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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, 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 .
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6,782,540 shares of the Registrant's Common Stock, $.001
par value per share, were outstanding as of July 31, 1997
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INDEX
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PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997 1
Condensed Consolidated Statements of
Operations for the three-month and six-month
periods ended June 30, 1996 and 1997 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows
for the six-month periods ended June 30, 1996
and 1997 (Unaudited) 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults on Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
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OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share amounts)
<TABLE>
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DECEMBER 31, JUNE 30,
1996 1997
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(unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents.................. $ 3,474 $ 995
Short-term investments..................... 8,025 8,953
Accounts receivable, net................... 5,766 6,526
Other current assets....................... 825 1,005
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Total current assets................. 18,090 17,479
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Fixed assets, net............................. 1,038 2,446
Other assets, net............................. 1,130 1,273
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$20,258 $21,198
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
$ 280 $ 152
Accounts payable and accrued expenses...... 2,134 2,608
Deferred revenue........................... 1,859 2,116
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Total current liabilities........... 4,273 4,876
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Long-term debt................................ 136 41
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Commitments and contingencies
Common stockholders' equity:
Common stock; $.001 par value; 25,000,000
shares authorized; 6,670,319 and
6,772,640 shares issued and outstanding
at December 31, 1996 and June 30,
1997, respectively.................... 7 7
Additional paid-in capital.............. 16,701 16,989
Retained deficit........................ (859) (715)
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Total common stockholders' equity... 15,849 16,281
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$20,258 $21,198
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</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
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SIX MONTHS ENDED
THREE MONTHS ENDED JUNE 30, JUNE 30,
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1996 1997 1996 1997
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Revenues:
Licenses.................... $ 3,142 $ 3,745 $ 5,648 $ 6,940
Maintenance and other....... 712 1,425 1,312 2,752
--------- -------- -------- --------
Total revenues........... 3,854 5,170 6,960 9,692
Cost of revenues:
Licenses.................... 147 138 278 298
Maintenance and other....... 479 681 866 1,302
--------- -------- -------- --------
Total cost of revenues... 626 819 1,144 1,600
--------- -------- -------- --------
Gross profit................... 3,228 4,351 5,816 8,092
Operating expenses:
Sales and marketing......... 1,689 2,561 2,927 4,715
Research and development.... 1,177 1,393 2,229 2,542
General and administrative.. 324 438 612 841
--------- -------- -------- --------
Total operating expenses. 3,190 4,392 5,768 8,098
--------- -------- -------- --------
Income (loss) from operations.. 38 (41) 48 (6)
Other income (expense), net.... 5 155 (3) 236
--------- -------- -------- --------
Income before provision
for income taxes.............. 43 114 45 230
Provision for income taxes..... -- 43 -- 86
--------- -------- -------- --------
Net income..................... $ 43 $ 71 $ 45 $ 144
========= ======== ======== ========
Net income per common share.... $ 0.01 $ 0.02
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Weighted average number of
common shares outstanding..... 7,731 7,776
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Proforma net income per
common share.................. $ 0.01 $ 0.01
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Proforma weighted average
number of common shares
outstanding................... 5,874 5,730
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
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SIX MONTHS ENDED JUNE 30,
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1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 45 $ 144
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization............ 229 267
Loss on disposal of assets............... -- 18
Change in assets and liabilities:
Accounts receivable, net.............. (1,074) (760)
Other assets, net..................... (480) (326)
Accounts payable and accrued
expenses............................. 131 474
Deferred revenue...................... 377 257
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Net cash provided (used) by
operations....................... (772) 74
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (321) (1,690)
Purchase of short-term investments, net..... -- (928)
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Net cash used by investing
activities....................... (321) (2,618)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt........ (40) (223)
Proceeds from issuance of long-term debt.... 321 --
Proceeds from issuance of common stock...... -- 288
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Net cash provided by
financing activities............. 281 65
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Net decrease in cash........................ (812) (2,479)
Cash at beginning of period................. 1,415 3,474
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Cash at end of period....................... $ 603 $ 995
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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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 rules and regulations. The consolidated
results of operations for the period ended June 30, 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 and six
months ending June 30, 1997 and 1996, the Company's proforma basic net income
per share and proforma diluted net income per share would have been unchanged
from the net income per share reported in the Statement 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
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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 six months ended June 30, 1997,
approximately 71.6% of the Company's total revenues were derived from
software licenses and approximately 17.3% 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 11.1% 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.
