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, 2001
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)
Series B Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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. [ ]
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 15,
2002 as reported on the Nasdaq National Market, was approximately $19,825,959.
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
15, 2002, the registrant had outstanding 8,262,284 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, 2002 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
OPTIKA INC.
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business........................................................2
Item 2. Properties.....................................................12
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.....22
Item 8. Financial Statements and Supplementary Data....................23
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure......................................23
PART III
Item 10.Directors and Executive Officers of Registrant.................24
Item 11.Executive Compensation.........................................24
Item 12.Security Ownership of Certain Beneficial Owners and Management.24
Item 13.Certain Relationships and Related Transactions.................24
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on
Form 8-K...............................................................25
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 collaboration
software. Optika's Acorde family of enterprise content management (ECM) software
solutions, including Acorde Context, Acorde Process and Acorde Resolve, 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. Built on a three-tier, scalable and
extensible platform, Acorde delivers a variety of client desktops, including
Windows and Web and easily integrates with enterprise resource planning (ERP),
line-of-business (LOB) 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.
Industry Background
Over the past few years, companies have felt increasing pressure to deliver
process efficiency and service improvements. In division after division these
companies have attempted to optimize core transaction processes to respond to
competition, better service their customers and vendors and improve their
operating margins. Our goal is to answer this marketplace need and make
organizations more efficient by decreasing the cost of business transactions and
their associated cycle-times and increasing the productivity of their
workforces.
Optika is able to achieve this goal by leveraging and integrating ERP and
other critical LOB applications with context and process solutions, and
extending them outside the organization with collaboration tools. By doing this,
we help our customers leverage the strategic investments they have made in
business systems, reduce their cost of operations, and provide security for
their critical business documents. This not only has a large favorable impact on
the financial aspects of our customers' business, but it also helps our
customers increase vendor and customer satisfaction.
We are able to achieve these benefits for organizations that have high
volumes of transactions as well as those that have the need to manage and store
data and documents in multiple formats in a variety of locations throughout
their organizations.
Business drivers are those factors that compel a customer to look for a
solution such as Optika's Acorde to satisfy their business requirements.
Business drivers are often described by chief financial officers, chief
information officers and business managers as follows:
o Increase process and transaction efficiency. This need is defined in
terms of lowered costs of doing business and generating higher levels of
service. This especially applies to processes that have high transaction
volumes along with content and supporting documents beyond the
transaction itself.
o Reduce transaction cycle times. Time is money and the ability to process
transactions in an expedited fashion is imperative. Due to the enormous
costs involved, this is particularly important when dealing with
transactions that are out of tolerance.
o Reduce operating expenses. Many organizations are facing limited or
stagnant growth. When shareholder value cannot be enhanced by growing
revenues, it becomes necessary to focus on improving business processes
to drive down costs and improve profit margins.
o Accomplish the same amount of work with fewer people - or to accomplish
more work with the same number of people. Obviously, this goal cannot be
achieved without an improvement in business process management.
o Control the proliferation of paper. Some companies are virtually drowning
in a sea of paper and need to evolve to electronic methods. This is not
only a cost imperative, but a security imperative as well.
o Manage multiple sources of business data. It is not unusual to find
companies where the transaction data needs to be supported by documents
and data from several additional systems. The task of managing this data
and the multiple systems that contain it can be daunting.
Another important business driver is the increasing focus on integrating an
organization's key business partners, such as vendors and customers, into the
organizations traditional business processes. Although e-business was initially
thought of as a revolutionary way to market, sell and purchase goods and
services, the industry is now realizing the even greater potential of e-business
in changing the way businesses manage their supply chain partners. 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. A
key component of this solution is the ability to manage the "out-of-tolerance"
transactions that are currently handled through costly and ineffective
traditional paper-intensive means. We believe that as businesses continue to
automate their paper-intensive processes and as e-business assumes a central
role in their business models, organizations will seek technology-based
solutions that leverage the Internet to solve transaction problems in real-time
and within their transaction processes.
Optika Acorde
The Acorde product family is changing 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, as well as
electronic (COLD) reports and provide seamless integration to a company's LOB
applications. Secure access to information from the LOB application is provided
through the use of Acorde's LOB Link server component. A core piece of our ERP
integrations, LOB Link provides graphical mapping capability that allows
customers to seamlessly integrate Acorde and the LOB application - regardless of
the vendor. 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, human resources and
claims processing, are often manual and costly, resulting in ineffective ways of
processing transactions and managing supporting information and documents. The
Internet is creating opportunities for companies to enhance the way they conduct
business - across department, across the 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 collaboration 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 customers and vendors.
Leveraging industry standards and providing a variety of client desktops,
Acorde also enables companies to integrate with LOB and third party applications
such as ERP systems. By utilizing Acorde Adaptors and the Acorde SDK,
organizations can seamlessly integrate with their existing infrastructures and
systems, enabling them to cost-effectively take advantage of and leverage the
investments they have already made in their crucial business systems.
Sales and Marketing
Sales
We employ a blended sales model, consisting of a worldwide indirect sales
network of Advantage Partners, 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 67% of our
license revenues for the year ended December 31, 2001.
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 that cover the United States. The direct sales force typically sells
to a different customer base than our indirect sales force customer base.
Included in our direct sales force is our solution services team that 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, 2000 and 2001, we generated approximately
15% and 12%, 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 February 28, 2002, we have sold to an established base of over 2,000
Optika customers through our blended sales model of APs and direct sales force.
Our solutions are applicable and have been installed in a wide variety of
industries to process, fulfill and support business transactions.
No AP or end-user accounted for more than 10% of our total revenues for the
year ended December 31, 2001.
Service and Support
We believe that a high level of customer service and support is critical to
our performance. We provide technical support, maintenance, training and
consulting to our APs, who are in turn primarily responsible for providing
technical support services directly to end-users. We also provide such support
directly to our end-users on an as-needed basis. These services are designed to
increase end-user satisfaction, provide feedback to us as to end-users' demands
and requirements, and generate recurring revenue. We plan to continue 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 14% on an annual basis of the
then-current list prices of the licensed software.
Warranty
We generally include a 90-day limited warranty with the software license.
During the warranty period, the end-user is entitled to corrections for
documented program errors.
Research and Development
We have committed, and expect to continue to commit, substantial resources
to research and development. Our research and development organization is based
on the product team concept. Each product team has an engineering team leader, a
product manager, development engineers and quality assurance engineers. The team
is entirely responsible for the design, implementation and quality of our
products. Product development efforts are directed at increasing product
functionality, improving product performance, and expanding the capabilities of
the products to integrate with third-party software and hardware. 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 February 28, 2002, our research and development organization consisted
of 37 full-time employees in Colorado Springs, Colorado. During 2001, research
and development expenses were $5.6 million. As of December 31, 2001, 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
may not be able to 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 February 28, 2002, we had 122 full-time employees in 25 cities. Of these
employees, 37 were involved in research and development, 49 in sales and
marketing, 24 in technical support and training, and 12 in administration and
finance. No employees are covered by any collective bargaining agreements. We
believe that our relationship with our employees is good.
