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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



(Mark
one)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



OR

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



For the transition period from  to



Commission File Number 0-28672



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Optika Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4154552                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|7450 Campus Drive, 2nd Floor Colorado Springs, CO              |  | 80920                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(719) 548-9800

(Registrants telephone number, including area code)



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



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



9,444,493 shares of the Registrants Common Stock, $.001 par value per share, were outstanding as of May 7, 2004



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INDEX



|                             |  |                                                                                                |  |                                                                                                                      |  |     
|---------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                |  |                                                                                                                      |  | PAGE
|                             |  |                                                                                                |  |                                                                                                                      |  |     
|PART 1FINANCIAL INFORMATION |  |                                                                                               
|                             |  |                                                                                               
|                             |  | Item 1  Condensed Consolidated Financial Statements                                           |  |                                                                                                                     
|                             |  |                                                                                                | 
|                             |  |                                                                                                |  | Condensed Consolidated Balance Sheets as of March 31, 2004 andDecember 31, 2003 (Unaudited)                          |  | 1   
|                             |  |                                                                                                | 
|                             |  |                                                                                                |  | Condensed Consolidated Statements of Operations for the three-monthperiods ended March 31, 2004 and 2003 (Unaudited) |  | 2   
|                             |  |                                                                                                | 
|                             |  |                                                                                                |  | Condensed Consolidated Statements of Cash Flows for the three-monthperiods ended March 31, 2004 and 2003 (Unaudited) |  | 3   
|                             |  |                                                                                                | 
|                             |  |                                                                                                |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                     |  | 4   
|                             |  |                                                                                               
|                             |  | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 7                                                                                                                   
|                             |  |                                                                                               
|                             |  | Item 3  Quantitative and Qualitative Disclosures About Market Risk                            |  | 21                                                                                                                  
|                             |  |                                                                                               
|                             |  | Item 4  Controls and Procedures                                                               |  | 21                                                                                                                  
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                               
|                             |  |                                                                                               
|                             |  | Item 6  Exhibits and Reports on Form 8-K                                                      |  | 22                                                                                                                  
|                             |  |                                                                                                | 
|                             |  | Signatures                                                                                     |  |                                                                                                                      |  | 23  



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##### Table of Contents

OPTIKA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                         |  | March 31,2004 |         |   | December 31,2003 |  
|                                                                                                                                                                         |  | (unaudited)   |         |   |                  |  
|Assets                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                |  | $             | 4,283   |   |                  | $ | 3,929   |  
|Restricted cash and cash equivalents                                                                                                                                     |  |               | 100     |   |                  |   | 100     |  
|Short-term investments                                                                                                                                                   |  |               | 5,153   |   |                  |   | 5,153   |  
|Accounts receivable, net                                                                                                                                                 |  |               | 4,475   |   |                  |   | 4,696   |  
|Other current assets                                                                                                                                                     |  |               | 462     |   |                  |   | 523     |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                     |  |               | 14,473  |   |                  |   | 14,401  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|                                                                                                                                                                         |  |              
|Property and equipment, net                                                                                                                                              |  |               | 678     |   |                  |   | 683     |  
|Intangible assets, net                                                                                                                                                   |  |               | 559     |   |                  |   | 584     |  
|Goodwill                                                                                                                                                                 |  |               | 1,166   |   |                  |   | 1,166   |  
|Other assets                                                                                                                                                             |  |               | 126     |   |                  |   | 221     |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|                                                                                                                                                                         |  | $             | 17,002  |   |                  | $ | 17,055  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                     |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                         |  | $             | 730     |   |                  | $ | 510     |  
|Accrued expenses                                                                                                                                                         |  |               | 592     |   |                  |   | 1,145   |  
|Accrued compensation expense                                                                                                                                             |  |               | 966     |   |                  |   | 1,108   |  
|Deferred revenue                                                                                                                                                         |  |               | 6,703   |   |                  |   | 6,358   |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                |  |               | 8,991   |   |                  |   | 9,121   |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|                                                                                                                                                                         |  |              
|Stockholders equity:                                                                                                                                                    |  |               |         |   |                  |   |         |  
|Common stock; $.001 par value; 25,000,000 shares authorized; 9,436,993 and 9,327,061 shares issued and outstanding at March 31, 2004 and
December 31, 2003, respectively |  |               | 9       |   |                  |   | 9       |  
|Series A-1 preferred stock; $.001 par value; 731,851 shares authorized, issued and outstanding                                                                           |  |               | 5,199   |   |                  |   | 5,199   |  
|Additional paid-in capital                                                                                                                                               |  |               | 30,647  |   |                  |   | 30,491  |  
|Accumulated deficit                                                                                                                                                      |  |               | (27,844 | ) |                  |   | (27,765 | )
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                               |  |               | 8,011   |   |                  |   | 7,934   |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  
|                                                                                                                                                                         |  | $             | 17,002  |   |                  | $ | 17,055  |  
|                                                                                                                                                                         |  |               |         |   |                  |   |         |  





