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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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
OPTIKA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4154552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7450 CAMPUS DRIVE, 2ND FLOOR 80920
COLORADO SPRINGS, COLORADO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (719) 548-9800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share.
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 14,
2001 as reported on the Nasdaq National Market, was approximately $8,374,535.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. As of March
14, 2001, registrant had outstanding 8,171,648 shares of Common Stock and
731,851 shares of Preferred Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on May 8, 2001 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
OPTIKA INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business...........................................................2
Item 2. Properties........................................................13
Item 3. Legal Proceedings.................................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..............................................14
Item 6. Selected Financial Data...........................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......21
Item 8. Financial Statements and Supplementary Data.......................21
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................21
PART III
Item 10. Directors and Executive Officers of Registrant...................22
Item 11. Executive Compensation...........................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management...22
Item 13. Certain Relationships and Related Transactions...................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..23
Signatures.......................................................42
PART I
This annual report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to those discussed under
the caption "Business Risks" contained herein.
ITEM 1. BUSINESS
INTRODUCTION
Optika Inc. is a leading provider of imaging, workflow and collaborative
commerce software. Optika's Acorde family of Internet software solutions,
including Acorde Context(TM), Process(TM) and Resolve(TM), allow companies to
effectively and cost-efficiently manage paper-intensive or complex business
processes and transactions. Acorde provides the ability to access and store
multiple formats of business content, both digital and non-digital; automate
processes across the organization and externally with partners and customers;
and enable online collaboration around these paper-intensive or complex
processes in real and near time. A three-tier, scalable and extensible solution,
Acorde delivers a variety of client desktops, including Windows, web and the
ability to integrate with line-of-business and other third-party applications.
The Acorde product family allows organizations to improve processing efficiency,
reduce operating costs and increase customer and trading partner service and
satisfaction. The Acorde product is an evolution of Optika's eMedia product.
INDUSTRY BACKGROUND
We believe the migration of businesses to e-business is being driven by
several trends. The first trend is the increasing importance of the Internet,
which provides a widely used, inexpensive and established infrastructure for the
relaying of communications and data to customers, suppliers and business
partners. According to industry analyst firm META Group, the applications and
business opportunities that fall under the broad heading of e-business will
fundamentally change the way many businesses and organizations operate.
The second trend driving e-business is the increasing focus on integrating
an organization's key business partners, such as vendors and customers, into its
traditional business processes. An organization's set of business partners is
normally referred to as its "value chain" or "supply chain." Although e-business
was initially thought of as a revolutionary way to market, sell and purchase
goods and services, the industry is now realizing the even greater potential of
e-business in changing the way businesses manage their supply chain partners.
The ubiquitous access and low costs associated with the Internet make it
possible for businesses to leverage it as an infrastructure to develop more
efficient methods of interacting with each other.
E-business offers a way for businesses to eliminate paper at its source,
making it particularly important for customers in paper-intensive industry
sectors such as financial services, insurance and retail. However, the high
volumes of paper associated with business transactions will not be replaced
easily or immediately. The transition from paper-based transactions to
electronic transactions over the Internet will likely be gradual and sometimes
difficult, varying greatly from company to company. For this reason we believe
that companies will need to maintain dual systems to handle both paper and
electronic transactions over the next few years.
Therefore, the transition to e-business will require solutions that manage
the new e-business-based processes, as well as the on-going paper-intensive
processes. One method of accomplishing this objective is using products that
offer both e-commerce and image processing capabilities. Image processing
systems allow documents to be electronically stored, retrieved and routed, and
generally include the following five basic functions: (1) document capture, (2)
optical storage, (3) retrieval and display, (4) document management and (5)
automated transaction processing (workflow).
A third trend, which has recently emerged as more and more businesses make
e-business a central part of their business model, is that so-called
"out-of-tolerance" transactions, continue to be resolved through traditional
paper-intensive means, which increases costs and reduces efficiency. We believe
that as businesses continue to automate their paper-intensive processes and as
e-business assumes a central role in their business models, they will
increasingly seek technology-based solutions that leverage the Internet to solve
transaction problems real-time and within the transaction process.
OPTIKA ACORDE
The Acorde product family is revolutionizing the way organizations process,
fulfill and support business transactions through the following solutions:
Acorde Context
Acorde Context enables companies to securely capture, store, retrieve and
display transaction documents and information, regardless of source or type.
Acorde Context can manage both paper and electronic documents and provide
seamless integration to a company's line of business applications. Secure access
to information is provided via Microsoft Windows, the web or directly from a
third party application through the use of Acorde's extensive Software
Developers Kit, or SDK. The web enables opportunities for companies to do
business faster and at reduced costs. To efficiently conduct business
transactions, both between internal departments and externally with trading
partners, businesses need immediate access to all relevant transaction
information, regardless of how it is executed.
Acorde Process
Acorde Process provides sophisticated workflow functionality for automating
processes and delivering business transaction information, within organizations
and over the web to external users. Traditional business processes within
applications such as accounts payables and receivables, applications and claims
processing are often manual and costly, resulting in ineffective ways of
processing transactions and managing supporting information and documents. But
the Internet is creating opportunities for companies to enhance the way they
conduct business - across department, enterprise and with customers and
suppliers. The Acorde product family leverages the openness and flexibility of
the web to enable companies to automate processes and efficiently deliver the
right information to the right people at the right time.
Acorde Resolve
Acorde Resolve allows businesses to build web resolution hubs, which deliver
collaborative tools in a virtual office environment, for resolving and
collaborating around transactions and their inherent discrepancies internally
and with trading partners. Analyst reports show that approximately 11% of
organizations' business transactions have problems or discrepancies, such as
short shipments, quantity mismatches and substitutions. The resolution of these
failures typically require time-intensive, manual processes involving research
and approval on a number of levels within multiple organizations. In addition,
the cost to process these problem transactions is nearly equal to the cost to
process all transactions that complete successfully. Companies must create more
efficient resolution of transaction issues to cut costs and improve
relationships with key trading partners.
Leveraging industry standards and providing a variety of client desktops,
Acorde also enables companies to integrate with line-of-business and third-party
applications such as Enterprise Report Management, or ERP, systems. Via Acorde
B2B Paks, the Acorde XML Gateway or through the Acorde SDK, organizations can
seamlessly integrate with their existing infrastructures and systems, enabling
them to cost-effectively take advantage of current investments.
SALES & MARKETING
Sales
We employ a blended sales model, consisting of a worldwide indirect sales
network of Advantage Partners, or APs, and a direct sales force that covers
North American territories and territories in South America and Europe. We also
use a Solution Services team of system architects and program managers to
support our account executives and APs in enterprise system design, planning,
implementation, and rollout. License revenues from APs accounted for 72% of our
license revenues for the year ended December 31, 2000.
Indirect Sales
APs are value added resellers responsible for identifying potential
end-users, selling our products to the end-users as part of a complete hardware
and software solution, customizing and integrating our products at the end-users
sites, and providing support and maintenance to the end-users following the
sale. Our APs currently include large organizations selling a wide variety of
products, smaller organizations focused on imaging, application-oriented
organizations and geographically-focused organizations. We establish
relationships with APs through written agreements. These agreements establish a
price at which the AP is eligible to license our software for resale to
end-users, the maintenance fee revenues which must be remitted back to us, and
other material terms and conditions. Such agreements generally do not grant
exclusivity to APs, do not prevent APs from carrying competing product lines and
do not require APs to sell any particular dollar amount of our software.
However, contracts may be terminated at our election if specified sales targets
are not attained. Actual sales contracts are between the APs and the end-users,
although we directly license our software to end-users through their acceptance
of a standard shrink-wrapped license agreement. We support our APs through
dedicated personnel at our headquarters in Colorado Springs, Colorado, and a
network of field offices. Services range from joint marketing efforts to
assistance with pricing and proposals to technical product support. Our strategy
is to target our marketing activities toward our most productive APs, and to
recruit additional APs in key geographical and vertical markets. Our AP program
is a crucial element of our business strategy.
Direct Sales
Our North American direct sales team focuses on developing relationships
with large corporate end-users. The direct sales team is divided into regional
territories to cover the United States. The direct sales force typically sells
to a different customer base than our indirect sales force. Included in our
direct sales force is our solution services team which initiates contact
directly with the end-user, but often works with our APs to provide installation
and integration services at the end-user's site.
International Sales
For the years ended December 31, 1999 and 2000, we generated approximately
17% and 15%, respectively, of our total revenues from international sales. We
currently maintain offices in London to support our European APs and an office
in Brazil to support our Latin American APs.
Marketing
We integrate our marketing program to support our sales strategy. Marketing
efforts are organized into marketing communications, product marketing,
strategic alliances, marketing programs, channel marketing and Internet
marketing. We support these efforts by issuing frequent announcements to the
press, advertising in industry periodicals and magazines, communicating with key
industry analysts, participating in tradeshows, telemarketing and direct mailing
to prospective customers and developing and maintaining Internet services. We
also participate with channel partners in joint marketing efforts. The targeted
audience is Fortune 1000 and Global 2000 companies in the manufacturing, retail,
and financial services (mortgage lending and application processing) sectors.
Customers
As of December 31, 2000, we have an established base of over 1,800 Optika
customers through our blended sales model of APs and direct sales force. The
following table is a partial list of end-users that have generated revenues for
us by licensing Optika's family of products:
ARVEST Bank Group Kuwait Stock Exchange
AT&T Cable Services Lawrence Livermore National Lab
Australian Passport Office Merrill Lynch
Automatic Data Processing Mitsubishi Corporation
BMC West National Bank Commerce
Boston Edison Pepperdine University
Burlington Insurance Group Proctor & Gamble
Caterpillar, Inc. Promea Ausgleichakasse
Ceridian Tax Service Siemens Communications
Clear Channel Communications Southwest Airlines
Coca-Cola Bottling Company The Home Depot
CompuNet Clinical Laboratories Thomson Newspapers
Focus on the Family Turner Broadcasting Systems
Food Lion, Inc. University of Colorado
Greenlee Textron Veterans Administration - Philadelphia
ING (formerly ReliaStar) Verizon
J.D. Edwards Washington State University
J.R. Simplot W.W. Grainger, Inc.
No AP or end-user accounted for more than 10% of our total revenues for the year
ended December 31, 2000.
