-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V77XUrPBkusNgs/ka85cJUmjQ7KEHzqKnf4ZwWwipy1mGeQjc2dBnRg06RgU2A6B sFtYRZLN3RsHQfaDF1xF8w== 0001014920-98-000006.txt : 19980821 0001014920-98-000006.hdr.sgml : 19980821 ACCESSION NUMBER: 0001014920-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 DATE AS OF CHANGE: 19980820 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTIKA IMAGING SYSTEMS INC CENTRAL INDEX KEY: 0001014920 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 954154552 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11751 FILM NUMBER: 98691866 BUSINESS ADDRESS: STREET 1: 7450 CAMPUS DR 2ND FLOOR CITY: COLORADO SPRINGS STATE: CO ZIP: 80920 BUSINESS PHONE: 7195489800 MAIL ADDRESS: STREET 1: 7450 CAMPUS DR 2ND FLOOR CITY: COLORADO SPRINGS STATE: CO ZIP: 80920 10-Q 1 FORM 10-Q =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 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 IMAGING SYSTEMS, 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 80920 Suite 200 (Zip Code) Colorado Springs, CO (Address of principal executive offices) (719) 548-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No ____. 6,996,570 shares of the Registrant's Common Stock, $.001 par value per share, were outstanding as of August 12, 1998 =============================================================================== INDEX PAGE PART I - FINANCIAL INFORMATION Item 1 - Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 1 Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 1997 and 1998 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1997 and 1998 (Unaudited) 3 Notes to Condensed Consolidated Financial Statements (Unaudited) 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 17 Item 2 - Changes in Securities and Use of Proceeds 17 Item 3 - Defaults on Senior Securities 17 Item 4 - Submission of Matters to a Vote of Security Holders 17 Item 5 - Other Information 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18
OPTIKA IMAGING SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, June 30, 1997 1998 ------------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents............................... $ 3,202 $ 5,576 Short-term investments.................................. 5,398 1,986 Accounts receivable, net................................ 8,555 5,567 Other current assets.................................... 986 948 ------------- ------------- Total current assets.............................. 18,141 14,077 ------------- ------------- Fixed assets, net.......................................... 2,721 3,217 Other assets, net.......................................... 1,024 2,242 ------------- ------------- $ 21,886 $ 19,536 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt....................... $ 15 $ - Accounts payable ....................................... 742 908 Accrued expenses........................................ 1,901 2,278 Restructuring reserve................................... 291 27 Deferred revenue........................................ 2,445 3,223 ------------- ------------- Total current liabilities........................ 5,394 6,436 ------------- ------------- Commitments and contingencies Common stockholders' equity: Common stock; $.001 par value;25,000,000 shares authorized; 6,890,724 and 6,960,604 shares issued and outstanding at December 31, 1997 and June 30, 1998, respectively. 7 7 Additional paid-in capital........................... 17,179 17,233 Accumulated deficit.................................. (694) (4,140) ------------- ------------- Total common stockholders' equity................ 16,492 13,100 ------------- ------------- $ 21,886 $ 19,536 ============= ============= The accompanying notes are an integral part of these financial statements.
OPTIKA IMAGING SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (In thousands, except per share amounts) Three Months Six Months Ended Ended June 30, June 30, -------------------------- --------------------- 1997 1998 1997 1998 ---- ---- ---- ---- Revenues: Licenses................................ $ 3,745 $ 1,843 $ 6,940 $ 4,091 Maintenance and other................... 1,425 1,645 2,752 3,105 -------- -------- -------- --------- Total revenues....................... 5,170 3,488 9,692 7,196 Cost of revenues: Licenses................................ 138 84 298 210 Maintenance and other................... 681 772 1,302 1,481 -------- -------- -------- --------- Total cost of revenues............... 819 856 1,600 1,691 -------- -------- -------- --------- Gross profit............................... 4,351 2,632 8,092 5,505 Operating expenses: Sales and marketing..................... 2,561 3,310 4,715 6,237 Research and development................ 1,393 1,287 2,542 2,413 General and administrative.............. 438 614 841 1,175 -------- -------- -------- --------- Total operating expenses............. 4,392 5,211 8,098 9,825 -------- -------- -------- --------- Loss from operations....................... (41) (2,579) (6) (4,320) Other income (expense), net................ 155 (46) 236 13 -------- -------- -------- --------- Income (loss) before provision (benefit) for income taxes......................... 114 (2,625) 230 (4,307) Provision (benefit) for income taxes....... 43 (525) 86 (861) -------- -------- -------- --------- Net income (loss).......................... $ 71 $ (2,100) $ 144 $ (3,446) ======== ======== ======== ========= Net income (loss) per common share......... $ 0.01 $ (0.30) $ 0.02 $ (0.50) ======== ========= ======== ========= Weighted average number of common shares outstanding.............................. 6,763 6,956 6,737 6,942 ======== ========= ======== ======== Diluted net income (loss) per common share. $ 0.01 $ (0.30) $ 0.02 $ (0.50) ======== ======== ======== ========= Diluted weighted average number of common shares outstanding....................... 7,731 6,956 7,726 6,942 ======== ======== ======== ========= The accompanying notes are an integral part of these financial statements.