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



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##### Table of Contents

OPTIKA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share
amounts)



|                                                                       |  |                              |       |   |      |   |       |  
|---------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                       |  | Three Months Ended March 31, |      
|                                                                       |  | 2004                         |       |   | 2003 |  
|Revenues:                                                              |  |                              |       |   |      |   |       |  
|Licenses                                                               |  | $                            | 1,873 |   |      | $ | 1,231 |  
|Maintenance and other                                                  |  |                              | 3,749 |   |      |   | 3,115 |  
|                                                                       |  |                              |       |   |      |   |       |  
|Total revenues                                                         |  |                              | 5,622 |   |      |   | 4,346 |  
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Cost of revenues:                                                      |  |                              |       |   |      |   |       |  
|Licenses                                                               |  |                              | 170   |   |      |   | 180   |  
|Maintenance and other                                                  |  |                              | 1,047 |   |      |   | 925   |  
|                                                                       |  |                              |       |   |      |   |       |  
|Total cost of revenues                                                 |  |                              | 1,217 |   |      |   | 1,105 |  
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Gross profit                                                           |  |                              | 4,405 |   |      |   | 3,241 |  
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Operating expenses:                                                    |  |                              |       |   |      |   |       |  
|Sales and marketing                                                    |  |                              | 2,384 |   |      |   | 2,227 |  
|Research and development                                               |  |                              | 1,164 |   |      |   | 1,191 |  
|General and administrative                                             |  |                              | 570   |   |      |   | 399   |  
|Merger related expenses                                                |  |                              | 417   |   |      |   |      |  
|                                                                       |  |                              |       |   |      |   |       |  
|Total operating expenses                                               |  |                              | 4,535 |   |      |   | 3,817 |  
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Loss from operations                                                   |  |                              | (130  | ) |      |   | (576  | )
|Other income, net                                                      |  |                              | 51    |   |      |   | 18    |  
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Loss before income tax provision                                       |  |                              | (79   | ) |      |   | (558  | )
|Income tax provision                                                   |  |                              |      |   |      |   |      |  
|                                                                       |  |                              |       |   |      |   |       |  
|Net loss                                                               |  | $                            | (79   | ) |      | $ | (558  | )
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Basic and diluted net loss per common share                            |  | $                            | (0.01 | ) |      | $ | (0.07 | )
|                                                                       |  |                              |       |   |      |   |       |  
|                                                                       |  |                             
|Basic and diluted weighted average number of common shares outstanding |  |                              | 9,370 |   |      |   | 8,351 |  
|                                                                       |  |                              |       |   |      |   |       |  