Executive Officers
Optika's executive officers and key employees, and their ages as of February
28, 2002 are:
Name Age Position
Mark K. Ruport 49 President, Chief Executive Officer
and Chairman of the Board of
Directors
Steven M. Johnson 40 Executive Vice President-Chief
Financial Officer and Secretary
Thomas M. Rafferty 56 Vice President-Research and
Development,
Engineering and Customer Support
Christopher J. Ryan 47 Vice President-Marketing
James A. Franklin 45 Vice President-North American
Direct Sales West
Kurt G. Michel 39 Vice President-North American
Direct Sales East
Michael J. Rodsater 57 Vice President-North American
Indirect Sales
Mark K. Ruport has served as our President and Chief Executive Officer and a
Director since February 1995. He has served as Chairman of the Board of
Directors since May 1996. From June 1990 to July 1994, Mr. Ruport served as
President and Chief Operating Officer, and later Chief Executive Officer, of
Interleaf, Inc., a publicly held software and services company that develops and
markets document management, distribution and related software. From 1989 to
1990, Mr. Ruport was Senior Vice President of Worldwide Sales of Informix
Software, where he was responsible for direct and indirect sales and original
equipment manufacturers. From 1985 to 1989, Mr. Ruport served as Vice President
North American Operations for Cullinet Software.
Steven M. 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 our interim Vice President of North
American Channel Sales from July 1998 through December 1998. Prior to joining
us, from February 1988 to September 1992, Mr. Johnson was Vice President-Finance
and Chief Financial Officer, of Insurance Auto Auctions, Inc., a publicly held
company.
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, a Phoenix software company specializing in
rules-finding products from August 1997 to March 1999. 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.
Christopher J. Ryan has served as our Vice President-Marketing since July
2001. Prior to joining us, Mr. Ryan was Vice President of Worldwide Product
Marketing for FrontRange, Inc., an international supplier of CRM solutions
from October 2000 to June 2001. From August 1998 to September 2000, he served
as Co-founder and Chief Marketing Officer of deuxo, Inc. (formerly Saligent
Software, Inc.), a supplier of lead management and marketing automation
software. From October 1997 to August 1998, Mr. Ryan was Director of
Industry and Integrated Marketing for PeopleSoft, Inc., a supplier of human
resource management and enterprise resource planning solutions. From May 1993
to October 1997, he served as Director of Field Marketing and Director of
Product Marketing for Sybase, Inc., a $1 billion supplier of database and
middleware solutions. From February 1988 to October 1993, Mr. Ryan served as
President of IdeaWorks Marketing, a direct marketing services firm he
co-founded.
James A. Franklin has served as Vice President-North American Direct Sales
West since February 2001. He also served as our Western Regional Vice President
of Sales from January 1999 to February of 2001. Prior to joining us, Mr.
Franklin was the Western Region District Manager for GIGA Information Group,
Inc., a publicly held information technology analyst firm from 1996 to 1998.
From 1994 to 1996, Mr. Franklin was the Director of Business Development for
Geo/SQL Corporation, a leading vendor of enterprise geographic information
systems, in Denver, Colorado. Mr. Franklin was responsible for direct and OEM
sales. From 1988 to 1994, Mr. Franklin held senior sales and executive
management positions for multiple information technology consulting and software
firms.
Kurt G. Michel has served as our Vice President-North American Direct Sales
East since May of 2001. He also served as our Mid-Atlantic Regional Sales
Manager from July 1997 to May 2000. Prior to joining us from June 2000 to May
2001, Mr. Michel was Southeast Regional Manager at Attunity, a supplier of data
connectivity and process automation software. From 1995 to 1997, Mr. Michel was
the Director of Reseller Sales for ZyLab, Inc., a leading provider of full-text
search and retrieval solutions. From 1994 to 1995 Mr. Michel was the Manager for
VAR/OEM Development for Intrafed Imaging Technologies, a leading provider of
document capture and processing sub-systems. From 1990 to 1994 Mr. Michel held
sales positions in the document management field.
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, a leading provider of call center software, from
October 1997 to September 1999. 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, an imaging software and printing
solutions company.
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 may vary significantly in the future as a
result of potential 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
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 rate
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.
Product Offerings. The Optika Acorde family of products 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.
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 technology 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.
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.
Sales and Distribution Channels. Our future results of operations will
depend on the success of our marketing and distribution strategy, which relies,
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
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. Selling through indirect channels may
hinder our ability to forecast sales accurately, evaluate customer satisfaction
or recognize emerging customer requirements. Our future results of operations
also depend on the success of our efforts to build a direct sales force. We have
only limited experience in selling our products directly.
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. The inability, for technological or other reasons, to
develop and introduce new products or enhancements in a timely manner in
response to changing customer requirements, technological change or emerging
industry standards, or maintain compatibility with heterogeneous computing
environments, would have a material adverse effect on our business and results
of operations.
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 our
APs and us to engage in a lengthy and complex sales cycle (typically between six
and twelve months from the initial contact date). In addition, the
implementation by customers of our products may involve a significant commitment
of resources by such customers over an extended period of time. For these and
other reasons, the sales and customer implementation cycles are subject to a
number of significant delays over which we have little or no control. Our future
performance also depends upon the capital expenditure budgets of our customers
and the demand by such customers for our products. Certain industries to which
we sell our products, such as the financial services industry, are highly
cyclical. Our operations may in the future be subject to substantial
period-to-period fluctuations as a consequence of such industry patterns,
domestic and foreign economic and other conditions, and other factors affecting
capital spending. Such factors may have a material adverse effect on our
business and results of operations.
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 document management market and the emerging market
for e-business solutions. Because our products are designed to operate in
non-proprietary computing environments and because of low barriers to entry in
the marketplace, we expect additional competition from established and emerging
companies, as the market for our products continues to evolve. Current and
potential competitors have established or may 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.
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 12%, 15% and 17% of our revenues in 2001, 2000 and 1999,
respectively. 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 an 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, directors or other related parties
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.
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. We also have a stockholders rights plan
under which all stockholders of record as of July 18, 2001 received one right
for each share of common stock then owned by them to purchase, upon the
occurrence of certain triggering events, one one-hundredth of a share of Series
B Preferred Stock at a price of $30, subject to adjustment. The rights are
exercisable only if a person or group acquires 15% or more of our common stock
in a transaction not approved by our Board of Directors. These provisions and
certain other provisions of our Amended and Restated Certificate of
Incorporation and certain provisions of our Amended and Restated Bylaws and of
Delaware law, could delay or make more difficult a merger, tender offer or proxy
contest.
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, 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 on the Nasdaq National Market under the symbol
"OPTK." The following table sets forth the high and low closing sale prices per
share of the Common Stock for the periods indicated, as reported on the Nasdaq
National Market.
Quarter Ended HIGH LOW
December 31, 2001............................... $ 1.29 $ .69
September 30, 2001.............................. $ 1.30 $ .72
June 30, 2001................................... $ 1.45 $ .93
March 31, 2001.................................. $ 2.09 $ .75
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
As of March 15, 2002 we estimate there were approximately 122 holders of
record of our Common Stock. This does not include the number of persons whose
stock is in nominee or "street" name accounts through brokers.
We have never declared or paid any cash dividends on our capital stock since
our inception, and 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 this Report. The consolidated statement of
operations data for each of the three years in the period ended December 31,
2001 and the consolidated balance sheet data at December 31, 2001 and 2000, are
derived from the audited consolidated financial statements included in this
Report. The consolidated statement of operations data for the two years ended
December 31, 1998 and 1997, and the consolidated balance sheet data at December
31, 1999, 1998 and 1997, are derived from audited consolidated financial
statements not included in this Report.
