                                                     | 7777 Golden Triangle Drive        |              |           |                          |  |  |      |   | 
|                                                                     | Eden Prairie, MN 55344            |              |           |                          |  |  |      |   | 
|Baldwin Brothers, Inc.(13)                                           |                                   |              | 500,758   |                          |  |  | 5.4  | %
|                                                                     | 3 Barnabas Road                   |              |           |                          |  |  |      |   | 
|                                                                     | Marian, MA 02738                  |              |           |                          |  |  |      |   | 
|All directors and executive officers as a group
    (10 persons)(14) |                                   |              | 1,253,187 |                          |  |  | 12.0 | %



---



| |   |                                                 
| | - | ------------------------------------------------
| | * | Represents beneficial ownership of less than 1%.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Except as indicated in the footnotes to this
    table and pursuant to applicable community property laws, the
    persons named in the table have sole voting and investment power
    with respect to all shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (2) | Based on shares of common stock outstanding as of
    January 30, 2004. Beneficial ownership is determined in
    accordance with the rules and regulations of the SEC and
    generally includes voting or investment power with respect to
    securities. Shares issuable pursuant to options which are
    exercisable within 60 days of January 30, 2004, or
    upon conversion of our preferred stock, which is convertible
    into 1,042,887 shares of common stock within 60 days
    after January 30, 2004, are deemed outstanding for
    computing the percentage of the person holding such options or
    shares, but are not deemed outstanding for computing the
    percentage of any other person.

37



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##### Table of Contents





| |     |                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Includes 503,136 shares of common stock
    issuable upon exercise of options that are currently exercisable
    or will become exercisable within 60 days of
    January 30, 2004.                                                                                                      
|
| | (4) | Includes 242,585 shares of common stock
    issuable upon exercise of options that are currently exercisable
    or will become exercisable within 60 days of
    January 30, 2004.                                                                                                      
|
| | (5) | Includes 48,000 shares of common stock
    issuable upon exercise of options that are currently exercisable
    or will become exercisable within 60 days of
    January 30, 2004.                                                                                                       
|
| | (6) | Includes 46,916 shares of common stock
    issuable upon exercise of options that are currently exercisable
    or will become exercisable within 60 days of
    January 30, 2004.                                                                                                       
|
| | (7) | Includes 42,250 shares of common stock
    issuable upon exercise of options that are currently exercisable
    or will become exercisable within 60 days of
    January 30, 2004.                                                                                                       
|
| | (8) | Includes 20,000 shares of common stock
    issuable upon exercise of options granted by Optika that are
    currently exercisable or will become exercisable within
    60 days of January 30, 2004, 10,000 of which shares
    are unvested and subject to a repurchase right of Optika.
|
| | (9) | Includes 70,000 shares of common stock
    issuable upon exercise of options granted by Optika that are
    currently exercisable or will become exercisable within
    60 days of January 30, 2004, 25,000 of which shares
    are unvested and subject to a repurchase right of Optika.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 57,500 shares of common stock
    issuable upon exercise of options granted by Optika that are
    currently exercisable or will become exercisable within
    60 days of January 30, 2004, 2,500 of which shares are
    unvested and subject to a repurchase right of Optika.                                                                                                                                                                                                                                                                                                                                                      
|    
|(11) | Assuming conversion of all shares of Optika
    preferred stock owned by the Thomas Weisel Capital Partners L.P.
    and certain of its affiliates (referred to herein as TWCP) which
    in the aggregate are immediately convertible into
    1,042,887 shares of common stock as reported on a
    Schedule 13D filed with the Securities and Exchange
    Commission on January 13, 2004. Voting and investment power
    with respect to the securities reported are shared among certain
    entities affiliated with TWCP. The business address for TWCP is
    One Montgomery Street, Suite 3700, San Francisco,
    California 94104.
|    
|(12) | Stellent, Inc. may be deemed to have beneficial
    ownership of such shares as a result of a voting agreement
    entered into on January 11, 2004 between Stellent and
    certain of our officers, directors and stockholders in
    connection with the proposed merger.                                                                                                                                                                                                                                                                                                                                                                  
|    
|(13) | As reported on a Schedule 13F filed with the
    Securities and Exchange Commission on November 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(14) | Includes 1,068,387 shares of common stock
    issuable upon exercise of options granted by Optika that are
    currently exercisable or will become exercisable within 60 days
    of January 30, 2004, 37,500 of which shares are unvested
    and subject to a repurchase right of Optika.                                                                                                                                                                                                                                                                                                                                                  

38



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##### Table of Contents



Equity Compensation Plan Information

The following table provides information about
shares of our common stock that we may issue upon the exercise
of options, warrants and rights under all of our existing
compensation plans as of December 31, 2003.

|                                                                      |       |                            |           |                           |  |                                 |      |      |  |  |           |           | 
|--------------------------------------------------------------------- | ----- | -------------------------- | --------- | ------------------------- |  | ------------------------------- | ---- | ---- |  |  | --------- | --------- | 
|                                                                      |       |                            |           |                           |  | Number of Securities Remaining 
|                                                                      |       | Number of Securities to be |           | Weighted-Average Exercise |  | Available for Issuance Under   
|                                                                      |       | Issued upon Exercise of    |           | Price of Outstanding      |  | Equity Compensation Plans      
|                                                                      |       | Outstanding Options,       |           | Options, Warrants         |  | (Excluding Securities Reflected
|                                                                      |       | Warrants and Rights        |           | and Rights                |  | in Column (a))                 
|Plan Category                                                         |       | (a)                        |           | (b)                       |  | (c)                            
|                                                                      |       |                            |           |                           |  |                                
|Equity compensation plans approved by the
    security holders(1)     |       |                            | 2,599,407 |                           |  | $                               | 2.64 |      |  |  | 1,733,000 |          
|Equity compensation plans not approved by the
    security holders(2) |       |                            | 327,015   |                           |  | $                               | 3.90 |      |  |  | 77,298    |          
|                                                                      |       |                            |           |                           |  |                                 |      |      |  |  |           |          
|                                                                      | Total |                            |           | 2,926,422                 |  |                                 | $    | 2.78 |  |  |           | 1,810,298 | 



---



|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents shares authorized for issuance under
    the 2003 Equity Incentive Plan and the 1994 Stock Option/ Stock
    Issuance Plan. No further issuances are to be made from the 1994
    Stock Option/ Stock Issuance Plan.
|   
|(2) | Represents shares authorized for issuance under
    the 2000 Non-Officer Stock Incentive Plan.                                                                                                                                 






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Our Second Amended and Restated Certificate of
Incorporation and Bylaws provide for indemnification of our
directors, our officers and certain agents. Each of our current
directors and executive officers have entered into separate
indemnification agreements with us.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The following table presents fees for
professional audit services rendered by KPMG LLP for the audit
of Optika Inc.s consolidated annual financial statements
for the years ended December 31, 2003 and 2002, and fees
billed for other services rendered by KPMG LLP.

|                      |  |      |        |      |  |   |        | 
|--------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                      |  | 2003 |        | 2002
|                      |  |      |        |     
|Audit Fees(1)         |  | $    | 76,000 |      |  | $ | 74,037 | 
|Audit-Related Fees(2) |  |      | 28,000 |      |  |   | 750    | 
|Tax Fees(3)           |  |      | 22,000 |      |  |   | 23,125 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees consist of fees for professional
    services rendered for the audit of Optika Inc.s
    consolidated financial statements and review of financial
    statements included in Optika Inc.s quarterly reports and
    services normally provided by the independent auditor in
    connection with statutory and regulatory filings or engagements.             
|   
|(2) | Audit-related fees are fees principally for
    professional services rendered in the due diligence and
    technical accounting consulting and research for the acquisition
    of Select Technologies, Inc. in May 2003 and the proposed merger
    with Sellent, Inc.                                                                                                    
|   
|(3) | Tax services fees consist of compliance fees for
    the preparation of original and amended tax returns, claims for
    refunds and tax payment-planning services for tax compliance,
    tax planning and tax advice. Tax service fees also include fees
    relating to other tax advices, tax consulting and planning other
    than for tax compliance and preparation.

39



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) The following documents are filed as
part of this Annual Report on Form 10-K:

|   |  |                                                                                                                                                                                |  |      |    | 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|   |  |                                                                                                                                                                                |  | Page
|   |  |                                                                                                                                                                                |  |     
|1. |  | Financial Statements:                                                                                                                                                          |  |      |    | 
|   |  | Report of Independent Auditors                                                                                                                                                 |  |      | 41 | 
|   |  | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                                                                               |  |      | 42 | 
|   |  | Consolidated Statements of Operations for each of
    the three years in the period ended December 31, 2003                                                                    |  |      | 43 | 
|   |  | Consolidated Statements of Stockholders
    Equity and Comprehensive Income (Loss) for each of the three
    years in the period ended December 31, 2003                      |  |      | 44 | 
|   |  | Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003                                                                    |  |      | 45 | 
|   |  | Notes to Consolidated Financial Statements                                                                                                                                     |  |      | 46 | 
|   |  | Schedules have been omitted because they are not
    required, not applicable, or the required information is shown
    in the financial statements and related notes thereto. |  |      |    | 
|  
|2. |  | Exhibits  See Exhibit Index on
    page 46                                                                                                                                    |  |      |    | 

(b) Reports on Form 8-K

We furnished the following Current Report on
Form 8-K during the quarter ended December 31, 2003.
The information furnished under Item 12. Results of
Operations and Financial Condition is not deemed to be
filed for purposes of Section 18 of the
Securities Exchange Act of 1934:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Current Report on Form 8-K dated
    October 15, 2003, furnished to the Securities and Exchange
    Commission on October 15, 2003, under Item 12. Results
    of Operations and Financial Condition.