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



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OPTIKA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                                |  |                              |       |   |      |   |       |  
|------------------------------------------------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                |  | Three Months Ended March 31, |      
|                                                                                |  | 2004                         |       |   | 2003 |  
|Cash Flows From Operating Activities:                                           |  |                              |       |   |      |   |       |  
|Net loss                                                                        |  | $                            | (79   | ) |      | $ | (558  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                              |       |   |      |   |       |  
|Depreciation and amortization                                                   |  |                              | 112   |   |      |   | 131   |  
|Changes in assets and liabilities:                                              |  |                              |       |   |      |   |       |  
|Accounts receivable, net                                                        |  |                              | 221   |   |      |   | 733   |  
|Other assets                                                                    |  |                              | 156   |   |      |   | (21   | )
|Accounts payable                                                                |  |                              | 220   |   |      |   | 71    |  
|Accrued expenses and accrued compensation expense                               |  |                              | (695  | ) |      |   | (312  | )
|Deferred revenue                                                                |  |                              | 345   |   |      |   | 40    |  
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Net cash provided by operating activities.                                      |  |                              | 280   |   |      |   | 84    |  
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Cash Flows From Investing Activities:                                           |  |                              |       |   |      |   |       |  
|Capital expenditures                                                            |  |                              | (82   | ) |      |   | (54   | )
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Net cash used by investing activities                                           |  |                              | (82   | ) |      |   | (54   | )
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Cash Flows From Financing Activities:                                           |  |                              |       |   |      |   |       |  
|Proceeds from issuance of common stock                                          |  |                              | 156   |   |      |   | 33    |  
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Net cash provided by financing activities                                       |  |                              | 156   |   |      |   | 33    |  
|                                                                                |  |                              |       |   |      |   |       |  
|                                                                                |  |                             
|Net increase in cash and cash equivalents                                       |  |                              | 354   |   |      |   | 63    |  
|Cash and cash equivalents at beginning of period                                |  |                              | 3,929 |   |      |   | 2,458 |  
|                                                                                |  |                              |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                      |  | $                            | 4,283 |   |      | $ | 2,521 |  
|                                                                                |  |                              |       |   |      |   |       |  







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



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OPTIKA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Basis of Presentations



The unaudited condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly present our consolidated
financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange Commissions (SECs) rules and regulations. The consolidated results of operations for the period ended March 31, 2004 is not necessarily indicative of the results to
be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2004. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year
ended December 31, 2003, included in the Annual Report on Form 10-K for the year ended December 31, 2003, as amended, of Optika Inc. (the Company).



2. 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 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 have filed 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 as 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, 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, and any other documents filed by Stellent or Optika with the 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.



3. Net Loss
Per Common Share and Stock Based Compensation



Net Loss Per Common Share



Basic loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common shares outstanding plus all dilutive potential common shares outstanding. During the first
three months of 2004, 50,000 options to purchase our common stock were granted. During the first three months of 2003, 177,500 options to purchase our common stock were granted.



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



|                                                   |  |                             |       |   |      |   |       |  
|-------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                   |  | Three Months EndedMarch 31, |      
|                                                   |  | 2004                        |       |   | 2003 |  
|Basic Loss Per Share                               |  |                             |       |   |      |   |       |  
|Net loss                                           |  | $                           | (79   | ) |      | $ | (558  | )
|Basic weighted average common shares outstanding   |  |                             | 9,370 |   |      |   | 8,351 |  
|Basic net loss per common share                    |  | $                           | (0.01 | ) |      | $ | (0.07 | )
|Effect of Dilutive Securities:                     |  |                             |       |   |      |   |       |  
|Options and warrants                               |  |                             |      |   |      |   |      |  
|Diluted weighted average common shares outstanding |  |                             | 9,370 |   |      |   | 8,351 |  
|Diluted net loss per common share                  |  | $                           | (0.01 | ) |      | $ | (0.07 | )



In the first quarter of 2004 and 2003,
2,808,004 and 3,192,347, respectively, options and warrants were excluded from the dilutive stock calculation because of their antidilutive effect on net loss per share.



