<PAGE>
================================================================================
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 March 31, 1997
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 .
-------- -----
6,759,180 shares of the Registrant's Common Stock, $.001
par value per share, were outstanding as of May 7, 1997
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 1
Condensed Consolidated Statements of Operations
for the three-month periods ended March 31, 1996
and 1997 2
Condensed Consolidated Statements of Cash Flows for
the three-month periods ended March 31, 1996 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults on Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents............ $ 3,474 $ 2,268
Short-term investments............... 8,025 8,693
Accounts receivable, net............. 5,766 5,716
Other current assets................. 825 886
------------ ----------
Total current assets........... 18,090 17,563
------------ ----------
Fixed assets, net....................... 1,038 1,797
Other assets, net....................... 1,130 1,296
------------ ----------
$ 20,258 $ 20,656
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.... $ 280 $ 270
Accounts payable and accrued expenses 2,134 2,117
Deferred revenue..................... 1,859 2,053
------------ ----------
Total current liabilities..... 4,273 4,440
------------ ----------
Long-term debt.......................... 136 41
Commitments and contingencies
Common stockholders' equity:
Common stock; $.001 par value;
25,000,000 shares authorized;
6,670,319 and 6,758,380 shares
issued and outstanding
at December 31, 1996 and March
31, 1997, respectively........ 7 7
Additional paid-in capital........ 16,701 16,954
Retained deficit.................. (859) (786)
------------ ----------
Total common stockholders'
equity....................... 15,849 16,175
------------ ----------
</TABLE> $ 20,258 $ 20,656
============ ==========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1996 1997
-------- -------
<S> <C> <C>
Revenues:
Licenses.............................. $2,506 $3,195
Maintenance and other................. 600 1,327
-------- -------
Total revenues..................... 3,106 4,522
Cost of revenues:
Licenses.............................. 131 160
Maintenance and other................. 387 621
-------- -------
Total cost of revenues............. 518 781
-------- -------
Gross profit............................ 2,588 3,741
Operating expenses:
Sales and marketing................... 1,238 2,154
Research and development.............. 1,052 1,149
General and administrative............ 288 403
-------- -------
Total operating expenses........... 2,578 3,706
-------- -------
Income from operations.................. 10 35
Other (expense) income, net............. (8) 81
-------- -------
Income before provision for income taxes 2 116
Provision for income taxes.............. -- 43
-------- -------
Net income.............................. $ 2 $ 73
======== =======
Net income per common share............. $.01
=======
Weighted average number of common
shares outstanding..................... 7,821
=======
Proforma net income per common share.... $ -
========
Proforma weighted average number of
common shares outstanding.............. 5,586
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1997
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 2 $ 73
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization........ 122 145
Gain on disposal of assets........... -- (1)
Change in assets and liabilities:
Accounts receivable............... (34) 50
Deferred tax asset................ -- (27)
Other assets...................... (402) (223)
Accounts payable.................. 17 (131)
Accrued expenses.................. (179) 114
Deferred revenue.................. (188) 194
------------ --------------
Net cash provided (used) by (662) 194
operations
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (179) (880)
Purchase of short-term investments...... -- (668)
------------ --------------
Net cash used by investing
activities................... (179) (1,548)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt.... (68) (105)
Proceeds from issuance of long-term debt 319 --
Proceeds from issuance of common stock.. 6 253
------------ --------------
Net cash provided by
financing activities......... 257 148
------------ --------------
Net decrease in cash.................... (584) (1,206)
Cash at beginning of period............. 1,415 3,474
------------ --------------
Cash at end of period................... $ 831 $ 2,268
============ ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Interest paid........................... (10) (11)
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
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 accruals,
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 rules and regulations. The consolidated
results of operations for the period ended March 31, 1997 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 1997. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 1996, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
Net Income Per Common Share
Net income per common share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of Convertible Preferred Stock (using the if-
converted method) where appropriate and stock options (using the treasury stock
method). Common equivalent shares from stock options are excluded from the
computation if their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin, common and common
equivalent shares issued from May 23, 1995 through the closing of the Company's
initial public offering on July 25, 1996 have been included in the computation
using the treasury stock method as if they were outstanding for all periods
prior to the initial public offering. Furthermore, in accordance with SEC Staff
policy, common equivalent shares from Convertible Preferred Stock that converted
into Common Stock upon the closing of the initial public offering are included
for the appropriate periods using the if-converted method.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS
128"). FAS 128 changes the computation, presentation and disclosure
requirements of earnings (loss) per share that has been previously followed by
the Company. FAS 128 is effective for years ending after December 15, 1997 and
early adoption is not permissible. If the provisions of FAS 128 were adopted
for the three months ended March 31, 1997 and 1996, the Company's pro forma
basic net income per share and pro forma diluted net income per share would have
been unchanged from the net income per share reported in the Statements of
Operations.