40



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Optika Inc.:


We have audited the accompanying consolidated
balance sheets of Optika Inc. and subsidiaries as of
December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2003.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Optika Inc. and subsidiaries
as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United
States of America.



| |         
| | --------
| | KPMG LLP

Denver, Colorado

January 19, 2004


41



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |         |        | 
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ------------ | ------ | - | ------ | ------- | ------ | 
|                                                         |                                                                                                                                                                            | December 31,                |        | December 31,
|                                                         |                                                                                                                                                                            | 2003                        |        | 2002        
|                                                         |                                                                                                                                                                            |                             |        |             
|                                                         |                                                                                                                                                                            |                            
|                                                         |                                                                                                                                                                            | (In thousands, except share
|                                                         |                                                                                                                                                                            | and per share amounts)     
|ASSETS                                                  
|Current assets:                                          |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         | Cash and cash equivalents                                                                                                                                                  |                             | $      | 3,929        |        |   | $      | 2,458   |       
|                                                         | Restricted cash and cash equivalents                                                                                                                                       |                             |        | 100          |        |   |        |        |       
|                                                         | Short-term investments                                                                                                                                                     |                             |        | 5,153        |        |   |        | 5,950   |       
|                                                         | Accounts receivable, net of allowance for
    doubtful accounts of $143 and $107 at December 31, 2003 and
    2002, respectively                                           |                             |        | 4,696        |        |   |        | 3,796   |       
|                                                         | Other current assets                                                                                                                                                       |                             |        | 523          |        |   |        | 557     |       
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         |                                                                                                                                                                            | Total current assets        |        |              | 14,401 |   |        |         | 12,761 | 
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|Property and equipment, net                              |                                                                                                                                                                            |                             | 683    |              |        |   | 895    |        
|Intangible assets, net                                   |                                                                                                                                                                            |                             | 584    |              |        |   |       |        
|Goodwill                                                 |                                                                                                                                                                            |                             | 1,166  |              |        |   |       |        
|Other assets                                             |                                                                                                                                                                            |                             | 221    |              |        |   | 233    |        
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         |                                                                                                                                                                            | $                           | 17,055 |              |        | $ | 13,889 |        
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                
|Current liabilities:                                     |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         | Accounts payable                                                                                                                                                           |                             | $      | 510          |        |   | $      | 379     |       
|                                                         | Accrued expenses                                                                                                                                                           |                             |        | 1,145        |        |   |        | 683     |       
|                                                         | Accrued compensation expense                                                                                                                                               |                             |        | 1,108        |        |   |        | 853     |       
|                                                         | Deferred revenue                                                                                                                                                           |                             |        | 6,358        |        |   |        | 4,986   |       
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         |                                                                                                                                                                            | Total current liabilities   |        |              | 9,121  |   |        |         | 6,901  | 
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|Commitments and contingencies (Notes 5, 7, 8
    and 11) |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                        
|Stockholders equity:                                    |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         | Common stock; $.001 par value;
    25,000,000 shares authorized; 9,327,061 and
    8,326,486 shares issued and outstanding at
    December 31, 2003 and 2002, respectively |                             |        | 9            |        |   |        | 8       |       
|                                                         | Series A-1 preferred stock; $.001 par
    value; 731,851 shares authorized, issued and outstanding at
    December 31, 2003 and 2002                                       |                             |        | 5,199        |        |   |        | 5,199   |       
|                                                         | Additional paid-in capital                                                                                                                                                 |                             |        | 30,491       |        |   |        | 29,162  |       
|                                                         | Accumulated deficit                                                                                                                                                        |                             |        | (27,765      | )      |   |        | (27,381 | )     
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         |                                                                                                                                                                            | Total stockholders equity  |        |              | 7,934  |   |        |         | 6,988  | 
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        
|                                                         |                                                                                                                                                                            | $                           | 17,055 |              |        | $ | 13,889 |        
|                                                         |                                                                                                                                                                            |                             |        |              |        |   |        |        

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

42



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |        |        | 
|----------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                |                                 |                         
|                                                                                                |                                 | Years Ended December 31,
|                                                                                                |                                 |                         
|                                                                                                |                                 | 2003                     |        | 2002   |        | 2001
|                                                                                                |                                 |                          |        |        |        |     
|                                                                                                |                                 |                         
|                                                                                                |                                 | (In thousands, except   
|                                                                                                |                                 | per share amounts)      
|Revenues:                                                                                       |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                | Licenses                        |                          | $      | 6,833  |        |      | $      | 5,655  |        |   | $      | 6,306  |       
|                                                                                                | Maintenance and other           |                          |        | 13,084 |        |      |        | 12,218 |        |   |        | 10,354 |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                |                                 | Total revenues           |        |        | 19,917 |      |        |        | 17,873 |   |        |        | 16,660 | 
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Cost of revenues:                                                                               |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                | Licenses                        |                          |        | 790    |        |      |        | 575    |        |   |        | 873    |       
|                                                                                                | Maintenance and other           |                          |        | 3,627  |        |      |        | 3,674  |        |   |        | 3,669  |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                |                                 | Total cost of revenues   |        |        | 4,417  |      |        |        | 4,249  |   |        |        | 4,542  | 
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Gross profit                                                                                    |                                 |                          | 15,500 |        |        |      | 13,624 |        |        |   | 12,118 |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Operating expenses:                                                                             |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                | Sales and marketing             |                          |        | 9,272  |        |      |        | 7,533  |        |   |        | 8,198  |       
|                                                                                                | Research and development        |                          |        | 4,725  |        |      |        | 5,128  |        |   |        | 5,591  |       
|                                                                                                | General and administrative      |                          |        | 1,977  |        |      |        | 1,612  |        |   |        | 1,792  |       
|                                                                                                | Restructuring and other charges |                          |        |       |        |      |        |       |        |   |        | 1,071  |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                                |                                 | Total operating expenses |        |        | 15,974 |      |        |        | 14,273 |   |        |        | 16,652 | 
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Loss from operations                                                                            |                                 |                          | (474   | )      |        |      | (649   | )      |        |   | (4,534 | )     
|Other income                                                                                    |                                 |                          | 90     |        |        |      | 128    |        |        |   | 368    |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Loss before income taxes                                                                        |                                 |                          | (384   | )      |        |      | (521   | )      |        |   | (4,166 | )     
|Income tax expense (benefit)                                                                    |                                 |                          |       |        |        |      | (3     | )      |        |   | 8      |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Net loss                                                                                        |                                 |                          | (384   | )      |        |      | (518   | )      |        |   | (4,174 | )     
|Preferred stock dividend                                                                        |                                 |                          |       |        |        |      |       |        |        |   | (447   | )     
|Accretion of preferred stock and beneficial
    conversion feature                              |                                 |                          |       |        |        |      |       |        |        |   | (250   | )     
|Increase to income applicable to common
    stockholders from the conversion of preferred stock |                                 |                          |       |        |        |      |       |        |        |   | 6,196  |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Net income (loss) applicable to common
    stockholders                                         |                                 | $                        | (384   | )      |        | $    | (518   | )      |        | $ | 1,325  |       
|                                                                                                |                                 |                          |        |        |        |      |        |        |        |   |        |       
|Basic net income (loss) per common share                                                        |                                 | $                        | (0.04  | )      |        | $    | (0.06  | )      |        | $ | 0.16   |       
|Basic weighted average number of common shares
    outstanding                                  |                                 |                          | 8,741  |        |        |      | 8,292  |        |        |   | 8,184  |       
|Diluted net loss per common share                                                               |                                 | $                        | (0.04  | )      |        | $    | (0.06  | )      |        | $ | (0.46  | )     
|Diluted weighted average number of common shares
    outstanding                                |                                 |                          | 8,741  |        |        |      | 8,292  |        |        |   | 8,984  |       

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

43



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND

COMPREHENSIVE INCOME (LOSS)


|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |        |   | 
|----------------------------- | ------------------------------------------------------------------------------- | ------------------------------------ | --------- | --------------- | - | ---------- | - | ----------- | - | ------------- | ------- | ------------- | - | ------------- | ----- | ------ | - | - | ------ | ----- | - | - | ------- | ---- | ------ | - | -- | - | --- | - | ----- | ------ | - | 
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |              
|                              |                                                                                 |                                      |           | Series A-1      |   |            |   |             |   | Accumulated   |         |              
|                              |                                                                                 | Common Stock                         |           | Preferred Stock |   | Additional |   |             |   | Other         |         | Total        
|                              |                                                                                 |                                      |           |                 |   | Paid-in    |   | Accumulated |   | Comprehensive |         | Stockholders
|                              |                                                                                 | Shares                               |           | Amount          |   | Shares     |   | Amount      |   | Capital       |         | Deficit       |   | Income (Loss) |       | Equity
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |       
|                              |                                                                                 |                                     
|                              |                                                                                 | (In thousands, except share amounts)
|Balances at December 31, 2000 |                                                                                 |                                      | 8,107,149 |                 |   |            | 8 |             |   |               |        |               |   |               |      |        |   |   | 23,425 |       |   |   | (22,689 | )    |        |   | 25 |   |     |   | 769   |       
|                              | Common stock issued pursuant to employee stock
    purchase plan                |                                      |           | 107,564         |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | 127   |   |   |         |     |        |   |    |  |     |   |       | 127    |  
|                              | Accretion of preferred stock                                                    |                                      |           |                |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | (250  | ) |   |         |     |        |   |    |  |     |   |       | (250   | )
|                              | Preferred stock dividends                                                       |                                      |           |                |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | (447  | ) |   |         |     |        |   |    |  |     |   |       | (447   | )
|                              | Conversion of Series A to Series A-1
    preferred stock, net of exchange costs |                                      |           |                |   |            |   |            |   |               |         | 731,851       |   |               |       | 5,199  |   |   |        | 6,196 |   |   |         |     |        |   |    |  |     |   |       | 11,395 |  
|                              | Comprehensive loss:                                                             |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |        |  
|                              |                                                                                 | Unrealized loss on investments       |           |                 |  |            |   |             |  |               |         |               |  |               |       |        |  |   |        |       |  |   |         |      |       |   |    |   | (25 | ) |       |        |   | 
|                              |                                                                                 | Net loss                             |           |                 |  |            |   |             |  |               |         |               |  |               |       |        |  |   |        |       |  |   |         |      | (4,174 | ) |    |   |    |   |       |        |   | 
|                              | Total comprehensive loss                                                        |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       | (4,199 | )
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |       
|Balances at December 31, 2001 |                                                                                 |                                      | 8,214,713 |                 |   |            | 8 |             |   |               | 731,851 |               |   |               | 5,199 |        |   |   | 29,051 |       |   |   | (26,863 | )    |        |   |   |   |     |   | 7,395 |       
|                              | Common stock issued upon exercise of stock options                              |                                      |           | 36,625          |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | 46    |   |   |         |     |        |   |    |  |     |   |       | 46     |  
|                              | Common stock issued pursuant to employee stock
    purchase plan                |                                      |           | 75,148          |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | 65    |   |   |         |     |        |   |    |  |     |   |       | 65     |  
|                              | Comprehensive loss:                                                             |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |        |  
|                              | Net loss                                                                        |                                      |           |                |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        |      |   |   |         | (518 | )      |   |    |  |     |   |       | (518   | )
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |       
|Balances at December 31, 2002 |                                                                                 |                                      | 8,326,486 |                 |   |            | 8 |             |   |               | 731,851 |               |   |               | 5,199 |        |   |   | 29,162 |       |   |   | (27,381 | )    |        |   |   |   |     |   | 6,988 |       
|                              | Common stock issued upon exercise of stock options                              |                                      |           | 428,312         |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | 575   |   |   |         |     |        |   |    |  |     |   |       | 575    |  
|                              | Common stock issued pursuant to employee stock
    purchase plan                |                                      |           | 72,263          |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        | 65    |   |   |         |     |        |   |    |  |     |   |       | 65     |  
|                              | Common stock issued in acquisition of Select
    Technologies, Inc.             |                                      |           | 500,000         |   |            |   | 1           |   |               |         |              |   |               |       |       |   |   |        | 689   |   |   |         |     |        |   |    |  |     |   |       | 690    |  
|                              | Comprehensive loss:                                                             |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |        |  
|                              | Net loss                                                                        |                                      |           |                |   |            |   |            |   |               |         |              |   |               |       |       |   |   |        |      |   |   |         | (384 | )      |   |    |  |     |   |       | (384   | )
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |       
|Balances at December 31, 2003 |                                                                                 |                                      | 9,327,061 |                 |   | $          | 9 |             |   |               | 731,851 |               |   | $             | 5,199 |        |   | $ | 30,491 |       |   | $ | (27,765 | )    |        | $ |   |   |     | $ | 7,934 |       
|                              |                                                                                 |                                      |           |                 |   |            |   |             |   |               |         |               |   |               |       |        |   |   |        |       |   |   |         |      |        |   |    |   |     |   |       |       