Stock-Based Compensation



We apply 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, to account for our 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 123. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123, as amended by SFAS
No. 148. Had compensation cost for our stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, our pro-forma net loss and pro-forma net loss
per share would have been as follows:



|                            |  |                                      |       |   |      |   |       |  
|--------------------------- |  | ------------------------------------ | ----- | - | ---- | - | ----- | -
|                            |  | (In thousands, exceptper share data) |      
|                            |  | Three Months EndedMarch 31,          |      
|                            |  | 2004                                 |       |   | 2003 |  
|Net loss:                   |  |                                      |       |   |      |   |       |  
|As reported                 |  | $                                    | (79   | ) |      | $ | (558  | )
|SFAS No. 123 Pro-forma      |  |                                      | (237  | ) |      |   | (825  | )
|Basic net loss per share    |  |                                      |       |   |      |   |       |  
|As reported                 |  | $                                    | (0.01 | ) |      | $ | (0.07 | )
|SFAS No. 123 Pro-forma      |  |                                      | (0.03 | ) |      |   | (0.10 | )
|Diluted net loss per share: |  |                                      |       |   |      |   |       |  
|As reported                 |  | $                                    | (0.01 | ) |      | $ | (0.07 | )
|SFAS No. 123 Pro-forma      |  |                                      | (0.03 | ) |      |   | (0.10 | )



We estimate the fair
value of each option grant on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in the first quarter of 2004 and 2003, respectively; no estimated dividends; expected volatility of 119% for
2004 and 121% for 2003 risk-free interest rates between 2.79% and 3.12% in 2004 and between 2.78% and 3.05% in 2003 and expected option terms of five years for both years.



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4. Contingencies



We are, from time to time, subject to certain claims, assertions or litigation by outside parties as part of our ongoing business operations. The outcome
of any such contingencies are not expected to have a material adverse effect upon our business, results of operations and financial condition. We are currently not a party to any material legal proceedings.



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ITEM 2. 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, 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 Context(TM), Acorde Process(TM), Acorde Resolve(TM), Acorde Application Link(TM) and Acorde Records Management(TM), 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-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



Our significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K
for the year ended December 31, 2003, as amended. The accounting



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policies used in preparing our interim consolidated financial statements for the three months ended March 31, 2004 are
the same as those described in our Annual Report on Form 10-K, as amended.



Our critical accounting policies are those having the most impact to the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related
to (1) revenue recognition, (2) accounting for income taxes and (3) accounting for preferred stock. Our critical accounting policies are described in more detail in the section entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2003, as amended. With respect to these critical accounting policies, our management believes that the application of judgments and
assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.



Revenues



Total revenues increased to $5.6 million for the quarter ended March 31, 2004 from $4.3 million for the quarter ended March 31, 2003.



Licenses. License revenues increased 52% to $1.9 million during the
quarter ended March 31, 2004 from $1.2 million for the quarter ended March 31, 2003. License revenues represented 33% and 28% of the total revenues for the quarters ended March 31, 2004 and 2003, respectively. The increase in license revenues during
the first quarter of 2004 was due to a $900,000 increase in North American direct sales for the quarter ended March 31, 2004 over the quarter ended March 31, 2003 resulting from the addition of several new customers during the quarter. License
revenues for the quarter ending March 31, 2004 include an order for $125,000 from Stellent for an end-user sale made by Stellent. License revenues generated outside of the United States decreased to approximately 3% of our license revenues for the
quarter ended March 31, 2004, compared to 21% in the corresponding period in 2003.



Maintenance and Other. Maintenance revenues, exclusive of other revenue, increased 12% to $2.5 million for the quarter ended March 31, 2004 from $2.2 million for the quarter ending March 31, 2003. This increase
was primarily a result of the maintenance revenues received from new customers and approximately $90,000 of maintenance contracts acquired from Select Technologies in May 2003. Maintenance revenue represented 45% and 51% of the total revenues for
the quarter ended March 31, 2004 and 2003, respectively. Other revenue, consisting primarily of consulting services, training and consulting fees represented 22% and 21% of total revenues for the quarter ended March 31, 2004 and 2003, respectively.
The increase in other revenue was primarily due to increased consulting, project management and implementation services resulting from increased direct sales for the quarter ended December 31, 2003 and the quarter ended March 31, 2004.



