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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________ to
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Commission File Number 0-28672
OPTIKA IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4154552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7450 Campus Drive 80920
Suite 200 (Zip Code)
Colorado Springs, CO
(Address of principal executive offices)
(719) 548-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No ____.
6,996,570 shares of the Registrant's Common Stock, $.001 par value per
share, were outstanding as of August 12, 1998
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<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1997
and June 30, 1998 1
Condensed Consolidated Statements of Operations for the
three-month and six-month periods ended June 30, 1997
and 1998 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 1997 and 1998 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities and Use of Proceeds 17
Item 3 - Defaults on Senior Securities 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
<CAPTION>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, June 30,
1997 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 3,202 $ 5,576
Short-term investments.................................. 5,398 1,986
Accounts receivable, net................................ 8,555 5,567
Other current assets.................................... 986 948
------------- -------------
Total current assets.............................. 18,141 14,077
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Fixed assets, net.......................................... 2,721 3,217
Other assets, net.......................................... 1,024 2,242
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$ 21,886 $ 19,536
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................... $ 15 $ -
Accounts payable ....................................... 742 908
Accrued expenses........................................ 1,901 2,278
Restructuring reserve................................... 291 27
Deferred revenue........................................ 2,445 3,223
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Total current liabilities........................ 5,394 6,436
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Commitments and contingencies
Common stockholders' equity:
Common stock; $.001 par value;25,000,000 shares authorized;
6,890,724 and 6,960,604 shares issued and outstanding
at December 31, 1997 and June 30, 1998, respectively. 7 7
Additional paid-in capital........................... 17,179 17,233
Accumulated deficit.................................. (694) (4,140)
------------- -------------
Total common stockholders' equity................ 16,492 13,100
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$ 21,886 $ 19,536
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Six Months Ended
Ended June 30, June 30,
-------------------------- ---------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Licenses................................ $ 3,745 $ 1,843 $ 6,940 $ 4,091
Maintenance and other................... 1,425 1,645 2,752 3,105
-------- -------- -------- ---------
Total revenues....................... 5,170 3,488 9,692 7,196
Cost of revenues:
Licenses................................ 138 84 298 210
Maintenance and other................... 681 772 1,302 1,481
-------- -------- -------- ---------
Total cost of revenues............... 819 856 1,600 1,691
-------- -------- -------- ---------
Gross profit............................... 4,351 2,632 8,092 5,505
Operating expenses:
Sales and marketing..................... 2,561 3,310 4,715 6,237
Research and development................ 1,393 1,287 2,542 2,413
General and administrative.............. 438 614 841 1,175
-------- -------- -------- ---------
Total operating expenses............. 4,392 5,211 8,098 9,825
-------- -------- -------- ---------
Loss from operations....................... (41) (2,579) (6) (4,320)
Other income (expense), net................ 155 (46) 236 13
-------- -------- -------- ---------
Income (loss) before provision (benefit)
for income taxes......................... 114 (2,625) 230 (4,307)
Provision (benefit) for income taxes....... 43 (525) 86 (861)
-------- -------- -------- ---------
Net income (loss).......................... $ 71 $ (2,100) $ 144 $ (3,446)
======== ======== ======== =========
Net income (loss) per common share......... $ 0.01 $ (0.30) $ 0.02 $ (0.50)
======== ========= ======== =========
Weighted average number of common shares
outstanding.............................. 6,763 6,956 6,737 6,942
======== ========= ======== ========
Diluted net income (loss) per common share. $ 0.01 $ (0.30) $ 0.02 $ (0.50)
======== ======== ======== =========
Diluted weighted average number of common
shares outstanding....................... 7,731 6,956 7,726 6,942
======== ======== ======== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTIKA IMAGING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
----------------------------
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 144 $ (3,446)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization........................... 267 405
Deferred tax benefit.................................... (30) (962)
Loss on disposal of assets.............................. 18 -
Change in assets and liabilities:
Accounts receivable, net............................. (760) 2,988
Other assets......................................... (296) (261)
Accounts payable..................................... 30 166
Accrued expenses..................................... 444 113
Deferred revenue..................................... 257 778
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Net cash provided (used) by operations................. 74 (219)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (1,690) (858)
Sale (purchase) of short-term investments.................. (928) 3,412
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Net cash provided (used) by investing activities........ (2,618) 2,554
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt....................... (223) (15)
Proceeds from issuance of common stock..................... 288 54
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Net cash provided by financing activities............... 65 39
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Net increase (decrease) in cash and cash equivalents....... (2,479) 2,374
Cash and cash equivalents at beginning of period........... 3,474 3,202
------------- -------------
Cash and cash equivalents at end of period................. $ 995 $ 5,576
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<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 adjustments, which
in the opinion of management are necessary to fairly present the Company's
consolidated financial position, results of operations, and cash flows for the
periods presented. Certain information and footnote disclosures normally
included in audited financial information prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's (SEC's) rules and regulations. The
consolidated results of operations for the period ended June 30, 1998 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the entire fiscal year ending December 31, 1998. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1997,
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Net Income (Loss) Per Common Share
In 1997, the Company adopted the guidelines of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Prior period EPS have been
restated to conform with the new statement. Basic EPS is computed by dividing
net income by the weighted average number of shares outstanding during the
period. Diluted EPS is computed using the weighted average number of shares
outstanding plus all dilutive potential common shares outstanding. During the
first half of 1998, 285,000 options to purchase common stock of the Company were
granted. Additionally, during the first quarter of 1998, 264,500 options to
purchase common stock of the Company were re-priced at $3.18 per option share.