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.
4
<PAGE>
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 which are
comprised of one-time fees for the license of the Company's products, and
maintenance revenues, which are comprised of fees for upgrades and technical
support. The Business Solutions Partners ("BSPs") 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 BSPs
and OEMs and the end-user, and the BSPs and OEMs then purchase maintenance
services directly from the Company. For the three months ended March 31, 1997,
approximately 70.7% of the Company's total revenues were derived from software
licenses and approximately 17.7% 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 11.6% of the Company's total revenues. License revenues
are generally recognized upon shipment when no significant vendor obligations
remain and collectibility is probable. License revenues related to contracts
with significant post-delivery performance obligations are recognized when the
Company's obligations are no longer significant or when the customer accepts the
product, as applicable. 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. However, if other
rights of return are granted, revenue recognition is deferred until such rights
lapse. The Company's aggregate product returns have historically been
insignificant. The Company's terms of sales generally range from 30 to 60 days
from date of shipment for BSPs and OEMs. Terms of sales on major accounts are
generally based on the achievement of installation milestones and final system
acceptance. 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.
5
<PAGE>
The following table sets forth items from the condensed consolidated
statements of operations as a percentage of revenues for the periods indicated.
The operating results presented in this table are not necessarily indicative of
the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Revenues:
Licenses.............................. 80.7% 70.7%
Maintenance and other................. 19.3 29.3
--------------- -------------
Total revenues...................... 100.0 100.0
Cost of revenues:
Licenses.............................. 4.2 3.5
Maintenance and other................. 12.5 13.7
--------------- -------------
Total cost of revenues.............. 16.7 17.2
--------------- -------------
Gross profit............................ 83.3 82.8
Operating expenses:
Sales and marketing................... 39.9 47.6
Research and development.............. 33.8 25.4
General and administrative............ 9.3 8.9
--------------- -------------
Total operating expenses............ 83.0 81.9
--------------- -------------
Income from operations.................. 0.3 0.9
Other (expenses) income, net............ (0.3) 1.8
--------------- -------------
Income before provision for income taxes - 2.7
Provision for income taxes.............. - 1.0
--------------- -------------
Net income.............................. 0.0% 1.7%
=============== =============
</TABLE>
REVENUES
Total revenues increased 45.6% from $3.1 million for the quarter ended
March 31, 1996 to $4.5 million for the quarter ended March 31, 1997.
Licenses. License revenues increased 27.5% from $2.5 million during
the quarter ended March 31, 1996 to $3.2 million for the quarter ended March 31,
1997. License revenues represented 80.7% and 70.7% of the total revenues for
the quarter ended March 31, 1996 and 1997, respectively. The increase in
license revenue was primarily the result of increased unit sales of the
FilePower Suite. The increased unit sales were driven, in part, by a
significant increase in sales to international customers, primarily in Asia,
Latin America and the United Kingdom. Sales outside of the United States
accounted for approximately 30.5% of the Company's revenues for the quarter
ended March 31, 1997, compared to 17.8% in the corresponding prior period.
Maintenance and Other. Maintenance revenues, exclusive of other
revenue, increased 74.9% from $459,000 during the quarter ended March 31, 1996,
to $803,000 for the quarter ended March 31, 1997. Maintenance revenue
represented 14.8% and 17.8% of the total revenues for the quarter ended March
31, 1996 and 1997, respectively. This increase was primarily a result of an
increase in the number of installed systems and the Company's continued
improvements in the tracking and monitoring of expiring maintenance contracts.