Year Ended December 31,
------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------
Consolidated Statement of Operations:
(in thousands, except per share amounts)
Revenues:
Licenses........................ $ 6,306 $ 5,241 $ 11,457 $ 11,128 $ 15,912
Maintenance and other........... 9,975 10,589 10,308 7,419 5,751
-------- -------- -------- -------- --------
Total revenues................ 16,281 15,830 21,765 18,547 21,663
-------- -------- -------- -------- --------
Cost of revenues:
Licenses........................ 873 562 821 434 737
Maintenance and other........... 3,290 4,685 3,947 3,274 2,845
-------- -------- -------- -------- --------
Total cost of revenues........ 4,163 5,247 4,768 3,708 3,582
-------- -------- -------- -------- --------
Gross profit...................... 12,118 10,583 16,997 14,839 18,081
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing............. 8,198 13,672 10,963 12,972 10,666
Research and development........ 5,591 8,434 5,635 5,332 4,978
General and administrative...... 1,792 2,392 1,997 2,714 1,829
Restructuring and other charges 1,071 -- -- 425 885
-------- -------- -------- -------- --------
Total operating expenses...... 16,652 24,498 18,595 21,443 18,358
-------- -------- -------- -------- --------
Loss from operations.............. (4,534) (13,915) (1,598) (6,604) (277)
Other income, net................. 368 852 300 218 442
-------- -------- -------- -------- --------
Income (loss) before income tax
expense (benefit)................. (4,166) (13,063) (1,298) (6,386) 165
Income tax expense (benefit)...... 8 2,978 (454) (1,276) --
-------- -------- -------- -------- --------
Net income (loss)................. (4,174) (16,041) (844) (5,110) 165
Preferred stock dividend.......... (447) (1,037) -- -- --
Accretion of preferred stock and
beneficial conversion feature.... (250) (5,027) -- -- --
Increase to income available to
common stockholders from the
conversion of preferred stock.... 6,196 -- -- -- --
------- -------- -------- -------- --------
Net income (loss) applicable to
common stockholders............... $ 1,325 $(22,105)$ (844)$ (5,110)$ 165
======= ======== ======== ======== ========
Basic net income (loss) per common
share ........................... $ 0.16 $ (2.78)$ (0.12)$ (0.73)$ 0.02
Basic weighted average number of
common shares outstanding........ 8,184 7,948 7,192 6,989 6,782
Diluted net income (loss) per
common share .................... $ (0.46)$ (2.78)$ (0.12)$ (0.73)$ 0.02
Diluted weighted average number of
common shares outstanding........ 8,984 7,948 7,192 6,989 7,661
December 31,
------------------------------------------
2001 2000 1999 1998 1997
--------------------------------- --------
Consolidated Balance Sheet Data: (in thousands)
Cash, cash equivalents and
short-term investments........... $ 7,696 $ 11,704 $ 7,182 $ 7,811 $ 8,600
Working capital................... 5,762 8,512 5,737 6,176 12,747
Total assets...................... 13,901 18,524 18,097 18,537 21,886
Redeemable convertible preferred
stock............................ -- 10,849 -- -- --
Total stockholders' equity ....... 7,395 769 11,356 11,820 16,492
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 collaboration
software. Optika's Acorde family of enterprise content management (ECM) software
solutions, including Acorde Context, Acorde Process and Acorde Resolve, 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. Built on a three-tier, scalable and
extensible platform, Acorde delivers a variety of client desktops, including
Windows and Web and easily integrates with enterprise resource planning (ERP),
line-of-business (LOB) 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 license of our software products is typically an executive-level
decision by prospective end-users and generally requires our sales staff 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 2001, approximately 67% 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, 2001, 2000 and
1999, we generated approximately 12%, 15% and 17%, 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
2001 and 2000, approximately 39% and 33%, respectively, of our total revenues
were derived from software licenses and approximately 44% and 47%, respectively,
of our total revenues were derived from maintenance agreements. For 2001 and
2000, other revenues, which are comprised of training, consulting and
implementation services, and third-party hardware and software products,
accounted for 17% and 20%, respectively, of our total revenues.
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the period.
On an on-going basis, we evaluate our estimates and judgments, including
those related to income taxes, bad debts, restructuring charges, contingencies
and litigation. We base our estimates and judgments on historical experience,
forecasts and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. We believe that the following
critical accounting policies, among others, affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue Recognition
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
by Statement of Position 98-9. For sales made either through our APs or by us,
we generally recognize license revenue upon shipment when a non-cancelable
license agreement has been signed or a purchase order has been received,
delivery has occurred, the fee is fixed or determinable and collectibility is
probable. The license fees are not assumed to be fixed or determinable if the
fees are due more than 12 months after delivery or are based on achievement of a
milestone. Where applicable, fees from multiple element arrangements are
unbundled and recorded as revenue as the elements are delivered to the extent
that vendor specific objective evidence, or VSOE, of fair value exists for the
various elements. We establish VSOE of fair value on maintenance and
professional services elements based on prices charged when the same elements
are sold in separate transactions. We have not established VSOE on license
elements. Revenue on undelivered and delivered elements is recorded using the
residual method in accordance with SOP 97-2, as amended.
Software maintenance revenues are deferred and recognized ratably over the
maintenance period, which is generally one year. The unrecognized portion of
software maintenance revenues is recorded in the accompanying balance sheets as
deferred revenue. Other revenues are recognized as services are performed.
We generally do not grant rights to return products, except for defects in
the performance of the products relative to specifications and pursuant to
standard industry shrink-wrapped license agreements which provide for 30-day
rights of return if an end-user does not accept the terms of the shrink-wrapped
license agreements. The 30-day right of return begins upon product shipment. Our
software license agreements generally do not provide price adjustments or
rotation rights. We generally include a 90-day limited warranty with the
software license, which entitles the end-user to corrections for documented
program errors.
Accounting for Income Taxes
We record a valuation allowance to reduce our deferred tax assets to the
amount that we believe it is more likely than not to be realized in the
foreseeable future. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event we determine that we would not be able to
realize all or part of our net deferred tax assets in the foreseeable future, an
adjustment to the deferred tax asset is charged to income in the period such
determination is made. Likewise, should we determine that we would be able to
realize our deferred tax assets in the foreseeable future in excess of our net
recorded amount, an adjustment to the deferred tax assets would increase income
in the period such determination was made.
Accounting for Preferred Stock
In 2000 we 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 our 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
could have been redeemed if, after one year, our common stock traded above a
specified price level for a period of time. Until then, it accrued a cumulative
dividend of eight percent (8%) per annum. The Preferred Stock was subject to
mandatory redemption provisions on the eighth anniversary of the issuance for
cash equal to the stated liquidation preference plus accumulated unpaid
dividends. The Preferred Stock was convertible to common stock at the holder's
option based upon the conversion formula as defined in the Preferred Stock
Certificate of Designation. We 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 was increased by periodic accretions so that the
carrying amount would have been equal to the redemption amount ($15 million) at
the redemption date in 2008. The periodic increases in carrying amount were
effected by charges against additional paid in capital. The value of the
beneficial conversion feature was determined by calculating the fair market
value of the underlying common stock less the intrinsic value of the Preferred
Stock based on the allocation of proceeds. As the Preferred Stock was
convertible into common stock at any time, the beneficial conversion amount was
accreted in its entirety at the date of issuance of the Preferred Stock.