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

44



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |     |        |        |  
|------------------------------------------------------------------------------------------ | ---------------------------------------------------------- | ------------------------------------------------- | ---------------------------------------------------- | ---- | ----- | ----- | ----- | --- | ----- | ---- | ------ | --- | ------ | ------ | -
|                                                                                           |                                                            |                                                  
|                                                                                           |                                                            | Years Ended December 31,                         
|                                                                                           |                                                            |                                                  
|                                                                                           |                                                            | 2003                                              |                                                      | 2002 |       | 2001 
|                                                                                           |                                                            |                                                   |                                                      |      |       |      
|                                                                                           |                                                            |                                                  
|                                                                                           |                                                            | (In thousands)                                   
|Cash Flows from Operating
    Activities:                                                  |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Net loss                                                                                   |                                                            | $                                                 | (384                                                 | )    |       | $     | (518  | )   |       | $    | (4,174 | )  
|Adjustments to reconcile net loss to net cash
    provided (used) by operating activities: |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|                                                                                           | Depreciation and amortization                              |                                                   |                                                      | 462  |       |       |       | 667 |       |      |        | 987 |       
|                                                                                           | (Gain) loss on disposal of property and equipment          |                                                   |                                                      | 2    |       |       |       | (2  | )     |      |        | 294 |       
|                                                                                           | Changes in assets and liabilities, net of
    acquisition: |                                                   |                                                      |      |       |       |       |     |       |      |        |     |       
|                                                                                           |                                                            | Accounts receivable, net                          |                                                      |      | (623  | )     |       |     | 239   |      |        |     | (1,122 | )     
|                                                                                           |                                                            | Other assets                                      |                                                      |      | 61    |       |       |     | 16    |      |        |     | 476    |       
|                                                                                           |                                                            | Accounts payable                                  |                                                      |      | (6    | )     |       |     | (107  | )    |        |     | (566   | )     
|                                                                                           |                                                            | Accrued expenses and accrued compensation expense |                                                      |      | 704   |       |       |     | (695  | )    |        |     | 119    |       
|                                                                                           |                                                            | Deferred revenue                                  |                                                      |      | 1,073 |       |       |     | 1,197 |      |        |     | 47     |       
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|                                                                                           |                                                            |                                                   | Net cash provided (used) by operating
    activities |      |       | 1,289 |       |     |       | 797  |        |     |        | (3,939 | )
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Cash Flows from Investing
    Activities:                                                  |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Capital expenditures                                                                       |                                                            |                                                   | (176                                                 | )    |       |       | (205  | )   |       |      | (30    | )  
|Proceeds from sale of equipment                                                            |                                                            |                                                   |                                                     |      |       |       | 9     |     |       |      | 10     |    
|Cash paid in acquisition, including transaction
    costs, net of cash acquired            |                                                            |                                                   | (759                                                 | )    |       |       |      |     |       |      |       |    
|Sale and maturities of short-term investments                                              |                                                            |                                                   | 800                                                  |      |       |       |      |     |       |      | 9,637  |    
|Purchase of short-term investments                                                         |                                                            |                                                   |                                                     |      |       |       |      |     |       |      | (6,100 | )  
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|                                                                                           |                                                            |                                                   | Net cash provided (used) by investing
    activities |      |       | (135  | )     |     |       | (196 | )      |     |        | 3,517  |  
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Cash Flows from Financing
    Activities:                                                  |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Expenditures for preferred stock exchange                                                  |                                                            |                                                   |                                                     |      |       |       |      |     |       |      | (151   | )  
|Payment of debt assumed in acquisition                                                     |                                                            |                                                   | (323                                                 | )    |       |       |      |     |       |      |       |    
|Proceeds from issuance of common stock                                                     |                                                            |                                                   | 640                                                  |      |       |       | 111   |     |       |      | 127    |    
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|                                                                                           |                                                            |                                                   | Net cash provided (used) by financing
    activities |      |       | 317   |       |     |       | 111  |        |     |        | (24    | )
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Net increase (decrease) in cash and cash
    equivalents                                   |                                                            |                                                   | 1,471                                                |      |       |       | 712   |     |       |      | (446   | )  
|Cash and cash equivalents at beginning of year                                             |                                                            |                                                   | 2,458                                                |      |       |       | 1,746 |     |       |      | 2,192  |    
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Cash and cash equivalents at end of year                                                   |                                                            | $                                                 | 3,929                                                |      |       | $     | 2,458 |     |       | $    | 1,746  |    
|                                                                                           |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Supplemental Disclosure of Cash Flow
    Information:                                      |                                                            |                                                   |                                                      |      |       |       |       |     |       |      |        |    
|Income taxes paid                                                                          |                                                            | $                                                 |                                                     |      |       | $     |      |     |       | $    | 8      |    
|Common stock issued in acquisition                                                         |                                                            | $                                                 | 690                                                  |      |       | $     |      |     |       | $    |       |    

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

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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                                      
|-- | ---------------------------------------------------------------------
|1. | Nature of Business and Summary of Significant
    Accounting Policies

Optika Inc., a Delaware corporation, and its
subsidiaries (Optika or the Company) were formed in 1988 and are
a provider of enterprise content management technology,
including document imaging, workflow, collaboration and records
management software which allows companies to streamline their
business processes, eliminate paper, increase operational
efficiencies and effectively leverage their enterprise resource
planning and line-of-business systems. Acorde, the name of the
primary licensed product suite sold by Optika, provides the
ability to access and store multiple formats of business
content, both digital and non-digital; automate processes across
the organization and externally with partners and customers; and
enable online collaboration around these paper-intensive or
complex processes in real and near time.



| |                                               
| | ----------------------------------------------
| | Summary of Significant Accounting
    Policies



| |                                                          
| | ---------------------------------------------------------
| | Principles of Consolidation and Basis of
    Presentation

The accompanying consolidated financial
statements include the accounts of Optika Inc. and its wholly
owned subsidiaries Optika Technologies, Inc., Optika Imaging
Systems Europe, Ltd., Optika Information Systems, LTDA, Optika
Imaging Systems, GmbH and Optika Asia, Inc. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts in the prior years consolidated financial
statements have been reclassified to conform to the current year
presentation.



| |                    
| | -------------------
| | Revenue Recognition

The Company earns revenue primarily from software
licenses and related services. Revenue is recognized in
accordance with Statement of Position 97-2 (SOP 97-2),
as amended by Statement of Position 98-9. For sales made either
through Advantage Partners (APs) or by the Company license
revenue is recognized upon shipment when a non-cancelable
license agreement has been signed or a purchase order has been
received, delivery has occurred, the fee is fixed or
determinable and collectibility is probable. The license fees
are not assumed to be fixed or determinable if the fees are due
more than 12 months after delivery or are based on
achievement of a milestone. Where applicable, fees from multiple
element arrangements are unbundled and recorded as revenues as
the elements are delivered to the extent that vendor specific
objective evidence, or VSOE, of fair value exists for the
various elements. The Company establishes VSOE of fair value on
maintenance and professional services elements based on prices
charged when the same elements are sold in separate
transactions. The Company has not established VSOE on license
elements. Revenue on undelivered and delivered elements is
recorded using the residual method in accordance with
SOP 97-2, as amended.

Software maintenance revenues are deferred and
recognized ratably over the maintenance period, which is
generally one year. The unrecognized portion of software
maintenance revenues is recorded in the accompanying balance
sheets as deferred revenue. Other revenues are recognized as
services are performed.