Cost of Revenues



Licenses. Cost of licenses consist primarily of royalty payments to
third-party vendors and costs of product media, duplication, packaging and fulfillment. Cost of licenses decreased to $170,000 or 9% of license revenues from $180,000 or 15% of license revenues for the quarter ended March 31, 2004 and 2003,
respectively. The decrease in cost of licenses was attributable to the decreased third party royalty costs, both fixed and variable, for the quarter ended March 31, 2004.



Maintenance and Other. Costs of maintenance and other consist of the direct and indirect costs of providing software
maintenance and support, training and consulting services to our APs and end-users, and the cost of third-party services. Cost of maintenance and other increased in absolute dollars to $1.0 million, or 28% of maintenance and other revenues, from
$925,000 or 30% of maintenance and other revenues for the quarters ended March 31, 2004 and 2003, respectively. The increase in cost of maintenance and other is primarily a result of the increased direct third party contracting costs and general
personnel cost increases.



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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 $2.4 million, or 42% of total revenues, for the quarter ended March 31, 2004 from $2.2 million, or 51% of total
revenues, for the quarter ended March 31, 2003. The increase in sales and marketing expenses is the result of increased headcount in our sales organization in the quarter ended March 31, 2004. We expect sales and marketing expenses to increase
throughout the year as we continue to increase our efforts in selling and marketing our products.



Research and Development. Research and development expenses consist primarily of salaries and other related expenses for research and development
personnel, contractors, as well as the cost of facilities and equipment. Research and development expenses remained flat at $1.2 million, or 21% of total revenues, for the quarter ended March 31, 2004 and $1.2 million, or 27% of total revenues, for
the quarter ended March 31, 2003. We expect research and development expenses should remain relatively flat throughout the rest of fiscal 2004.



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 $570,000, or 10% of total revenues, for the quarter ended March 31, 2004 from $399,000, or 9% of total revenues, for the quarter ended
March 31, 2003. The increase in general and administrative for the quarter ended March 31, 2004, is due to increased costs due to the acquisition of Select Technologies, Inc. We anticipate that general and administrative expenses should remain
relatively flat throughout the rest of 2004.



Merger Related
Expenses.Merger expenses consist primarily of legal, investment advisor and accounting expenses related to the proposed merger with Stellent, Inc. Merger expenses were $417,000 or 7% of total revenue. We anticipate merger expenses to continue
until the proposed transaction with Stellent, Inc. is complete.



Other Income. Other income consists primarily of interest earned on our cash and investments. Net other income was $51,000 during the quarter ended March 31, 2004 compared to net other income of $18,000 during the quarter ended March
31, 2003, primarily as a result of interest income on our cash, cash equivalent and investment balances.



Income Tax Expense. During the quarter ended March 31, 2004, we recorded a full valuation allowance against our carryforward tax benefits that were
generated in 2004, to the extent that we believe it is more likely than not that all of such benefits will not be realized in the near term. 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.



Liquidity and Capital Resources



Cash and cash equivalents and short-term investments at March 31, 2004 were $9.4 million, increasing by approximately $354,000 from December 31, 2003. For
the quarter ended March 31, 2004, net cash provided by operating activities was $280,000 compared to net cash provided by operating activities of $84,000 for the quarter ended March 31, 2003. The cash provided by operating activities for the quarter
ended March 31, 2004 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 $82,000 for the quarter ended March 31,
2004 compared to cash used of $54,000 for the quarter ended March 31, 2003. Cash used in investing activities for the quarter ended March 31, 2004 was for capital expenditures.



Cash provided by financing activities was $156,000 for the quarter ended March 31, 2004. Cash provided by financing
activities was $33,000 for the quarter ended March 31, 2003. Cash provided by financing activities is a



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result of common stock sales through our employee stock purchase plan and stock option exercises within the quarter.



At March 31, 2004, our principal sources of liquidity included
cash and short-term investments of $9.4 million. In addition, we have a secured credit facility with Silicon Valley Bank for up to $3.0 million, bearing interest at the banks prime rate. As of March 31, 2004, we had approximately $2.5
million available for borrowing, no debt outstanding and we were in compliance with all covenants of our credit facility.