Other revenue, consisting primarily of consulting services, training and
consulting fees represented 4.5% and 11.6% of total revenues for the quarter
ended March 31, 1996 and 1997, respectively. Other revenue increased primarily
as a result of implementation and training revenue generated by the Company's
international and healthcare operations.
6
<PAGE>
COST OF REVENUES
Licenses. Cost of licenses consist 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 increased from $131,000 or 5.2% of license
revenues to $160,000 or 5.0% of license revenues for the quarter ended March 31,
1996 and 1997, respectively. The increase in cost of licenses was attributable
to the increased 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 BSPs, OEMs and end-users, and
the cost of third-party software products. Cost of maintenance and other
increased from $387,000 or 64.5% of maintenance and other revenues to $621,000
or 46.8% of maintenance and other revenues for the quarters ended March 31,
1996 and 1997, respectively. The decrease in cost of maintenance and other as a
percentage of maintenance and other revenues is primarily a result of the
leverage received from the increased maintenance base, while the cost of
providing maintenance has been relatively constant.
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 $1.2 million, or 39.9% of total revenues, for the
quarter ended March 31, 1996 to $2.2 million, or 47.6% of total revenues, for
the quarter ended March 31, 1997. The increase in sales and marketing
expenditures is primarily attributable to additional costs resulting from new
sales offices in Australia, Brazil and Malaysia and costs associated with the
continued expansions of the Company's network of BSPs and OEMs. The Company
anticipates that sales and marketing expenses will continue to increase in
absolute dollars in future quarters as the Company continues to build and expand
its network of BSPs and OEMs.
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 increased from $1.1 million, or 33.8% of total revenues,
for the quarter ended March 31, 1996 to $1.1 million, or 25.4% of total
revenues, for the quarter ended March 31, 1997. The Company expects research
and development expenses to continue 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 $288,000, or 9.3% of total revenues, for
the quarter ended March 31, 1996 to $403,000, or 8.9% of total revenues, for the
quarter ended March 31, 1997. The increase in general and administrative
expenses for the quarter was primarily due to the Company incurring additional
administrative costs as a public company. General and administrative expenses
are expected to increase in absolute dollars in future quarters as the Company
expands its staffing to support expanded operations and to comply with the
responsibilities of a public company.
Other expenses. Other expenses consist primarily of interest expense
on the Company's capitalized lease obligations and other debt offset by interest
earned on the Company's financing activities. The Company incurred a net
expense of $8,000 during the quarter ended March 31, 1996 compared to net income
of $81,000 during the quarter ended March 31, 1997, primarily as a result of
interest income derived from the investment of the Company's initial public
offering proceeds in July, 1996.
Provision for Income Taxes. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109. Due to the
Company's history of pre-tax losses and uncertainty surrounding the timing of
realizing the benefits of its favorable tax attributes, the Company had recorded
a valuation allowance against all of its net deferred tax assets as of March 31,
1996. In reaching the Company's determination of the need to provide a deferred
tax valuation allowance, the Company considered all available evidence, both
positive and negative, as well as the weight and importance given to such
evidence. As required by Statement of Financial Accounting Standards No. 109,
management concluded that a valuation allowance against deferred tax assets was
no longer appropriate as of December 31, 1996. Specifically, during 1996, the
Company generated four straight quarters of profitability and pre-tax income of
$1.1 million.
7
<PAGE>
Accordingly, the Company recorded a tax provision during the quarter ended March
31, 1997 based on the estimated effective tax rate for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at March 31, 1997 were $11.0 million,
decreasing by approximately $500,000 from December 31, 1996. The decrease in
cash and short-term investments is primarily due to capital expenditures
associated with equipment and furnishings for the Company's new leased corporate
headquarters.
For the quarter ended March 31, 1996, net cash used in operating
activities was $662,000 compared to net cash provided of $194,000 for the
quarter ended March 31, 1997. This was primarily attributable to an increase in
deferred maintenance revenue resulting in an increase in current liabilities.