The Company does not grant rights to return
products, except for defects in the performance of the products
relative to specifications and pursuant to standard industry
shrink-wrapped license agreements which provide for a 30-day
right of return if an end-user does not accept the terms of the
shrink-wrapped license agreements. The 30-day right of return
begins upon product shipment. The Companys software
license agreements generally do not provide price adjustments or
rotation rights. The Company includes a 90-day limited warranty
with the software license, which entitles the end-user to
corrections for documented program errors.

46



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OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                
| | -----------------------------------------------
| | Cash Equivalents and Short-term
    Investments

The Company classifies highly liquid short-term
investments with original maturities of three months or less as
cash equivalents. As of December 31, 2003 and 2002,
short-term investments consisted of municipal bonds with
maturities periods within one-year. Such short-term investments
are classified as available-for-sale as defined by Statement of
Financial Accounting Standards (SFAS) No. 115
Accounting for Certain Investments in Debt and Equity
Securities and, accordingly, are recorded at fair
value. Increases and decreases in the fair value of investments
classified as available-for-sale are recorded in comprehensive
income (loss), net of the related income tax effect. Realized
gains and losses from the sale of available-for-sale securities
are determined on a specific identification basis. There were no
unrealized gains or losses on short-term investments as of
December 31, 2003 and 2002.



| |                
| | ---------------
| | Restricted Cash

In connection with the acquisition of Select
Technologies, Inc. discussed in Note 3, the Company placed
$100,000 of the cash consideration into an escrow account held
by a third party. The escrow account balance will be released to
the principal shareholders of Select Technologies, Inc. one year
after the purchase date if no material contingencies arise
during that designated amount of time.



| |                              
| | -----------------------------
| | Depreciation and Amortization

Computer equipment, office equipment and
furniture are recorded at cost and depreciated using the
straight-line method over estimated useful lives ranging from
three to seven years. Leasehold improvements are amortized over
the shorter of the estimated useful lives of the improvements or
the lease terms.



| |                           
| | --------------------------
| | Software Development Costs

Research and development costs are expensed as
incurred. SFAS No. 86 Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed requires the capitalization of certain
software development costs once technological feasibility is
established. To date, the period between achieving technological
feasibility and the general availability of such software has
been short. Consequently, software development costs qualifying
for capitalization have been insignificant and therefore, the
Company has not capitalized internal software development costs.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes under the
provisions of SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date. A
valuation allowance is recognized to the extent deferred tax
assets are not more likely than not to be realizable in the
reasonably foreseeable future.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The U.S. dollar is the functional currency
of the consolidated corporation. For the Companys foreign
subsidiaries, monetary assets and liabilities are translated
into U.S. dollars using the exchange rates in

47



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OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

effect at the balance sheet date and non-monetary
assets are translated at historical rates. Results of operations
are translated using the average exchange rates during the
period. Foreign currency translation and transaction gains or
losses were not significant in any period presented.



| |          
| | ---------
| | Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as well as the reported
amounts of revenues and expenses. Significant estimates have
been made by management in several areas, including the
collectibility of accounts receivable and the ability to realize
deferred income tax benefits. Actual results could differ from
these estimates, making it reasonably possible that a change in
these estimates could occur in the near term.



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

The carrying amounts of the Companys
financial instruments including cash and trade receivables and
payables, approximate their fair values.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Impairment of Long-Lived Assets and Long-Lived
    Assets to Be Disposed Of

The Company accounts for long-lived assets in
accordance with the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. This statement requires that long-lived assets
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.



| |                         
| | ------------------------
| | Stock Compensation Plans

The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25 issued in
March 2000, to account for its fixed plan stock options. Under
this method, compensation expense is recorded on the date of
grant only if the current market price of the underlying stock
exceeds the exercise price. SFAS No. 123,
Accounting for Stock-Based Compensation,
establishes accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee
compensation plans, as amended by SFAS No. 148,
Accounting for Stock Based Compensation 
Transition and Disclosure  an Amendment to
SFAS No. 123. As allowed by
SFAS No. 123, the Company has elected to continue to
apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of
SFAS No. 123. Had compensation cost for the
Companys stock-based compensation plans been determined
based on the fair value at the grant dates for awards under
those plans consistent with the

48



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method of SFAS No. 123, the
Companys pro-forma results of operations and pro-forma net
income (loss) per share would have been as follows:

|                                                         |                        |                         |   |        |   |      |   |        |   |  |   |       |  
|-------------------------------------------------------- | ---------------------- | ----------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ----- | -
|                                                         |                        |                        
|                                                         |                        | Year Ended December 31,
|                                                         |                        |                        
|                                                         |                        | 2003                    |   | 2002   |   | 2001
|                                                         |                        |                         |   |        |   |     
|                                                         |                        |                        
|                                                         |                        | (In thousands, except  
|                                                         |                        | per share amounts)     
|Net income (loss) applicable to common
    stockholders: |                        |                         |   |        |   |      |   |        |   |  |   |      
|                                                         | As reported            |                         | $ | (384   | ) |      | $ | (518   | ) |  | $ | 1,325 |  
|                                                         | SFAS No. 123 Pro-forma |                         |   | (1,515 | ) |      |   | (2,011 | ) |  |   | (400  | )
|Basic net income (loss) per share:                       |                        |                         |   |        |   |      |   |        |   |  |   |      
|                                                         | As reported            |                         | $ | (0.04  | ) |      | $ | (0.06  | ) |  | $ | 0.16  |  
|                                                         | SFAS No. 123 Pro-forma |                         |   | (0.17  | ) |      |   | (0.24  | ) |  |   | (0.05 | )
|Diluted net loss per share:                              |                        |                         |   |        |   |      |   |        |   |  |   |      
|                                                         | As reported            |                         | $ | (0.04  | ) |      | $ | (0.06  | ) |  | $ | (0.46 | )
|                                                         | SFAS No. 123 Pro-forma |                         |   | (0.17  | ) |      |   | (0.24  | ) |  |   | (0.66 | )



| |                                   
| | ----------------------------------
| | Net Income (Loss) Per Common Share

Basic earnings (loss) per share (EPS) is computed
by dividing net income (loss) applicable to common stockholders
by the weighted average number of common shares outstanding
during the period. Diluted EPS is computed by dividing net
income (loss) applicable to common stockholders adjusted for
dilutive effect of securities by the weighted average number of
common shares outstanding and the dilutive effect of potential
common shares outstanding. Diluted EPS excludes 2,927,000,
3,062,000 and 2,513,000 options and warrants to purchase common
stock in 2003, 2002 and 2001, respectively, and
731,851 shares of redeemable convertible preferred stock in
2003 and 2002 because of their antidilutive effect.

The following is the reconciliation of the
numerators and denominators of the basic and diluted EPS
computations (in thousands, except per share amounts):

|                                 |                                                                |                         |       |       |   |      |       |       |   |   |        |        |  
|-------------------------------- | -------------------------------------------------------------- | ----------------------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ------ | ------ | -
|                                 |                                                                |                        
|                                 |                                                                | Year Ended December 31,
|                                 |                                                                |                        
|                                 |                                                                | 2003                    |       | 2002  |   | 2001
|                                 |                                                                |                         |       |       |   |     
|Basic earnings (loss) per share: |                                                                |                         |       |       |   |      |       |       |   |   |        |       
|                                 | Net income (loss) applicable to common
    stockholders        |                         | $     | (384  | ) |      | $     | (518  | ) |   | $      | 1,325  |  
|                                 | Weighted average common shares outstanding                     |                         |       | 8,741 |   |      |       | 8,292 |   |   |        | 8,184  |  
|                                 | Net income (loss) per common share                             |                         | $     | (0.04 | ) |      | $     | (0.06 | ) |   | $      | 0.16   |  
|Diluted loss per share:          |                                                                |                         |       |       |   |      |       |       |   |   |        |       
|                                 | Net income (loss) applicable to common
    stockholders        |                         | $     | (384  | ) |      | $     | (518  | ) |   | $      | 1,325  |  
|                                 | Preferred stock dividend, accretion and effect of
    exchange |                         |       |      |   |      |       |      |   |   |        | (5,499 | )
|                                 |                                                                |                         |       |       |   |      |       |       |   |   |        |       
|                                 |                                                                | $                       | (384  | )     |   | $    | (518  | )     |   | $ | (4,174 | )     
|                                 | Weighted average common shares outstanding                     |                         |       | 8,741 |   |      |       | 8,292 |   |   |        | 8,184  |  
|                                 | Assumed conversion of preferred stock                          |                         |       |      |   |      |       |      |   |   |        | 800    |  
|                                 |                                                                |                         |       |       |   |      |       |       |   |   |        |       
|                                 |                                                                |                         | 8,741 |       |   |      | 8,292 |       |   |   | 8,984  |       
|                                 | Diluted net loss per common share                              |                         | $     | (0.04 | ) |      | $     | (0.06 | ) |   | $      | (0.46  | )



| |              
| | -------------
| | Concentration

The Company has historically relied on a limited
number of products to generate revenues and has concentrated
risk related to the continued and future market acceptance of
such products. The Company

49



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

currently has no major customers accounting for
more than 10% of its consolidated revenues for the three years
presented. The Company did not have any customer accounts
receivable balance greater than 10% of its accounts receivable
balance at December 31, 2003; however, one customer
receivable balance accounted for 20% of the December 31,
2002 accounts receivable balance. Receivables from end users are
not concentrated in any particular industry.



|   |                       
|-- | ----------------------
|2. | Property and Equipment