SERVICE & SUPPORT
We believe that a high level of customer service and support is critical to
our performance. We provide technical support, maintenance, training and
consulting to our APs, who are in turn primarily responsible for providing
technical support services directly to end-users. We also provide such support
directly to our end-users on an as-needed basis. These services are designed to
increase end-user satisfaction, provide feedback to us as to end-users' demands
and requirements, and generate recurring revenue. We plan to continue to expand
our services and support programs as the depth and breadth of our products
increase.
AP Support
We maintain pre-sales technical support personnel who work directly with the
APs to provide technical responses to sales inquiries. We offer educational and
training programs, as well as customized consulting services, to our APs. Fees
for training and consulting services are generally charged on a per diem basis.
We also provide product information bulletins on an ongoing basis, including
bulletins posted on our Internet site and through periodic informational updates
about the products installed. These bulletins generally answer frequently asked
questions and provide information about new product features.
Technical Support and Software Maintenance
In conjunction with our APs, we offer end-users a software maintenance
program. The maintenance program includes software updates provided by us to the
end-user, and technical support provided by the AP. Telephone consultation
services are provided by us to the AP to respond to end-user technical questions
that the AP is unable to answer. Internet support services are also available
that provide access to important technical support information, streamline the
process of interacting with the support organization and provide access to the
technical support knowledge base. An AP typically charges the end-user a fee for
maintenance and support of the entire system, including software and hardware.
In turn we charge the AP a fee of between 8% and 12% on an annual basis of the
then-current list prices of the licensed software.
Warranty
We generally include a 90-day limited warranty with the software license.
During the warranty period, the end-user is entitled to corrections for
documented program errors.
RESEARCH AND DEVELOPMENT
We have committed, and expect to continue to commit, substantial resources
to research and development. Our research and development organization is based
on the product team concept. Each product team has an engineering team leader, a
product manager, development engineers and quality assurance engineers. The team
is entirely responsible for the design, implementation and quality of our
products. Product development efforts are directed at increasing product
functionality, improving product performance, and expanding the capabilities of
the products to interoperate with third-party software and hardware. In
particular, we devote substantial development resources to develop additional
functionality for our products, and the capability to support additional
platforms, databases, graphical user interfaces, toolsets and emerging
technologies.
As of December 31, 2000, our research and development organization consisted
of 57 full-time employees in Colorado Springs, Colorado. During 2000, research
and development expenses were $8.4 million. As of December 31, 2000, we had
expensed all of our internal software development costs as incurred.
COMPETITION
The market for Optika's Acorde product is intensely competitive and can be
significantly affected by new product introductions and other market activities
of industry participants. We believe that the principal competitive factors
affecting our market include product features such as adaptability, scalability,
ability to integrate with third-party products, functionality, ease of use,
product reputation, quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts, and company reputation. Although
we believe that we currently compete favorably with respect to such factors, we
cannot assure you that we can maintain our competitive position against current
and potential competitors. Our principal direct competitors for our Acorde
products include FileNet Corporation, IBM Corporation, and OTG Software Inc. We
also compete with industry-specific application vendors. Numerous other software
vendors also compete in each product area. Potential competitors include,
without limitation, providers of document management software products,
providers of document archiving products, and Relational Database Management
System, or RDBMS, vendors. In addition, we may face competition from other
established and emerging companies in new market segments, such as e-business,
resulting from the introduction of Optika Acorde Resolve product.
We anticipate that the collaborative commerce market will also be highly
competitive. As we enter and develop this market, we expect to face a variety of
new competitors who will enter this new and evolving market. We may experience
competition from our principal direct competitors of the Optika Acorde product
family and other established or emerging companies in this new market.
Many of our current and potential competitors have longer operating
histories, greater resources and name recognition, and a larger installed base
of customers than we do. As a result, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than we can. We also face indirect competition from
value added resellers, distributors and system integrators. We rely on a number
of these resellers for implementation and other customer support services, as
well as recommendations of our products during the evaluation stage of the
purchase process. Although we seek to maintain close relationships with these
resellers, many of these third parties have similar, and often more established,
relationships with our principal competitors.
PROPRIETARY RIGHTS
We rely upon a combination of trade secret, copyright and trademark laws,
software licenses and nondisclosure agreements, to establish and protect our
proprietary rights in our products. We enter into confidentiality and/or license
agreements with all of our employees and distributors, as well as with our
customers and potential customers seeking proprietary information, and limit
access to and distribution of, our software, documentation and other proprietary
information. Despite these precautions, it may be possible for unauthorized
third parties to copy aspects of our products or to obtain and use information
that we regard as proprietary. We have certain registered and other trademarks.
We believe that our products, trademarks and other proprietary rights do not
infringe the proprietary rights of third parties. We cannot assure you, however,
that third parties will not assert infringement claims in the future.
EMPLOYEES
At December 31, 2000, we had 174 full-time employees in 19 cities. Of these
employees, 57 were involved in research and development, 72 in sales and
marketing, 29 in technical support and training, and 16 in administration and
finance. No employees are covered by any collective bargaining agreements. We
believe that our relationship with our employees is good.
On February 6, 2001, we had a strategic reduction in force to more closely
align our operating expenses with our current revenues. We reduced our workforce
by approximately 25% primarily in the areas of administration and finance,
research and development, and sales and marketing.
EXECUTIVE OFFICERS
Optika's executive officers and key employees, and their ages as of February
28, 2001 are:
NAME AGE POSITION
Mark K. Ruport.......... 48 President, Chief Executive Officer &
Chairman of the Board of Directors
Steven M. Johnson....... 39 Executive Vice President-Chief Financial
Officer & Secretary
Thomas M. Rafferty...... 55 Vice President-Research and Development,
Engineering and Customer Support
William J. Kearney...... 31 Vice President-Marketing
James A. Franklin....... 44 Vice President-North American Direct
Sales
Michael J. Rodsater..... 56 Vice President-North American Indirect
Sales
Mark K. Ruport has been our President and Chief Executive Officer and a
Director since February 1995. He has served as Chairman of the Board of
Directors since May 1996. From June 1990 to July 1994, Mr. Ruport was President
and Chief Operating Officer, and most recently Chief Executive Officer, of
Interleaf, Inc., a publicly held software and services company that develops and
markets document management, distribution and related software. From 1989 to
1990, Mr. Ruport was Senior Vice President of Worldwide Sales of Informix
Software, where he was responsible for direct and indirect sales and original
equipment manufacturers. From 1985 to 1989, Mr. Ruport was Vice President of
North American Operations for Cullinet Software, where he oversaw North American
sales, customer support and systems integration.
Steven M. Johnson has served as our Executive Vice President-Chief Financial
Officer since February 2001, and as our Secretary since May 1996. He also served
as our Vice President-Finance and Administration and Chief Financial Officer
from September 1992 to February 2001, as our interim Chief Executive Officer
from October 1994 to February 1995 and as interim Vice President of North
American Channel Sales from July 1998 through December 1998. Prior to joining
us, from February 1988 to September 1992, Mr. Johnson was Vice
President-Finance, and Chief Financial Officer, of Insurance Auto Auctions,
Inc., a publicly held company.
Thomas M. Rafferty has served as our Vice President-Research and
Development, Engineering and Customer Support since February 2001. He also
served as our Vice President--Research and Development from March 1999 through
February 2001. Prior to joining us, Mr. Rafferty was Vice President of
Engineering at Regenisys Corporation from August 1997 to March 1999, a Phoenix
software company specializing in rules-finding products. From August 1994 to
July 1997 Mr. Rafferty was Vice President of Engineering for Data Research
Associates, a leading vendor of library automation software. From October 1991
to July 1994 Mr. Rafferty was a founder of Integrated Technologies, Inc.; a
software company that built a framework development architecture based on
object-oriented technology providing for rapid integration of new technologies
and applications. Mr. Rafferty spent the early part of his career in various
engineering management positions at Eastman Kodak from 1968 to 1978, McDonnell
Douglas from 1978 to 1987 and Prime from 1987 to 1991.
William J. Kearney has served as our Vice President of Marketing since
February 2001. Prior to this position, Mr. Kearney served in a wide variety of
roles for Optika including Product Management from June 1998 to January 2001,
Pre Sales from January 1996 to May 1998, and technical support / post sales
implementation from April 1994 to December of 1996. Prior to joining Optika, Mr.
Kearney was an independent contractor.
James A. Franklin has served as Vice President of North American Direct
Sales since February 2001. He also served as our Western Regional Vice President
of Sales from January 1999 to February of 2001. Prior to joining us from 1996 to
1998, Mr. Franklin was the Western Region District Manager for GIGA Information
Group, Inc., a publicly held information technology analyst firm. From 1994 to
1996, Mr. Franklin was the Director of Business Development for Geo/SQL,
Corporation, a leading vendor of enterprise geographic information systems, in
Denver, Co. Mr. Franklin was responsible for direct and OEM sales. From 1988 to
1994, Mr. Franklin held senior sales and executive management positions for
multiple information technology consulting and software firms.
Michael J. Rodsater has served as our Vice President-North American Indirect
Sales since October 1999. Prior to joining us, Mr. Rodsater was Director of
Sales for EIS International from October 1997 to September 1999, a leading
provider of call center software. From September 1995 to June 1997 Mr. Rodsater
was Director of Indirect Sales for Houston Cellular, a wireless communications
company. From March 1994 to September 1995 Mr. Rodsater was Director of Retail
Development for United States Cellular Corporation, a wireless communications
company. From March 1993 to March 1994 Mr. Rodsater was Director of Sales and
Marketing for Onyx Graphics Corporation, a imaging software and printing
solutions company. Mr. Rodsater spent the early part of his career with IBM from
1975 to 1986, NYNEX from 1986 to 1991 and Computerland 1991 to 1992.
BUSINESS RISKS
In evaluating our business, you should carefully consider the business risks
discussed in this section.
Operating Result Fluctuations. Our sales and other operating results have
varied significantly in the past and will likely vary significantly in the
future as a result of factors such as:
o The size and timing of significant orders and their fulfillment
o Rate of rollout, demand and customer adoption of our product offerings
o Ability of third party products embedded or to be embedded in our products
and our ability to negotiate license agreements with such third parties on
favorable terms
o Changes in pricing policies by us or our competitors
o The number, timing and significance of product enhancements and new
product announcements by us and our competitors
o Changes in the level of our operating expenses
o Warranty and customer support expenses
o Changes in our end-users' financial condition and budgetary processes
o Changes in our sales, marketing and distribution channels including the
extent to which we are able to establish a direct sales force
o Product life cycles
o Software bugs and other product quality problems
o The cancellation of licenses during the warranty period or nonrenewal of
maintenance agreements
o Customization and integration problems with the end-user's legacy system
o Changes in our business strategy
o Changes in accounting pronouncements
o The level of international expansion and foreign currency exchange rates
o Seasonal trends
A significant portion of our revenues have 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 APs 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.