Cash used in investing activities was $179,000 for the quarter ended
March 31, 1996 compared to $1.5 million for the quarter ended March 31, 1997.
Uses of cash consisted primarily of purchases of marketable securities and
property and equipment.
Cash provided by financing activities was $257,000 for the quarter
ended March 31, 1996. Cash provided from financing activities was $148,000 for
the quarter ended March 31, 1997. Cash provided from financing activities
resulted primarily from proceeds from the sale of securities under the Company's
employee stock option plan and employee stock purchase plan, offset in part by
repayments of bank borrowings, capital leases and other debt.
At March 31, 1997, the Company's principal sources of liquidity
included cash and short-term investments of $11.0 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 March 31, 1997, the Company had $2.8
million available for borrowing. The Company also has a term note with a
principal balance of $144,000 at March 31, 1997, bearing interest at the bank's
prime rate plus 2.0%. The term note is repayable in 30 equal installments of
principal and accrued interest commencing July 1996. In addition, the Company
has outstanding a two-year secured note with principal balance of $133,000 at
March 31, 1997, bearing interest at 10.75%.
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 financings 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.
8
<PAGE>
BUSINESS RISKS
This Quarterly Report on Form 10-Q contains forward looking statements that
include 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 below.
History of Losses: Accumulated Deficit: Future Results of Operations
Uncertain. The Company was founded in January 1988 and did not ship an
integrated version of the FilePower Suite until the third quarter of 1995.
Since its inception, the Company has incurred substantial costs to develop and
improve its software products; to establish sales, marketing and distribution
channels; and to recruit and train its employees. As a consequence, the Company
has incurred net losses in three of its past six fiscal years. In addition, the
Company experienced virtually no revenue growth between 1993 and 1995. As of
March 31, 1997, the Company had an accumulated deficit of approximately
$786,000. There can be no assurance that the Company will continue to achieve
revenue growth or will be profitable on a quarterly or annual basis in the
future.
Dependence on Windows NT. The Company is largely dependent on the
development and growth in the market for Windows NT operating systems and the
migration of imaging and workflow server software to such operating systems.
There can be no assurance that this market will grow or that the Company will be
able to respond effectively to the evolving requirements of this market. UNIX-
based operating systems currently account for most client/server-based
production imaging operating systems, and the Company's software inter-operates
with UNIX-based operating systems to only a very limited extent. There can be
no assurance that UNIX will not continue to be the dominant operating platform
in the future or that the introduction of other operating systems will not
adversely affect the deployment of Windows NT. The failure of Windows NT
operating systems to achieve market acceptance over the next several years would
have a material adverse effect on the Company's business, results of operations,
and financial condition. In addition, certain performance characteristics of
the Company's products are currently limited by the Windows NT architecture,
including the ability to be deployed throughout the largest enterprises.
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
non-renewal 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. 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 BSPs 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
9
<PAGE>
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 FPhealthcare Suite. The Company's future
performance will depend in significant part upon its ability to complete the
development of, and achieve commercial acceptance for, the FPhealthcare Suite,
the Company's first software product tailored for an industry-specific
application. The FPhealthcare Suite is being developed in response to an order
by St. Elizabeth Medical Center ("SEMC"), and only a limited number of end-users
have purchased any of the software modules contained in this suite. To date,
five of the seven software modules currently comprising the FPhealthcare Suite
have been developed, and the remaining two modules are under development and are
currently expected to be completed in mid-1997. In addition, an eighth module
will be added to the FPhealthcare Suite and is expected to be delivered to SEMC
by late 1997. However, there can be no assurances that any such modules can be
completed in such time frame. Delays in the completion of the remaining modules
could occur due to a variety of factors such as turnover among software
engineers, software bugs or other product quality problems. The Company may add
additional software modules to extend the functionality of the FPhealthcare
Suite. Four of the developed modules have been installed at SEMC's site. If
the Company fails to complete the FPhealthcare Suite to SEMC's satisfaction in a
timely manner, the Company's ability to market its products to other prospective
end-users in the healthcare industry would be materially impaired and the
Company's business, results of operations and financial condition would be
materially and adversely affected. The FPhealthcare Suite has not achieved
widespread customer acceptance; this acceptance will depend, in part, on the
Company's ability to complete and market this software successfully. The failure
of the Company to develop its distribution channel to include healthcare sales
expertise in a timely manner will negatively impact its ability to gain broad
acceptance in the healthcare market.