Property and equipment consists of the following
(in thousands):

|                                               |  |              |        |      |  |   |        |  
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2003         |        | 2002
|                                               |  |              |        |     
|Computer and office equipment                  |  | $            | 3,509  |      |  | $ | 4,052  |  
|Leasehold improvements                         |  |              | 1,083  |      |  |   | 1,059  |  
|Furniture, fixtures and other                  |  |              | 688    |      |  |   | 646    |  
|                                               |  |              |        |      |  |   |        |  
|                                               |  |              | 5,280  |      |  |   | 5,757  |  
|Less accumulated depreciation and amortization |  |              | (4,597 | )    |  |   | (4,862 | )
|                                               |  |              |        |      |  |   |        |  
|                                               |  | $            | 683    |      |  | $ | 895    |  
|                                               |  |              |        |      |  |   |        |  



|   |            
|-- | -----------
|3. | Acquisition

In May 2003, the Company acquired Select
Technologies, Inc., a developer of records management solutions
headquartered in Boise, Idaho. This acquisition strengthens the
Companys ability to provide solutions that allow customers
to be in compliance with the record retention, control and
disposition requirements imposed by recent regulatory
initiatives, which contributed to the purchase price that
resulted in the recognition of goodwill and other intangible
assets. The Company determined the purchase price based on
Select Technologies, Inc.s historical operating
performance and on comparable transactions in the marketplace at
the time of the acquisition. Management allocated the purchase
price based on the estimated fair values of the tangible and
intangible net assets acquired. Operations of the acquired
Select Technologies, Inc. business, as well as assets and
liabilities of the acquired business, are included in the
consolidated financial statements from the date of acquisition.
The impact on operations was insignificant from the acquisition
date to December 31, 2003. Under the terms of the
acquisition agreement, the Company paid approximately
$1.415 million for the privately held company, consisting
of 500,000 shares of common stock valued at $1.38 per
share, which was the average closing price from the three days
prior to the closing date, and $725,000 cash. Additionally, the
sellers have the ability to earn up to an additional $600,000
over the next three years based on attainment of certain revenue
targets from the Acorde Records Manager product. In accordance
with SFAS No. 141, Business
Combinations, the acquisition was accounted for using
the purchase method of accounting. Based on the purchase price
of approximately $1.415 million, plus direct acquisition
costs of approximately $95,000 and the assumption of
approximately $299,000 in net liabilities, the purchase price
was allocated as follows (in thousands):

|                        |  |   |       |  
|----------------------- |  | - | ----- | -
|Goodwill                |  | $ | 1,166 |  
|Customer relationships  |  |   | 283   |  
|Intellectual property   |  |   | 300   |  
|Non-compete agreements  |  |   | 60    |  
|Net liabilities assumed |  |   | (299  | )
|                        |  |   |       |  
|                        |  | $ | 1,510 |  
|                        |  |   |       |  

50



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amount assigned to intellectual property and
non-compete agreements is being amortized on a straight-line
basis over five years. The amount assigned to customer
relationships is being amortized on a straight-line basis over
ten years. Goodwill will be evaluated annually for impairment in
accordance with SFAS No. 142, Goodwill and
Intangible Assets. Amortization expense for intangible
assets was $58,000 for the year ended December 31, 2003.
Estimated amortization expense for the next five succeeding
fiscal years is as follows (in thousands):

|     |  |              |     | 
|---- |  | ------------ | --- | 
|     |  | Estimated   
|     |  | Amortization
|     |  | Expense     
|     |  |             
|2004 |  | $            | 100 | 
|2005 |  |              | 100 | 
|2006 |  |              | 100 | 
|2007 |  |              | 100 | 
|2008 |  |              | 58  | 

The unaudited pro forma results of operations as
though the Select Technologies, Inc. acquisition had been
completed as of January 1, 2002 are as follows (in
thousands except per share amounts):

|                   |  |              |        |      |  |   |        |  
|------------------ |  | ------------ | ------ | ---- |  | - | ------ | -
|                   |  |             
|                   |  | Year Ended  
|                   |  | December 31,
|                   |  |             
|                   |  | 2003         |        | 2002
|                   |  |              |        |     
|Revenue            |  | $            | 20,082 |      |  | $ | 18,756 |  
|Net loss           |  |              | (622   | )    |  |   | (522   | )
|Net loss per share |  |              | (0.07  | )    |  |   | (0.06  | )

The pro forma results above do not include any
anticipated cost savings or other effects of the integration of
Select Technologies, Inc. into the Company and are not
necessarily indicative of the results which would have occurred
if the acquisition had been in effect on the date indicated, or
which may result in the future.



|   |               
|-- | --------------
|4. | Line of Credit

The Company has a line of credit expiring in
November 2004, whereby it is able to draw up to
$3.0 million bearing interest at the banks prime
rate. At December 31, 2003, $2.5 million was available
for borrowing thereunder. Pursuant to the terms of the credit
facility, any loans under the facility are secured by all of the
Companys assets, with the exception of intellectual
property and would be subject to certain covenants, including
prohibition of the payment of dividends on common stock. The
Company has no debt outstanding at December 31, 2003.

51



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OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                  
|-- | -----------------
|5. | Lease Obligations

The Company has non-cancelable operating lease
arrangements for office space and certain office equipment.
Future minimum annual operating lease payments for the years
ending December 31 are as follows (in thousands):

|                         |  |             |       | 
|------------------------ |  | ----------- | ----- | 
|                         |  | Operating  
|                         |  | Lease      
|Year Ending December 31: |  | Obligations
|                         |  |            
|2004                     |  | $           | 786   | 
|2005                     |  |             | 711   | 
|2006                     |  |             | 668   | 
|2007                     |  |             | 165   | 
|                         |  |             |       | 
|                         |  | $           | 2,330 | 
|                         |  |             |       | 

Rent expense related to these and other operating
leases approximated $1,110,000, $1,107,000 and $1,400,000 for
the years ended December 31, 2003, 2002 and 2001,
respectively.



|   |             
|-- | ------------
|6. | Income Taxes

The Companys income tax expense (benefit)
is comprised of the following (in thousands):

|                                          |         |              |   |      |  |      |    |    |   |   |   |   | 
|----------------------------------------- | ------- | ------------ | - | ---- |  | ---- | -- | -- | - | - | - | - | 
|                                          |         |             
|                                          |         | Year Ended  
|                                          |         | December 31,
|                                          |         |             
|                                          |         | 2003         |   | 2002 |  | 2001
|                                          |         |              |   |      |  |     
|Current:                                  |         |              |   |      |  |      |    |    |   |   |   |  
|                                          | Federal |              | $ |     |  |      | $  |   |   |   | $ |  | 
|                                          | State   |              |   |     |  |      |    |   |   |   |   | 3 | 
|                                          | Foreign |              |   |     |  |      |    | (3 | ) |   |   | 5 | 
|Deferred:                                 |         |              |   |      |  |      |    |    |   |   |   |  
|                                          | Federal |              |   |     |  |      |    |   |   |   |   |  | 
|                                          | State   |              |   |     |  |      |    |   |   |   |   |  | 
|                                          |         |              |   |      |  |      |    |    |   |   |   |  
|Total expense (benefit) from income taxes |         | $            |  |      |  | $    | (3 | )  |   | $ | 8 |  
|                                          |         |              |   |      |  |      |    |    |   |   |   |  

The Companys net deferred tax assets are
comprised of the tax effects of the following (in thousands):

|                    |                                                          |              |   |              |   |  |   |         |  
|------------------- | -------------------------------------------------------- | ------------ | - | ------------ | - |  | - | ------- | -
|                    |                                                          | December 31, |   | December 31,
|                    |                                                          | 2003         |   | 2002        
|                    |                                                          |              |   |             
|Deferred Tax Assets |                                                          |              |   |              |   |  |   |        
|                    | Net operating loss carryforwards                         |              | $ | 13,481       |   |  | $ | 13,108  |  
|                    | Depreciation and amortization                            |              |   | 89           |   |  |   | 127     |  
|                    | Tax credit carryforwards                                 |              |   | 1,730        |   |  |   | 1,720   |  
|                    | Accrued expenses and allowance for doubtful
    accounts |              |   | 474          |   |  |   | 393     |  
|                    |                                                          |              |   |              |   |  |   |        
|                    | Deferred tax asset before valuation allowance            |              |   | 15,774       |   |  |   | 15,348  |  
|                    | Valuation allowance                                      |              |   | (15,774      | ) |  |   | (15,348 | )
|                    |                                                          |              |   |              |   |  |   |        
|                    | Net deferred tax asset                                   |              | $ |             |   |  | $ |        |  
|                    |                                                          |              |   |              |   |  |   |        

52



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OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The benefit from income taxes differs from the
amount computed by applying the effective U.S. statutory
rates to the loss before income taxes as follows (in thousands):

|                                                      |  |                         |      |      |  |      |      |   |  |   |        |  
|----------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                                                      |  |                        
|                                                      |  | Year Ended December 31,
|                                                      |  |                        
|                                                      |  | 2003                    |      | 2002 |  | 2001
|                                                      |  |                         |      |      |  |     
|U.S. federal income tax benefit at statutory
    rate |  | $                       | (134 | )    |  | $    | (182 | ) |  | $ | (1,458 | )
|Increases (decreases) resulting from:                 |  |                         |      |      |  |      |      |   |  |   |        |  
|State taxes, net of federal benefit                   |  |                         | (15  | )    |  |      | (21  | ) |  |   | (349   | )
|Stock option exercises                                |  |                         | (280 | )    |  |      |     |   |  |   |       |  
|Non-deductible items                                  |  |                         | 24   |      |  |      |     |   |  |   | 21     |  
|Increase in valuation allowance                       |  |                         | 426  |      |  |      | 380  |   |  |   | 1,855  |  
|Foreign tax rate differentials                        |  |                         |     |      |  |      | 15   |   |  |   | 15     |  
|Tax credits                                           |  |                         | (55  | )    |  |      | (150 | ) |  |   | (200   | )
|Other, net                                            |  |                         | 34   |      |  |      | (45  | ) |  |   | 124    |  
|                                                      |  |                         |      |      |  |      |      |   |  |   |        |  
|Expense (benefit) from income taxes                   |  | $                       |     |      |  | $    | (3   | ) |  | $ | 8      |  
|                                                      |  |                         |      |      |  |      |      |   |  |   |        |  

At December 31, 2003, the Company has net
operating loss carryforwards of approximately $34,549,000 that
expire beginning in 2009 through 2023. The net operating loss
carryforward includes $3,353,000 in deductions relating to stock
option exercises which will be credited to additional paid-in
capital when the carryforwards are realized, if ever.
Additionally, the Company has various tax credit carryforwards
aggregating approximately $1,730,000 that expire beginning in
2005 through 2023.