Blended Sales Model. During 1998, we altered our sales strategy with the
introduction of a direct sales team, but we had limited experience in marketing
and selling our products on a direct sales basis. Consequently, we may not be
successful in achieving a significant level of direct sales on a timely basis,
or at all. In 2000, our direct sales team has had to adapt to selling our new
collaborative commerce product, Acorde Resolve, which presents a different
series of sales challenges than our historical software products. We have also
had to recruit a significant number of new salespeople to focus on selling our
products and train our existing salespeople on selling our new product, Acorde
Resolve. If we are unable to execute our direct sales strategy, it could have a
material adverse effect on our business and results of operations.
Product Offerings. The Optika Acorde family of products (which included
Optika eMedia) account 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. Such
markets, primarily the market for our collaborative commerce product, may not
grow and we may not be successful in developing and marketing these or any other
products, and these products may not achieve widespread customer acceptance. To
date, we have not recognized any material revenue from the sale of our
collaborative commerce product, Acorde Resolve, which was first released June
30, 2000. We may not be successful in selling the Optika Acorde family of
products, and we may encounter unexpected delays or costs in such rollout, and
any such failures could have a material adverse effect on our business and
results or operations.
Capital Requirements. 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.
Recently capital market conditions have materially and adversely affected the
ability of many Internet companies to raise additional capital in both private
and public markets. 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, either of which could have a material adverse effect
on our business. On February 6, 2001, we had a strategic reduction in force to
more closely align our operating expenses with our current revenues. We reduced
our workforce by approximately 25% primarily in the areas of administration and
finance, research and development, and sales and marketing.
Key Employees. 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.
Advantage Partners. Our future results of operations will depend on the
success of our marketing and distribution strategy, which has relied, to a
significant degree, upon APs 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 APs may
not continue to represent Optika or sell our products. Other APs, some of which
have significantly greater financial marketing and other resources than us, may
not develop or market software products that compete with our products or may
otherwise discontinue their relationship with, or support of, us. Some of our
APs are small companies that have limited financial and other resources that
could impair their ability to pay us. Our strategy may not be successful and our
strategy may adversely impact sales through our APs. Selling through indirect
channels may also hinder our ability to forecast sales accurately, evaluate
customer satisfaction, provide quality service and support or recognize emerging
customer requirements.
Product Updates and Releases. 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. We have in the recent past experienced delays in the
development and commencement of commercial shipments of new products and
enhancements, resulting in customer frustration and delay or loss of revenues.
Our 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.
Third Party Software. 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. Such an event would have
a material adverse effect upon our business and results of operations.
Sales Cycle. The license of our software products is typically an
executive-level decision by prospective end-users, and generally requires us and
our APs 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.
Competition. 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. We anticipate that the collaborative
commerce market will also be highly competitive and subject to competitive
forces that do not currently exist. Our competitors offer a variety of products
and services to address 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 e-business market, we expect
additional competition from established and emerging companies, as the market
for e-business continues to evolve. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties, to increase the ability of their products to address the needs of
our prospective customers. In addition, several competitors have recently made,
or attempted to make, acquisitions to enter the market or increase their market
presence. Accordingly, new competitors or 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, any of
which would have a material adverse effect on our business and results of
operations. We may not be able to compete successfully against current or future
competitors.
Competitor Resources. Many of our current and potential competitors are
substantially larger than we are, have significantly greater financial,
technical and marketing resources and have established more extensive channels
of distribution. As a result, such competitors may be able to respond more
rapidly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products than we can. We expect our competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide added functionality and other features. Our failure to
keep pace with our competitors through new product introductions or enhancements
could cause a significant decline in our sales or loss of market acceptance of
our products and services, result in continued intense price competition, or
make our products and services or technologies obsolete or noncompetitive. To be
competitive, we will be required to continue to invest significant resources in
research and development, and in sales and marketing.
Intellectual Property. 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.
International Operations. Sales outside the United States accounted for
approximately 24%, 17% and 15% of our revenues in 1998, 1999 and 2000,
respectively. We intend to expand our international operations, third-party
distributor relationships and hiring of additional sales representatives, each
of which involves a significant investment of time and resources. We may not be
successful in expanding our international operations. In addition, we have only
limited experience in developing localized versions of our products and cannot
assure you that we will 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, could make
our software less price-competitive, and could have a material adverse effect
upon our business, results of operations, and financial condition.
Product Liability. 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 cannot assure you that we will not 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, any of which could have a
material adverse effect upon our business and operating results.
Common Stock Price Volatility. 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:
o Actual or anticipated fluctuations in our operating results
o Announcements of technological innovations
o New products or new contracts by us or our competitors
o Sales of common stock by management
o Sales of significant amounts of common stock into the market
o Developments with respect to proprietary rights
o Conditions and trends in the software and other technology industries
o Adoption of new accounting standards affecting the software industry
o Changes in financial estimates by securities analysts and others
o General market conditions
o Other factors that may be unrelated to us or our performance
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stock of technology companies. These broad market fluctuations
may adversely affect the market price of our common stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
such company. Such litigation may be brought against us in the future. Such
litigation, regardless of its outcome, would result in substantial costs and a
diversion of management's attention and resources that could have a material
adverse effect upon our business and results of operations.
Beneficial Ownership. Holders of our Series A Preferred Stock and members of
our Board of Directors and our executive officers, together with members of
their families and entities that may be deemed affiliates of, or related to,
such persons or entities, beneficially own, as of March 14, 2000, approximately
26% of the outstanding shares of our voting stock. Accordingly, these
stockholders could, if acting in concert, be able to substantially influence the
election of all members of our Board of Directors and determine the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions.
Change In Company Control. 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. 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.
ITEM 2. PROPERTIES
Our principal administrative, sales and marketing, research and development
and support facilities consist of approximately 39,000 square feet of office
space in Colorado Springs, Colorado. We occupy these premises under a lease
expiring March 2007. In support of our field sales and support organization, we
also lease several facilities in the United States and an office in the United
Kingdom and Brazil.
ITEM 3. LEGAL PROCEEDINGS
We are currently not a party to any material litigation, and are currently
not aware of any pending or threatened litigation that we believe would or is
reasonably likely to have a material adverse effect upon our business, operating
results, or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is traded over-the-counter on the Nasdaq Stock Market's
National Market under the symbol "OPTK." We commenced our initial public
offering of Common Stock on July 25, 1996 at a price of $6 per share. Prior to
such date, there was no public market for the Common Stock. The following table
sets forth the high and low closing sale prices for the Common Stock for the
periods indicated, as reported on the Nasdaq Stock Market's National Market.
Quarter Ended HIGH LOW
- ------------- ---- ---
December 31, 2000............................... $ 3.06 $ .72
September 30, 2000.............................. $ 6.06 $ 3.50
June 30, 2000................................... $ 22.38 $ 5.06
March 31, 2000.................................. $ 43.13 $ 13.69
December 31, 1999............................... $ 16.50 $ 3.75
September 30, 1999.............................. $ 5.75 $ 3.31
June 30, 1999................................... $ 6.50 $ 3.13
March 31, 1999.................................. $ 6.00 $ 3.38
As of March 16, 2000 we estimate there were approximately 103 holders of
record of our Common Stock. This does not include the number of persons whose
stock is in nominee or "street" name accounts through brokers.
We have not paid any cash dividends on our capital stock since our
inception, and do not expect to pay cash dividends on our Common Stock in the
foreseeable future. Our bank line of credit currently prohibits the payment of
cash dividends without the consent of the bank.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 7. The consolidated statement of
operations data for each of the three years in the period ended December 31,
2000 and the consolidated balance sheet data at December 31, 2000 and 1999, are
derived from the audited consolidated financial statements included in Item
14(a). The consolidated statement of operations data for the two years ended
December 31, 1997 and 1996, and the consolidated balance sheet data at December
31, 1996, 1997 and 1998, are derived from audited consolidated financial
statements not included in this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------
Consolidated Statement of Operations: (in thousands, except per share amounts)
Revenues:
Licenses........................ $ 5,241 $ 11,457 $ 11,128 $ 15,912 $ 13,406
Maintenance and other........... 10,589 10,308 7,419 5,751 3,297
------ ------ ------ ------ ------
Total revenues................ 15,830 21,765 18,547 21,663 16,703
------ ------ ------ ------ ------
Cost of revenues:
Licenses........................ 562 821 434 737 585
Maintenance and other........... 4,685 3,947 3,274 2,845 1,930
------ ------ ------ ------ ------
Total cost of revenues........ 5,247 4,768 3,708 3,582 2,515
------ ------ ------ ------ ------
Gross profit...................... 10,583 16,997 14,839 18,081 14,188
------ ------ ------ ------ ------
Operating expenses:
Sales and marketing............. 13,672 10,963 12,972 10,666 7,332
Research and development........ 8,434 5,635 5,332 4,978 4,624
General and administrative...... 2,392 1,997 2,714 1,829 1,367
Restructuring and other
non-recurring charges ......... -- -- 425 885 --
------ ------ ------ ------ ------
Total operating expenses...... 24,498 18,595 21,443 18,358 13,323
------ ------ ------ ------ ------
Income (loss) from operations..... (13,915) (1,598) (6,604) (277) 865
Other income, net................. 852 300 218 442 229
------ ------ ------ ------ ------
Income (loss) before income tax
expense (benefit)................ (13,063) (1,298) (6,386) 165 1,094
Income tax expense (benefit)...... 2,978 (454) (1,276) -- (813)
------ ------ ------ ------ ------
Net income (loss)................. (16,041) (844) (5,110) 165 1,907
Preferred stock dividend.......... (1,037) -- -- -- --
Accretion of preferred stock and
beneficial conversion feature.... (5,027) -- -- -- --
------ ------ ------ ------ ------
Net loss applicable to common
stockholders..................... $(22,105) $ (844) $(5,110) $ 165 $ 1,907
====== ====== ====== ====== ======
Basic net income (loss) per common
share ........................... $ (2.78) $ (0.12) $ (0.73) $ 0.02 $ 0.45
Weighted average number of common
shares outstanding............... 7,948 7,192 6,989 6,782 4,246
Diluted net income (loss) per
common share .................... $ (2.78) $ (0.12) $ (0.73) $ 0.02 $ 0.30
Diluted weighted average number of
common shares outstanding........ 7,948 7,192 6,989 7,661 6,349
DECEMBER 31,
-----------------------------------------
2000 1999 1998 1997 1996
------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: (in thousands)
Cash, cash equivalents and
short-term investments........... $ 11,704 $ 7,182 $ 7,811 $ 8,600 $ 11,499
Working capital................... 8,512 5,737 6,176 12,747 13,817
Total assets...................... 18,524 18,097 18,537 21,886 20,258
Long-term debt, excluding current
portion.......................... -- -- -- -- 136
Redeemable convertible preferred
stock............................ 10,849 -- -- -- --
Total stockholders' equity ....... 769 11,356 11,820 16,492 15,849
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition and results
of operations includes a number of forward looking statements which reflect our
current views with respect to future events and financial performance. These
forward looking statements are subject to certain risks and uncertainties,
including those discussed below and those under the caption "Business Risks" in
Item 1, that could cause actual results to differ materially from historical
results or those anticipated.