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.



Risk Factors



As described herein in Note 2 of the condensed consolidated financial statements, 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 proposed merger between Optika and Stellent. For risks about Stellents business, see its Registration Statement on Form S-4 filed on April 28, 2004, and its Annual Report on Form 10-K for the year ended March 31, 2003, as amended 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.



We have often recognized most of our revenues in the last month, or even in the last weeks or days, of a quarter because of the timing of large software sales to our enterprise customers. Accordingly, a delay in an anticipated sale
near the end of a particular quarter may cause revenues in a particular quarter to fall significantly below expectations and materially adversely affect our operating results for such quarter and, therefore, the price of our common stock.



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 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.



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Substantially all of our current license revenue is derived from one product family and therefore our operating
results and the price of our common stock would be materially adversely affected by any market or competitive factors adversely affecting demand for this product family.



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 and if for any reason we were unable to raise additional capital, if needed, our common stock price could be materially adversely affected to the extent that investors questioned our ability to continue as a going concern.



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. The loss of key management, sales or technical personnel or the failure to attract and retain key personnel could harm our ability to compete, and therefore our operating results and common stock price.



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 our value-added resellers or Advantage Partners which are not exclusive relationships and which we have only a limited ability to control.



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 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.



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Because the markets for our products are characterized by rapid technological change and changes in customer
requirements, our future performance will depend in significant part upon our ability to respond effectively and quickly to such changes.



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 over which we have little or no control, which may result in substantial fluctuations in our financial performance from period-to- period.



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, and many of our competitors have significantly greater financial, technical and marketing resources
and have established more extensive channels of distribution.



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 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



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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 sales and
marketing.



Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and/or competitors may independently develop similar technologies, either of which may adversely affect our business and results of operations.



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.



Sales outside the United States represent an important area of potential growth, and
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 have acquired, and may in the future acquire, businesses, products or technologies, and our financial performance may be adversely affected if we are unable to integrate successfully 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 complement 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 achieve 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;
| | - | -----------------------------------------------------------------



| |  | general market conditions; and
| | - | ------------------------------



| |  | other factors that may be unrelated to us or our performance.
| | - | -------------------------------------------------------------



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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 Merger



The proposed
merger involves risk for Optika stockholders. 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 by
Stellent with the Securities and Exchange Commission on or about April 28, 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 proposals, in the case of Optika stockholders. 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 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 Optika may be harmed to the extent that customers, suppliers and others believe that the company cannot effectively compete in the marketplace without the merger and the market
price of Optika common stock may decline.



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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 the 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 the 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.



Two of the directors and executive officers of Optika have conflicts of interest that
could have affected their decisions to support or approve the transaction.



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, Alan B. Menkes, 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. Each of Mr. Menkes and Mr. Ruport voted in favor of
the merger in their respective capacities as directors of Optika. In addition, under the Optika 1994 Stock Option/Stock Issuance Plan, the Optika 2000 Non-Officer Stock Incentive Plan and the Optika 2003 Equity Incentive Plan, if any option holder
is involuntarily terminated other than for misconduct (as such term is defined under the terms of the applicable plan) within an eighteen-month period following the closing of the merger, the awards granted to that individual under the
plan are accelerated in full and become 100% vested. As a result of the operation of these provisions, as well as provisions in the 1994 plan governing the automatic vesting upon a change of control with respect to formula stock option grants to
Optikas non-employee directors, all options issued to the non-employee directors of Optika are expected to vest in full at or within a short period of time following the effective time of the merger since, according to the terms of the merger
agreement, none of such individuals will remain as continuing directors of Optika.



Because the stock price of Optika may reflect the anticipated benefits of the merger, including a broader platform of products and greater size and marketing opportunities, among others, for the combined companies, Optikas stock
price may decline if the merger is not completed.