The Company has recorded a full valuation
allowance against its carryforward tax benefits to the extent
that it believes that it is more likely than not all of such
benefits will not be realized in the near term. The
Companys assessment of this valuation allowance was made
using all available evidence, both positive and negative. In
particular the Company considered both its historical results
and its projections of profitability for only reasonably
foreseeable future periods. The Companys recent net losses
provide objective evidence that is difficult to overcome in the
assessment of recoverability of deferred taxes. While management
expects net income in the imminent future, until the Company has
generated net income for a meaningful number of consecutive
quarters, management expects the deferred tax assets to be fully
reserved. The Companys realization of its recorded net
deferred tax assets is dependent on future taxable income and
therefore, the Company is not assured that such benefits will be
realized.



|   |                                
|-- | -------------------------------
|7. | Capital Stock and Benefit Plans



| |                         
| | ------------------------
| | Stock Compensation Plans

At December 31, 2003, the Company has two
stock-based compensation plans, a fixed stock option plan and an
employee stock purchase plan. The Company applies APB
Opinion 25 and related interpretations in accounting for
its plans. The Company grants stock options with exercise prices
equal to the fair value of its common stock on the date of
grant. Accordingly, no compensation cost has been recognized for
its fixed stock option plan and its employee stock purchase plan.



| |                         
| | ------------------------
| | Fixed Stock Option Plans

Under the Companys stock option plans, the
Company may grant incentive and non-qualified stock options to
its employees and directors for up to 7,114,033 shares of
common stock. Under the plans, options are granted at an
exercise price not less than the fair value of the stock on the
date of grant. The options generally vest ratably over two to
four years and expire ten years after the date of grant. Certain
options are subject to accelerated vesting provisions.

53



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 2003,
2002 and 2001, respectively; no estimated dividends; expected
volatility of 120% for 2003, 122% for 2002 and 112% for 2001;
risk-free interest rates between 2.27% and 3.37% in 2003, 2.94%
and 4.74% in 2002, 3.91% and 4.93% in 2001; and expected option
terms of 5 years for all years.

A summary of the status of the Companys
stock option plan, excluding the warrants issued in connection
with the Redeemable Convertible Preferred Stock discussed in
note 8, as of December 31, 2003, 2002, and 2001 and
changes during the years then ended are presented in the
following table. No warrants were outstanding at
December 31, 2003.

|                                                                   |  |         |       |                |  |         |      |                |  |         |       |                |  |   |      |  |  |  |       |   |  |   |      | 
|------------------------------------------------------------------ |  | ------- | ----- | -------------- |  | ------- | ---- | -------------- |  | ------- | ----- | -------------- |  | - | ---- |  |  |  | ----- | - |  | - | ---- | 
|                                                                   |  |         |       |                |  |        
|                                                                   |  | 2003    |       | 2002           |  | 2001   
|                                                                   |  |         |       |                |  |        
|                                                                   |  |         |       | Weighted-      |  |         |      | Weighted-      |  |         |       | Weighted-     
|                                                                   |  | Shares  |       | Average        |  | Shares  |      | Average        |  | Shares  |       | Average       
|                                                                   |  | (000s) |       | Exercise Price |  | (000s) |      | Exercise Price |  | (000s) |       | Exercise Price
|                                                                   |  |         |       |                |  |         |      |                |  |         |       |               
|Outstanding at beginning of year                                   |  |         | 3,062 |                |  | $       | 2.78 |                |  |         | 2,816 |                |  | $ | 3.07 |  |  |  | 2,220 |   |  | $ | 5.16 | 
|Granted                                                            |  |         | 506   |                |  |         | 1.68 |                |  |         | 446   |                |  |   | 1.07 |  |  |  | 1,579 |   |  |   | 1.25 | 
|Exercised                                                          |  |         | (428  | )              |  |         | 1.36 |                |  |         | (37   | )              |  |   | 1.25 |  |  |  |      |   |  |   |     | 
|Forfeited                                                          |  |         | (213  | )              |  |         | 2.99 |                |  |         | (163  | )              |  |   | 3.58 |  |  |  | (983  | ) |  |   | 4.87 | 
|                                                                   |  |         |       |                |  |         |      |                |  |         |       |                |  |   |      |  |  |  |       |   |  |   |      | 
|Outstanding at end of year                                         |  |         | 2,927 |                |  | $       | 2.78 |                |  |         | 3,062 |                |  | $ | 2.78 |  |  |  | 2,816 |   |  | $ | 3.07 | 
|                                                                   |  |         |       |                |  |         |      |                |  |         |       |                |  |   |      |  |  |  |       |   |  |   |      | 
|Options and warrants exercisable at year end                       |  |         | 2,000 |                |  | $       | 3.28 |                |  |         | 2,023 |                |  | $ | 2.97 |  |  |  | 1,270 |   |  | $ | 3.10 | 
|Weighted average fair value of options granted
    during the year |  |         |       |                |  | $       | 1.40 |                |  |         |       |                |  | $ | 1.11 |  |  |  |       |   |  | $ | 1.01 | 

The following table summarizes information about
stock options outstanding at December 31, 2003:

|                         |  |                     |       |                     |  |          |     |             |  |          |      |  |  |  |       |  |  |   |      | 
|------------------------ |  | ------------------- | ----- | ------------------- |  | -------- | --- | ----------- |  | -------- | ---- |  |  |  | ----- |  |  | - | ---- | 
|                         |  |                     |       |                    
|                         |  | Options Outstanding |       | Options Exercisable
|                         |  |                     |       |                    
|                         |  |                     |       | Weighted            |  | Weighted |     |             |  | Weighted
|                         |  | Number              |       | Average             |  | Average  |     | Number      |  | Average 
|                         |  | Outstanding         |       | Remaining           |  | Exercise |     | Exercisable |  | Exercise
|Range of Exercise Prices |  | (000s)             |       | Contractual Life    |  | Price    |     | (000s)     |  | Price   
|                         |  |                     |       |                     |  |          |     |             |  |         
|$.75 - 1.29              |  |                     | 739   |                     |  |          | 8.4 |             |  | $        | .98  |  |  |  | 144   |  |  | $ | .94  | 
|$1.31                    |  |                     | 712   |                     |  |          | 7.1 |             |  |          | 1.31 |  |  |  | 712   |  |  |   | 1.31 | 
|$1.39 - 3.81             |  |                     | 1,021 |                     |  |          | 5.3 |             |  |          | 2.72 |  |  |  | 724   |  |  |   | 2.97 | 
|$4.00 - 36.00            |  |                     | 455   |                     |  |          | 6.0 |             |  |          | 8.13 |  |  |  | 420   |  |  |   | 7.95 | 
|                         |  |                     |       |                     |  |          |     |             |  |          |      |  |  |  |       |  |  |   |      | 
|                         |  |                     | 2,927 |                     |  |          | 6.6 |             |  | $        | 2.78 |  |  |  | 2,000 |  |  | $ | 3.28 | 
|                         |  |                     |       |                     |  |          |     |             |  |          |      |  |  |  |       |  |  |   |      | 

In connection with the Redeemable Convertible
Preferred Stock discussed in note 8, the Company issued
options to purchase 25,000 shares of common stock for
offering costs to a non-employee. The fair value of this option
grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions; no
estimated dividends; expected volatility of 97%; risk-free
interest rate of 5.25%; and an option life of 3 years. The
fair value of $376,000 related to this grant was included in the
stock offering costs.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Companys 2000 Employee Stock Purchase
Plan (the Purchase Plan) was adopted by the Board of
Directors in March 2000 and approved by the Companys
stockholders in May 2000 and amended to add an additional
300,000 shares in May 2003. Under the 2000 Purchase Plan,
the Company is authorized to issue up to 600,000 shares of
common stock to eligible employees effective August 1,

54



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2000. Under the terms of the Purchase Plans,
employees may elect to have up to 10% of their total cash
earnings withheld by payroll deduction to purchase the
Companys common stock. The purchase price of the stock is
85% of the lower of the market price on the participants
entry date into the Purchase Plan or the semi-annual purchase
date.

The Company sold 72,263, 75,148 and
107,564 shares to employees in 2003, 2002 and 2001,
respectively, under the Companys 2000 Purchase Plan. The
fair value of each stock purchase plan grant is estimated on the
date of grant using the Black-Scholes model with the following
assumptions for 2003, 2002 and 2001, respectively; no estimated
dividends for all years; expected volatility of 120%, 122% and
112%; risk free interest rates of 2.87% and 3.05% for 2003,
3.81% and 4.24% for 2002 and 4.76% and 4.86% for 2001; and an
expected life of 0.5 years for all years. The
weighted-average fair values of those purchase rights granted in
2003, 2002 and 2001 was $0.63, $0.84 and $0.58, respectively. As
the Purchase Plan is a qualified plan under Internal Revenue
Code Section 423, no related compensation cost is
recognized in the financial statements.



| |                                   
| | ----------------------------------
| | 401(k) Retirement Savings
    Plan

Effective January 1, 1994, the Company
adopted a qualified 401(k) retirement savings plan for all
employees. Participants may contribute up to 100% of their gross
pay. The Company contributions are discretionary and vest at
20% per year over five years. The Company contributed and
expensed $242,000 in 2003, $228,000 in 2002 and $204,000
in 2001.



|   |                                           
|-- | ------------------------------------------
|8. | Redeemable Convertible Preferred
    Stock

In 2000, the Company completed the sale of
731,851 shares of Series A Convertible Preferred
Stock, and warrants to purchase an aggregate of
307,298 shares of our common stock to an investor group
consisting principally of Thomas Weisel Capital Partners and
affiliated entities for an aggregate purchase price of
$15 million. The preferred stock was subject to mandatory
redemption provisions on the eighth anniversary of the issuance
for cash equal to the stated liquidation preference plus
accumulated unpaid dividends. The preferred stock was
convertible to common stock at the holders option based
upon the conversion formula as defined in the preferred stock
Certificate of Designation. The $15 million in gross
proceeds received was allocated as follows: approximately
$5.5 million for the preferred stock, approximately
$4.4 million for the beneficial conversion feature, and
approximately $5.1 million for the warrants. The initial
carrying amount of the preferred stock was increased by periodic
accretions so that the carrying amount would have been equal to
the redemption amount ($15 million) at the redemption date
in 2008. The periodic increases in the carrying amount were
effected by charges against additional paid in capital. As the
preferred stock was convertible into common stock at any time,
the beneficial conversion amount was accreted in its entirety at
the date of issuance of the preferred stock. The warrants were
to expire in 2008 and as of May 7, 2001 no warrants were
exercised. The fair value of the warrants was separately
recorded as warrants for the purchase of our common stock and as
a reduction to the Series A Convertible Preferred Stock.