OPTIKA IMAGING SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended June 30, ---------------------------- 1997 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................................... $ 144 $ (3,446) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization........................... 267 405 Deferred tax benefit.................................... (30) (962) Loss on disposal of assets.............................. 18 - Change in assets and liabilities: Accounts receivable, net............................. (760) 2,988 Other assets......................................... (296) (261) Accounts payable..................................... 30 166 Accrued expenses..................................... 444 113 Deferred revenue..................................... 257 778 ------------- ------------- Net cash provided (used) by operations................. 74 (219) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures....................................... (1,690) (858) Sale (purchase) of short-term investments.................. (928) 3,412 ------------- ------------- Net cash provided (used) by investing activities........ (2,618) 2,554 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt....................... (223) (15) Proceeds from issuance of common stock..................... 288 54 ------------- ------------- Net cash provided by financing activities............... 65 39 ------------- ------------- Net increase (decrease) in cash and cash equivalents....... (2,479) 2,374 Cash and cash equivalents at beginning of period........... 3,474 3,202 ------------- ------------- Cash and cash equivalents at end of period................. $ 995 $ 5,576 ============= ============= The accompanying notes are an integral part of these financial statements.
OPTIKA IMAGING SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. GENERAL Basis of Presentation The unaudited condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly present the Company's consolidated financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in audited financial information prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's (SEC's) rules and regulations. The consolidated results of operations for the period ended June 30, 1998 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 1998. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Net Income (Loss) Per Common Share In 1997, the Company adopted the guidelines of Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Prior period EPS have been restated to conform with the new statement. Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is computed using the weighted average number of shares outstanding plus all dilutive potential common shares outstanding. During the first half of 1998, 285,000 options to purchase common stock of the Company were granted. Additionally, during the first quarter of 1998, 264,500 options to purchase common stock of the Company were re-priced at $3.18 per option share. The following is the reconciliation of the numerators and denominators of the basic and diluted EPS computations (in thousands except per share data):
Quarter Ended Six Months Ended June 30, June 30, 1997 1998 1997 1998 -------------------- -------------------- Earning Per Share: Net income (loss).............................. $ 71 $ (2,100) $ 144 $ (3,446) Weighted average common shares outstanding..... 6,763 6,956 6,737 6,942 Net income (loss) per common share............. $ 0.01 $ (0.30) $ 0.02 $ (0.50) Effect of Dilutive Securities: Options and warrants........................... 968 -- 989 -- Diluted weighted average common shares outstanding................................. 7,731 6,956 7,726 6,942 Diluted net income (loss) per common share..... $ 0.01 $ (0.30) $ 0.02 $ (0.50)
Restructuring and Sale of FPhealthcare Suite During the fourth quarter of 1997, the Company made the decision to exit the vertical healthcare market and sold the rights to the majority of the software products that previously comprised the FPhealthcare suite of products. The FPhealthcare suite was being developed to offer a product tailored to the healthcare industry however, there have been a limited number of customers who have licensed the software. The restructuring plan involved the FPhealthcare suite product sale, closure of the Company's Boston facility, and the termination of approximately 14 employees. The Company incurred a 1997 restructuring charge of $885,000 related to this restructuring consisting of severance and benefits for employees to be terminated, write-downs of assets and leased facility executory costs, and other costs related to the restructuring consisting principally of legal and other miscellaneous costs. The remaining costs are expected to be resolved within the third quarter of 1998. The following table summarizes the activity in the Company's restructuring reserves during 1998: Asset Impairment Other Employee and Lease Exit Benefits Costs Costs Total ------------------------------------------- Balance at December 31, 1997 $ 136,000 $ 116,000 $ 39,000 $ 291,000 Cash payments 136,000 116,000 12,000 264,000 =========================================== Balance at June 30, 1998 $ - $ - $ 27,000 $ 27,000 =========================================== 2. Contingencies The Company is, from time to time, subject to certain claims, assertions or litigation by outside parties as part of its ongoing business operations. The outcome of any such contingencies are not expected to have a material adverse effect on the financial condition, operations or cash flows of the Company. The Company is not currently a party to any material legal proceedings. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S 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. RESULTS OF OPERATIONS The Company's revenues consist primarily of license revenues that are comprised of one-time fees for the license of the Company's products, and maintenance revenues, which are comprised of fees for updates and technical support. The Company's Advantage Partners ("APs"), formerly called Business Solution Partners, and Original Equipment Manufacturers ("OEMs"), which are responsible for the installation and integration of the software, enter into sales agreements with the end-user and purchase software directly from the Company. The software is licensed directly to the end-user by the Company through a standard shrink-wrapped license agreement. Annual maintenance agreements are also entered into between the APs and OEMs and the end-user, and the APs and OEMs then purchase maintenance services directly from the Company. For the six months ended June 30, 1998, approximately 56.9% of the Company's total revenues were derived from software licenses and approximately 32.5% of the Company's total revenues were derived from maintenance agreements. Other revenues, which are comprised of training, consulting and implementation services and third-party hardware and software products, accounted for 10.6% of the Company's total revenues. The Company adopted the provisions of Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), for transactions entered into after January 1, 1998. Under SOP 97-2, the Company generally recognizes 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 and determinable and collectibility is probable. Where applicable, fees from multiple element arrangements are unbundled and recorded as revenue as the elements are delivered to the extent that vendor specific objective evidence of fair value exists. Maintenance revenues are deferred and recognized ratably over the maintenance period, which is generally one year. Other revenues are recognized as services are performed. The Company generally does not grant rights to return products, except for defects in the performance of the products relative to specifications and pursuant to standard industry shrink-wrapped license agreements which provide for 30-day rights of return if an end-user does not accept the terms of the software license, nor does it provide provisions for price