The
merger and many of its anticipated benefits have been publicly disclosed. The market price of Stellent common stock may reflect these anticipated benefits and the market price of Optika common stock may be trading in tandem based on the conversion
ratio under the merger agreement. If the merger is not completed investors may perceive that the companies will lose the opportunity to realize the anticipated benefits of the merger and the market price of the common stock of Optika may decline.
Completion of the merger is subject to several closing conditions, including obtaining shareholder and any required regulatory approvals, and Stellent and Optika may be unable to obtain such approvals on a timely basis or at all.



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Because the industry in which it competes is consolidating, the business of Optika and its results of operations
may be adversely affected if the merger is not completed.



The industry in which Stellent and Optika operate is maturing and consolidating. The result is fewer larger and better-financed companies providing increasingly broad and deep product lines and increasing demand by customers for fewer
suppliers of more comprehensive solutions. Optikas business and operations may be harmed to the extent that customers, suppliers and others believe that the company 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.



Stellent and Optika have incurred significant transaction expenses and may make substantial additional payments if the transaction is
not completed.



Stellent and Optika are incurring
significant costs in connection with the transaction, including legal, accounting and financial advisory fees, and certain fees and expenses of TWCP and certain of its affiliates. They must pay such expenses whether or not the transaction is
completed. Moreover, under specified circumstances described in the joint proxy statement/prospectus, 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. Such payments may cause the market price of the company to decline.



Realizing the benefits from the merger requires the combined company to overcome
integration and other challenges which may be difficult because Optika is accustomed to operating as an autonomous business.



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:



| |  | combining Optikas Colorado-based operations with Stellents Minnesota headquartered operations;
| | - | ------------------------------------------------------------------------------------------------



| |  | integrating and managing the combined company with a small management team;
| | - | ---------------------------------------------------------------------------



| |  | retaining and assimilating the key personnel of Optika accustomed to working without the oversight of a parent company;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | integrating the sales organization of Optika, which relies extensively on indirect sales channels and generates a high proportion of maintenance and other revenues, with the sales
organization of Stellent, which relies extensively on direct sales and generates a high proportion of product license revenues;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | retaining existing customers of each company in light of changes that may occur in each companys operations as a results of the merger and attracting new customers while
overcoming integration challenges;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | retaining strategic partners of each company in light of changes that may occur in each companys operations as a results of the merger and attracting new strategic partners
while overcoming integration challenges; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | creating and maintaining uniform standards, controls, procedures, policies and information for two companies accustomed to operating under autonomous management.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The risks of failure to overcome these integration challenges include:
| | - | ----------------------------------------------------------------------



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| |  | the potential disruption of the combined companys on-going business and distraction of its management;
| | - | -------------------------------------------------------------------------------------------------------



| |  | lost sales or decreased revenues as a result of difficulties inherent in combining product offerings, coordinating sales and marketing efforts to communicate effectively 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 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 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 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 may be difficult in light of the geographic separation of Stellent and
Optika, Optikas history of operating as an independent business and uncertainty regarding operational roles following the merger; and failure to do so could seriously harm the combined companys ability to execute its operating strategy.



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. Failure to retain and motivate executives and other key employees could leave the combined company without the management capacity
to execute its operating strategy, which could adversely affect its operating results. Retaining and motivating Optika employees may be difficult if management of the combined company cannot overcome the geographic separation of Optikas
Colorado operations and Stellents Minnesota headquarters to make employees feel like they are a part of a cohesive business operation. The combined company may experience difficulty retaining and motivating Optika employees if those employees
feel as though they had greater operating freedom when Optika was an independent business. 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.



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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.



The merger may become subject to regulatory approval, which may delay or prevent the merger or require modification of the terms of the merger.