On May 7, 2001, the Company entered into an
Exchange Agreement with Thomas Weisel Capital Partners L.P., a
Delaware limited partnership, certain of its affiliates and RKB
Capital, L.P. (the Purchasers) pursuant to which we
have issued Series A-1 Convertible Preferred Stock, having
the terms and provisions set forth in the Certificate of
Designation designating the Series A-1 Convertible
Preferred Stock, on a one-for-one basis, in return for the
exchange, surrender and cancellation of the Series A
Redeemable Convertible Preferred Stock. The Series A-1
Preferred issued in exchange for the Series A Preferred is
substantially identical to the Series A Preferred. The
Series A-1 Preferred contains certain changes from the
Series A which include eliminating the dividend and
redemption requirements and modifying the protective and
liquidation provisions thereof. In connection with this
transaction, we also

55



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

purchased the warrants associated with the
Series A Preferred for an aggregate of $0.01. The
Series A-1 Preferred is convertible to common stock at the
holders option based upon the conversion formula as
defined in the Certificate of Designation. Upon the occurrence
of a change of control event, such as a sale of assets or merger
in which the consideration to be received consists solely of
stock, the holders of the Series A-1 Preferred Stock are
entitled to receive the greater of (i) a liquidation
preference of approximately $22.5 million in stock or
(ii) the amount of stock they would have otherwise received
upon conversion to common stock, prior to any distribution to
the holders of our common stock. Upon the occurrence of any
change of control event which includes a cash component, the
holders of the Series A-1 Preferred Stock are entitled to
convert their shares into enough common shares to enable them to
receive at least $22.5 million in cash following such
conversion. The holders of the Series A-1 Preferred must
approve any stock or cash based change of control event in which
they would not receive at least $22.5 million in the form
of a liquid security, provided that in the event that the
holders of the Series A-1 Preferred stock elect not to
approve a change of control event, we have the option of
repurchasing the Series A-1 Preferred Stock for
$22.5 million and proceeding with the transaction. After
February 23, 2003 the conversion formula was set at
1.5 shares of common for every share of preferred so the
preferred is presently convertible into an aggregate of
1,097,777 shares of common stock. A summary of recent
developments in connection with the proposed Stellent, Inc.
merger with regards to the change in control preference of the
Series A-1 Preferred Stock is described further in
note 12.

The Series A-1 Preferred was recorded in
stockholders equity at its fair value. The difference
between the carrying value of the Series A Preferred at the
time of the exchange and the fair value of the Series A-1
Preferred of $5.35 million (as determined by an independent
valuation) was recorded as an increase in additional paid-in
capital and as a one-time adjustment to net income (loss)
applicable to common stockholders. As a result of the Exchange
Agreement, future periods will not have adjustments to income
for accumulating dividends or allocations of the discounts
associated with the Series A Preferred Stock.



|   |                    
|-- | -------------------
|9. | Segment Information

The Company has only one segment under the
criteria of SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information. The
following table presents information by geographic area as of
and for the respective fiscal periods (in thousands):

|                                |       |                         |        |        |  |      |        |        |  |   |        |        | 
|------------------------------- | ----- | ----------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                |       |                        
|                                |       | Year Ended December 31,
|                                |       |                        
|                                |       | 2003                    |        | 2002   |  | 2001
|                                |       |                         |        |        |  |     
|Total revenues attributable to: |       |                         |        |        |  |      |        |        |  |   |        |       
|United States                   |       | $                       | 17,994 |        |  | $    | 16,292 |        |  | $ | 14,726 |       
|International                   |       |                         | 1,923  |        |  |      | 1,581  |        |  |   | 1,934  |       
|                                |       |                         |        |        |  |      |        |        |  |   |        |       
|                                | Total |                         | $      | 19,917 |  |      | $      | 17,873 |  |   | $      | 16,660 | 
|                                |       |                         |        |        |  |      |        |        |  |   |        |       

Revenue is classified based on the country in
which the Companys Advantage Partner or customer is
located. Revenue from International locations is attributable to
our presence in the United Kingdom, Latin America and Asia. No
International location was responsible for more than 6% of our
total revenue for the years ended December 31, 2003, 2002
and 2001. International assets and liabilities are insignificant
to the overall presentation of segment information.



|    |                                                  
|--- | -------------------------------------------------
|10. | Restructuring and Other Non-Recurring
    Charges

On February 6, 2001, the Company reduced its
workforce by 42 employees to align expenses more closely with
revenues. This reduction in force resulted in approximately
$1.1 million of restructuring

56



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

charges in the first quarter of 2001. This
restructuring charge consisted of $652,000 of severance costs,
$240,000 of lease termination and $179,000 of asset write-offs.
All costs were paid before the end of 2002.



|    |              
|--- | -------------
|11. | Contingencies

The Company is, from time to time, subject to
certain claims, assertions or litigation by outside parties as
part of its ongoing business operations. The outcomes of any
such contingencies are not expected to have a material adverse
effect on the financial condition or operations of the Company.
In addition, in the ordinary course of business, the Company has
issued a letter of credit as security for performance on the
operating lease for its headquarters and as a result, is
contingently liable in the amount of approximately $220,000 at
December 31, 2003 and the Company has set up a cash
management reserve in the amount of $240,000 to cover the
banks potential exposure for the direct deposit of payroll
and other services.



|    |                                            
|--- | -------------------------------------------
|12. | Recent Developments (Numbers
    Unaudited)

On January 12, 2004, the Company announced
that the Company had entered into a definitive agreement to
merge with Stellent, Inc. Under the terms of the merger
agreement, each share of Optika common stock would be converted
into .44 shares of Stellent common stock (subject to
adjustment in certain circumstances as described below) and the
holders of Optikas Series A-1 Preferred Stock would
receive $10 million in cash. If, based on the average
closing price of Stellents common stock over a ten day
period immediately prior to the closing of the merger, the .44
to one exchange ratio would result in Optikas common
stockholders receiving in excess of $4.00 per share of
Stellent common stock, the exchange ratio will be adjusted so
that 20% of the aggregate merger consideration in excess of
$4.00 per share would be allocated to the holders of the
Series A-1 Preferred Stock and 80% of the aggregate merger
consideration in excess of $4.00 per share would be
allocated to the holders of the common stock. The merger will be
accounted for as a purchase transaction by Stellent, and is
expected to be completed late in the first calendar quarter or
early in the second calendar quarter of 2004. The closing is
subject to regulatory approval, Optika and Stellent stockholder
approval and customary closing conditions. In connection with
the proposed merger, Stellent and Optika expects to file a joint
proxy statement/ prospectus with the Securities and Exchange
Commission.



|    |                                  
|--- | ---------------------------------
|13. | Valuation and Qualifying Accounts

|                                                                  |  |                |     |           |  |              |    |         |  |   |     |   |  |   |     | 
|----------------------------------------------------------------- |  | -------------- | --- | --------- |  | ------------ | -- | ------- |  | - | --- | - |  | - | --- | 
|                                                                  |  | Beginning      |     | Allowance |  | Recoveries/  |    | Ending 
|                                                                  |  | Balance        |     | Increase  |  | (Write-offs) |    | Balance
|                                                                  |  |                |     |           |  |              |    |        
|                                                                  |  |               
|                                                                  |  | (In thousands)
|Deducted from asset account 
    Allowance for doubtful accounts |  |                |     |           |  |              |    |         |  |   |     |   |  |   |     | 
|Year ended December 31, 2003                                      |  | $              | 107 |           |  | $            | 56 |         |  | $ | (20 | ) |  | $ | 143 | 
|Year ended December 31, 2002                                      |  | $              | 110 |           |  | $            | 37 |         |  | $ | (40 | ) |  | $ | 107 | 
|Year ended December 31, 2001                                      |  | $              | 86  |           |  | $            | 10 |         |  | $ | 14  |   |  | $ | 110 | 

The Company also has a full valuation allowance
against its net deferred tax asset described further in
note 6.

57



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##### Table of Contents



OPTIKA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                  
|--- | ---------------------------------
|14. | Quarterly Information (Unaudited)