OVERVIEW
Optika Inc. is a leading provider of imaging, workflow and collaborative
commerce software. Optika's Acorde family of Internet software solutions,
including Acorde Context(TM), Process(TM) and Resolve(TM), allow companies to
effectively and cost-efficiently manage paper-intensive or complex business
processes and transactions. Acorde provides the ability to access and store
multiple formats of business content, both digital and non-digital; automate
processes across the organization and externally with partners and customers;
and enable online collaboration around these paper-intensive or complex
processes in real and near time. A three-tier, scalable and extensible solution,
Acorde delivers a variety of client desktops, including Windows, web and the
ability to integrate with line-of-business and other third-party applications.
The Acorde product family allows organizations to improve processing efficiency,
reduce operating costs and increase customer and trading partner service and
satisfaction. The Acorde product is an evolution of Optika's eMedia product.
The license of our software products is typically an executive-level
decision by prospective end-users and generally requires us and our 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 2000, approximately 72% of our
license revenues were derived from our APs and the remaining license fees were
derived from direct sales. However, no individual customer accounted for more
than 10% of our total revenues. For the years ended December 31, 1998, 1999 and
2000, we generated approximately 24%, 17% and 15%, 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
1999 and 2000, approximately 53% and 33%, respectively, of our total revenues
were derived from software licenses and approximately 33% and 47%, respectively,
of our total revenues were derived from maintenance agreements. For 1999 and
2000, other revenues, which are comprised of training, consulting and
implementation services, and third-party hardware and software products,
accounted for 14% and 20%, respectively, of our total revenues.
During February 2001, we strategically reduced our workforce by
approximately 25%. This reduction in force resulted in approximately $1.0
million of restructuring charges to earnings in the first quarter of 2001,
primarily to cover severance and severance related costs. We will realize
savings during fiscal year 2001 from the reduction in salary costs, office space
and related overhead expenses as a result of the restructuring plan. Further, we
anticipate cash outflows during fiscal year 2001 will be reduced from the
related expense reductions.
We earn our revenue primarily from licenses and fees. Our revenue is
recognized in accordance with Statement of Position 97-2 (SOP 97-2), as amended.
We will generally recognize license revenue upon shipment when a non-cancelable
license agreement has been signed or a purchase order has been received,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. Where applicable, fees from multiple element arrangements are
unbundled and recorded as revenue as the elements are delivered to the extent
that vendor specific objective evidence, or VSOE, of fair value exists for the
delivered and undelivered elements. Maintenance revenues are deferred and
recognized ratably over the maintenance period, which is generally one year.
Other revenues are recognized as services are performed. We adopted SOP 98-9
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions", which amended SOP 97-2 on January 1, 2000. SOP 98-9 requires the
"residual approach" for multiple element arrangements when VSOE exists for the
undelivered elements such as maintenance but is not known for the delivered
elements. The adoption of SOP 98-9 had no material impact on our financial
position or results of operations.
We generally do not grant rights to return products, except for defects in
the performance of the products relative to specifications and pursuant to
standard industry shrink-wrapped license agreements which provide for 30-day
rights of return if an end-user does not accept the terms of the shrink-wrapped
license agreements. Our software license agreements generally do not provide
price adjustments or rotation rights. We generally include a 90-day limited
warranty with the software license, which entitles the end-user to corrections
for documented program errors.
Based on our internal research and development process, costs incurred
between the establishment of technological feasibility and general release of
the software products are immaterial and therefore have not been capitalized in
accordance with Statement of Financial Accounting Standards No. 86. All internal
research and development costs have been expensed as incurred.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 TO DECEMBER 31, 1999
Revenues
Total revenues decreased 27% from $21.8 million for the year ended December
31, 1999 to $15.8 million for the year ended December 31, 2000.
Licenses. License revenues decreased 54% from $11.5 million for the year
ended December 31, 1999 to $5.2 million for the year ended December 31, 2000,
representing approximately 53% and 33%, respectively, of total revenues in both
periods. The decrease in license revenue is attributable to a shift in focus
from our core technologies to the addition of collaborative tools which caused
us to lose momentum in our traditional core product markets of Acorde Context
and Acorde Process. During the end of 2000 and into 2001 we have recognized the
loss of momentum and have increased our focus on our customers and APs in
delivering a clearer product message that focuses on the strengths of our legacy
applications complimented by our collaborative product offering. License
revenues generated outside of the United States increased from approximately 19%
of license revenues for the year ended December 31, 1999 to approximately 22% of
license revenues for the year ended December 31, 2000. This increase is
attributable to decreased United States license revenue in 2000.
Maintenance and Other. Maintenance revenues, exclusive of other revenues,
increased 5%, from approximately $7.1 million during the year ended December 31,
1999, to $7.5 million for the year ended December 31, 2000, representing
approximately 33% of total revenues for the year ended December 31, 1999 and 47%
of total revenues for the year ended December 31, 2000. This absolute dollar
increase was primarily a result of an increase in the number of installed
systems. Other revenue, consisting primarily of consulting services and
training, represented 14% and 20% of total revenue for the years ended December
31, 1999 and 2000, respectively. The increase in other revenues as a percentage
of total revenues was primarily due to other revenues remaining stable while
total license revenues decreased in fiscal year 2000.
Cost of Revenues
Licenses. Cost of licenses consist primarily of royalty payments to
third-party software vendors and costs of product media, duplication, packaging
and fulfillment. Cost of licenses decreased from $821,000, or 7% of license
revenues, for the year ended December 31, 1999, to $562,000, or 11% of license
revenues, for the year ended December 31, 2000, primarily as a result of the
decreased license revenue during the period.
Maintenance and Other. Cost of maintenance and other consists of the direct
and indirect costs of providing software maintenance and support, training and
consulting services, to our APs and end-users. Cost of maintenance and other
increased from $3.9 million, or 38% of maintenance and other revenues, for the
year ended December 31, 1999, to $4.7 million, or 44% of maintenance and other
revenues, for the year ended December 31, 2000. The increase as a percentage of
maintenance and other revenues is primarily a result of the increase in
resources to service our increased maintenance base.
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 from $11.0 million, or 50% of total revenues, for the year
ended December 31, 1999, to $13.7 million, or 86% of total revenues, for the
year ended December 31, 2000. This increase in sales and marketing is primarily
attributable to the increase in our direct sales organization throughout fiscal
year 2000. We anticipate that sales and marketing expenses will decrease in
absolute dollars in future quarters due to decreased headcount.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, and the cost of facilities and equipment. Research and development
expenses increased in absolute dollars from $5.6 million, or 26% of total
revenues, for the year ended December 31, 1999, to $8.4 million, or 53% of total
revenues, for the year ended December 31, 2000. The increase in research and
development expenses in 2000 was used to fund the development of the Optika
Acorde product family and product enhancements to our existing product line. We
expect our research and development costs will decrease in absolute dollars in
future quarters due to decreased headcount.
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 from $2.0 million, or 9% of total revenues,
for the year ended December 31, 1999, to $2.4 million, or 15% of total revenues,
for the year ended December 31, 2000. The increase was primarily due to
increased depreciation and lease costs supporting the increased headcount in
2000. General and administrative expenses are expected to decrease in future
quarters due to decreased headcount.
Other income, net. Other income, net consists primarily of interest due to
our investing activities offset by interest expense. We recognized other income,
net of $300,000 during the year ended December 31, 1999, compared to other
income, net of $852,000 during the year ended December 31, 2000.
Income Tax Expense. In 2000, we recorded a full valuation allowance against
our carryforward tax benefits to the extent that we believe that it is more
likely than not all of such benefits will not be realized in the near term. Our
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular we considered both our historical
results and our projections of profitability for only reasonably foreseeable
future periods. Our realization of the recorded net deferred tax assets is
dependent on future taxable income and therefore, we cannot assure you that such
benefits will be realized.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
Revenues
Total revenues increased 17% from $18.5 million for the year ended December
31, 1998 to $21.8 million for the year ended December 31, 1999.
Licenses. License revenues increased 3% from $11.1 million for the year
ended December 31, 1998 to $11.5 million for the year ended December 31, 1999,
representing approximately 60% and 53%, respectively of total revenues in both
periods. Although the year over year increase was minimal, the change in
composition of license revenue is significant. For the year ended December 31,
1998 licenses of our Optika eMedia software generated 18% of our license
revenue. For the year ended December 31, 1999 licenses of our Optika eMedia
software generated 72% of our total license revenue. Management believes that
the increase is primarily a result of continued customer acceptance of Optika
eMedia, which became commercially available in late September 1998. Licenses of
our Filepower software product to new customers ceased in March 2000. License
revenues generated outside of the United States decreased from approximately 32%
of license revenues for the year ended December 31, 1998 to approximately 19% of
license revenues for the year ended December 31, 1999. This decrease is
attributable to the closure of several Asian offices in 1998.
Maintenance and Other. Maintenance revenues, exclusive of other revenues,
increased 36%, from approximately $5.2 million during the year ended December
31, 1998, to $7.1 million for the year ended December 31, 1999, representing
approximately 28% of total revenues for the year ended December 31, 1998 and 33%
of total revenues for the year ended December 31, 1999. This increase was
primarily a result of an increase in the number of installed systems. Other
revenue, consisting primarily of consulting services and training, represented
12% and 14% of total revenue for the years ended December 31, 1998 and 1999,
respectively. The increase in other revenues as a percentage of total revenues
was primarily due to increased consulting, project management and implementation
services resulting from our direct sales effort which began in April 1998.