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 relies, to a significant degree, upon
BSPs and OEMs to sell and install the Company's software, and provide post-sales
support. In 1996, the Company's top 53 BSPs/OEMs accounted for approximately
80% of its revenues, and substantially all of the Company's total revenues were
derived from sales by BSPs 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 BSPs will continue to represent the Company
or sell its products. Furthermore, there can be no assurance that other BSPs,
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 BSPs 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 BSPs has not had a material adverse effect on the Company's business,
results of operations or financial condition. The Company's OEMs currently
compete with the Company and its BSPs. 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's strategy of marketing its products
indirectly through BSPs and OEMs may result in distribution channel conflicts.
To the extent that different BSPs 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
BSPs and OEMs, or adversely affect its ability to attract new BSPs and OEMs.
The loss by the Company of a number of its more significant BSPs or OEMs; the
inability of the Company to obtain qualified new BSPs or OEMs, or to obtain
access to the channels of distribution offering software products to the
Company's targeted markets; or the failure of BSPs 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
10
<PAGE>
its ability to respond effectively to these developments. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete, unmarketable or noncompetitive. For
example, new technologies based on the Internet, such as Java, could alter
generally accepted conventions for document creation, distribution and
management. However, the use of Internet protocols for imaging applications is
presently in the developmental stage, and the Company is unable to predict the
future impact of such protocols 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 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 and the FPhealthcare Suite. The Company
currently expects the FilePower and the FPhealthcare Suites to account for
substantially all of its future revenues. 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 the FilePower Suite, along
with the successful development, marketing and market acceptance of new
industry-specific products such as the FPhealthcare Suite. 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 BSPs 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
BancTec, Inc., FileNet Corporation, International Business Machines Corporation,
Unisys Corporation, Mosaix, Inc. (formerly Viewstar Corporation) and Eastman
Kodak Company. The Company also competes with industry-specific application
vendors such as IMNET Systems, Inc. and LanVision Systems, Inc. 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 BSPs or OEMs for the Company.
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
11
<PAGE>
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.
Risks Associated with Acquisitions. Optika has consummated several recent
acquisitions, including the acquisitions of TEAMWorks Technologies, Inc.
("TEAMWorks") in 1994 (the "TEAMWorks Acquisition"); and IPRS Asia (S) Pte Ltd.,
a Singapore company ("IPRS"), and Intuit Development Limited, a Hong Kong
company ("Intuit"), in 1995 (the "IPRS/Intuit Acquisition") (collectively, the
"Acquisitions"); and continues to evaluate potential acquisitions of businesses,
products and technologies. In 1995, the Company terminated all of the
operations of TEAMWorks due to the failure of the TEAMWorks products to achieve
market acceptance and the Company's lack of experience in selling such products.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies,
potentially dilutive issuances of equity securities, accounting charges, debt
assumptions, operating companies in different geographic locations with
different cultures, the potential loss of key employees of the acquired company,
the diversion of management's attention from other business concerns and the
risks of entering markets in which the Company has no or limited direct prior
experience. There can be no assurance that suitable acquisition candidates will
be identified, that any acquisitions can be consummated or that any acquired
businesses or products can be successfully integrated into the Company's
operations. In addition, there can be no assurance that the Acquisitions or any
future acquisitions will not have a material adverse effect upon the Company's
business, results of operations or financial condition, particularly in the
quarters immediately following the consummation of such transactions, due to
operational disruptions, severance expenses, unexpected expenses and accounting
charges which may be associated with the integration of such acquisitions.
