CONCUR TECHNOLOGIES INC - 10-K Annual Report

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. ¨

As of December 17, 2002, 30,927,332 shares of Common Stock of the Registrant were outstanding. As of March 28, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares held by non-affiliates of the Registrant (based upon the closing price of the Registrant’s Common Stock on March 28, 2002 of $3.31 per share) was approximately $66.5 million.

Portions of Registrant’s definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, which is anticipated to be filed within 120 days after the end of the Registrant’s fiscal year ended September 30, 2002, are incorporated by reference in Part III hereof.

Concur^®, Concur Expense^™, Captura Expense^™, Concur Payment^™, Concur Imaging Service^™, Concur Voice Access Service^™ and Concur Business Intelligence^™ are trademarks of Concur Technologies, Inc. Trade names, service marks or trademarks of other companies appearing in this report are the property of their respective holders.

This Annual Report on Form 10-K contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. You can identify these statements by our use of the future tense, or by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue,” and other similar words and phrases. Examples of sections containing forward-looking statements include “Business” and “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.” These forward-looking statements involve many risks and uncertainties. Examples of such risks and uncertainties are described under “Factors That May Affect Results Of Operations And Financial Condition” and elsewhere in this report, as well as in our other filings with the Securities and Exchange Commission. You should be aware that the occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We assume no obligation or duty to update any such forward-looking statements.

Concur Technologies, Inc. is a leading provider of Web-based Corporate Expense Management software and services that are designed to improve operational efficiency and reduce cost in businesses by automating and streamlining business processes. Our products include Concur Expense^™ and Captura Expense^™ software for automating travel and entertainment expense management, Concur Payment^™ software for automating employee requests for vendor payments, and value-added products and services including Concur Imaging Service^™, Concur Voice Access Service^™, and Concur Business Intelligence^™.

Our software products and services are designed to meet the needs of businesses of all sizes worldwide. Our solutions are designed to accommodate a wide range of customer business needs, technical requirements, and budget objectives through flexible delivery models, including our license, hosted license, hosted subscription, and application service provider (“ASP”) models. We offer our products on a license basis, which we market primarily to large companies with more than 3,000 employees that want a highly configurable solution that is managed in-house and delivered over a corporate intranet. We also offer our products on a hosted license and hosted subscription basis, which we market primarily to large companies that want a highly configurable solution provided on an outsourced basis. We further offer our Concur Expense product on an ASP basis, which we market primarily to mid-size companies with 100 to 3,000 employees that want a standardized solution provided on an outsourced basis over the Internet.

Since 1996, more than 1,000 companies in 41 countries have contracted to use our market-leading software and services for more than 3.5 million of their employees to reduce costs, increase productivity, improve compliance with business policies, and expand their knowledge base with respect to internal business processes. Our customers include world-class organizations such as AT&T, Citigroup, Dupont, Ford Motor Company, General Motors, Hewlett-Packard, and Pfizer. Our strategic relationships include more than 50 world-class organizations such as ADP, Inc., Microsoft Business Solutions, BearingPoint, Inc. (formerly KPMG Consulting, Inc.), Sprint, U.S. Bank, BankOne, and VISA.

In response to competitive conditions worldwide, businesses have sought cost savings and productivity gains by using software products and services to manage enterprise business processes and optimize spending. Today, companies are seeking cost-saving solutions for a wide variety of business processes, including business processes in the category of Corporate Expense Management, which includes travel and entertainment expense management and the management of employee requests for vendor payments.

For most companies, the management of corporate expenses involves manual, paper-based processes that require action by many individuals. Such manual, paper-based processes are time-consuming, inefficient, and costly, because they involve re-keying of data, manual tracking of forms and approvals, limited data capture and reporting, and limited ability to track and enforce business expense policies. We believe a significant market opportunity exists for Web-based software and services that improve operational efficiency and reduce cost in businesses by automating and streamlining business processes, such as those processes involved in the management of corporate expenses.

We believe that customers using our software and services can realize significant operating cost savings through reduced processing costs, increased business intelligence by analyzing captured data, and greater control and enforcement of business expense policies. We think our customers can achieve these cost savings rapidly because our products are designed to minimize burdens on customer information technology professionals and to maximize employees’ ease of use. Our products are designed to deploy rapidly, scale enterprise-wide, and integrate easily with an organization’s existing information technology infrastructure. We believe our products are easy to use, significantly reduce unproductive time, and shorten reimbursement, fulfillment, and processing cycles.