adjustments or rotation rights. The Company's terms of sales generally range from 30 to 60 days from date of shipment for APs and OEMs. Based on the Company's research and development process, costs incurred between the establishment of technological feasibility and general release of the software products have not been material and therefore have not been capitalized in accordance with Statement of Financial Accounting Standards No. 86. All research and development costs have been expensed as incurred. In March 1998, the Company introduced Optika eMedia(TM), its next-generation software solution for managing and automating paper-intensive business-to-business transactions. In July 1998, Optika announced the controlled shipment of Optika eMedia to initial user sites that included Fortune 1000 companies and other large organizations. Optika eMedia is scheduled to be commercially available by approximately September 1998. Optika eMedia manages business transactions both within an enterprise and across the Internet with multiple business partners. Commerce-brokering software and solutions enable large organizations to manage the high-volume flow of documents and electronic information associated with business-to-business transactions. Optika eMedia incorporates all of the imaging/COLD/workflow functionality of Optika's FilePower solution, in addition to availability of multiple client interfaces and a scalable, 3-tier architecture and will incorporate powerful Internet negotiation and resolution tools. (See Business Risks-Risks Associated with the Introduction of Optika eMedia). REVENUES Total revenues decreased 25.8% from $9.7 million, for the six months ended June 30, 1997, to $7.2 million, for the six months ended June 30, 1998. Total revenues decreased 32.5% from $5.2 million, for the quarter ended June 30, 1997, to $3.5 million, for the quarter ended June 30, 1998. Licenses. License revenues decreased 41.1% from $6.9 million, during the six months ended June 30, 1997, to $4.1 million, for the six months ended June 30, 1998, and decreased 50.8% from $3.7 million, during the quarter ended June 30, 1997, to $1.8 million, during the same period in 1998. License revenues represented 71.6% and 56.9% of the total revenues for the six months ended June 30, 1997 and 1998, respectively and 72.4% and 52.8% of the total revenues for the quarter ended June 30, 1997 and 1998, respectively. Management believes that the decrease in license revenues during the first half of 1998 is primarily a result of customers choosing to delay purchase decisions of the Company's product until the general release of Optika eMedia. License revenues generated outside of the United States accounted for approximately 27.4% of the Company's revenues for the six months ended June 30, 1997, compared to 23.9% for the same period in 1998, and 24.5% and 29.6% for the quarter ended June 30, 1997 and 1998, respectively. Maintenance and Other. Maintenance revenues, exclusive of other revenue, increased 35.3% from $1.7 million during the six months ended June 30, 1997, to $2.3 million for the six months ended June 30, 1998 and increased 41.1% from $878,000 during the quarter ended June 30, 1997 compared to $1.2 million during the same period in 1998. Maintenance revenue represented 17.3% and 32.5% of the total revenues for the six months ended June 30, 1997 and 1998, respectively and 17.0% and 35.5% of the total revenues for the quarter ended June 30, 1997 and 1998, respectively. Through the Company's continued improvements in the tracking, monitoring and notifying of expiring maintenance contracts and the general increase in the number of installed systems, the Company was able to increase the number of maintenance contract renewals. Other revenue, consisting primarily of consulting services, training and consulting fees represented 11.1% and 10.6% of total revenues for the six months ended June 30, 1997 and 1998, respectively, and 10.6% and 11.7% of total revenues for the quarters ended June 30, 1997 and 1998, respectively. COST OF REVENUES Licenses. Cost of licenses consists primarily of royalty payments to third-party vendors, product author commissions, whereby certain of the Company's software developers are entitled to receive a specified percentage of product sales, and costs of product media, duplication, packaging and fulfillment. Cost of licenses decreased from $298,000, or 4.3% of license revenues, to $210,000, or 5.1% of license revenues, for the six months ended June 30, 1997 and 1998, respectively, and decreased from $138,000, or 3.7% of license revenues, to $84,000, or 4.6% of license revenues, for the quarters ended June 30, 1997 and 1998, respectively. The decrease in absolute dollar cost of licenses was attributable to the decreased license revenue. Maintenance and Other. Costs of maintenance and other consist of the direct and indirect costs of providing software maintenance and support, training and consulting services to the Company's APs, OEMs and end-users. Cost of maintenance and other increased from $1.3 million or 47.3% of maintenance and other revenues to $1.5 million or 47.7% of maintenance and other revenues for the six months ended June 30, 1997 and 1998, respectively. Cost of maintenance and other increased from $681,000, or 47.8% of maintenance and other revenues to $772,000, or 46.9% of maintenance and other revenues, for the quarters ended June 30, 1997 and 1998, respectively. Cost as a percentage of revenue for both periods remained constant as revenues increased. 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 $4.7 million, or 48.7% of total revenues, for the six months ended June 30, 1997 to $6.2 million, or 86.7% of total revenues, for the six months ended June 30, 1998. Sales and marketing expenses increased from $2.6 million or 49.5% of total revenues for the quarter ended June 30, 1997 to $3.3 million or 94.9% of total revenues for the quarter ended June 30, 1998. The increase in sales and marketing expenses is primarily attributable to costs associated with the continued expansion of the Company's product launch activities associated with Optika eMedia. The Company anticipates that sales and marketing expenses will continue to increase in absolute dollars in future quarters as the Company continues the launch of the Optika eMedia product. Research and Development. Research and development expenses consist primarily of salaries and other related expenses for research and development personnel, as well as the cost of facilities and equipment. Research and development expenses decreased from $2.5 million, or 26.2% of total revenues, for the six months ended June 30, 1997 to $2.4 million, or 33.5% of total revenues, for the six months ended June 30, 1998, respectively. Research and development expenses decreased from $1.4 million, or 26.9% of total revenues, to $1.3 million, or 36.9% of total revenues, for the quarters ended June 30, 1997 and 1998, respectively. Research and development costs decreased in absolute dollars between both periods as a result of the Company's exit from the healthcare market in late 1997. The Company expects research and development expenses to increase in absolute dollars in future quarters to fund the development of new products and product enhancements. 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 $841,000 or 8.7% of total revenues, for the six months ended June 30, 1997 to $1.2 million, or 16.3% of total revenues for the six months ended June 30, 1998. General and administrative expenses increased from $438,000, or 8.5% of total revenues for the quarter ended June 30, 1997, to $614,000, or 17.6% of total revenues for the quarter ended June 30, 1998. The increase in general and administrative costs in absolute dollars was primarily due to the write-off of certain accounts receivable in Asia during the first six months of 1998. Other income, net. Other income, net consists primarily of interest earned on the Company's financing activities offset by interest expense on the Company's capitalized lease obligations and other debt. The Company recognized net other income of $236,000 during the six months ended June 30, 1997 compared to net other income of $13,000 during the six months ended June 30, 1998. The Company recognized net other income of $155,000 during the quarter ended June 30, 1997 compared to net other expense of $46,000 for the same period in 1998, primarily as a result of decreased investment income and an increase in foreign currency translation loss. Provision (Benefit) for Income Taxes. The Company's effective tax rates decreased from 38% for the quarter ended June 30, 1997 to 20% for the quarter ended June 30, 1998 primarily due to increased research and development tax credits. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments at June 30, 1998 were $7.6 million, decreasing by approximately $1.0 million from December 31, 1997. The decrease in cash and short-term investments is primarily due to the 1998 first and second quarter losses and capital expenditures offset by the collection of accounts receivable. For the six months ended June 30, 1997, net cash provided by operating activities was $74,000 compared to net cash used by operating activities of $219,000 for the six months ended June 30, 1998. The decrease in cash provided by operating activities for the six months ended June 30, 1998 is primarily due to the first and second quarter losses offset by improved accounts receivable collections. Cash used in investing activities was $2.6 million for the six months ended June 30, 1997 compared to cash provided of $2.6 million for the six months ended June 30, 1998. Uses of cash consisted primarily of purchases of marketable securities and property and equipment in the first six months of 1997, while marketable securities were sold during the first six months of 1998. Cash provided by financing activities was $65,000 for the six months ended June 30, 1997. Cash provided by financing activities was $39,000 for the six months ended June 30, 1998. Cash provided by financing activities resulted primarily from proceeds from stock option exercises and the sales of securities under the Company's employee stock purchase plan, offset in part by repayments of bank borrowings, capital leases and other debt. At June 30, 1998, the Company's principal sources of liquidity included cash and short-term investments of $7.6 million. In addition, the Company has a secured credit facility for up to $3.0 million, bearing interest at the bank's prime rate plus .75%. As of June 30, 1998, the Company had $2.8 million available for borrowing and no other debt outstanding. The Company believes that its current cash and short-term investments, together with anticipated cash flow from operations and its bank credit facility, will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months. Thereafter, the Company may require additional funds to support such activity through public or private equity financing or from other sources. There can be no assurance that additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to the Company and would not be dilutive. YEAR 2000 Many currently installed computer and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential effects associated with such compliance. The Company believes that the purchasing patterns of customers and potential customers may be significantly affected by Year 2000 issues. Many companies are expending significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase services such as those offered by the Company. Additionally, Year 2000 issues could cause a significant number of companies, including current customers of the Company, to reevaluate their current system needs, and as a result, consider switching to other systems or suppliers. This could have a material adverse effect on the Company's business, financial condition and results of operations. The Company currently offers products and services that are designed to be Year 2000 compatible. Although the Company has designed its products and services to be Year 2000 capable and tests third-party software that is incorporated with the Company's products and services, there can be no assurance that the Company's products and services, particularly when such products and services incorporate third-party software, contain all necessary date code changes. To the extent that the Company's software does not comply with Year 2000 requirements, there can be no assurance that potential system interruptions or the cost necessary to update the software will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company uses third-party software and computer technology internally which may materially impact the Company if not Year 2000 compliant. Further, the Company's operations may be at risk if its suppliers and other third-parties fail to adequately address the Year 2000 problem or if software conversions result in system incompatibilities with these third-parties. This issue could result in system failures or generation of erroneous information and could significantly disrupt business activities. The Company is in initial discussions with its major suppliers and is continuing to review what actions will be required to make all software systems used internally Year 2000 compliant as well as to mitigate its vulnerability to problems with the systems used by its suppliers and other third parties. The total cost and time associated with the impact of Year 2000 compliance cannot presently be determined. To the extent that third-party software does not comply with Year 2000 requirements, there can be no assurance that potential system interruptions for the Company and its major suppliers or the cost necessary to update the software will not have a material adverse effect on the Company's business, financial condition and results of operations. BUSINESS RISKS THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. THE COMPANY'S 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 BELOW. Significant Fluctuations in Operating Results. The Company's sales and other operating results have varied significantly in the past and will vary significantly in the future as a result of factors such as: the size and timing of significant orders and their fulfillment; demand for the Company's products; changes in pricing policies by the Company or its competitors; the number, timing and significance of product enhancements and new product announcements by the Company and its competitors; changes in the level of operating expenses; customer order deferrals in anticipation of new products or otherwise; foreign currency exchange rates; warranty and customer support expenses; changes in its end-users' financial condition and budgetary processes; changes in the Company's sales, marketing and distribution channels; delays or deferrals of customer implementation; product life cycles; software bugs and other product quality problems; discounts; the cancellation of licenses during the warranty period or nonrenewal of maintenance agreements; customization and integration problems with the end-user's legacy system; changes in the Company's strategy; the level of international expansion; and seasonal trends. In addition, the commercial introduction of Optika eMedia, the timing of revenue therefrom and any adverse impact on the Company's sales of the Filepower Suite associated therewith could cause the Company's sales and operating results to vary significantly over the next several quarters. A significant portion of the Company's revenues has been, and the Company believes 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 the Company's operating results. Revenues are also difficult to forecast because the markets for the Company's products are rapidly evolving, and the sales cycle of the Company and of its APs and OEMs, from initial evaluation to purchase, is lengthy and varies substantially from end-user to end-user. To achieve its quarterly revenue objectives, the Company depends 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, the Company has often