In connection with the above Preferred Stock transaction, warrants were
issued to purchase 307,298 shares of our common stock at an exercise price of
$22.448 per share. The warrants were to expire in 2008 and as of May 7, 2001 no
warrants were 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.
On May 7, 2001, Thomas Weisel Capital Partners L.P., a Delaware limited
partnership, certain of its affiliates and RKB Capital, L.P. (the "Purchasers")
and us entered into an Exchange Agreement, pursuant to which we have issued
Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred"), having the
terms and provisions set forth in the Certificate of Designation designating the
Series A-1 Convertible Preferred Stock, on a one-for-one basis, in return for
the exchange, surrender and cancellation of the Series A Redeemable Convertible
Preferred Stock (the "Series A Preferred"). The Series A-1 Preferred issued in
exchange for the Series A Preferred is substantially identical to the Series A
Preferred with the exception of certain changes made to the redemption,
dividend, protective and liquidation provisions thereof. In connection with this
transaction, we also purchased the warrants associated with the Series A
Preferred for an aggregate of $0.01. The Series A-1 Preferred is convertible to
common stock at the holders' option based upon the conversion formula as defined
in the Certificate of Designation.
The Series A-1 Preferred was recorded in stockholders' equity at its fair
value. The difference between the carrying value of the Series A Preferred at
the time of the exchange and the fair value of the Series A-1 Preferred of $5.35
million (as determined by an independent valuation) was recorded as an increase
in additional paid-in capital and as a one-time adjustment to net income (loss)
applicable to common stockholders. As a result of the Exchange Agreement, future
periods will not have adjustments to income for accumulating dividends or
allocations of the discounts associated with the Series A Preferred Stock.
Accounting for Restructuring Activities
During February 2001, we reduced our workforce by approximately 25%. This
reduction in force resulted in approximately $1.1 million of restructuring
charges to earnings in the first quarter of 2001; primarily to cover severance
and severance related costs. We realized both expense savings and reduced cash
outflows during fiscal year 2001 from the reduction in salary costs, office
space and related overhead expenses as a result of the restructuring plan.
Results of Operations
Comparison of Years Ended December 31, 2000 to December 31, 2001
Revenues
Total revenues increased 3% from $15.8 million for the year ended December
31, 2000 to $16.3 million for the year ended December 31, 2001.
Licenses. License revenues increased 20% from $5.2 million for the year
ended December 31, 2000 to $6.3 million for the year ended December 31, 2001,
representing approximately 33% and 39%, respectively, of total revenues in both
periods. The increase in license revenue is attributable to an overall increased
demand for our products. License revenues generated outside of the United States
decreased from approximately 22% of license revenues for the year ended December
31, 2000 to approximately 13% of license revenues for the year ended December
31, 2001. This decrease is attributable to increased United States license
revenue in 2001.
Maintenance and Other. Maintenance revenues, exclusive of other revenues,
decreased 4%, from approximately $7.5 million during the year ended December 31,
2000, to $7.2 million for the year ended December 31, 2001, representing
approximately 47% of total revenues for the year ended December 31, 2000 and 44%
of total revenues for the year ended December 31, 2001. This absolute dollar
decrease was primarily a result of the discontinued maintenance contracts from
FilePower (predecessor product to Acorde) customers that elected to discontinue
maintenance. This decrease was partially offset by maintenance contracts from
new accounts. Other revenue, consisting primarily of consulting services and
training, represented 20% and 17% of total revenue for the years ended December
31, 2000 and 2001, respectively. The decrease in other revenues as a percentage
of total revenues was primarily due to other revenues remaining stable while
total license revenues increased in fiscal year 2001.
Cost of Revenues
Licenses. Cost of licenses consists primarily of royalty payments to
third-party software vendors and costs of product media, duplication, packaging
and fulfillment. Cost of licenses increased from $562,000, or 11% of license
revenues, for the year ended December 31, 2000, to $873,000, or 14% of license
revenues, for the year ended December 31, 2001, primarily as a result of the
increased license revenue during the period and the increase of third party
royalty payments during the year ended December 31, 2001.
Maintenance and Other. Cost of maintenance and other consists of the direct
and indirect costs of providing software maintenance and support, training and
consulting services, to our APs and end-users. Cost of maintenance and other
decreased from $4.7 million, or 44% of maintenance and other revenues, for the
year ended December 31, 2000, to $3.3 million, or 33% of maintenance and other
revenues, for the year ended December 31, 2001. The decrease as a percentage of
maintenance and other revenues is primarily a result of the decrease in
allocated overhead expenditures and the reduction of our Solution Services group
resulting from the reorganization performed in the first quarter of 2001.
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 $13.7 million, or 86% of total revenues, for the year
ended December 31, 2000, to $8.2 million, or 50% of total revenues, for the year
ended December 31, 2001. This decrease in sales and marketing is primarily
attributable to the decrease in our direct sales and marketing organizations in
early 2001. We currently anticipate that sales and marketing expenses are likely
to increase in absolute dollars in the foreseeable future.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, and the cost of facilities and equipment. Research and development
expenses decreased in absolute dollars from $8.4 million, or 53% of total
revenues, for the year ended December 31, 2000, to $5.6 million, or 34% of total
revenues, for the year ended December 31, 2001. The decrease in research and
development expenses in 2001 was due to a reduction in headcount, contractors
and related expenses. We currently anticipate that our research and development
costs are likely to slightly increase in absolute dollars in the foreseeable
future.
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 $2.4 million, or 15% of total revenues,
for the year ended December 31, 2000, to $1.8 million, or 11% of total revenues,
for the year ended December 31, 2001. The decrease was primarily due to
decreased depreciation and lease costs supporting the decreased headcount in
2001. General and administrative expenses are likely to slightly increase in the
foreseeable future.
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 $852,000 during the year ended December 31, 2000, compared to other
income, net of $368,000 during the year ended December 31, 2001. The decrease is
due to generally lower invested balances and lower interest rates.
Income Tax Expense. In 2001, we recorded a full valuation allowance against
our carryforward tax benefits that were generated in 2001, to the extent that we
believe it is more likely than not that all of such benefits will not be
realized in the near term. Our assessment of this valuation allowance was made
using all available evidence, both positive and negative. In particular we
considered both our historical results and our projections of profitability for
only reasonably foreseeable future periods.
Comparison of Years Ended December 31, 1999 to December 31, 2000
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 was attributable to a shift in focus
from our core technologies to the addition of collaborative tools that 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 recognized the loss of
momentum and increased our focus on our customers and APs in delivering a
clearer product message that focused 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 was 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 consists 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 was primarily
attributable to the increase in our direct sales organization throughout fiscal
year 2000.
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.
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.
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 it is more likely
than not that all of such benefits will not be realized in the near term. Our
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular we considered both our historical
results and our projections of profitability for only reasonably foreseeable
future periods.
Liquidity and Capital Resources
Cash and cash equivalents, including short-term investments, at December 31,
2001 was $7.7 million, decreasing by approximately $4.0 million from December
31, 2000. This decrease is due to our net loss.
For the year ended December 31, 2000, net cash used in operating activities
was $10.5 million compared to net cash used in operating activities of $3.9
million for the year ended December 31, 2001. Cash used in operating activities
for the year ended December 31, 2001 is primarily due to the net loss.
Cash used in investing activities was $6.8 million for the year ended
December 31, 2000 compared to cash provided of $3.5 million for the year ended
December 31, 2001. Cash flows from investing activities are primarily due to the
purchase or sale of marketable securities offset by capital expenditures.