Our products and services benefit many groups within an enterprise, including corporate management, information technology professionals, and employees. For corporate management, our products and services reduce the amount of time required to administer, manage, and process expense reports and payment requests, thereby increasing productivity and reducing operating costs. Our products and services also provide reporting capabilities that provide management with access to the information gathered by our software for the purposes of trend analysis, vendor negotiation, financial planning, and other needs. For information technology professionals, our products and services provide simple, Web-based functionality for the administration, management, and monitoring of our products, providing a means for managing employee information, database maintenance, and data interoperability. For employees, our products and services provide intuitive, easy to use interfaces for the creation of expense reports and payment requests, which reduce the amount of time required to create these documents.

Our flagship product is Concur Expense, which is designed to automate, simplify, and reduce the costs associated with the travel and entertainment expense management process. Our Web-based software automates each step of the expense management process, from expense report preparation and approval to policy compliance, reimbursement, and data analysis, providing valuable information for managing expenses while improving policy compliance, reimbursement speed, and expense report accuracy. By streamlining the expense management process, our customers can achieve direct savings through a substantive reduction in manual processing, increased policy compliance, and enhanced access to expense data for better decision making and control over expenses. During fiscal 2002, we added Captura Expense software to our Corporate Expense Management product line as a result of our acquisition of Captura Software, Inc. Captura Expense offers similar features and functionality to Concur Expense.

Report Preparation for an Improved User Experience. Our software provides an intuitive, easy-to-use interface for the creation of expense reports by end users, which reduces the amount of time required to create these reports. By using corporate charge or credit card information, our software pre-populates a user’s expense report with transaction data required for the expense report, including transaction date, type, vendor, location, method of payment, amount, and currency conversion. Using a graphical user interface, employees supply additional expense-related information by using pull-down menus. To eliminate the task of sorting receipts, our software allows users to enter data in any order. Features of the software also automate the complicated process of itemizing hotel receipts. With each use of the software, commonly incurred expense information is retained and can be used to help complete the next expense report. Other ease-of-use features include simple “checkbook” style input screens, the ability to create “attendees” lists, mileage reimbursement tracking, and automatic flagging of non-compliant and incomplete entries.

Report Routing and Approval. Our software allows each customer to determine how expense reports should be processed, whether by routing and submission to a manager for approval before processing, or by routing to the accounting department for immediate review and payment. Once the report is submitted, the approver receives an e-mail message containing a link to the software, where all reports awaiting approval are listed. The software can be configured to route the report for approval based on cost center, dollar limit, or other criteria. Items that do not comply with corporate policy can be automatically flagged for review, allowing approvers to significantly reduce review time. Approvers can reject individual line items, while allowing the rest of the report to continue in the approval process. Once approved, the report is automatically forwarded to the next phase in the process or to the customer’s accounting department, and the user is notified of the action.

Report Processing. Our software streamlines back-office processing of expense reports in a number of ways. Because all expense reports are prepared electronically, the processing department no longer needs to check the arithmetic of each report manually. Moreover, businesses can reduce the time spent auditing reports by choosing to audit only those reports automatically flagged as non-compliant with corporate travel and entertainment expense policies. In addition, our software reduces the number of status inquiries between employees and processing departments by automatically updating the status of reports in the database, and alerting employees via e-mail to the status of their reports. The software allows significant time savings by automatically posting expense report information to the customer’s enterprise resource planning (“ERP”) or accounting package, eliminating the manual re-entry of this data. The software also helps companies claim reimbursement of tax credits by tracking value added tax, goods and services tax, and other international taxes.

Data Capture and Reporting for Analysis. Our software offers increased business intelligence by capturing and reporting data for analysis, which gives companies a greater ability to make informed decisions. The software can be configured for business policy rules, which guides employees to make business-compliant decisions, flags transactions for appropriate approval, and allows for auditing when exceptions occur. Companies are then able to use captured data to analyze trends, influence budget decisions, and improve forecasting. Changes in spending trends can be identified, which can lead to better management of vendor relationships and policy rules and a reduction in controllable costs.

Leverage of Existing Systems. As a Web-based solution based on open technology, our software interoperates with a variety of Web browsers, as well as email, databases, and financial systems, allowing companies to leverage their existing computer environment. Expense reporting information, from employee information to accounting data to reimbursement status, can be integrated with external systems. Expense reporting information is imported directly into accounts payable, general ledger, and payroll systems, ensuring accurate and timely reimbursement.