The following table presents unaudited quarterly
operating results for each of the Companys eight quarters
in the two-year period ended December 31, 2003:

|                 |                                 |                                          |   |         |   |          |   |         |   |  |   |       |  |  |   |       | 
|---------------- | ------------------------------- | ---------------------------------------- | - | ------- | - | -------- | - | ------- | - |  | - | ----- |  |  | - | ----- | 
|                 |                                 |                                         
|                 |                                 | Quarter Ending                          
|                 |                                 |                                         
|                 |                                 | Mar. 31                                  |   | June 30 |   | Sept. 30 |   | Dec. 31
|                 |                                 |                                          |   |         |   |          |   |        
|                 |                                 |                                         
|                 |                                 | (In thousands, except per share amounts)
|Fiscal Year 2003 |                                 |                                          |   |         |   |          |   |         |   |  |   |       |  |  |   |      
|                 | Total revenues                  |                                          | $ | 4,346   |   |          | $ | 4,653   |   |  | $ | 5,351 |  |  | $ | 5,567 | 
|                 | Gross profit                    |                                          |   | 3,241   |   |          |   | 3,591   |   |  |   | 4,247 |  |  |   | 4,421 | 
|                 | Income (loss) from operations   |                                          |   | (576    | ) |          |   | (320    | ) |  |   | 183   |  |  |   | 239   | 
|                 | Net income (loss)               |                                          |   | (558    | ) |          |   | (288    | ) |  |   | 183   |  |  |   | 279   | 
|                 | Basic income (loss) per share   |                                          |   | (0.07   | ) |          |   | (0.03   | ) |  |   | 0.02  |  |  |   | 0.03  | 
|                 | Diluted income (loss) per share |                                          |   | (0.07   | ) |          |   | (0.03   | ) |  |   | 0.02  |  |  |   | 0.02  | 
|Fiscal Year 2002 |                                 |                                          |   |         |   |          |   |         |   |  |   |       |  |  |   |      
|                 | Total revenues                  |                                          | $ | 3,874   |   |          | $ | 4,475   |   |  | $ | 4,650 |  |  | $ | 4,874 | 
|                 | Gross profit                    |                                          |   | 2,923   |   |          |   | 3,389   |   |  |   | 3,525 |  |  |   | 3,787 | 
|                 | Income (loss) from operations   |                                          |   | (560    | ) |          |   | (117    | ) |  |   | 14    |  |  |   | 14    | 
|                 | Net income (loss)               |                                          |   | (526    | ) |          |   | (71     | ) |  |   | 45    |  |  |   | 34    | 
|                 | Basic income (loss) per share   |                                          |   | (0.06   | ) |          |   | (0.01   | ) |  |   | 0.01  |  |  |   | 0.00  | 
|                 | Diluted income (loss) per share |                                          |   | (0.06   | ) |          |   | (0.01   | ) |  |   | 0.00  |  |  |   | 0.00  | 

58



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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 on February 4, 2004.



| |            
| | -----------
| | OPTIKA INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ MARK K. RUPORT

| |                                   
| | ----------------------------------
| |                                   
| | Mark K. Ruport                    
| | President, Chief Executive Officer
| | and Chairman of the Board         

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated on February 4, 2004:

|          |  |                                            |  |                                                                                                                                               
|--------- |  | ------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|          |  |                                           
|Signature |  | Title                                     
|          |  |                                           
|         
|By:       |  | /s/ MARK K. RUPORTMark K. Ruport           |  | Chief Executive Officer and Chairman of the Board
    (principal executive officer)                                                           
|         
|By:       |  | /s/ STEVEN M. JOHNSONSteven M. Johnson     |  | Chief Financial Officer, Executive Vice
    President, Secretary and Chief Accounting Officer (principal
    financial and accounting officer)
|         
|By:       |  | /s/ ALAN B. MENKESAlan B. Menkes           |  | Director                                                                                                                                      
|         
|By:       |  | /s/ JAMES T. ROTHE PH.DJames T. Rothe Ph.D |  | Director                                                                                                                                      
|         
|By:       |  | /s/ EDWIN C. WINDEREdwin C. Winder         |  | Director                                                                                                                                      

59



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##### Table of Contents






EXHIBIT INDEX

|            |    |             |  |                                                                                                                                                                                                                               
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 2  | .1(5)       |  | Agreement and Plan of Merger dated as of
    January 11, 2004 by and among the Registrant and Stellent,
    Inc., a Minnesota corporation, and STEL Sub, Inc., a Delaware
    corporation.                                    
|            | 3  | .1(2)       |  | Certificate of Ownership and Merger.                                                                                                                                                                                          
|            | 3  | .2(1)       |  | Second Amended and Restated Certificate of
    Incorporation of the Registrant.                                                                                                                                               
|            | 3  | .3(10)      |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                
|            | 3  | .5(13)      |  | Certificate of Designation, designating the
    Series A-1 Convertible Preferred Stock.                                                                                                                                       
|            | 3  | .6(11)      |  | Certificate of Designation, designating the
    Series B Preferred Stock.                                                                                                                                                     
|            | 4  | .1(1)       |  | Specimen Common Stock certificate.                                                                                                                                                                                            
|            | 4  | .4(1)       |  | Form of Warrant to purchase Common Stock dated
    November 1, 1995.                                                                                                                                                          
|            | 4  | .5(12)      |  | Amended and Restated Rights Agreement dated as of
    July 29, 2002, between the Registrant and Computershare
    Trust Company, Inc., as Rights Agent.                                                                       
|            | 10 | .1(1)       |  | Form of Indemnification Agreement between the
    Registrant and each of its directors and officers.*                                                                                                                         
|            | 10 | .2(8)       |  | The Registrants 1994 Stock Option/ Stock
    Issuance Plan, as restated and amended through May 2000.                                                                                                                        
|            | 10 | .3(8)       |  | The Registrants 2000 Employee Stock
    Purchase Plan, as amended through May 2003                                                                                                                                           
|            | 10 | .4          |  | Employment Agreement by and between the
    Registrant and Mr. Mark K. Ruport effective
    October 15, 2003.*                                                                                                                
|            | 10 | .5          |  | Employment Agreement by and between the
    Registrant and Mr. Steven M. Johnson, effective
    October 15, 2003.*                                                                                                            
|            | 10 | .7(8)       |  | The Registrants 2000 Non-Officer Stock
    Incentive Plan.                                                                                                                                                                   
|            | 10 | .8(6)       |  | The Registrants 2003 Equity Incentive Plan                                                                                                                                                                                   
|            | 10 | .12(1)      |  | Technology Transfer Agreement dated
    February 20, 1992, by and between the Registrant,
    Mr. Paul Carter and Mr. Malcolm Thomson.                                                                                        
|            | 10 | .16(4)      |  | Lease Agreement dated October 11, 1996, by
    and between the Registrant and Woodmen Office Campus II JV
    LLC for office space at 7450 Campus Drive, Suite 200,
    Colorado Springs, Colorado.                           
|            | 10 | .17(7)      |  | Amended and Restated Loan and Security Agreement
    dated as of November 6, 2002, by and between the Registrant
    and Silicon Valley Bank.                                                                                 
|            | 10 | .18         |  | Loan Modification Agreement dated
    December 4, 2003, by and between the Registrant and Silicon
    Valley Bank.                                                                                                            
|            | 10 | .19(3)      |  | Securities Purchase Agreement dated as of
    February 9, 2000, by among the Registrant, Thomas Weisel
    Capital Partners L.P. and certain of its affiliates and RKB
    Capital, L.P.                                      
|            | 10 | .20(3)      |  | Registration Rights Agreement dated
    February 23, 2000 by and between the Registrant, the
    Purchasers and the other parties signatory thereto.                                                                          
|            | 10 | .21(13)     |  | Exchange Agreement dated as of May 7, 2001,
    by and between the Registrant, Thomas Weisel Capital Partners
    L.P. and certain of its affiliates and RKB Capital L.P.                                                     
|            | 10 | .22(13)     |  | First Amendment to Registration Rights Agreement
    dated May 7, 2001 by and between the Registrant, Thomas
    Weisel Capital Partners L.P. and certain of its affiliates and
    RKB Capital, L.P.                         
|            | 10 | .23(13)     |  | Mutual Agreement regarding future treatment of
    Series A-1 Preferred Stock dated May 7, 2001 by and
    between the Registrant, Thomas Weisel Capital Partners L.P. and
    certain of its affiliates and RKB Capital, L.P.
|            | 10 | .24(9)      |  | Agreement and Plan of Merger, dated as of
    May 29, 2003, by and among the Registrant, Optika
    Technologies, Inc., Select Technologies, Inc and Del Zane and
    Shadra Zane                                             
|            | 21 | .1(1)       |  | Subsidiaries of the Registrant.                                                                                                                                                                                               
|            | 23 | .1          |  | Consent of Independent Accountants.                                                                                                                                                                                           
|            | 31 | .1          |  | Rule 13a-14(a) Certification of Chief
    Executive Officer.                                                                                                                                                                  



---



##### Table of Contents



|            |    |             |  |                                                             
|----------- | -- | ----------- |  | ------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 31 | .2          |  | Rule 13a-14(a) Certification of Chief
    Financial Officer.
|            | 32 | .1          |  | Section 1350 Certification of Chief
    Executive Officer.  
|            | 32 | .2          |  | Section 1350 Certification of Chief
    Financial Officer.  



---



| |   |                                                  
| | - | -------------------------------------------------
| | * | Represents a management compensation arrangement.



| |     |                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to identically numbered
    exhibits included in the Companys Registration Statement
    on Form S-1 (File No. 333-04309), as amended.
|
| | (2) | Incorporated by reference to an exhibit to the
    Companys Annual Report on Form 10-K (File
    No. 0-28672) for the year ended December 31, 1998.             
|
| | (3) | Incorporated by reference to an exhibit to the
    Companys Current Report on Form 8-K (File
    No. 0-28672) dated February 23, 2000.                          
|
| | (4) | Incorporated by reference to an exhibit to the
    Companys Annual Report on Form 10-K (File
    No. 0-28672) for the year ended December 31, 1996.             
|
| | (5) | Incorporated by reference to an exhibit to the
    Companys Current Report on Form 8-K (File
    No. 0-28672) dated January 12, 2004                            
|
| | (6) | Incorporated by reference to an exhibit to the
    Companys Definitive Proxy Statement on Schedule 14(a)
    dated April 3, 2004.                               
|
| | (7) | Incorporated by reference to an exhibit to the
    Companys Quarterly Report on Form 10-K (File
    No. 0-28672) for the year ended December 31, 2002.          
|
| | (8) | Incorporated by reference to an exhibit to the
    Companys Annual Report on Form 10-K (File
    No. 0-28672) for the year ended December 31, 2000.             
|
| | (9) | Incorporated by reference to an exhibit to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-28672) for the quarter ended June 30, 2003.           



|     |                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to an exhibit to the
    Companys Annual Report on Form 10-K (File
    No. 0-28672) for the year ended December 31, 1999.                       
|    
|(11) | Incorporated by reference to an exhibit to the
    Companys Registration Statement on Form 8-A filed
    with the Securities and Exchange Commission on July 18,
    2001.
|    
|(12) | Incorporated by reference to an exhibit to the
    Companys Current Report on Form 8-K (File
    No. 0-28672) dated July 29, 2002.                                        
|    
|(13) | Incorporated by reference to an exhibit to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-28672) for the quarter ended March 31, 2001.