Cost of Revenues
Licenses. Cost of licenses consist primarily of royalty payments to
third-party software vendors and costs of product media, duplication, packaging
and fulfillment. Cost of licenses increased from $434,000, or 4% of license
revenues, for the year ended December 31, 1998, to $821,000, or 7% of license
revenues, for the year ended December 31, 1999, primarily as a result of the
increased license revenue during the period and increased amount of third party
components sold by our direct sales staff.
Maintenance and Other. Cost of maintenance and other consists of the direct
and indirect costs of providing software maintenance and support, training and
consulting services, to our APs and end-users. Cost of maintenance and other
increased from $3.3 million, or 44% of maintenance and other revenues, for the
year ended December 31, 1998, to $3.9 million, or 38% of maintenance and other
revenues, for the year ended December 31, 1999. The decrease as a percentage of
maintenance and other revenues is primarily a result of the leverage received
from utilizing existing resources to service our increased maintenance base.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries; commissions and other related expenses for sales and marketing
personnel; marketing; advertising; and promotional expenses. Sales and marketing
expenses decreased from $13.0 million, or 70% of total revenues, for the year
ended December 31, 1998, to $11.0 million, or 50% of total revenues, for the
year ended December 31, 1999. This decrease in sales and marketing is primarily
attributable to the closure of several Asian sales offices in late 1998.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, and of the cost of facilities and equipment. Research and development
expenses increased in absolute dollars from $5.3 million, or 29% of total
revenues, for the year ended December 31, 1998, to $5.6 million, or 26% of total
revenues, for the year ended December 31, 1999.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel, and outside professional fees. General and
administrative expenses decreased from $2.7 million, or 15% of total revenues,
for the year ended December 31, 1998, to $2.0 million, or 9% of total revenues,
for the year ended December 31, 1999. The decrease was primarily due to writing
off or reserving Asian accounts receivable during 1998.
Restructuring charges and other non-recurring charges. Due to the economic
status and instability in the Asian markets, we made the decision to shut down
two of our four Asian offices in the third quarter of 1998, thus reducing future
operational risks and cash outflows into the region. This restructuring resulted
in a $425,000 one-time write-off including $125,000 of goodwill, $200,000 of
severance costs and $100,000 of lease termination and other costs. All actions
relating to the restructuring plan were completed during 1998 and no
restructuring accruals remain as all cash payments had been made as of December
31, 1998.
Other income, net. Other income, net consists primarily of interest due to
our investing activities offset by interest expense on our capitalized lease
obligations, and other debt. We incurred other income, net of $218,000 during
the year ended December 31, 1998, compared to other income, net of $300,000
during the year ended December 31, 1999. Other income for 1998 and 1999 was
primarily a result of interest income derived from our investment of our initial
public offering proceeds offset by foreign currency transaction and translation
losses.
Income Tax Benefit. During 1999 we recorded a partial valuation allowance
against our carryforward tax benefits to the extent that we believe that it is
more likely than not all of such benefits will not be realized in the near term.
Our assessment of this valuation allowance was made using all available
evidence, both positive and negative. In particular we considered both our
historical results and our projections of profitability for only reasonably
foreseeable future periods. Our realization of the recorded net deferred tax
assets is dependent on future taxable income and therefore, we cannot assure you
that such benefits will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, including short-term investments, at December 31,
2000 was $11.7 million, increasing by approximately $4.5 million from December
31, 1999. This increase is due to the proceeds from the preferred stock
transaction offset by our net loss and capital expenditures associated with
additional computer equipment.
During February 2001, we strategically reduced our workforce by
approximately 40 employees. This reduction in force resulted in approximately
$1.0 million of restructuring charges to earnings in the first quarter of 2001,
primarily to cover severance and severance related costs. We will realize
savings during fiscal year 2001 from the reduction in salary costs, office space
and related overhead expenses as a result of the restructuring plan. Further, we
anticipate cash outflows during fiscal year 2001 will be reduced from the
related expense reductions.
For the year ended December 31, 1999, net cash used in operating activities
was $365,000 compared to net cash used in operating activities of $10.5 million
for the year ended December 31, 2000. Cash used in operating activities for the
year ended December 31, 2000 is due to the net loss.
Cash used in investing activities was $3.6 million for the year ended
December 31, 1999 compared to cash used of $6.8 million for the year ended
December 31, 2000. The cash used in investing activities is primarily due to the
purchase of marketable securities and capital expenditures during 2000.
Cash provided by financing activities was $484,000 for the year ended
December 31, 1999. Cash provided by financing activities was $16.2 million for
the year ended December 31, 2000. Cash provided by financing activities resulted
primarily from proceeds from the private placement of preferred stock and
warrants for approximately $14.7 million of proceeds, net of issuance costs.
At December 31, 2000, our principal sources of liquidity included cash and
short-term investments of $11.7 million. In addition, we have a secured credit
facility for up to $3.0 million, bearing interest at the bank's prime rate. As
of December 31, 2000, we had $2.8 million available for borrowing and no other
debt outstanding.
We believe that our current cash and short-term investments, together with
anticipated cash flow from operations and our bank credit facility, will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. SFAS No. 133,
which has been amended by SFAS 137, is effective for our fiscal year ending
December 31, 2001. The adoption of SFAS No. 133 had no significant impact on the
our financial position, results of operations, or cash flows.
In December 1999, the SEC released Staff Accounting Bulletin No. 101 ("SAB
101") "Revenue Recognition in Financial Statements", which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101B, which delayed the
implementation date of SAB 101 for registrants with fiscal years beginning
between December 16, 1999 and March 15, 2000. The adoption of SAB 101 had no
significant impact on our financial position, results of operations, or cash
flows.
In March 2000, the FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation-an Interpretation of APB
Opinion No. 25 ("Fin 44"). This opinion provides guidance on the accounting for
certain stock option transactions and subsequent amendments to stock option
transactions. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
To the extent that FIN 44 covers events occurring during the period from
December 15, 1998 and January 12, 2000, but before July 1, 2000, the effect of
applying this Interpretation are to be recognized on a prospective basis. The
adoption of FIN 44 had no significant impact on our financial position, results
of operations, or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 2000 we had $9.5 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 United States government and agency bonds of durations ranging from
one to four years. The market value of these bonds is subject to interest rate
risk, and could decline in value if interest rates increase. Any material change
in the interest rates would have a material change in the market value of our
debt instruments. A hypothetical increase or decrease in market interest rates
by 10% from December 31, 2000 would cause the fair market value of these
short-term investments to change by an insignificant amount.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a) for an index to the financial statements and supplementary
financial information that is attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We engaged KPMG LLP as independent accountants on April 1, 1999 replacing
PricewaterhouseCoopers LLP. There were no disagreements or reportable events
with PricewaterhouseCoopers LLP.
PART III
Certain information required by Part III is omitted from this Annual Report
on Form 10-K in that the Registrant will file a definitive proxy statement
pursuant to Regulation 14A no later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
specified below are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The information required by this item relating to our directors and nominees
and disclosure relating to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is included under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in our
Proxy Statement for the 2001 Annual Meeting of Stockholders and is incorporated
herein by reference. The information required by this item relating to the
Company's executive officers and key employees is included under the caption
"Executive Officers" in Part I of this Report on Form 10-K and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the caption
"Executive Compensation and Related Information" in our Proxy Statement for the
2001 Annual Meeting of the Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under the caption
"Ownership of Securities" in our Proxy Statement for the 2001 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the caption "Certain
Transactions" in our Proxy Statement for the 2001 Annual Meeting of Stockholders
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
Page
1. Financial Statements:
Report of Independent Auditors KPMG LLP..............................24
Report of Independent Accountants PricewaterhouseCoopers LLP.........25
Consolidated Balance Sheets as of December 31, 2000 and 1999.........26
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2000...............................27
Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss) for each of the three years in the period ended
December 31, 2000...................................................28
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2000...............................29
Notes to Consolidated Financial Statements...........................30
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the three years
in the period ended December 31, 2000...............................41
Schedules not listed above have been omitted because they are not
required, not applicable, or the required information is shown in the
financial statements and related notes thereto.
3. Exhibits - See Exhibit Index on page 44
(b) Reports on Form 8-K
None
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Optika Inc.:
We have audited the accompanying consolidated balance sheets of Optika Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Optika Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Denver, Colorado
January 19, 2001, except as to note 11
which is as of February 6, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Optika Inc.:
In our opinion, the consolidated statements of operations, of stockholders'
equity and comprehensive loss and of cash flows present fairly, in all material
respects, the results of operations and cash flows of Optika Inc. and its
subsidiaries for the year ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
January 25, 1999
Broomfield, Colorado
OPTIKA INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
DECEMBER 31, DECEMBER 31,
2000 1999
------- -------
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,192 $ 3,359
Short-term investments............................ 9,512 3,823
Accounts receivable, net of allowance for doubtful
accounts of $86 and $90 at December 31, 2000 and
1999, respectively............................... 2,913 4,741
Other current assets.............................. 801 555
------- --------
Total current assets .......................... 15,418 12,478
------- -------
Property and equipment, net........................ 2,625 2,618
Deferred tax asset, net............................ -- 2,946
Other assets....................................... 481 55
------- -------
$18,524 $18,097
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 1,052 $ 869
Accrued expenses.................................. 1,043 1,135
Accrued compensation expense...................... 909 910
Deferred revenue ................................. 3,902 3,827
------- -------
Total current liabilities ..................... 6,906 6,741
------- -------
Series A redeemable convertible preferred stock,
$.001 par value; 731,851 shares authorized, issued
and outstanding at December 31, 2000 (liquidation
preference of $16,037 at December 31, 2000) 10,849 --
------- -------
Commitments and contingencies (Notes 4, 7 and 10)
Stockholders' equity:
Common stock; $.001 par value; 25,000,000 shares
authorized; 8,107,149 and 7,307,678 shares
issued and outstanding at December 31, 2000 and
1999, respectively............................... 8 7
Additional paid-in capital........................ 23,425 18,101
Accumulated deficit............................... (22,689) (6,648)
Accumulated other comprehensive income (loss)..... 25 (104)
------- --------
Total stockholders' equity .................... 769 11,356
------- -------
$18,524 $18,097
======= =======
The accompanying notes are an integral part of these consolidated finanical
statements.