Our Concur Payment software is a Web-based software product that is designed to automate, simplify, and reduce the costs associated with the process of entering, approving, and managing non-purchase order vendor payments. Our software enables companies to streamline payment requests, facilitating flexible approval processes and automatic accounts payable system integration. The combination of cost reduction, increased productivity, and the availability of valuable data for improved cost management generates cost savings for our customers.

Streamlined Processing for Reduced Operational Costs. Our software can provide a rapid return on investment by automating the vendor payment request process from payment request preparation, account coding, and approval to payment tracking and integration with a company’s accounts payable system. Our software eliminates paper forms and manual processing, which, in turn, provides a significant reduction in processing costs and the expenditure of valuable resources.

Automation for Increased Employee Productivity and Improved Vendor Relations. For many companies, processing vendor payments is a paper-intensive, error-prone task. Our software changes that by automating the entire process from submissions to approval. Leveraging the software’s functionality, companies can collect the correct information and approvals up front. Employees and a customer’s accounts payable department are spared the administrative burden associated with employee-initiated requests. The software captures the details of the payment request, making valuable information more readily available and ensuring that issues and questions are resolved quickly and efficiently. By automating the process for vendor payment requests, our software reduces the number of processing steps. This results in more timely payment to vendors, which, improves the potential to take advantage of cash discounts and enhances vendor relationships and management. Current information about each vendor payment is readily available to the employee making the request, as well as the accounts payable department, which allows ongoing tracking of the requests and prompt answers to vendor inquiries on payment status.

Intuitive Interface for an Improved User Experience. Our software provides an intuitive, easy-to-use interface for the payment request process, which reduces the amount of time required to create payment requests. The software prompts the user for all necessary information, such as vendor data, account codes, special handling instructions, and payment details. The payment request is then electronically routed for approval, and once approved, it is automatically sent to the financial system for payment. Users have access to instant online status updates.

Improved Cost Control with Better Business Intelligence. With access to comprehensive payment details, companies have the ability to analyze trends, influence budget decisions, and improve forecasting. The availability of detailed payment data provides the accounts payable department with the ability to better manage vendors, which can lead to cost savings. Our software provides the insight and technology to help companies leverage the data they collect, allowing them to make informed, cost-saving decisions within the company.

We provide value-added software and services that are fully-integrated with our core software products. These value-added software and services are designed to help our customers maximize their return on investment by enhancing our expense management and payment solutions for additional cost reductions. Our primary value-added software and services include Concur Imaging Service, Concur Voice Access Service, and Concur Business Intelligence.

Concur Imaging Service. The Concur Imaging Service provides companies with the ability to digitally capture, store, archive and retrieve employee receipts and invoices. This service enables customers using our Concur Expense and Concur Payment software to reduce the costs of handling paper receipts and invoices. To use the service, users fax receipts and invoices to a designated Concur Imaging Service telephone number. The user, approval managers, and accounting staff are then able to view receipts and invoices online directly through the use of their Concur Expense and Concur Payment software. Electronic images reduce the total cost associated with expense reporting and invoice processing. There is no postage, no need to store paper receipts in a central location, and no need to physically handle the enormous number of paper receipts associated with expense reporting. Receipts and supporting documentation are available online throughout the expense approval, payment, and audit processes.

Concur Voice Access Service. The Concur Voice Access Service provides voice recognition technology for our Concur Expense customers, allowing users to “call in” their expenses while they are traveling or otherwise away from their desktops. Expenses can be “called in” using any telephone and are captured in real-time by Concur Expense. This innovation further maximizes a customer’s return on its investment in Concur Expense. By providing users with a convenient method of reporting expenses as they occur, expense reporting can be accomplished quickly and efficiently.

Concur Business Intelligence. We offer Concur Business Intelligence reporting solutions, which provide customers with enhanced reporting capabilities with respect to the data gathered by our core software products, allowing customers to grow their businesses by design. In partnership with Cognos Inc., a leading global provider of business intelligence solutions, we have introduced Concur Business Intelligence to give customers an accessible means of analyzing expense data and enabling them to transform captured data into valuable information used for effective decision-making.