Cash provided by financing activities was $16.2 million for the year ended
December 31, 2000. Cash used by financing activities was $24,000 for the year
ended December 31, 2001. Cash provided by financing activities for the year
ended December 31, 2000 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, 2001, our principal sources of liquidity included cash and
short-term investments of $7.7 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, 2001, we had $2.8 million available for borrowing and no debt
outstanding.
We believe that our current cash and short-term investments, together with
anticipated cash flows from our operations and the availability of our bank
credit facility, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months.
Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", which
is effective immediately. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. The adoption of this standard
will not impact our consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which is effective January 1, 2002. SFAS No. 142 requires that goodwill
and other intangible assets with indefinite useful lives no longer be amortized,
but instead is tested for impairment at least annually. The adoption of this
standard will not impact our consolidated financial position, results of
operations, or cash flows.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002. SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The adoption of this
standard will not impact our consolidated financial position, results of
operations, or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No.
121, "Accounting for the impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and replaces the accounting and reporting provisions
for segments of a business to be disposed of Accounting Principles Board ("APB")
Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 maintains the requirement that
an impairment loss be recognized for a long-lived asset to be held and used if
its carrying value is not expected to be recoverable from its undiscounted cash
flows. SFAS No. 144 requires that long-lived assets to be disposed of, other
than by sales, be considered held and used until actually disposed of and
requires that depreciable lives be revised in accordance with APB Opinion No.
20, "Accounting Changes." SFAS No. 144 also requires that long-lived assets to
be disposed of by sale be measured at the lower of carrying amount or fair value
less selling costs, but retains the requirement to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that has either been disposed of or is classified as held
for sale. The provisions of SFAS No. 144 are effective for fiscal years
beginning after December 15, 2001. The adoption of this standard will not impact
our consolidated financial position, results of operations, or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2001 we had $6.0 million in short-term investments that
are sensitive to market risks. Our investment portfolio is used to preserve our
capital until it is required to fund operations, including our research and
development activities. We do not own any derivative financial instruments. Due
to the nature of our investment portfolio we are primarily subject to interest
rate risk.
Our investment portfolio includes fixed rate debt instruments that are
primarily United States government and agency bonds of duration ranging from one
to five years. The market value of these bonds is subject to interest rate risk,
and could decline in value if interest rates increase. A hypothetical increase
or decrease in market interest rates by 10% from December 31, 2001, would cause
the fair market value of these short-term investments to change by an
insignificant amount. Although the market value of these short-term investments
would change due to the interest rate fluctuation, we have the ability to hold
the investments to maturity, which would reduce overall market risk.
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
None.
PART III
Certain information required by Part III is omitted from this Annual Report
on Form 10-K in that we 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 nominee
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
"Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement
for the 2002 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
2002 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 2002 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 2002 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..................................26
Consolidated Balance Sheets as of December 31, 2001 and 2000....27
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 2001....................28
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for each of the three years in
the period ended December 31, 2001.............................29
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2001....................30
Notes to Consolidated Financial Statements......................31
Schedules have been omitted because they are not required, not applicable,
or the required information is shown in the financial statements and
related notes thereto.
2. Exhibits - See Exhibit Index on page 43
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the quarter ended
December 31, 2001.
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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for each of the years in the three-year period ending December
31, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Denver, Colorado
January 21, 2002
Optika Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31, December 31,
2001 2000
----------- -----------
Assets
Current assets:
Cash and cash equivalents......................... $ 1,746 $ 2,192
Short-term investments............................ 5,950 9,512
Accounts receivable, net of allowance for doubtful
accounts of $110 and $86 at December 31, 2001 and
2000, respectively............................... 4,035 2,913
Other current assets.............................. 537 801
----------- -----------
Total current assets .......................... 12,268 15,418
----------- -----------
Property and equipment, net........................ 1,364 2,625
Other assets....................................... 269 481
----------- -----------
$ 13,901 $ 18,524
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................. $ 486 $ 1,052
Accrued expenses.................................. 1,210 1,043
Accrued compensation expense...................... 861 909
Deferred revenue ................................. 3,949 3,902
----------- -----------
Total current liabilities ...................... 6,506 6,906
----------- -----------
Series A redeemable convertible preferred stock,
$.001 par value; 731,851 shares authorized; none
and 731,851 issued and outstanding at December 31,
2001 and 2000, respectively (liquidation preference
of $16,037 at December 31, 2000).................. -- 10,849
----------- -----------
Commitments and contingencies (Notes 4,6,7 and 10)
Stockholders' equity:
Common stock; $.001 par value; 25,000,000 shares
authorized; 8,214,713 and 8,107,149 shares
issued and outstanding at December 31, 2001 and
2000, respectively............................... 8 8
Series A-1 preferred stock; $.001 par value;
731,851 shares authorized, issued and
outstanding at December 31, 2001................. 5,199 --
Additional paid-in capital........................ 29,051 23,425
Accumulated deficit............................... (26,863) (22,689)
Accumulated other comprehensive income............ -- 25
----------- -----------
Total stockholders' equity .................... 7,395 769
----------- -----------
$ 13,901 $ 18,524
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Optika Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended December 31,
2001 2000 1999
------ ------ ------
Revenues:
Licenses................................ $ 6,306 $ 5,241 $ 11,457
Maintenance and other................... 9,975 10,589 10,308
------- ------- -------
Total revenues........................ 16,281 15,830 21,765
------- ------- -------
Cost of revenues:
Licenses................................ 873 562 821
Maintenance and other................... 3,290 4,685 3,947
------- ------- -------
Total cost of revenues................ 4,163 5,247 4,768
------- ------- -------
Gross profit............................. 12,118 10,583 16,997
------- ------- -------
Operating expenses:
Sales and marketing..................... 8,198 13,672 10,963
Research and development................ 5,591 8,434 5,635
General and administrative.............. 1,792 2,392 1,997
Restructuring and other charges......... 1,071 -- --
------- ------- -------
Total operating expenses............. 16,652 24,498 18,595
------- ------- -------
Loss from operations..................... (4,534) (13,915) (1,598)
Other income, net........................ 368 852 300
------- ------- -------
Loss before income tax expense (benefit) (4,166) (13,063) (1,298)
Income tax expense (benefit)............. 8 2,978 (454)
------- ------- -------
Net loss................................. (4,174) (16,041) (844)
Preferred stock dividend ................ (447) (1,037) --
Accretion of preferred stock and
beneficial conversion feature........... (250) (5,027) --
Increase to income available to common
stockholders from the conversion of
preferred stock......................... 6,196 -- --
------- ------- -------
Net income (loss) applicable to common
stockholders............................ $ 1,325 $(22,105) $ (844)
======= ======= =======
Basic net income (loss) per common share. $ 0.16 $ (2.78) $ (0.12)
Basic weighted average number of common
shares outstanding .................... 8,184 7,948 7,192
Diluted net loss per common share........ $ (0.46) $ (2.78) $ (0.12)
Diluted weighted average number of common
shares outstanding ..................... 8,984 7,948 7,192
The accompanying notes are an integral part of these consolidated financial
statements.