Under the Hart-Scott-Rodino Act, if the amount of consideration to be
paid by Stellent to the common and preferred stockholders of Optika were valued at $50 million or more for the entire 45-day period prior to the effective date of the merger, Stellent and Optika would not be allowed to complete the merger until they
had furnished information required by the HSR Act to the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and the applicable HSR Act waiting period had expired or been terminated. Based on the number of
shares of common stock of Optika outstanding at January 30, 2004, and recent trading prices of Stellents common stock, it appears that Stellent and Optika will not be required to furnish certain information under the HSR Act or wait for HSR
Act waiting period to expire or be terminated. However, if the price of Stellents common stock closes above approximately $9.73 on each trading day during the 45-day period prior to the effective date of the merger, the merger would become
subject to the reporting requirements and waiting period of the HSR Act, which could delay or prevent the merger or require modification of the terms of the merger. The effective date of the merger may be delayed unexpectedly by factors beyond the
control of Stellent and Optika, such as delays in obtaining a quorum for the shareholder meetings or delays in obtaining the required shareholder approvals. If the price of Stellents common stock closes above approximately $9.73 for an
extended period, but less than the full 45-day period, prior to the anticipated effective date of the merger and the effective date is unexpectedly delayed such that the price of Stellents common stock closes above approximately $9.73 for a
full 45-day period and continues to close above such price, the merger may become subject to the reporting requirements and waiting period of the HSR Act, further delaying the effective date of the merger.



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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 marketing 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;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | actual or threatened litigation by shareholders 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 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 will have substantially more resources than the combined company. Managements focus on realizing the benefits of the merger for the combined companies may divert it from pursuing other potential transactions that could further
increase the resources and 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,



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see The Merger  Material United States Federal Income Tax Consequences of the Merger of the joint proxy
statement/prospectus.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As of March 31, 2004 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. 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 March 31, 2004 would cause the fair market value of these short-term investments to change by an insignificant amount.



ITEM 4. CONTROLS AND PROCEDURES



As of March 31, 2004, 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 March 31, 2004 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.



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PART IIOTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



| | a) | Exhibits.
| | -- | ---------



|            |  |                                                                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                    
|            | 
|2.01        |  | Agreement and Plan of Merger dated as of January 11, 2004 by and among Optika Inc., Stellent, Inc. and STEL Sub, Inc. (incorporated by reference to Exhibit 2.1 to Optika Inc.s Current
Report on Form 8-K dated and filed on January 12, 2004 (Commission File No. 0-28672)).
|            | 
|31.1        |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                                        
|            | 
|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                                                                                                                                                                                                                          



| | b) | Reports on Form 8-K.
| | -- | --------------------



We furnished or filed the following Current Report on Form 8-K during the quarter ended March 31, 2004. 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:



| | a. | Current Report on Form 8-K dated January 12, 2004, filed with the Securities and Exchange Commission on January 12, 2004, under Item 5. Other Events and Item 7. Financial Statements
and Exhibits.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Current Report on Form 8-K dated January 12, 2004, furnished to the Securities and Exchange Commission on January 12, 2004, under Item 12. Results of Operations and Financial
Condition.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Current Report on Form 8-K dated January 20, 2004, furnished to the Securities and Exchange Commission on January 21, 2004, under Item 12. Results of Operations and Financial
Condition.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



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



|          |  |                                                   
|--------- |  | --------------------------------------------------
|          |  | OPTIKA INC.                                       
|          |  | (Registrant)                                      
|          | 
|5/12/2004 |  | /s/ Mark K. Ruport                                
|(Date)    |  | Mark K. Ruport                                    
|          |  | President, Chief Executive Officer                
|          |  | and Chairman of the Board                         
|          | 
|5/12/2004 |  | /s/ Steven M. Johnson                             
|(Date)    |  | Steven M. Johnson                                 
|          |  | Chief Financial Officer, Executive Vice President,
|          |  | Secretary and Chief Accounting Officer            



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Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                    
|            | 
|2.1         |  | Agreement and Plan of Merger dated as of January 11, 2004 by and among Optika Inc., Stellent, Inc. and STEL Sub, Inc. (incorporated by reference to Exhibit 2.1 to Optika Inc.s Current
Report on Form 8-K dated and filed on January 12, 2004 (Commission File No. 0-28672)).
|            | 
|31.1        |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                                                                                                       
|            | 
|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.                                                                                                                                                                                                                         



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