Consulting. We offer consulting services in connection with implementation of our software products helping customers maximize their return on investment in our software. Our consulting staff meets with customers prior to product implementation to review the customer’s existing business processes and information technology infrastructure, and to provide advice on ways to improve these processes leveraging industry best practices and our experience in the Corporate Expense Management market. Our consultants also install, configure, and test our applications and integrate them with our customers’ existing systems, as well as help customers develop a strategy for enterprise-wide deployment of our applications. After deployment, our consultants work with customers to identify further opportunities to further improve their return on investment.

Customer Support. We provide customer support and product updates and new releases through our CustomerOne Services support program. Under this program, we provide telephone and Internet support, including online case entry and review, access to technical information documents, and technical tips. We also provide product updates and new releases for customers who subscribe to our CustomerOne Services program. Most customers subscribe for the first year of the CustomerOne Services program at the time they license an application; thereafter, support is typically renewable on an annual basis.

Training. We offer a variety of training programs for our products. These programs are tailored to particular user groups, such as end users, help desk personnel, and trainers. Training can be either Web-based or offered onsite for the customer. Additionally, training simulations can be designed to meet the specific needs of each customer, as well as customized training status reports. All training programs are designed to assist each customer with managing change and minimizing help desk calls.

More than 1,000 companies in 41 countries have contracted to use our market-leading software and services for more than 3.5 million of their employees. Our customers span all major industries, range in size from less than 100 employees to more than 200,000 employees, and many are multi-national corporations. Our customers include world-class organizations such as AT&T, Citigroup, Dupont, Ford Motor Company, General Motors, Hewlett-Packard, and Pfizer. No customer accounted for 10% or more of our total revenues in fiscal 2002, 2001, or 2000.

We market our software and services to large-market companies with more than 3,000 employees and to middle-market companies with 100 to 3,000 employees. In the large market, we sell our products primarily through our direct sales organization, with field sales professionals located in metropolitan areas throughout the United States and in the United Kingdom and Australia. Field-based sales engineers provide technical sales support. Direct telemarketing representatives based at our headquarters in Redmond, Washington support the field sales force through lead-generation and lead-tracking activities. We also have a number of marketing referral alliances that provide our large-market sales force with prospects.

In the large market, our sales efforts involves contact with multiple decision makers, frequently including the prospective customer’s chief financial officer, vice president of finance, controller, and corporate travel manager. While the average sales cycle varies substantially, for initial sales it has generally ranged from six to twelve months, with some transactions exceeding fifteen months. In the middle market, our distribution strategy includes both direct and indirect channels. Our middle market sales efforts frequently include contact with the prospective customer’s chief financial officer, vice president of finance, or controller. While the average sales cycle varies substantially from customer to customer, for initial sales it has generally ranged from three to six months, with some transactions exceeding twelve months.

We have developed several strategic relationships focused on middle market sales opportunities. In May 2000, we entered into a strategic relationship with ADP, Inc. (“ADP”), a subsidiary of Automatic Data Processing, Inc., a global payroll solutions and computing services provider. Sales through our ADP channel in fiscal 2002 represented more than 50% of our overall new unit sales of ASP solutions in the middle market. In February 2001, we entered into a strategic relationship with Microsoft Business Solutions, a leading provider of business management solutions, under which Microsoft Business Solutions is authorized to resell and jointly market our ASP solutions through its global value-added reseller network. Microsoft Business Solutions began sales of our ASP solutions in the fourth quarter of fiscal 2001.

We engage in a variety of marketing activities, including e-mail and direct mail campaigns, co-marketing strategies designed to leverage existing strategic relationships, Web-site marketing, public relations campaigns, speaking engagements and forums, and industry analyst visibility initiatives. We actively participate and sponsor finance and shared-service conferences and we demonstrate and promote our products at trade shows targeted at accounting, finance, information technology, and travel executives.

We have been an innovator and leader in developing Corporate Expense Management software and services. We believe that we were one of the first software providers to introduce a commercially-successful travel and entertainment expense reporting software application. We also believe that we pioneered Corporate Expense Management software and services in an ASP model, as well as automated solutions for non-purchase order invoice tracking and approval.