Optika Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
(In thousands, except share amounts)
Accumulated
Series A-1 Additional Other Total
Common Stock Preferred Stock Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Shares Amount Capital Deficit Income (Loss) Equity
--------- -------- -------- ------- ---------- ---------- ------------ -------------
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 gain:
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
Common stock issued pursuant
to employee stock purchase
plan 107,564 -- -- -- 127 -- -- 127
Accretion of preferred stock -- -- -- -- (250) -- -- (250)
Preferred stock dividends -- -- -- -- (447) -- -- (447)
Conversion of Series A to
Series A-1 preferred stock
net of exchange costs -- -- 731,851 5,199 6,196 -- -- 11,395
Comprehensive loss:
Unrealized gain on
investments -- -- -- -- -- -- (25)
Net loss -- -- -- -- -- (4,174) --
Total comprehensive loss (4,199)
--------- -------- -------- ------- ---------- ---------- ------------ -------------
Balances at December 31, 2001 8,214,713 $ 9 731,851 $ 5,199 $ 29,051 $ (26,863) $ -- $ 7,395
========= ======== ======== ======= ========== ========== ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
Optika Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2001 2000 1999
------ ------ ------
Cash Flows from Operating Activities:
Net loss................................. $ (4,174) $ (16,041) $ (844)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization........... 987 1,230 1,005
Loss on disposal of assets.............. 294 23 157
Deferred tax expense (benefit).......... -- 2,946 (508)
Changes in assets and liabilities:
Accounts receivable, net.............. (1,122) 1,828 (170)
Other assets.......................... 476 (672) (29)
Accounts payable...................... (566) 183 159
Accrued expenses and accrued
compensation expense................. 119 (93) (607)
Deferred revenue...................... 47 75 472
-------- --------- --------
Net cash used by operating activities (3,939) (10,521) (365)
-------- --------- --------
Cash Flows from Investing Activities:
Capital expenditures..................... (30) (1,260) (644)
Proceeds from sale of equipment.......... 10 -- --
Sale of short-term investments........... 9,637 7,967 721
Purchase of short-term investments....... (6,100) (13,527) (3,648)
-------- --------- --------
Net cash provided (used) by investing
activities.......................... 3,517 (6,820) (3,571)
-------- --------- --------
Cash Flows from Financing Activities:
Expenditures for preferred stock exchange (151) -- --
Net proceeds from issuance of redeemable
convertible preferred stock and warrants -- 14,692 --
Proceeds from issuance of common stock... 127 1,482 484
-------- --------- --------
Net cash provided (used) by financing
activities.......................... (24) 16,174 484
-------- --------- --------
Net decrease in cash and cash equivalents (446) (1,167) (3,452)
Cash and cash equivalents at beginning of
year 2,192 3,359 6,811
-------- --------- --------
Cash and cash equivalents at end of year. $ 1,746 $ 2,192 $ 3,359
======== ========= ========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................ $ -- $ -- $ --
Income taxes paid........................ $ 8 $ 30 $ 54
The accompanying notes are an integral part of these consolidated financial
statements
Optika Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Summary of Significant Accounting Policies
Optika Inc., a Delaware corporation, and its subsidiaries ("Optika" or the
"Company") were formed in 1988 and provide imaging, workflow and collaboration
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 earns revenue primarily from licenses and fees. Revenue is
recognized in accordance with Statement of Position 97-2 (SOP 97-2), as amended
by Statement of Position 98-9. For sales made either through our APs or by the
company license revenue is generally recognized upon shipment when a
non-cancelable license agreement has been signed or a purchase order has been
received, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. The license fees are not assumed to be fixed or
determinable if the fees are due more than 12 months after delivery or are based
on achievement of a milestone. Where applicable, fees from multiple element
arrangements are unbundled and recorded as revenue as the elements are delivered
to the extent that vendor specific objective evidence, or VSOE, of fair value
exists for the various elements. The company establishes VSOE of fair value on
maintenance and professional services elements based on prices charged when the
same elements are sold in separate transactions. The company has not established
VSOE on license elements. Revenue on undelivered and delivered elements is
recorded using the residual method in accordance with SOP 97-2, as amended.
Software maintenance revenues are deferred and recognized ratably over the
maintenance period, which is generally one year. The unrecognized portion of
software maintenance revenues is recorded in the accompanying balance sheets as
deferred revenue. Other revenues are recognized as services are performed.
The company 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
shrink-wrapped license agreements. The 30-day right of return begins upon
product shipment. The company's software license agreements generally do not
provide price adjustments or rotation rights. The company generally includes a
90-day limited warranty with the software license, which entitles the end-user
to corrections for documented program errors.
Cash Equivalents and Short-term Investments
The Company classifies highly liquid short-term investments with original
maturities of three months or less as cash equivalents. For 2001, short-term
investments consisted of municipal bonds with maturity periods within one-year.
For 2000, short-term investments consisted 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 basis. There were no unrealized gains or losses on
short-term investments as of December 31, 2001 and the unrealized gain on
short-term investments was $25,000 as of December 31, 2000. As of December 31,
2001, 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.
Income Taxes
We account for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment date. A
valuation allowance is recognized to the extent any deferred tax assets may not
be realizable in the reasonably foreseeable future.
Foreign Currency Translation
The U.S. dollar is the functional currency of the consolidated corporation.
For the Company's foreign subsidiaries, monetary assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the balance
sheet date and non-monetary assets are translated at historical rates. Results
of operations are translated using the average exchange rates during the period.
Foreign currency translation and transaction gains or losses were not
significant in any period presented.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities as well as the reported amounts of 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 exceeds the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As 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 earnings per share (EPS) is computed by dividing net income (loss)
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS is computed by dividing net
income (loss) applicable to common stockholders adjusted for dilutive effect of
securities by the weighted average number of common shares outstanding and the
dilutive effect of potential common shares outstanding. Diluted EPS excludes
2,513,000, 2,220,000 and 2,329,000 options and warrants to purchase common stock
in 2001, 2000 and 1999, respectively, and 731,851 shares of redeemable
convertible preferred stock in 2000 because of their antidilutive effect.
The following is the reconciliation of the numerators and denominators of
the basic and diluted EPS computations (in thousands, except per share amounts):
Year Ended December 31,
2001 2000 1999
------- ------- -------
Basic earnings (loss) per share:
Net income (loss) applicable to common
stockholders.................................. $ 1,325 $(22,105) $ (844)
Weighted average common shares outstanding..... 8,184 7,948 7,192
Net income (loss) per common share............. $ 0.16 $ (2.78) $ (0.12)
Diluted loss per share:
Net income (loss) applicable to common
stockholders.................................. $ 1,325 $(22,105) $ (844)
Preferred stock dividend, accretion and effect
of exchange................................... (5,499) -- --
------- ------- -------
$ (4,174) $(22,105) $ (844)
Weighted average common shares outstanding..... 8,184 7,948 7,192
Assumed conversion of preferred stock.......... 800 -- --
------- ------- -------
8,984 7,948 7,192
Diluted net loss per common share.............. $ (0.46) $ (2.78) $ (0.12)
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, 2001 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,
2001 2000
--------- ---------
Computer and office equipment................ $ 3,924 $ 4,734
Leasehold improvements....................... 1,049 1,074
Furniture, fixtures and other................ 638 1,055
--------- ---------
5,611 6,863
Less accumulated depreciation and
amortization............................... (4,247) (4,238)
--------- ---------
$ 1,364 $ 2,625
========= =========
3. Line of Credit
The Company has a line of credit expiring in October 2002, whereby it is
able to draw up to $3.0 million bearing interest at the bank's prime rate. At
December 31, 2001, $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, including prohibition of the payment of
dividends on our common stock. The Company has no debt outstanding at December
31, 2001.