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations (in thousands except per share data):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1997 1998 1997 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Earning Per Share:
Net income (loss).............................. $ 71 $ (2,100) $ 144 $ (3,446)
Weighted average common shares outstanding..... 6,763 6,956 6,737 6,942
Net income (loss) per common share............. $ 0.01 $ (0.30) $ 0.02 $ (0.50)
Effect of Dilutive Securities:
Options and warrants........................... 968 -- 989 --
Diluted weighted average common shares
outstanding................................. 7,731 6,956 7,726 6,942
Diluted net income (loss) per common share..... $ 0.01 $ (0.30) $ 0.02 $ (0.50)
</TABLE>
Restructuring and Sale of FPhealthcare Suite
During the fourth quarter of 1997, the Company made the decision to exit the
vertical healthcare market and sold the rights to the majority of the software
products that previously comprised the FPhealthcare suite of products. The
FPhealthcare suite was being developed to offer a product tailored to the
healthcare industry however, there have been a limited number of customers who
have licensed the software. The restructuring plan involved the FPhealthcare
suite product sale, closure of the Company's Boston facility, and the
termination of approximately 14 employees. The Company incurred a 1997
restructuring charge of $885,000 related to this restructuring consisting of
severance and benefits for employees to be terminated, write-downs of assets and
leased facility executory costs, and other costs related to the restructuring
consisting principally of legal and other miscellaneous costs. The remaining
costs are expected to be resolved within the third quarter of 1998.
<PAGE>
The following table summarizes the activity in the Company's restructuring
reserves during 1998:
Asset
Impairment Other
Employee and Lease Exit
Benefits Costs Costs Total
-------------------------------------------
Balance at December 31, 1997 $ 136,000 $ 116,000 $ 39,000 $ 291,000
Cash payments 136,000 116,000 12,000 264,000
===========================================
Balance at June 30, 1998 $ - $ - $ 27,000 $ 27,000
===========================================
2. Contingencies
The Company is, from time to time, subject to certain claims, assertions
or litigation by outside parties as part of its ongoing business operations. The
outcome of any such contingencies are not expected to have a material adverse
effect on the financial condition, operations or cash flows of the Company. The
Company is not currently a party to any material legal proceedings.
<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 that are
comprised of one-time fees for the license of the Company's products, and
maintenance revenues, which are comprised of fees for updates and technical
support. The Company's Advantage Partners ("APs"), formerly called Business
Solution Partners, and Original Equipment Manufacturers ("OEMs"), which are
responsible for the installation and integration of the software, enter into
sales agreements with the end-user and purchase software directly from the
Company. The software is licensed directly to the end-user by the Company
through a standard shrink-wrapped license agreement. Annual maintenance
agreements are also entered into between the APs and OEMs and the end-user, and
the APs and OEMs then purchase maintenance services directly from the Company.
For the six months ended June 30, 1998, approximately 56.9% of the Company's
total revenues were derived from software licenses and approximately 32.5% of
the Company's total revenues were derived from maintenance agreements. Other
revenues, which are comprised of training, consulting and implementation
services and third-party hardware and software products, accounted for 10.6% of
the Company's total revenues. The Company adopted the provisions of Statement of
Position 97-2, Software Revenue Recognition (SOP 97-2), for transactions entered
into after January 1, 1998. Under SOP 97-2, the Company generally recognizes
license revenue upon shipment when a non-cancelable license agreement has been
signed or a purchase order has been received, delivery has occurred, the fee is
fixed and determinable and collectibility is probable. Where applicable, fees
from multiple element arrangements are unbundled and recorded as revenue as the
elements are delivered to the extent that vendor specific objective evidence of
fair value exists. Maintenance revenues are deferred and recognized ratably over
the maintenance period, which is generally one year. Other revenues are
recognized as services are performed. The Company generally does not grant
rights to return products, except for defects in the performance of the products
relative to specifications and pursuant to standard industry shrink-wrapped
license agreements which provide for 30-day rights of return if an end-user does
not accept the terms of the software license, nor does it provide provisions for
price adjustments or rotation rights. The Company's terms of sales generally
range from 30 to 60 days from date of shipment for APs and OEMs. Based on the
Company's research and development process, costs incurred between the
establishment of technological feasibility and general release of the software
products have not been material and therefore have not been capitalized in
accordance with Statement of Financial Accounting Standards No. 86. All research
and development costs have been expensed as incurred.