recognized most of its 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 the Company's expectations and may materially adversely affect the Company's 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. The Company also has recorded generally lower sales in the first quarter than in the immediately preceding quarter, as a result of, among other factors, end-users' purchasing and budgeting practices and the Company's sales commission practices, and the Company expects this pattern to continue in future years. To the extent that future international operations constitute a higher percentage of total revenues, the Company anticipates that it may also experience relatively weaker demand in the third quarter as a result of reduced sales in Europe during the summer months. A significant portion of the Company's 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, the Company believes that its quarterly operating results will vary in the future, and that period-to-period comparisons of its 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 the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Risks Associated with the Introduction of Optika eMedia. In March 1998, the Company announced plans to introduce Optika eMedia, a software solution designed to manage and automate paper-intensive business processes within an enterprise through the Internet and across the value chain. In July 1998, Optika announced the controlled shipment of Optika eMedia to initial user sites that included Fortune 1000 companies and other large organizations. Optika eMedia is scheduled to be commercially available by approximately September 1998. Because the market for Optika eMedia is new and evolving, it is difficult to assess or predict with any assurance the growth rate, if any, and size of this market. There also can be no assurance that the market for Optika eMedia will develop, or that the solution will be adopted or utilized. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, or if the product does not achieve market acceptance, the Company's business, results of operations and financial condition may be materially adversely affected. Software companies that are in the process of announcing and releasing new versions or products frequently experience an adverse effect on revenue during the period between the date the new release is announced and when it becomes generally available. This negative effect is a result of customer buying patterns whereby they have a tendency to wait until the new version is generally available to actually make a purchase. The Company has experienced and expects that it will continue to experience this adverse effect until Optika eMedia, is commercially available. Further, if customers purchasing current products are granted discounts or upgrade rights to future releases, significant amounts of revenue may be deferred from sales of currently shipped products because of the Company's adoption of the recently released SOP 97-2 "Software Revenue Recognition". The effect of these two potential adverse factors coupled with anticipated significant research and development spending will likely result in operating losses being incurred in several quarters in 1998. Although sales of Optika eMedia are not expected to be significant until the fourth quarter of 1998, the Company is directing a significant amount of its product development expenditures to the ongoing development of Optika eMedia and a significant amount of its sales and marketing resources to the full commercial introduction of Optika eMedia and believes that its acceptance by customers is critical to the future success of the Company. There can be no assurance that Optika eMedia will gain significant market acceptance, if at all. Optika eMedia has not been fully implemented in customers' environments and as a result, there can be no assurance that Optika eMedia will not require substantial software enhancements or modifications to satisfy performance requirements of customers or to fix design defects or previously undetected errors. Further, it is common for complex software programs such as Optika eMedia to contain undetected errors when first released, which are discovered only after the product has been used over time with different computer systems and in varying applications and environments. While the Company is not aware of any significant technical problems with Optika eMedia, there can be no assurance that errors will not be discovered, or if discovered, that they will be successfully corrected on a timely basis, if at all. The Company's future business growth is substantially dependent on the continued development, introduction and market acceptance of Optika eMedia. Should the Company fail to release a fully commercial version of Optika eMedia, if the Company is unable to ship Optika eMedia on a timely basis, if customers experience significant problems with implementation of Optika eMedia or are otherwise dissatisfied with the functionality or performance of Optika eMedia, or if it fails to achieve market acceptance for any other reason, the Company's business, results of operations and financial condition may be materially adversely affected. Reliance on Indirect Distribution Channels; Potential for Channel Conflict. The Company's future results of operations will depend on the success of its marketing and distribution strategy, which has relied, to a significant degree, upon APs and OEMs to sell and install the Company's software, and provide post-sales support. In 1997, the Company's top 70 APs/OEMs accounted for approximately 75% of its license revenues, and substantially all of the Company's license revenues were derived from sales by APs and OEMs. 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 the Company's software. There can be no assurance that any APs will continue to represent the Company or sell its products. Furthermore, there can be no assurance that other APs, some of which have significantly greater financial marketing and other resources than the Company, will not develop or market software products which compete with the Company's products or will not otherwise discontinue their relationship with, or support of, the Company. Some of the Company's APs are small companies that have limited financial and other resources which could impair their ability to pay the Company. To date, the Company's inability to receive payments from such APs has not had a material adverse effect on the Company's business, results of operations or financial condition. The Company's OEMs occasionally compete with the Company and its APs. Selling through indirect channels may also hinder the Company's ability to forecast sales accurately, evaluate customer satisfaction, provide quality service and support or recognize emerging customer requirements. The Company recently altered its sales strategy with the introduction of a direct sales team. The Company's strategy of marketing its products directly and indirectly (through APs and OEMs) may result in distribution channel conflicts. To the extent that the Company, APs and OEMs target the same customers, they may come into conflict with each other. Although the Company has attempted to allocate certain territories for its products among its distribution channels in a manner to avoid potential conflicts, there can be no assurance that channel conflict will not materially and adversely affect its relationship with existing APs and OEMs, or adversely affect its ability to attract new APs and OEMs. The loss by the Company of a number of its more significant APs or OEMs, the inability of the Company to obtain qualified new APs or OEMs, or to obtain access to the channels of distribution offering software products to the Company's targeted markets, or the failure of APs or OEMs to pay the Company for its software, could have a material adverse effect on the Company's business, results of operations, or financial condition. Rapid Technological Change: Dependence on New Product Development. The market for imaging software is