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
Obligations
Year ending December 31:
2002 ............................... $ 832
2003 ............................... 733
2004 ............................... 743
2005 ............................... 681
2006 ............................... 653
Thereafter.......................... 165
--------
$ 3,807
========
Rent expense related to these and other operating leases approximated
$1,400,000, $1,423,000, and $1,069,000 for the years ended December 31, 2001,
2000 and 1999, respectively.
5. Income Taxes
The Company's income tax expense (benefit) is comprised of the following (in
thousands):
Year Ended
December 31,
2001 2000 1999
------ ------ ------
Current:
Federal........................ $ -- $ -- $ --
State.......................... 3 2 --
Foreign........................ 5 30 54
Deferred:
Federal........................ -- 2,760 (409)
State.......................... -- 186 (99)
------ ------ ------
Total expense (benefit) from
income taxes.................... $ 8 $ 2,978 $ (454)
====== ====== ======
The Company's net deferred tax assets are comprised of the tax effects of
the following (in thousands):
December 31, December 31,
2001 2000
------ ------
Deferred Tax Assets
Net operating loss carryforwards.... $ 12,970 $ 11,420
Depreciation and amortization....... 110 73
Tax credit carryforwards ........... 1,593 1,393
Accrued expenses.................... 295 227
--------- ---------
Deferred tax asset before valuation
allowance.......................... 14,968 13,113
Valuation allowance................. (14,968) (13,113)
--------- ---------
Net deferred tax asset.............. $ -- $ --
========= =========
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,
2001 2000 1999
------ ------ ------
U.S. federal income tax benefit at statutory
rate......................................... $ (1,458) $ (4,572) $ (441)
Increases (decreases) resulting from:
State taxes, net of federal benefit.......... (349) (1,093) (45)
Stock option exercises....................... -- (2,554) --
Non-deductible items......................... 21 31 22
Increase in valuation allowance.............. 1,855 11,593 --
Foreign tax rate differentials............... 15 39 68
Tax credits.................................. (200) (360) (58)
Other........................................ 124 (106) --
------- ------- -------
Expense (benefit) from income taxes $ 8 $ 2,978 $ (454)
======= ======= =======
At December 31, 2001, the Company has net operating loss carryforwards of
approximately $32,946,000 that expire beginning in 2009 through 2021. The net
operating loss carryforward includes $2,554,000 in deductions relating to stock
option exercises which will be credited to additional paid-in capital when the
carryforwards are realized. Additionally, the Company has various tax credit
carryforwards aggregating approximately $1,593,000 that expire beginning in 2005
through 2021.
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, 2001 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)
2001 2000 1999
------ ------ ------
Net income (loss) applicable to common stockholders:
As reported $ 1,325 $(22,105) $ (844)
SFAS No. 123 Pro-forma (400) (24,691) (2,282)
Basic net income (loss) per share:
As reported $ 0.16 $ (2.78) $ (0.12)
SFAS No. 123 Pro-forma (0.05) (3.11) (0.32)
Diluted net loss per share:
As reported $ (0.46) $ (2.78) $ (0.12)
SFAS No. 123 Pro-forma (0.66) (3.11) (0.32)
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 4,772,592
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 two to 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 2001, 2000 and 1999, respectively; no estimated dividends; expected
volatility of 112% for 2001, 116% for 2000 and 97% for 1999; risk-free interest
rates between 3.91% and 4.93% in 2001, 4.99% and 6.71% in 2000, 5.16% and 6.35%
in 1999; and expected option terms of 5 years for all years.
A summary of the status of the Company's stock option plan, excluding the
warrants issued in connection with the Redeemable Convertible Preferred Stock
discussed in note 7, as of December 31, 2001, 2000, and 1999 and changes during
the years then ended are presented in the following table. No warrants were
outstanding at December 31, 2001.
2001 2000 1999
---------------------------------------------------------
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 2,220 $ 5.16 2,329 $ 3.22 1,872 $ 2.61
Granted 1,579 1.25 1,082 8.33 952 4.52
Exercised -- -- (431) 8.53 (130) 2.58
Forfeited (983) (4.87) (760) 1.80 (365) 3.74
---------------------------------------------------------
Outstanding at
end of year 2,816 $ 3.07 2,220 $ 5.16 2,329 $ 3.22
=========================================================
Options and warrants
exercisable at
year end 1,270 $ 3.10 723 $ 3.45 1,168 $ 2.14
Weighted average fair
value of options
granted during the
year $ 1.01 $ 6.96 $ 3.50
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 2001:
Options and Warrants Outstanding Options and Warrants
Exercisable
-------------------------------------- -------------------------
Number Weighted Weighted Number Weighted
Range of Outstanding Average Average Exercisable Average
Exercise at 12/31/01 Remaining Exercise at 12/31/01 Exercise
Price (000's) Contractual Price (000's) Price
Life
----------- ----------- ------------ ----------- ------------
$ .75- 1.20 314 9.5 $ .99 9 $ 1.05
$ 1.31 1,107 9.1 1.31 421 1.31
$1.81- 3.81 792 5.7 2.98 583 2.87
$4.00-36.00 603 7.8 7.50 257 6.61
----------- ------------ ------------ ----------- ------------
2,816 7.9 $ 3.07 1,270 $ 3.10
=========== ============ ============ =========== ============
In connection with the Redeemable Convertible Preferred Stock discussed in
note 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.
The Company sold 107,563 shares to employees in 2001 under the Company's
2000 Purchase Plan. Under the previous Purchase Plan, the Company sold 39,429
shares to employees in 2000 and 67,923 shares to employees in 1999. 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 2001, 2000 and
1999, respectively; no estimated dividends for all years; expected volatility of
112%, 116% and 97%; risk free interest rates of 4.76% and 4.86% for 2001, 4.99%
and 6.71% for 2000 and 5.16% and 6.35% for 1999; and an expected life of 0.5
years for all years. The weighted-average fair values of those purchase rights
granted in 2001, 2000 and 1999 was $0.58, $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 $204,000 in 2001, $271,000 in 2000 and
$196,000 in 1999.
7. Redeemable Convertible Preferred Stock
In 2000 the Company completed the sale of 731,851 shares of Series A
Redeemable 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 could have been redeemed if, after one
year, the Company's common stock traded above a specified price level for a
period of time. Until then, it accrued a cumulative dividend of eight percent
(8%) per annum. The Preferred Stock was subject to mandatory redemption
provisions on the eighth anniversary of the issuance for cash equal to the
stated liquidation preference plus accumulated unpaid dividends. The Preferred
Stock was convertible to common stock at the holder's option based upon the
conversion formula as defined in the Preferred Stock Certificate of Designation.
The 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 was increased by periodic accretions so that the
carrying amount would have been equal to the redemption amount ($15 million) at
the redemption date in 2008. The periodic increases in carrying amount were
effected by charges against additional paid in capital. The value of the
beneficial conversion feature was determined by calculating the difference
between the fair market value of the underlying common stock less the intrinsic
value of the Preferred Stock based on the allocation of proceeds. As the
Preferred Stock was convertible into common stock at any time, the beneficial
conversion amount was accreted in its entirety at the date of issuance of the
Preferred Stock.
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. The warrants were to expire in 2008 and as of May 7,
2001 no warrants were 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.