Management Changes; No Assurance of Successful Expansion of Operations. Most
of the Company's senior management team have joined the Company within the last
two 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, the Acquisitions and
other 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
12
<PAGE>
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 BSP 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. In August 1994, a third party notified the Company
that it believes that one of the Company's products is infringing a patent held
by such third party. The Company subsequently notified such third party that it
does not believe that such product infringed such patent. Neither party has
communicated with the other since January 1995. If the third party should file
suit against the Company, and should it be determined that its patent is valid
and infringed by the Company's product, the Company may redesign the allegedly
infringing product or seek to obtain a license from such third party. Any
redesign may be costly and time consuming, may not avoid litigation, and would
materially and adversely affect the Company's business, results of operations,
and financial condition. If it becomes necessary to seek a license from such
third party, there can be no assurance that the Company will be able to obtain
such a license on acceptable terms. Moreover, there can be no assurance that
additional 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, software 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
13
<PAGE>
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
30.5% of the Company's revenues for the three months ended March 31, 1997. 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 United States 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 United States
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.
14
<PAGE>
Uncertainty in Healthcare Industry; Government Regulation. The healthcare
industry is undergoing significant and rapid changes, including consolidation of
hospitals and other healthcare providers in order to form larger integrated
healthcare networks, as well as market-driven or government initiatives to
reform healthcare, which the Company anticipates will affect the operations and
procurement processes of healthcare providers, and which could force the Company
to reduce prices for its software. As the number of hospitals and other
healthcare providers decreases due to further industry consolidation, each
potential sale of the Company's software will become more significant and
competition for each sale will be greater. Further, healthcare providers may
react to proposed reform measures and cost containment pressures by curtailing
or delaying investments, including purchases of the Company's software and
related services. In addition, numerous proposals relating to healthcare reform
have been, and additional proposals are expected to be, introduced in the United
States Congress and state legislatures. Although the effects of federal and
state initiatives for healthcare reform are unknown, the Company believes that
competitive factors in the healthcare industry will continue to drive reform of
healthcare delivery. The Company cannot predict with any certainty what impact,
if any, such market or government initiatives might have on its business,
financial condition and results of operations. The United States Food and Drug
Administration ("FDA") has issued a draft guidance document addressing the
regulation of certain computer products as medical devices under the Federal
Food, Drug and Cosmetic Act. To the extent that computer software is a medical
device under the policy, the manufacturers of such products could be required,
depending on the product, to: (i) register and list their products with the FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products on
the market before marketing such products or (iii) obtain FDA approval by filing
a pre-market application that establishes the safety and effectiveness of the
product. The Company expects that the FDA is likely to become increasingly
active in regulating computer software that is intended for use in healthcare
settings, although the FDA does not currently regulate computer software
products for medical records. The FDA, if it chooses to regulate such software,
can impose extensive requirements governing pre- and post-market conditions such
as device investigation, approval, labeling and manufacturing. In addition, any
substantial reduction in price, failure of the Company to sell its software to
hospitals and other healthcare providers, or increased government regulation,
could have a material adverse effect on the Company's business, results of
operations, and financial condition. Such products would be subject to the
Federal Food, Drug and Cosmetic Act's general provisions, including those
relating to good manufacturing practices and adverse experience reporting. The
Company is also subject to the risks inherent in selling its products to end-
users in other heavily regulated industries, such as insurance, banking and
financial services.
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 53% of the outstanding shares of Common Stock of the Company.
Accordingly, these stockholders would, 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.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None.
Item 2 - Changes in Securities.
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
20 Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended March 31, 1997.
16
<PAGE>
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)
5/14/97 /s/ Mark K. Ruport
--------------- ---------------------------------------
(Date) Mark K. Ruport
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
5/14/97 /s/ Steven M. Johnson
--------------- ---------------------------------------
(Date) Steven M. Johnson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,268
<SECURITIES> 8,693
<RECEIVABLES> 5,716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,563
<PP&E> 3,046
<DEPRECIATION> 1,249
<TOTAL-ASSETS> 20,656
<CURRENT-LIABILITIES> 4,440
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 16,168
<TOTAL-LIABILITY-AND-EQUITY> 20,656
<SALES> 3,195
<TOTAL-REVENUES> 4,522
<CGS> 160
<TOTAL-COSTS> 781
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 116
<INCOME-TAX> 43
<INCOME-CONTINUING> 73
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