Our software engineering organization is responsible for developing new software and services as well as enhancing our existing software and services. We believe that a technically skilled, quality-oriented, and highly productive software engineering organization will be important for the success of new product offerings. As of September 30, 2002, we employed 91 people in research and development. Our software engineering team is organized into six disciplines: development, quality assurance, documentation, product design, configuration management, and program management. Members from each of these disciplines, along with a product manager from our marketing department, form separate product teams that work closely with sales, marketing, professional services, customers, and prospects to further understand market needs and requirements. When required, we also use independent development firms or contractors to expand the capacity and technical expertise of our internal research and development team. Additionally, we may license third-party technology that is incorporated into our products. We have a well-defined software development methodology that we believe allows us to deliver products that satisfy real business needs and meet commercial quality expectations.

The market for our software and services is highly competitive and subject to rapid change. The direct competition we face depends on the market segment focus and delivery model capabilities of our competitors. We also face indirect competition from potential customers’ internal development efforts and, at times, have to overcome their reluctance to move away from existing paper-based systems. Our principal direct competition comes from independent vendors of Corporate Expense Management software and services, and from financial institutions and providers of ERP software that sell, along with their products and services, products similar to ours. These competitors include, but are not limited to, American Express, Bank of America, Wells Fargo Bank, SAP AG, PeopleSoft, Inc., JD Edwards, Oracle Corporation, Extensity, Inc., Necho Systems Corporation, Gelco Information Systems, and Outtask, Inc. We also expect to face competition from new entrants including financial institutions and ERP vendors that do not already market products similar to ours.

We believe that the principal competitive factors considered in selecting Corporate Expense Management software and services are functionality, interoperability with existing information technology infrastructure, ability to deliver solutions on an outsourced basis, price, and an installed base of referenceable customers. With respect to functionality, we believe that we offer products with generally more features than other competing products, and that we have often been the first to offer new and innovative features, such as pre-population of expense reports based on credit card information. Our products were designed and built to interoperate with existing information technology systems and to operate on an outsourced basis. We believe that a significant number of companies are seeking to reduce their operating costs by outsourcing their back-office processes, such as the management of corporate expenses. We have a well-established and scalable ASP infrastructure that allows us to provide cost-competitive solutions to middle market customers on an outsourced basis. Similarly, we offer highly configurable hosting and application management services to large market customers of our license products, which we believe is a cost-competitive alternative to the self-hosted solutions provided by many of our competitors. Overall, we believe that our product offerings are competitively priced when compared to our competitors’ products, and that our installed base of customers for expense management solutions is larger than that of our primary competitors.

Although we believe we offer highly competitive products and services, many of our competitors have longer operating histories, significantly greater financial, technical, marketing, and other resources, significantly greater name recognition, and a larger number of total customers for their products and services. Moreover, a number of our competitors, particularly major financial institutions and ERP vendors, have well-established relationships with our current and potential customers as well as with systems integrators and other vendors and service providers. In addition, 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. It is also possible that new competitors or alliances among competitors or other third parties may emerge and rapidly acquire market share. Increased competition may result in price reductions, reduced gross margins, and change in market share, any of which could harm our business.

Our success depends, in part, upon our proprietary technology, processes, trade secrets, and other proprietary information, and our ability to protect this information from unauthorized disclosure and use. We rely primarily on a combination of copyright, trade secret, and trademark laws, confidentiality procedures, contractual provisions, and other similar measures to protect our proprietary information. Currently, we do not own any issued patents or have any patent applications pending. As part of our efforts to protect our proprietary information, we enter into license agreements with our customers and nondisclosure agreements with certain of our employees, consultants, corporate partners, customers, and prospective customers. These agreements generally contain restrictions on disclosure, use, and transfer of our proprietary information. We also employ various physical security measures to protect our software source codes, technology, and other proprietary information.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology that we consider proprietary, and third parties may attempt to develop similar technology independently. In particular, we provide our licensed customers with access to object code versions of our software, and to other proprietary information underlying our software. In a small number of instances, we have provided third parties with limited access to source code versions of our software in order to facilitate more extensive testing of such products. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries. The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.

In addition, over the past several years, we have made numerous changes in our product names. Although we have filed trademark applications in the United States and in certain foreign countries, we do not have assurance that our strategy with respect to our trademark portfolio will prove adequate to secure all necessary intellectual property rights or to protect us from claims by third parties, either domestically or in foreign countries. There also can be no assurance that any of our copyrights or trademarks will not be challenged and invalidated.