OPTIKA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Revenues:
Licenses................................ $ 5,241 $11,457 $11,128
Maintenance and other................... 10,589 10,308 7,419
------- ------- -------
Total revenues........................ 15,830 21,765 18,547
------- ------- -------
Cost of revenues:
Licenses................................ 562 821 434
Maintenance and other................... 4,685 3,947 3,274
------- ------- -------
Total cost of revenues................ 5,247 4,768 3,708
------- ------- -------
Gross profit............................. 10,583 16,997 14,839
------- ------- -------
Operating expenses:
Sales and marketing..................... 13,672 10,963 12,972
Research and development................ 8,434 5,635 5,332
General and administrative.............. 2,392 1,997 2,714
Restructuring and other non-recurring
charges................................ -- -- 425
------- ------- -------
Total operating expenses............. 24,498 18,595 21,443
------- ------- -------
Loss from operations..................... (13,915) (1,598) (6,604)
Other income, net........................ 852 300 218
------- ------- -------
Loss before income tax expense (benefit) (13,063) (1,298) (6,386)
Income tax expense (benefit)............. 2,978 (454) (1,276)
------- ------- -------
Net loss................................. (16,041) (844) (5,110)
Preferred stock dividend ................ (1,037) -- --
Accretion of preferred stock and
beneficial conversion feature .......... (5,027) -- --
------- ------- -------
Net loss applicable to common
stockholders............................ $(22,105) $ (844) $(5,110)
======= ======= =======
Basic and diluted net loss per common
share................................... $ (2.78) $ (0.12) $ (0.73)
Basic and diluted weighted average number
of common shares outstanding ........... 7,948 7,192 6,989
The accompanying notes are an integral part of these consolidated financial
statements.
OPTIKA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts)
Accumulated
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Capital Deficit Income (Loss) Equity
--------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 1997..... 6,890,724 $ 7 $ 17,179 $ (694) $ -- $ 16,492
Common stock issued upon exercise
of stock options................ 151,961 -- 266 -- -- 266
Common stock issued pursuant to
employee stock purchase plan.... 71,888 -- 172 -- -- 172
Net loss......................... (5,110) (5,110)
--------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 1998..... 7,114,573 7 17,617 (5,804) -- 11,820
Common stock issued upon exercise
of stock options................ 111,316 -- 301 -- -- 301
Common stock issued pursuant to
employee stock purchase plan.... 67,923 -- 183 -- -- 183
Common stock issued upon exercise
of warrants..................... 13,866 -- -- -- -- --
Comprehensive loss:
Unrealized loss on investments.. -- -- -- -- (104)
Net loss........................ -- -- -- (844) --
Total comprehensive loss......... (948)
--------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 1999..... 7,307,678 7 18,101 (6,648) (104) 11,356
Common stock issued upon exercise
of stock options................ 760,042 1 1,357 -- -- 1,358
Common stock issued pursuant to
employee stock purchase plan.... 39,429 -- 124 -- -- 124
Issuance of warrants in
connection with preferred stock
offering........................ -- -- 5,123 -- -- 5,123
Issuance of common stock options
for preferred stock offering
costs........................... -- -- 376 -- -- 376
Accretion of preferred stock..... -- -- (619) -- -- (619)
Preferred stock dividends........ -- -- (1,037) -- -- (1,037)
Comprehensive loss:
Unrealized gain on investments.. -- -- -- -- 129
Net loss........................ -- -- -- (16,041) --
Total comprehensive loss......... (15,912)
--------- ------ ---------- ----------- ------------- -------------
Balances at December 31, 2000 8,107,149 $ 8 $ 23,425 $ (22,,689) $ 25 $ 769
========= ====== ========== =========== ============= =============
The accompanying notes are an integral part of these consolidated financial statements
OPTIKA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
2000 1999 1998
------ ------ ------
Cash Flows From Operating Activities:
Net loss.................................$ (16,041) $ (844) $ (5,110)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization........... 1,230 1,005 1,018
Loss on disposal of assets.............. 23 157 75
Deferred tax expense (benefit).......... 2,946 (508) (1,403)
Changes in assets and liabilities:
Accounts receivable, net.............. 1,828 (170) 3,984
Other assets.......................... (672) (29) 204
Accounts payable...................... 183 159 (32)
Accrued expenses and accrued
compensation expense................. (93) (607) 460
Deferred revenue...................... 75 472 910
-------- -------- --------
Net cash provided (used) by operating
activities.......................... (10,521) (365) 106
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures..................... (1,260) (644) (1,318)
Sale (purchase) of short-term investments (5,560) (2,927) 4,398
-------- -------- --------
Net cash provided (used) by investing
activities.......................... (6,820) (3,571) 3,080
-------- -------- --------
Cash Flows from Financing Activities:
Principal payments on long-term debt..... -- -- (15)
Net proceeds from issuance of redeemable
convertible preferred stock and warrants 14,692 -- --
Proceeds from issuance of common stock... 1,482 484 438
-------- -------- --------
Net cash provided by financing
activities.......................... 16,174 484 423
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. (1,167) (3,452) 3,609
Cash and cash equivalents at beginning of
period.................................. 3,359 6,811 3,202
-------- -------- --------
Cash and cash equivalents at end of
period..................................$ 2,192 $ 3,359 $ 6,811
======== ======== ========
Supplemental Disclosure of Cash Flow
Information
Interest paid............................$ -- $ -- $ --
Income taxes paid........................$ 30 $ 54 $ 127
The accompanying notes are in integral part of these consolidated financial
statements.
OPTIKA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Optika Inc. (formerly Optika Imaging Systems, Inc.), a Delaware
corporation, and its subsidiaries ("Optika" or the "Company") was formed in
1988 and is a provider of imaging, workflow and collaborative commerce
software. By leveraging the technology of the Internet, the Company's
software bridges the gap between paper and electronic commerce across the
enterprise and throughout supply chains. The Company licenses its software
under license agreements and provides services including maintenance,
training and implementation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Optika Inc. and its wholly owned subsidiaries Optika Imaging Systems Europe,
Ltd., Optika Information Systems, LTDA, Optika Imaging Systems, GmbH and Optika
Asia, Inc. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company's revenue is recognized according to American Institute of
Certified Public Accountants Statements of Position 97-2, as amended, and 98-9,
relating to software revenue recognition. License revenue is recognized when a
non-cancelable license agreement has been signed or a purchase order has been
received, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Where applicable, fees from multiple element
arrangements are unbundled and recorded as revenue as the elements are delivered
to the extent that vendor specific objective evidence of fair value exists for
each element. Maintenance revenues are deferred and recognized ratably over the
maintenance period, which is generally one year. Other revenues are recognized
as services are performed. The Company generally does not grant rights to return
products, except for defects in the performance of the products relative to
specifications and pursuant to standard industry shrink-wrapped license
agreements, which provide for 30-day rights of return if an end-user does not
accept the terms of the software license, nor does it provide provisions for
price adjustments or stock rotation rights.
Cash Equivalents and Short-term Investments
The Company classifies short-term investments with original maturities of
three months or less as cash equivalents. Short-term investments consist of U.S.
Government debt securities with maturity periods from one to four years. Such
short-term investments are classified as available-for-sale as defined by
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) and accordingly are
recorded at fair value. Increases or decreases in the fair value of investments
classified as available-for-sale are recorded in comprehensive income (loss),
net of the related tax effect. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification bases.
The unrealized gain on short-term investments was $25,000 as of December 31,
2000 and the unrealized loss on short-term investments was $104,000 as of
December 31, 1999. As of December 31, 2000, the carrying value of short-term
investments approximated fair value.
Depreciation and Amortization
Computer equipment, office equipment and furniture are recorded at cost and
depreciated using the straight-line method over estimated useful lives ranging
from three to five years. Leasehold improvements are amortized over the shorter
of the estimated useful lives of the improvements or the lease terms.
Software Development Costs
All internal research and development costs are expensed as incurred.
Statement of Financial Accounting Standards No. 86 (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established. To date, the period between achieving technological
feasibility and the general availability of such software has been short.
Consequently, software development costs qualifying for capitalization have been
insignificant and therefore, the Company has not capitalized any internal
software development costs.
Foreign Currency Translation
The U.S. dollar is the functional currency of the consolidated corporation.
For the Company's foreign subsidiaries, monetary assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the balance
sheet date and non-monetary assets are translated at historical rates. Results
of operations are translated using the average exchange rates during the period.
Foreign currency translation and transaction gains or losses were not material
in any period presented.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as well as the reported amounts of revenue
and expenses. Significant estimates have been made by management in several
areas, including the collectibility of accounts receivable and the ability to
realize deferred tax benefits. Actual results could differ from these estimates,
making it reasonably possible that a change in these estimates could occur in
the near term.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments including cash
and trade receivables and payables, approximate their fair values.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". This statement requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Stock Compensation Plans
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000, to
account for its fixed plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
Net Income (Loss) Per Common Share
Basic and diluted earnings per share (EPS) is computed by dividing net
income applicable to common stockholders by the weighted average number of
shares outstanding during the period. Net income applicable to common
stockholders is computed by increasing the net loss by the preferred stock
dividend, the accretion of preferred stock and the beneficial conversion
feature. Diluted EPS excludes 2,220,000, 2,329,000 and 1,872,000 options and
warrants to purchase common stock in 2000, 1999 and 1998, respectively, and
731,851 shares of redeemable convertible preferred stock in 2000 because of
their antidilutive effect on net loss per share.
The following is the reconciliation of the numerators and denominators of
the basic and diluted EPS computations (in thousands, except per share data):
Year Ended
December 31,
-------------------------
2000 1999 1998
---- ---- ----
Earnings per share:
Net loss applicable to common stockholders.. $ (22,105) $ (844) $ (5,110)
Weighted average common shares outstanding.. 7,948 7,192 6,989
Net loss per common share................... $ (2.78) $ (0.12) $ (0.73)
Effect of dilutive securities:
Options and warrants........................ -- -- --
Diluted weighted average common shares
outstanding................................ 7,948 7,192 6,989
Diluted net loss per common share $ (2.78) $ (0.12) $ (0.73)
Concentration
The Company has historically relied on a limited number of products to
generate revenues and has concentrated risk related to the continued and future
market acceptance of such products. The Company currently has no major customers
accounting for more than 10% of its consolidated revenues; however, the
Company's accounts receivable are heavily concentrated with resellers of the
Company's products. At December 31, 2000 no individual customer receivable
accounted for greater than 10% of the accounts receivable balance. Receivables
from end users are not concentrated in any particular industry.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31,
---------------
2000 1999
---- ----
Computer and office equipment.............. $ 4,734 $ 4,175
Leasehold improvements..................... 1,074 965
Furniture, fixtures and other.............. 1,055 648
--------- ---------
6,863 5,788
Less accumulated depreciation and
amortization.............................. (4,238) (3,170)
--------- ---------
$ 2,625 $ 2,618
========= =========
3. LINE OF CREDIT
The Company has a line of credit expiring in October 2001, whereby it is
able to draw up to $3.0 million bearing interest at the bank's prime rate. At
December 31, 2000, $2.8 million was available for borrowing thereunder. Pursuant
to the terms of the credit facility, any loans under the facility are secured by
all of the Company's assets, with the exception of intellectual property and
would be subject to certain covenants. The Company has no other debt outstanding
at December 31, 2000.