REVENUES
Total revenues increased 39.3% from $7.0 million for the six months ended June
30, 1996 to $9.7 million for the six months ended June 30, 1997. Total revenues
increased 34.1% from $3.9 million for the quarter ended June 30, 1996 to $5.2
million for the quarter ended June 30, 1997.
Licenses. License revenues increased 22.9% from $5.6 million during the six
months ended June 30, 1996 to $6.9 million for the six months ended June 30,
1997 and increased 19.2% from $3.1 million during the quarter ended June 30,
1996 to $3.7 million during the same period in 1997. License revenues
represented 81.1% and 71.6% of the total revenues for the six months ended June
30, 1996 and 1997, respectively and 81.5% and 72.4% of the total revenues for
the quarter ended June 30, 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 during the second quarter were driven, in part, by an
increase in sales to international customers, primarily in Asia and Latin
America. Additionally, there was increase in unit sales in the United States for
the quarter ended June 30, 1997 compared to the same period a year ago. The rate
of growth for license revenue during the quarter ended June 30, 1997 was lower
than the rate of growth experienced in previous quarters, primarily as a result
of lower growth of sales in the healthcare industry and in Europe. Revenues from
the healthcare industry were affected by increased competitive pressures. Sales
outside of the United States accounted for approximately 24.1% of the Company's
revenues for the six months ended June 30, 1996, compared to 27.4% for the same
period in 1997, and 29.3% and 24.5% for the quarter ended June 30, 1996 and
1997, respectively.
Maintenance and Other. Maintenance revenues, exclusive of other revenue,
increased 69.5% from $992,000 during the six months ended June 30, 1996, to $1.7
million for the six months ended June 30, 1997 and increased 64.7% from $533,000
during the quarter ended June 30, 1996 compared to $878,000 during the same
period in 1997.
5
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Maintenance revenue represented 14.3% and 17.3% of the total revenues for the
six months ended June 30, 1996 and 1997, respectively and 13.8% and 17.0% of the
total revenues for the quarter ended June 30, 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 4.6% and 11.1% of
total revenues for the six months ended June 30, 1996 and 1997, respectively and
4.6% and 10.6% of total revenues for the quarter ended June 30, 1996 and 1997,
respectively. Other revenue increased primarily as a result of implementation
and training revenue generated by the Company's international operations.
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 $278,000 or 4.9% of license revenues to $298,000 or
4.3% of license revenues for the six months ended June 30, 1996 and 1997,
respectively. The decrease in cost of licenses from $147,000 or 4.7% of
license revenues to $138,000 or 3.7% of license revenues for the quarter ended
June 30, 1996 and 1997, respectively, was primarily due to negotiating lower
royalty rates to third party vendors.