characterized by rapid technological change, changes in customer requirements, frequent new product introductions and enhancements, and emerging industry standards. The Company's future performance will depend in significant part upon its ability to respond effectively to these developments. The introduction of product embodying new technologies and the emergence of new industry standards can render existing products obsolete, unmarketable or noncompetitive. For example, new operating systems being introduced by Microsoft this year, such as Microsoft Windows NT 5.0 and Windows 98, could alter generally accepted conventions for document creation, distribution and management. However, a new product architecture that leverages these operating systems and the structure of the World Wide Web are presently in the developmental stage, and the Company is unable to predict the future impact of such technology changes on the Company's products. Moreover, the life cycles of the Company's products are difficult to estimate. The Company's future performance will depend in significant part upon its ability to enhance current products, and to develop and introduce new products and enhancements that respond to evolving customer requirements. The Company has in the recent past experienced delays in the development and commencement of commercial shipments of new products and enhancements, resulting in customer frustration and delay or loss of revenues. The inability of the Company, 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 the Company's business, results of operations and financial condition. Product Concentration; Dependence on Emerging Market for Integrated Imaging Systems. To date, substantially all of the Company's revenues have been attributable to sales of the FilePower Suite and individual software modules which comprise the FilePower Suite. Although Optika eMedia is not currently in commercial production, the Company expects Optika eMedia, in the event it is successfully introduced in the marketplace and produces future revenues, and the FilePower Suite to account for substantially all of its future revenues. Optika eMedia is not generally available. As a result, factors adversely affecting the pricing of, or demand for, such products, such as competition or technological change, could have a material adverse effect on the Company's business, results of operations, and financial condition. The Company's future financial performance will depend in general on growth in the relatively small and emerging market for imaging software products, and in particular on the successful development, introduction and customer acceptance of new and enhanced versions of its existing software products such as Optika eMedia. There can be no assurance that such market will grow or that the Company will be successful in developing and marketing these or any other products, or that any of these products will achieve widespread customer acceptance. If the document imaging software market fails to grow or grows more slowly than the Company currently anticipates, the Company's business, results of operations, and financial condition would be materially and adversely affected. Lengthy and Complex Sales and Implementation Cycles; Dependence on Capital Spending. The license of the Company's software products is typically an executive-level decision by prospective end-users, and generally requires for the Company and its APs and OEMs 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 the imaging products offered by the Company 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 the Company has little or no control. The Company's future performance also depends upon the capital expenditure budgets of its customers and the demand by such customers for the Company's products. Certain industries to which the Company sells its products, such as the financial services industry, are highly cyclical. The Company's 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. There can be no assurance that such factors will not have a material adverse effect on the Company's business, results of operations, and financial condition. Intense Competition. The market for the Company's products is intensely competitive and can be significantly affected by new product introductions and other market activities of industry participants. The Company's competitors offer a variety of products and services to address the emerging market for imaging software solutions. The Company's principal direct competitors include FileNet Corporation, International Business Machines Corporation, Unisys Corporation, Mosaix, Inc. and Eastman Kodak Company. Numerous other software vendors also compete in each product area. Potential competitors include providers of document management software, providers of document archiving products and relational database management systems vendors. The Company also faces competition from VARs, OEMs, distributors and systems integrators, some of which are APs or OEMs for the Company. In addition, the Company may face competition from other established and emerging companies in new market segments following the introduction of Optika eMedia. Many of the Company's current and potential competitors are substantially larger than the Company, 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 the Company. Because the Company's products are designed to operate in non-proprietary computing environments and because of low barriers to entry in the imaging software market, the Company expects additional competition from established and emerging companies, as the market for integrated imaging products continues to evolve. The Company expects its 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. Successful new product introductions or enhancements by the Company's competitors could cause a significant decline in sales or loss of market acceptance of the Company's products and services, result in continued intense price competition, or make the Company's products and services or technologies obsolete or noncompetitive. To be competitive, the Company will be required to continue to invest significant resources in research and development, and in sales and marketing. There can be no assurance that the Company will have sufficient resources to make such investments or that the Company will be able to make the technological advances necessary to be competitive. In addition, 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 the Company's prospective customers. In addition, several competitors have recently made, or attempted to make, acquisitions to enter the market or increase their market presence. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors, or that competitive pressures will not have a material adverse effect on the Company's business, results of operations, and financial condition. Management Changes; No Assurance of Successful Expansion of Operations. Most of the Company's senior management team have joined the Company within the last three years. There can be no assurance that these individuals will be able to achieve and manage growth, if any, or build an infrastructure necessary to operate the Company. The Company's ability to compete effectively and to manage any future growth will require that the Company continue to assimilate new personnel and to expand, train and manage its work force. The Company intends to continue to increase the scale of its operations significantly to support anticipated increases in revenues, and to address critical infrastructure and other requirements. These increases have included and will include the leasing of new space, the opening of additional foreign offices, and potential acquisitions, significant increases in research and development to support product development, and the hiring of additional personnel in sales and marketing. The increased scale of operations has resulted in significantly higher operating expenses, which are expected to continue to increase significantly in the future. If the Company's revenues do