On May 7, 2001, the Company, Thomas Weisel Capital Partners L.P., a Delaware
limited partnership, certain of its affiliates and RKB Capital, L.P. (the
"Purchasers"), entered into an Exchange Agreement, pursuant to which we have
issued Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred"),
having the terms and provisions set forth in the Certificate of Designation
designating the Series A-1 Convertible Preferred Stock, on a one-for-one basis,
in return for the exchange, surrender and cancellation of the Series A
Redeemable Convertible Preferred Stock (the "Series A Preferred"). The Series
A-1 Preferred issued in exchange for the Series A Preferred is substantially
identical to the Series A Preferred with the exception of certain changes made
to the redemption, dividend, protective and liquidation provisions thereof. In
connection with this transaction, we also purchased the warrants associated with
the Series A Preferred for an aggregate of $0.01. The Series A-1 Preferred is
convertible to common stock at the holders' option based upon the conversion
formula as defined in the Certificate of Designation.
The Series A-1 Preferred was recorded in stockholders' equity at its fair
value. The difference between the carrying value of the Series A Preferred at
the time of the exchange and the fair value of the Series A-1 Preferred of $5.35
million (as determined by an independent valuation) was recorded as an increase
in additional paid-in capital and as a one-time adjustment to net income (loss)
applicable to common stockholders. As a result of the Exchange Agreement, future
periods will not have adjustments to income for accumulating dividends or
allocations of the discounts associated with the Series A Preferred Stock.
8. Segment 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,
2001 2000 1999
------ ------ ------
Total revenues attributable to:
United States $ 14,347 $ 13,455 $ 18,094
International 1,934 2,375 3,671
------- ------- -------
Total $ 16,281 $ 15,830 $ 21,765
======= ======= =======
Revenue is classified based on the country in which the Company's Advantage
Partner or customer is located. International assets and liabilities are
insignificant to the overall presentation of segment information.
9. Restructuring and Other Non-Recurring Charges
On February 6, 2001, we strategically reduced our workforce by 42 employees
to align our expenses more closely with revenues. This reduction in force
resulted in approximately $1.1 million of restructuring charges in the first
quarter of 2001. This restructuring charge consisted of $652,000 of severance
costs, $240,000 of lease termination and $179,000 of asset write-offs. All
remaining costs are expected to be paid before the end of 2002. The table below
outlines the restructuring accrual activity through December 31, 2001 (in
thousands):
Severance Lease Asset
Costs Termination Write-Offs Total
------- ------- ------- -------
Restructuring charge $ 652 $ 240 $ 179 $ 1,071
Usage (632) (141) (179) (952)
------- ------- ------- -------
Balance December 31, 2001 $ 20 $ 99 $ -- $ 119
======= ======= ======= =======
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, 2001.
11. Valuation and Qualifying Accounts
(in thousands) Allowance
Beginning Increase Recoveries/ Ending
Balance (Decrease) (Write-offs) Balance
------- ------- ------- -------
Deducted from asset account-
Allowance for doubtful accounts
Year ended
December 31, 2001....... $ 86 $ 10 $ 14 $ 110
Year ended
December 31, 2000....... 90 48 (52) 86
Year ended
December 31, 1999....... 443 (68) (285) 90
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, 2001:
(in thousands, except per
share amounts) Quarter Ending
---------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- ---------
Fiscal Year 2001
Total revenues $ 3,845 $ 4,173 $ 3,779 $ 4,484
Gross profit 2,717 3,187 2,777 3,437
Income (loss)from operations(1) (3,293) (759) (644) 162
Net income (loss) applicable
to common stockholders (2) (3,699) 5,337 (557) 244
Basic income (loss) per share (0.45) 0.65 (0.07) 0.03
Diluted income (loss) per share (0.45) (0.07) (0.07) 0.03
Fiscal Year 2000
Total revenues $ 3,827 $ 4,502 $ 3,901 $ 3,600
Gross profit 2,630 3,190 2,429 2,334
Income (loss)from operations (3,004) (2,958) (4,051) (3,902)
Net income (loss) applicable
to common stockholders (7,504) (3,226) (7,285) (4,090)
Basic and diluted earnings
(loss) per share (.99) (.40) (.90) (.50)
(1) The quarter ended March 31, 2001 includes a restructuring charge of $1.1
million for the severance of 42 employees, termination of leases and
write-offs of related assets.
(2) In connection with the conversion of the Series A Redeemable Convertible
Preferred Stock into Series A-1 Preferred Stock in May 2001, the Company
recorded a one-time $6.2 million increase to net income applicable to common
stockholders representing the difference between the carrying value of the
Series A Preferred Stock and the fair value of the Series A-1 Preferred
Stock at the conversion date.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 19, 2002.
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, 2002:
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/ ALAN B. MENKES Director
----------------------
Alan B. Menkes
By: /s/ JAMES T. ROTHE Ph.D Director
----------------------
James T. Rothe Ph.D
By: /s/ CHARLES P. SCHNEIDER Director
----------------------
Charles P. Schneider
EXHIBIT INDEX
Exhibit No. Description
3.1(2) Certificate of Ownership and Merger.
3.2(1) Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.3(10) Amended and Restated Bylaws of the Registrant.
3.4(3) Certificate of Designation, designating the Series A
Convertible Preferred Stock.
3.5(13) Certificate of Designation, designating the Series A-1
Convertible Preferred Stock.
3.6(11) Certificate of Designation, designating the Series B
Preferred Stock.
4.1(1) Specimen Common Stock certificate.
4.2(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.
4.5(12) Amended and Restated Registration Rights Agreement dated
as of January 23, 2002, between the Registrant and
EquiServe Trust Company, N.A., as Rights Agent.
10.1(1) Form of Indemnification Agreement between the Registrant
and each of its directors and officers. *
10.2(8) The Registrant's 1994 Stock Option/Stock Issuance Plan, as
restated and amended through May 2000.
10.3(8) The Registrant's 2000 Employee Stock Purchase Plan.
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(8) 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.
10.18.3 Loan Modification Agreement dated as of November 6, 2001, by
and between the Registrant and Silicon Valley Bank.
10.19(3) Securities Purchase Agreement dated as of February 9,
2000, by among the Registrant, Thomas Weisel Capital
Partners L.P. and certain of its affiliates and RKB
Capital, L.P.
10.20(3) Registration Rights Agreement dated February 23, 2000 by and
between the Registrant, the Purchasers and the other parties
signatory thereto.
10.21(13) Exchange Agreement dated as of May 7, 2001, by and
between the Registrant, Thomas Weisel Capital Partners
L.P. and certain of its affiliates and RKB Capital L.P.
10.22(13) First Amendment to Registration Rights Agreement dated
May 7, 2001 by and between the Registrant, Thomas Weisel
Capital Partners L.P. and certain of its affiliates and
RKB Capital, L.P.
10.23(13) Mutual Agreement regarding future treatment of Series A-1
Preferred Stock dated May 7, 2001 by and between the
Registrant, Thomas Weisel Capital Partners L.P. and certain of
its affiliates and RKB Capital, L.P.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of 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 Annual Report on
Form 10-K (File No. 0-28672) for the year ended December 31, 2000.
(9) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-28672) for the quarter ended 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.
(11)Incorporated by reference to an exhibit to the Company's Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
July 18, 2001.
(12)Incorporated by reference to an exhibit to the Company's Current
Report on Form 8-K (File No. 0-28672) dated January 23, 2002.
(13)Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-28672) for the quarter ended March 31,
2001.