While we are not aware that our products, trademarks, copyrights, or other proprietary rights infringe the proprietary rights of third parties, third parties may assert infringement claims against us in the future with respect to current or future products. Further, we expect that expense management software providers may become subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. From time to time, we hire or retain employees or consultants, including through acquisitions, who have worked for independent software vendors or other companies developing products similar to those offered by us. Such vendors or companies may claim that our products are based on their products and that we have misappropriated their intellectual property. Any such claims, with or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays or require us to enter into royalty or licensing agreements with third parties. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which would have a material adverse effect upon our business and financial position.

As of September 30, 2002, we had approximately 338 full-time employees, of whom 19 were based in the United Kingdom and 3 were based in Australia. There were 91 in research and development, 73 in sales and marketing, 84 in consulting, training, and technical support, 53 in ASP operations, and 37 in administration and finance. No employees are known by us to be represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We consider our relations with our employees to be good.

Our principal administrative, sales, marketing, and research and development facility is located in Redmond, Washington and consists of approximately 81,000 square feet of office space held under leases which expire on May 31, 2005. As of September 30, 2002, we also leased sales offices in Atlanta, Boston, Chicago, Dallas, London, Los Angeles, New York, Philadelphia, Phoenix, Raleigh, and San Jose.

In July 2001, we and several of our current and former officers were named as defendants in two securities class-action lawsuits filed in the United States District Court for the Southern District of New York. The complaints generally allege claims against the underwriters of our initial public offering in December 1998, our company, and several of our current and former executives, based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. The plaintiffs in these lawsuits seek damages in unspecified amounts, which could be substantial. In April 2002, these lawsuits were consolidated. In October 2002, the court dismissed the individual defendants from the consolidated lawsuit, without prejudice, pursuant to a stipulated agreement between the parties. We believe the consolidated lawsuit is without merit and intend to defend ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk that management distraction in dealing with this lawsuit could harm our results.

	High		Low
Fiscal year ended September 30, 2001:
First Quarter	$	3.438	$	1.031
Second Quarter	$	2.000	$	0.313
Third Quarter	$	1.690	$	0.328
Fourth Quarter	$	1.570	$	0.670

Fiscal year ended September 30, 2002:
First Quarter	$	1.870	$	0.740
Second Quarter	$	3.780	$	2.250
Third Quarter	$	3.520	$	2.220
Fourth Quarter	$	2.600	$	1.700

Class of

Purchasers

Date of Sale

Title of Securities

Number of

Securities

Aggregate

Purchase Price

Form of

Consideration

1 investor

December 13, 1999

Exercise of warrant to

purchase common stock

93,785

–

Net exercise

1 investor

February 22, 2000

Common stock

1,073,929

25,001,067

Cash

1 investor

February 22, 2000

Common stock

429,571

10,000,413

Cash

28 investors

July 31, 2002

Common stock

4,695,304

–

Exchange for outstanding

capital stock of

Captura Software, Inc. (1)

All of the above sales were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. The securities were sold to a limited number of people with no general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate the investment and who represented to the issuer that the shares were being acquired for investment.

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)	5,741,531	$	5.47	3,980,546
Equity compensation plans not approved by security holders (2)	959,909		8.52	540,091

Total	6,701,440	$	6.18	4,520,637

	Year Ended September 30,
	2002		2001		2000			1999		1998
	(in thousands, except per share data)
Consolidated Statements of Operations
Revenues, net:
License	$	9,847	$	12,489	$	14,852		$	24,002	$	13,176
Subscription		10,360		4,624		927			—		—
Service		24,890		23,771		22,825			13,807		6,952

Gross revenues		45,097		40,884		38,604			37,809		20,128
Sales returns & allowances		—		215		(2,900	)		—		—

Net revenues		45,097		41,099		35,704			37,809		20,128
Cost of revenues:

Delaware		91-1608052
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PART I		3

Item 1. Business		3
Item 2. Properties		10
Item 3. Legal Proceedings		11
Item 4. Submission of Matters to a Vote of Security Holders		11

PART II		11

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters		11
Item 6. Selected Consolidated Financial Data		13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		31
Item 8. Financial Statements and Supplementary Data		31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56

PART III		56

Item 10. Directors and Executive Officers of the Registrant		56
Item 11. Executive Compensation		56
Item 12. Security Ownership of Certain Beneficial Owners and Management		56
Item 13. Certain Relationships and Related Transactions		56
Item 14. Controls and Procedures		56

PART IV		57

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K		57

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