not correspondingly increase, the Company's results of operations would be materially and adversely affected. Expansion of the Company's operations has caused, and is continuing to impose, a significant strain on the Company's management, financial and other resources. The Company's ability to manage its recent, and any future growth (should it occur) will depend upon a significant expansion of its internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls. Any failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with the Company's business, could have a material adverse effect on the Company's business, financial condition, and results of operations. In this regard, any significant revenue growth will be dependent in significant part upon the Company's expansion of its marketing, sales and AP support capabilities. This expansion will continue to require significant expenditures to build the necessary infrastructure. There can be no assurance that the Company's efforts to expand its marketing, sales and customer support efforts will be successful or will result in additional revenues or profitability in any future period. Dependence on Key Personnel. The Company's future performance depends to a significant degree upon the continuing contributions of its key management, sales, marketing, customer support, and product development personnel. The Company has at times experienced, and continues to experience, difficulty in recruiting qualified personnel, particularly in software development and customer support. The Company believes 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 the Company's employees. The loss of key management or technical personnel, or the failure to attract and retain key personnel, could have a material adverse effect on the Company's business, results of operations, and financial condition. Dependence on Proprietary Technologies; Risk of Infringement. The Company's performance depends in part on its ability to protect its proprietary rights to the technologies used in its principal products. The Company relies on a combination of copyright and trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect its proprietary rights, which are measures that afford only limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products, or to obtain and use information that the Company regards as proprietary. In addition, the laws of some foreign countries do not protect the Company's proprietary rights as fully as do the laws of the United States. There can be no assurance that the Company's means of protecting its proprietary rights in the United States or abroad will be adequate, or that competitors will not independently develop similar technologies. The Company is not aware that it is infringing any proprietary rights of third parties. However, there can be no assurance that third parties will not claim infringement by the Company's products of their intellectual property rights. The Company expects that software product developers will increasingly be subject to infringement claims if the number of products and competitors in the Company's 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 the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, if at all. In the event of a successful claim of infringement against the Company's products and the failure or inability of the Company to license the infringed or similar technology, the Company's business, results of operations, and financial condition would be materially and adversely affected. The Company also licenses software from third parties, which is incorporated into its products, including software incorporated into its viewer, image decompression software and optical character recognition, and full-text engines. These licenses expire from time to time. There can be no assurance that these third-party software licenses will continue to be available to the Company on commercially reasonable terms. While the Company believes that all of such third-party software is available from alternate vendors, and the Company maintains standard software escrow agreements with each of such parties, agreements which provide the Company with access to the source code in the event of their bankruptcy or insolvency, 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 the Company's business, results of operations, and financial condition. In addition, the Company generally does 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, the Company 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 the Company's business, results of operations, and financial condition. The Company has entered into source code escrow agreements with a limited number of its customers and resellers, requiring release of source code in certain circumstances. Such agreements generally provide that such parties will have a limited, non-exclusive right to use such code in the event that there is a bankruptcy proceeding by or against the Company, if the Company ceases to do business, or if the Company fails to provide timely responses to identified product defects. International Operations. Sales outside the United States accounted for approximately 15%, 29% and 23% of the Company's revenues in 1995, 1996 and 1997, respectively. An important element of the Company's strategy is to expand its international operations, including the development of certain third-party distributor relationships and the hiring of additional sales representatives, each of which involves a significant investment of time and resources. There can be no assurance that the Company will be successful in expanding its international operations. In addition, the Company has only limited experience in developing localized versions of its products and marketing and distributing its products internationally. There can be no assurance that the Company will be able to successfully localize, market, sell and deliver its products internationally. The inability of the Company to successfully expand its international operations in a timely manner could materially and adversely affect the Company's business, results of operations, and financial condition. The Company's international revenues may be denominated in foreign or the U.S. dollar currency. The Company does 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 the Company's software less price-competitive, and could have a material adverse effect upon the Company's business, results of operations, and financial condition. In addition, the Company's international business is, and will continue to be, subject to a variety of risks, including: delays in establishing international distribution channels; difficulties in collecting international accounts receivable; increased costs associated with maintaining international marketing and sales efforts; unexpected changes in regulatory requirements, tariffs and other trade barriers; political and economic instability; limited protection for intellectual property rights in certain countries; lack of acceptance of localized products in foreign countries; difficulties in managing international operations, potentially adverse tax consequences including, restrictions on the repatriation of earnings; and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have a material adverse effect on the Company's future international revenues and, consequently, the Company's results of operations. Although the Company's products are subject to export controls under United States laws, the Company believes it has obtained all necessary export approvals. However, the inability of the Company to obtain required approvals under any applicable regulations could adversely affect the ability of the Company to make international sales. Product Liability; Risk of Product Defects. The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. However, it is possible that the limitation of liability provisions contained in the Company's license agreements may not be effective under the laws of certain jurisdictions. Although the Company has not experienced any product liability claims to date, the sale and support of products by the Company may entail the risk of such claims, and there can be no assurance that the Company will not be subject to such claims in the future. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, results of operations, and financial condition. Software products such as those offered by the Company frequently contain errors or failures, especially when first introduced or when new versions are released. Although the Company conducts extensive product testing, the Company has in the past released products that contained defects, and has discovered software errors in certain of its new products and enhancements after introduction. The Company could in the future lose or delay recognition of revenues as a result of software errors or defects, the failure of its products to meet customer specifications or otherwise. The Company's products are typically intended for use in applications that may be critical to a customer's business. As a result, the Company expects that its customers and potential customers have a greater sensitivity to product defects than the market for general software products. Although the Company's business has not been materially and adversely affected by any such errors, or by defects or failure to meet specifications, to date, there can be no assurance that, despite testing by the Company and by current and potential customers, errors or defects will not be found in new products or releases after commencement of commercial shipments, or that such products will meet customer specifications, resulting in loss or deferral of revenues, diversion of resources, damage to the Company's reputation, or increased service and warranty and other costs, any of which could have a material adverse effect upon the Company's business, operating results, and financial condition. Potential Volatility of Stock Price. The market price of shares of Common Stock is likely to be highly volatile and may be significantly affected by factors such as: actual or anticipated fluctuations in the Company's operating results; announcements of technological innovations; new products or new contracts by the Company or its competitors; sales of Common Stock by management; sales of significant amounts of Common Stock into the market; developments with respect to proprietary rights; conditions and trends in the software and other technology industries; adoption of new accounting standards affecting the software industry; changes in financial estimates by securities analysts and others; general market conditions; and other factors that may be unrelated to the Company or its 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 the Company's 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. There can be no assurance that such litigation will not occur in the future with respect to the Company. Such litigation, regardless of its outcome, would result in substantial costs and a diversion of management's attention and resources which could have a material adverse effect upon the Company's business, results of operations, and financial condition. Control by Existing Stockholders; Effects of Certain Anti-Takeover Provisions. Members of the Board of Directors, and the executive officers of the Company, together with members of their families and entities that may be deemed affiliates of, or related to, such persons or entities, beneficially own approximately 39% of the outstanding shares of Common Stock of the Company. Accordingly, these stockholders could, if acting in concert, be able to elect all members of the Company's Board of Directors and determine the outcome of corporate actions requiring stockholder approval, such as mergers and acquisitions. Certain provisions of the Company's Certificate of Incorporation, equity incentive plans, Bylaws, and Delaware law may also discourage certain transactions involving a change in control of the Company. This level of ownership by such persons and entities, when combined with the Company's 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 control of the Company and may adversely affect the voting and other rights of other holders of Common Stock. Restructuring Charges and Sale of FPhealthcare Suite. During the fourth quarter of 1997, the Company made the decision to exit the vertical healthcare market and sold the rights to the majority of the software products that previously comprised the FPhealthcare suite of products. The FPhealthcare suite was being developed to offer a product tailored to the healthcare industry; however, there have been a limited number of customers who have licensed the software. The restructuring plan involved the FPhealthcare suite product sale, closure of the Company's Boston facility, and the termination of approximately 14 employees. There can be no assurance that the Company will not incur additional expenses as a result of the decision to exit the vertical healthcare market and the sale of the healthcare division. The decision to exit a business also involves special risks and uncertainties, some of which may not be foreseeable or within the Company's control, such as unforeseen severance costs, disputes with terminated employees, disputes with customers who have purchased the FPhealthcare suite or disputes with the buyer of the division. There can be no assurance that the Company will not experience unforeseen costs associated with the decision to exit the healthcare division, and such unforeseen costs could have a material adverse effect on the Company's business, financial condition and results of operations. PART II - OTHER INFORMATION Item 1 - Legal Proceedings. None. Item 2 - Changes in Securities and Use of Proceeds. None. Item 3 - Defaults upon Senior Securities. None. Item 4 - Submission of Matters to a Vote of Security Holders. None. Item 5 - Other Information. None. Item 6 - Exhibits and Reports on Form 8-K . (a) Exhibits 27.1 Financial Data Schedule for the six months ended June 30, 1998 27.2 Restated Financial Data Schedule for the six months ended June 30, 1997 27.3 Restated Financial Data Schedule for the three months ended March 31, 1997 27.4 Restated Financial Data Schedule for the years ended December 31, 1996 and 1995. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OPTIKA IMAGING SYSTEMS, INC. (Registrant) 8/14/98 /s/ Mark K. Ruport (Date) Mark K. Ruport President, Chief Executive Officer and Chairman of the Board 8/14/98 /s/ Steven M. Johnson (Date) Steven M. Johnson Chief Financial Officer, Vice President Finance and Administration, Secretary and Chief Accounting Officer EX-27.1 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1998 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 5,576 1,986 5,567 0 0 14,077 0 0 19,536 6,436 0 0 0 7 13,093 19,536 4,091 7,196 210 1,691 0 0 0 (4,307) (861) (3,446) 0 0 0 (3,446) (0.50) (0.50)
EX-27.2 3 FDS
5 THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE JUNE 30, 1997 FORM 10-Q AND HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 995 8,953 6,526 0 0 17,479 3,596 1,150 21,198 4,876 0 0 0 7 16,274 21,198 6,940 9,692 298 1,600 0 0 0 230 86 144 0 0 0 144 0.02 0.02
EX-27.3 4 FDS
5 THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE MARCH 31, 1997 FORM 10-Q AND HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1997 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,268 8,693 5,716 0 0 17,563 3,046 1,249 20,656 4,440 0 0 0 7 16,168 20,656 3,195 4,522 160 781 0 0 0 116 43 73 0 0 0 73 0.01 0.01
EX-27.4 5 FDS
5 THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE 1996 FORM 10-K AND HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 AND 1996 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 3,474 1,415 8,025 0 5,766 3,199 0 0 0 0 18,090 4,920 2,166 1,582 1,128 820 20,258 6,182 4,273 3,079 0 0 0 4,804 0 0 7 799 15,842 (2,766) 20,258 6,182 13,406 8,333 16,703 10,468 585 316 2,515 2,139 0 0 0 0 0 0 1,094 (933) (813) 29 1,907 (962) 0 0 0 0 0 0 1,907 (962) 0.45 (0.37) 0.30 (0.37)
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