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. Cost of
maintenance and other increased from $866,000 or 66.0% of maintenance and other
revenues to $1.3 million or 47.3% of maintenance and other revenues for the six
months ended June 30, 1996 and 1997, respectively. Cost of maintenance and other
increased from $479,000 or 67.3% of maintenance and other revenues to $681,000
or 47.8% of maintenance and other revenues for the quarter ended June 30, 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 utilizing existing resources to service the Company's
increased maintenance base.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and other related expenses for sales and marketing
personnel as well as marketing, advertising and promotional expenses. Sales and
marketing expenses increased from $2.9 million, or 42.1% of total revenues, for
the six months ended June 30, 1996 to $4.7 million, or 48.7% of total revenues,
for the six months ended June 30, 1997. Sales and marketing expenses increased
from $1.7 million or 43.8% for the quarter ended June 30, 1996 to $2.6 million
or 49.5% for the quarter ended June 30, 1997. The increase in sales and
marketing expenditures for the six months ended June 30, 1997 is primarily
attributable to additional costs resulting from the establishment of sales
offices in Australia, Brazil, Germany, and Malaysia and costs associated with
the continued expansion of the Company's network of BSPs and OEMs, as well as
increase its regional presence throughout the world. 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 $2.2 million, or 32.0% of total revenues,
for the six months ended June 30, 1996 to $2.5 million, or 26.2% of total
revenues, for the six months ended June 30, 1997, respectively. Research and
development expenses increased from $1.2 million or 30.5% of total revenues to
$1.4 million or 26.9% of total revenues for the quarter ended June 30, 1996 and
1997, respectively. 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 $612,000 or 8.8% of total revenues, for
the six months ended June 30, 1996 to $841,000, or 8.7% of total revenues for
the six months ended June 30, 1997. General and administrative expenses
increased from $324,000, or 8.4% of total revenues for the quarter ended June
30, 1996, to $438,000, or 8.5% of total revenues for the quarter ended June 30,
1997. The increase in general and administrative expenses 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.
6
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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 incurred a net other
expense of $3,000 during the six months ended June 30, 1996 compared to net
other income of $236,000 during the six months ended June 30, 1997. Other
income increased from $5,000 during the quarter ended June 30, 1996 to $155,000
for the same period in 1997. The increase in other income for both the three and
six months ended June 30, 1997 compared to the same periods in 1996 were
primarily a result of interest income derived from the investment of the
Company's initial public offering proceeds.
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 June 30,
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at June 30, 1997 were approximately $9.9
million, decreasing by approximately $1.6 million 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 and the company's investment in a centralized lead
tracking and customer service database.
For the six months ended June 30, 1996, net cash used in operating activities
was $772,000 compared to net cash provided of $74,000 for the six months ended
June 30, 1997. This was primarily attributable to an increase in collections on
accounts receivable compared to the same period a year ago.
Cash used in investing activities was $321,000 for the six months ended June
30, 1996 compared to $2.6 million for the six months ended June 30, 1997. Uses
of cash consisted primarily of purchases of marketable securities from the
investment of the initial public offering proceeds and capital expenditures
associated with furnishing the Company's new leased corporate headquarters and
an investment in a centralized lead tracking and customer service database.
Cash provided by financing activities was $281,000 for the six months ended
June 30, 1996 and $65,000 for the six months ended June 30, 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 June 30, 1997, the Company's principal sources of liquidity included cash
and short-term investments of approximately $9.9 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, 1997, the Company had $2.8
million available for borrowing with a $200,000 outstanding letter of credit to
secure the company's new leased corporate headquarters. The Company also has a
term note with a principal balance of $92,000 at June 30, 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 $93,000 at June 30, 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.
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.
7
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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
June 30, 1997, the Company had an accumulated deficit of approximately $715,000.
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; the ability of the Company to
achieve revenue growth in its target markets, such as healthcare; 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 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.
8
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Risks Associated with the FPhealthcare Suite. The Company's future performance
will depend in 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 early-1998. 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. 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 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.
9
<PAGE>
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
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
10
<PAGE>
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
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 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
11
<PAGE>
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 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 27.4%
of the Company's revenues for the six months ended June 30, 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
12
<PAGE>
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.
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.
13
<PAGE>
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 51% 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.
14
<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 C have been filed during the
quarter ended June 30, 1997.
15
<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)
August 13, 1997 /s/ Mark K. Ruport
--------------- ---------------------------------
(Date) Mark K. Ruport
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
August 13, 1997 /s/ Steven M. Johnson
--------------- ---------------------------------
(Date) Steven M. Johnson
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
16
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