4. LEASE OBLIGATIONS
The Company has non-cancelable operating lease arrangements for office space
and certain office equipment. Future minimum annual operating lease payments for
the years ending December 31 are as follows (in thousands):
Operating
Lease
Year ending December 31: Obligations
-----------
2001 ............................... 936
2002 ............................... 794
2003 ............................... 726
2004 ............................... 741
2005 ............................... 681
Thereafter.......................... 873
---------
$ 4,751
=========
Rent expense related to these and other operating leases approximated
$1,423,000, $1,069,000, and $1,103,000 for the years ended December 31, 2000,
1999 and 1998, respectively.
5. INCOME TAXES
The Company's income tax expense (benefit) is comprised of the following (in
thousands):
Year Ended
December 31,
-------------------------
2000 1999 1998
---- ---- ----
Current:
Federal........................ $ -- $ -- $ --
State.......................... 2 -- --
Foreign........................ 30 54 127
Deferred:
Federal........................ 2,760 (409) (1,131)
State.......................... 186 (99) (272)
-------- -------- --------
Total expense (benefit) from
income taxes.................... $ 2,978 $ (454) $ (1,276)
======== ======== ========
The Company's net deferred tax assets are comprised of the tax effects of
the following (in thousands):
December 31, December 31,
2000 1999
---- ----
DEFERRED TAX ASSETS
Net operating loss carryforwards.... $ 7,956 $ 3,022
Depreciation and amortization....... 73 122
Tax credit carryforwards ........... 1,393 1,003
Accrued expenses.................... 227 319
--------- ---------
Deferred tax asset before valuation
allowance 9,649 4,466
Valuation allowance................. (9,649) (1,520)
--------- ---------
Net deferred tax asset.............. $ -- $ 2,946
========= =========
The benefit from income taxes differs from the amount computed by applying
the effective U.S. statutory rates to the loss before income taxes as follows
(in thousands):
Year Ended
December 31,
-------------------------
2000 1999 1998
---- ---- ----
U.S. federal income tax benefit
at statutory rate.................. $ (4,572) $ (441) $ (2,171)
Increases (decreases) resulting from:
State taxes, net of federal benefit. (183) (45) (224)
Non-deductible items................ 31 22 27
Increase in valuation allowance..... 8,129 -- 1,520
Foreign tax rate differentials...... 39 68 (127)
Tax credits......................... (360) (58) (420)
Other............................... (106) -- 119
-------- ------- --------
Expense (benefit) from income taxes. $ 2,978 $ (454) $ (1,276)
======== ======= ========
At December 31, 2000, the Company has net operating loss carryforwards of
approximately $22,230,000 which expire beginning in 2009 through 2020.
Additionally, the Company has various tax credit carryforwards aggregating
approximately $1,393,000 which expire beginning in 2005 through 2020.
The Company has recorded a full valuation allowance against its carryforward
tax benefits to the extent that it believes that it is more likely than not all
of such benefits will not be realized in the near term. The Company's assessment
of this valuation allowance was made using all available evidence, both positive
and negative. In particular the Company considered both its historical results
and its projections of profitability for only reasonably foreseeable future
periods. The Company's realization of its recorded net deferred tax assets is
dependent on future taxable income and therefore, the Company is not assured
that such benefits will be realized.
6. CAPITAL STOCK AND BENEFIT PLANS
Stock Compensation Plans
At December 31, 2000 the Company has two stock-based compensation plans, a
fixed stock option plan and an employee stock purchase plan. The Company applies
APB Opinion 25 and related interpretations in accounting for its plans. The
Company grants stock options with exercise prices equal to the fair market value
of its common stock on the date of grant. Accordingly, no compensation cost has
been recognized for its fixed stock option plan and its employee stock purchase
plan. Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of FASB Statement 123, the Company's
pro-forma results of operations and pro-forma net loss per share would have been
as follows:
(In thousands, except per share data)
2000 1999 1998
------ ------ ------
Net loss applicable to common stockholders:
As reported $(22,105) $ (844) $ (5,110)
SFAS No. 123 Pro-forma (24,691) (2,282) (5,997)
Basic and diluted net loss per share:
As reported $ (2.78) $ (0.12) $ (0.73)
SFAS No. 123 Pro-forma (3.11) (0.32) (0.86)
Fixed Stock Option Plan
Under the Company's stock option plan, the Company may grant incentive and
non-qualified stock options to its employees and directors for up to 4,529,378
shares of common stock. Under the plan, options are granted at an exercise price
not less than the fair market value of the stock on the date of grant. The
options generally vest ratably over four years and expire ten years after the
date of grant. Certain options are subject to accelerated vesting provisions.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 2000, 1999 and 1998, respectively; no estimated dividends; expected
volatility of 116% for 2000, 97% for 1999 and 133% for 1998; risk-free interest
rates between 4.99% and 6.71% in 2000, 5.16% and 6.35% in 1999, 4.23% and 5.64%
in 1998; and expected option terms of 5 years for all years.
A summary of the status of the Company's stock option plan and warrants
outstanding, excluding the warrants issued in connection with the Redeemable
Convertible Preferred Stock discussed in Footnote 7, as of December 31, 2000,
1999, and 1998 and changes during the years then ended are presented in the
following table. Included in the following summary are 95,000 warrants issued in
1997, of which 66,262 were exercised in 1997 in exchange for 34,200 shares of
common stock. No warrants, excluding the warrants discussed in Footnote 7, were
outstanding at December 31, 2000 and 9,738 warrants were outstanding and
exercisable at December 31, 1999. For the year ended December 31, 1998, 264,500
options to purchase common stock of the Company were re-priced at $3.18 per
option share.
2000 1999 1998
------------------ ------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price
------------------ ------------------- -------------------
Outstanding at
beginning of year 2,329 $ 3.22 1,872 $ 2.61 2.074 $ 2.98
Granted 1,082 8.33 952 4.52 723 3.21
Exercised (431) 8.53 (130) 2.58 (152) 1.75
Forfeited (760) 1.80 (365) 3.74 (773) 4.32
------------------ ------------------- -------------------
Outstanding at
end of year 2,220 $ 5.16 2,329 $ 3.22 1,872 $ 2.61
================== =================== ===================
Options and warrants
Exercisable at
year end 723 $ 3.45 1,168 $ 2.14 1,259 $ 2.28
Weighted average fair
value of options
granted during
the year $ 6.96 $ 3.50 $ 2.82
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 2000:
Options and Warrants
Options and Warrants Outstanding Exercisable
-------------------------------------- -------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at 12/31/00 Contractual Remaining at 12/31/00 Exercise
Price (000'S) Life Price (000's) Price
---------- --------------------------- -------------------------
$1.06-2.81 467 7.1 $ 2.35 232 $ 1.95
$3.19-4.19 674 7.4 3.62 325 3.54
$4.50-8.56 947 8.8 5.75 166 5.36
$14.50-36.00 132 9.1 18.80 -- --
---------- --------------------------- -------------------------
2,220 8.0 $ 5.16 723 $ 3.45
========== =========================== =========================
In connection with the Redeemable Convertible Preferred Stock discussed in
Footnote 7, the Company issued options to purchase 25,000 shares of common stock
for offering costs to a non-employee. The fair value of this option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions; no estimated dividends; expected volatility of 97%;
risk-free interest rate of 5.25%; and an option life of 3 years. The fair value
of $376,000 related to this grant was included in the stock offering costs.
Employee Stock Purchase Plan
The Company's 2000 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 2000 and approved by the Company's
stockholders in May 2000. Under the 2000 Purchase Plan, the Company is
authorized to issue up to 300,000 shares of common stock to eligible employees
effective August 1, 2000. On July 31, 2000 the Company's previous Employee Stock
Purchase Plan terminated as all shares were issued. Under the terms of the
Purchase Plans, employees may elect to have up to 10% of their total cash
earnings withheld by payroll deduction to purchase the Company's common stock.
The purchase price of the stock is 85% of the lower of the market price on the
participant's entry date into the Purchase Plan or the semi-annual purchase
date.
Under the previous Purchase Plan, the Company sold 39,429 shares to
employees in 2000 and 67,923 shares to employees in 1999. There were no purchase
dates for the 2000 Purchase Plan through December 31, 2000. The fair market
value of each stock purchase plan grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions for 2000 and 1999,
respectively: no estimated dividends for both years; expected volatility of 116%
and 97%; risk free interest rates of 4.99% and 6.71% for 2000 and 5.16% and
6.35% for 1999; and an expected life of 0.5 years for both years. The
weighted-average fair values of those purchase rights granted in 2000 and 1999
were $8.26 and $1.82, respectively. As the Purchase Plan is a qualified plan
under Internal Revenue Code Section 423, no related compensation cost is
recognized in the financial statements.
401(k) Retirement Savings Plan
Effective January 1, 1994, the Company adopted a qualified 401(k) retirement
savings plan for all employees. Participants may contribute up to 15% of their
gross pay. The Company contributions are discretionary and vest at 20% per year
over five years. The Company contributed $271,000 in 2000, $196,000 in 1999 and
$163,000 in 1998.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In 2000 the Company completed the sale of 731,851 shares of Series A
Convertible Preferred Stock (the "Preferred Stock"), and Warrants (the
"Warrants") to purchase an aggregate of 307,298 shares of the Company's common
stock to an investor group consisting principally of Thomas Weisel Capital
Partners and affiliated entities ("TWCP") for an aggregate purchase price of $15
million. The Preferred Stock can be redeemed if, after one year, the Company's
common stock trades above a specified price level for a period of time. Until
then, it accrues a cumulative dividend of eight percent (8%) per annum. The
Preferred Stock is subject to mandatory redemption provisions on the eighth
anniversary of the issuance for cash equal to the stated liquidation preference
plus accumulated unpaid dividends. The Preferred Stock is convertible to common
stock at the holder's option based upon the conversion formula as defined in the
Preferred Stock Certificate of Designation. The Company also assumed an
obligation to register the shares of its common stock underlying the Preferred
Stock and the Warrants.
The $15 million in gross proceeds received was allocated between the
Preferred Stock, the beneficial conversion feature, and the warrants based on
the respective fair values of each instrument, or approximately $5.5 million for
the Preferred Stock, approximately $4.4 million for the beneficial conversion
feature, and approximately $5.1 million for the warrants. The initial carrying
amount of the Preferred Stock has, and will be, increased by periodic accretions
so that the carrying amount will equal the redemption amount ($15 million) at
the redemption date in 2008. The periodic increases in carrying amount have, and
will be, effected by charges against additional paid in capital. The value of
the beneficial conversion feature was determined by calculating the difference
between the effective conversion price based on the proceeds allocated to the
Preferred Stock and the fair value of the underlying common stock. As the
Preferred Stock is convertible into common stock at any time, the beneficial
conversion amount was accreted in its entirety at the date of issuance of the
Preferred Stock.
In connection with the above Preferred Stock transaction warrants were
issued to purchase 307,298 shares of the Company's common stock at an exercise
price of $22.448 per share, exercisable at any time. The warrants expire in 2008
and as of December 31, 2000 no warrants have been exercised. The fair value of
the warrants was determined to be $5,122,658 at the date of issuance and was
separately recorded as warrants for the purchase of the Company's common stock
and as a reduction to the Series A Convertible Preferred Stock. The fair value
of the warrants was estimated on the date of issuance using the Black-Scholes
option-pricing model with the following assumptions; expected volatility of 97%;
risk-free interest rate of 5.25%; and contractual life of 8 years.
8. SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related
Information". The Company has only one segment under the criteria of SFAS
No. 131. The following table presents information by geographic area as of
and for the respective fiscal periods:
(In thousands) Year Ended December 31,
--------------------------
2000 1999 1998
---- ---- ----
TOTAL REVENUES ATTRIBUTABLE TO:
United States $ 13,455 $ 18,094 $ 14,076
International 2,375 3,671 4,471
-------- -------- --------
Total $ 15,830 $ 21,765 $ 18,547
======== ======== ========
Revenue is classified based on the country in which the Company's
Advantage Partner or customer is located. International assets and liabilities
are immaterial to the overall presentation of segment information.
9. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
Due to the economic status and instability in the Asian markets, the Company
made the decision to shut down two of its four Asian sales offices in the third
quarter of 1998, thus reducing future operational risks and cash outflows into
the region. This restructuring resulted in a $425,000 one-time write-off
including $125,000 of goodwill, $200,000 of severance costs for sales and
technical staff and $100,000 of lease termination and other costs. All actions
relating to the restructuring plan were completed during 1998 and no
restructuring accruals remain as all cash payments had been made as of December
31, 1998.
10. CONTINGENCIES
The Company is, from time to time, subjected to certain claims, assertions
or litigation by outside parties as part of its ongoing business operations. The
outcomes of any such contingencies are not expected to have a material adverse
effect on the financial condition or operations of the Company. In addition, in
the ordinary course of business, the Company has issued a letter of credit as
security for performance on the operating lease for its headquarters and, as a
result, is contingently liable in the amount of approximately $220,000 at
December 31, 2000.
11. SUBSEQUENT EVENT
On February 6, 2001, the Company strategically reduced its workforce by
approximately 40 employees. This reduction in force resulted in approximately
$1.0 million of restructuring charges to earnings in the first quarter of 2001,
primarily to cover severance and severance related costs.
12. QUARTERLY INFORMATION (UNAUDITED)
The following table presents unaudited quarterly operating results for each
of the Company's eight quarters in the two year period ended December 31, 2000:
(in thousands) Quarter Ended
---------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
---------- ---------- ---------- ----------
Fiscal Year 2000
Total revenues $ 3,827 $ 4,502 $ 3,901 $ 3,600
Gross profit 2,630 3,190 2,429 2,334
Loss from operations (3,004) (2,958) (4,051) (3,902)
Net loss (7,504) (3,226) (7,285) (4,090)
Basic and diluted
loss per share (.99) (.40) (.90) (.50)
Fiscal Year 1999
Total revenues $ 5,178 $ 4,957 $ 5,584 $ 6,046
Gross profit 4,080 3,840 4,191 4,886
Income (loss) from
operations (465) (691) (450) 8
Net income (loss) (280) (428) (241) 105
Basic and diluted
earnings (loss)
per share (.04) (.06) (.03) .01
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
Optika Inc.:
Under date of January 19, 2001, except as to note 11, which is as of February 6,
2001, we reported on the consolidated balance sheets of Optika Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss)
and cash flows for the years then ended, which are included in the Company's
Annual Report on Form 10-K for the fiscal year 2000. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule. This financial statement
schedule, included in Schedule II - Valuation and Qualifying Accounts, is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
January 19, 2001
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Allowance
Beginning Increase Ending
Balance (Decrease) Write-offs Balance
--------- ---------- ---------- -------
Deducted from asset account-
Allowance for doubtful accounts
Year ended
December 31, 2000............. $ 90 $ 48 $ (52) $ 86
Year ended
December 31, 1999............. 443 (68) (285) 90
Year ended
December 31, 1998............. 212 746 (515) 443
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on March
19, 2001.
OPTIKA INC.
By: /s/ MARK K. RUPORT
---------------------------------------
MARK K. RUPORT
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 19, 2001:
SIGNATURE TITLE
By: /s/ MARK K. RUPORT Chief Executive Officer and
--------------------------- Chairman of the Board
Mark K. Ruport (principal executive officer)
By: /s/ STEVEN M. JOHNSON Chief Financial Officer,
--------------------------- Executive Vice President,
Steven M. Johnson Secretary and Chief Accounting
Officer
(principal financial and
accounting officer)
By: /s/ RICHARD A. BASS Director
---------------------------
Richard A. Bass
By: /s/ JAMES E. CRAWFORD Director
---------------------------
James E. Crawford
By: /s/ JAMES T. ROTHE Ph.D Director
---------------------------
James T. Rothe Ph.D
By: /s/ ALAN B. MENKES Director
---------------------------
Alan B. Menkes
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.1(1) Certificate of Incorporation of the Registrant.
3.1.1(2) Certificate of Ownership and Merger.
3.2(1) First Amended and Restated Certificate of Incorporation
of the Registrant.
3.3(1) Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.4(10) Amended and Restated Bylaws of the Registrant.
3.5(3) Certificate of Designation, designating the Series A
Convertible Preferred Stock
4.1(1) Specimen Common Stock certificate.
4.2(1) Amended and Restated Shareholders' Agreement, dated
November 25, 1995, by and among the Registrant and the
entities named therein.
4.3(1) Amended and Restated Registration Agreement, dated November
22, 1995, by and among the Registrant and the entities named
therein, including the First Amendment thereto.
4.4(1) Form of Warrant to purchase Common Stock dated November 1,
1995.
10.1(1) Form of Indemnification Agreement between the Registrant
and each of its directors and officers.*
10.2 The Registrant's 1994 Stock Option/Stock Issuance Plan, as
restated and amended through May 2000.
10.3 The Registrant's 2000 Employee Stock Purchase Plan.
10.4(1) Employment Agreement by and between the Registrant and
Mr. Mark K. Ruport effective February 18, 1995.*
10.5(1) Employment Agreement by and between the Registrant and
Mr. Steven M. Johnson, effective May 15, 1996.*
10.6(1) Employment Agreement by and between the Registrant and
Mr. Marc Fey, effective May 4, 1994.*
10.7 The Registrant's 2000 Non-Officer Stock Incentive Plan
10.12(1) Technology Transfer Agreement dated February 20, 1992,
by and between the Registrant, Mr. Paul Carter and Mr.
Malcolm Thomson.
10.16(4) Lease Agreement dated October 11, 1996, by and between the
Registrant and Woodmen Office Campus II JV LLC for office
space at 7450 Campus Drive, Suite 200, Colorado Springs,
Colorado.
10.17(5) Amendment to Loan and Security Agreement dated as of March 2,
1998, by and between the Registrant and Silicon Valley Bank.
10.18(6) Loan and Security Agreement dated as of October 15, 1998, by
and between the Registrant and Silicon Valley Bank.
10.18.1(7) Loan and Security Modification Agreement dated as of October
15, 1999, by and between the Registrant and Silicon Valley
Bank.
10.18.2(9) Loan Modification Agreement dated as of October 15, 2000, by
and between the Registrant and Silicon Valley Bank.
10.19(3) Securities Purchase Agreement dated as of February 9,2000,
by among the Registrant, Thomas Weisel Capital Partners
L.P. and certain of its affiliates and RKB Capital, L.P.
10.20(3) Warrant Agreement dated February 23, 2000 by and between
the Registrant, Thomas Weisel Capital Partners, L.P. and
the other parties named therein.
10.21(3) Registration Rights Agreement dated February 23, 2000 by and
between the Registrant, the Purchasers and the other parties
signatory thereto.
16.1(8) Letter from PricewaterhouseCoopers LLP dated March 23, 1999.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
*Represents a management compensation arrangement.
(1) Incorporated by reference to identically numbered exhibits included in
the Company's Registration Statement on Form S-1 (File No. 333-04309), as
amended.
(2) Incorporated by reference to an exhibit to the Company's Annual Report on
Form 10-K (File No. 0-28672) for the year ended December 31, 1998.
(3) Incorporated by reference to an exhibit to the Company's Current Report
on Form 8-K (File No. 0-28672) dated February 23, 2000.
(4) Incorporated by reference to an exhibit to the Company's Annual Report on
Form 10-K (File No. 0-28672) for the year ended December 31, 1996.
(5) Incorporated by reference to an exhibit to the Company's Annual Report on
Form 10-K (File No. 0-28672) for the year ended December 31, 1997
(6) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-28672) for the quarter ended September 30, 1998.
(7) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-28672) for the quarter ended September 30, 1999.
(8) Incorporated by reference to an exhibit to the Company's Current Report
on Form 8-K/A (File No. 0-28672) dated March 23, 1999.
(9) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-28672) for the quarter ended September 30, 2000.
(10) Incorporated by reference to an exhibit to the Company's Annual Report
on Form 10-K (File No. 0-28672) for the year ended December 31, 1999.