In March 1998, the Company introduced Optika eMedia(TM), its
next-generation software solution for managing and automating paper-intensive
business-to-business transactions. In July 1998, Optika announced the controlled
shipment of Optika eMedia to initial user sites that included Fortune 1000
companies and other large organizations. Optika eMedia is scheduled to be
commercially available by approximately September 1998. Optika eMedia manages
business transactions both within an enterprise and across the Internet with
multiple business partners. Commerce-brokering software and solutions enable
large organizations to manage the high-volume flow of documents and electronic
information associated with business-to-business transactions. Optika eMedia
incorporates all of the imaging/COLD/workflow functionality of Optika's
FilePower solution, in addition to availability of multiple client interfaces
and a scalable, 3-tier architecture and will incorporate powerful Internet
negotiation and resolution tools. (See Business Risks-Risks Associated with the
Introduction of Optika eMedia).
REVENUES
Total revenues decreased 25.8% from $9.7 million, for the six months ended
June 30, 1997, to $7.2 million, for the six months ended June 30, 1998. Total
revenues decreased 32.5% from $5.2 million, for the quarter ended June 30, 1997,
to $3.5 million, for the quarter ended June 30, 1998.
Licenses. License revenues decreased 41.1% from $6.9 million, during the
six months ended June 30, 1997, to $4.1 million, for the six months ended June
30, 1998, and decreased 50.8% from $3.7 million, during the quarter ended June
30, 1997, to $1.8 million, during the same period in 1998. License revenues
represented 71.6% and 56.9% of the total revenues for the six months ended June
30, 1997 and 1998, respectively and 72.4% and 52.8% of the total revenues for
the quarter ended June 30, 1997 and 1998, respectively. Management believes that
the decrease in license revenues during the first half of 1998 is primarily a
result of customers choosing to delay purchase decisions of the Company's
product until the general release of Optika eMedia. License revenues generated
outside of the United States accounted for approximately 27.4% of the Company's
revenues for the six months ended June 30, 1997, compared to 23.9% for the same
period in 1998, and 24.5% and 29.6% for the quarter ended June 30, 1997 and
1998, respectively.
Maintenance and Other. Maintenance revenues, exclusive of other revenue,
increased 35.3% from $1.7 million during the six months ended June 30, 1997, to
$2.3 million for the six months ended June 30, 1998 and increased 41.1% from
$878,000 during the quarter ended June 30, 1997 compared to $1.2 million during
the same period in 1998. Maintenance revenue represented 17.3% and 32.5% of the
total revenues for the six months ended June 30, 1997 and 1998, respectively and
17.0% and 35.5% of the total revenues for the quarter ended June 30, 1997 and
1998, respectively. Through the Company's continued improvements in the
tracking, monitoring and notifying of expiring maintenance contracts and the
general increase in the number of installed systems, the Company was able to
increase the number of maintenance contract renewals. Other revenue, consisting
primarily of consulting services, training and consulting fees represented 11.1%
and 10.6% of total revenues for the six months ended June 30, 1997 and 1998,
respectively, and 10.6% and 11.7% of total revenues for the quarters ended June
30, 1997 and 1998, respectively.
COST OF REVENUES
Licenses. Cost of licenses consists primarily of royalty payments to
third-party vendors, product author commissions, whereby certain of the
Company's software developers are entitled to receive a specified percentage of
product sales, and costs of product media, duplication, packaging and
fulfillment. Cost of licenses decreased from $298,000, or 4.3% of license
revenues, to $210,000, or 5.1% of license revenues, for the six months ended
June 30, 1997 and 1998, respectively, and decreased from $138,000, or 3.7% of
license revenues, to $84,000, or 4.6% of license revenues, for the quarters
ended June 30, 1997 and 1998, respectively. The decrease in absolute dollar cost
of licenses was attributable to the decreased license revenue.
Maintenance and Other. Costs of maintenance and other consist of the
direct and indirect costs of providing software maintenance and support,
training and consulting services to the Company's APs, OEMs and end-users. Cost
of maintenance and other increased from $1.3 million or 47.3% of maintenance and
other revenues to $1.5 million or 47.7% of maintenance and other revenues for
the six months ended June 30, 1997 and 1998, respectively. Cost of maintenance
and other increased from $681,000, or 47.8% of maintenance and other revenues to
$772,000, or 46.9% of maintenance and other revenues, for the quarters ended
June 30, 1997 and 1998, respectively. Cost as a percentage of revenue for both
periods remained constant as revenues increased.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and other related expenses for sales and marketing
personnel, marketing, advertising and promotional expenses. Sales and marketing
expenses increased from $4.7 million, or 48.7% of total revenues, for the six
months ended June 30, 1997 to $6.2 million, or 86.7% of total revenues, for the
six months ended June 30, 1998. Sales and marketing expenses increased from $2.6
million or 49.5% of total revenues for the quarter ended June 30, 1997 to $3.3
million or 94.9% of total revenues for the quarter ended June 30, 1998. The
increase in sales and marketing expenses is primarily attributable to costs
associated with the continued expansion of the Company's product launch
activities associated with Optika eMedia. The Company anticipates that sales and
marketing expenses will continue to increase in absolute dollars in future
quarters as the Company continues the launch of the Optika eMedia product.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, as well as the cost of facilities and equipment. Research and
development expenses decreased from $2.5 million, or 26.2% of total revenues,
for the six months ended June 30, 1997 to $2.4 million, or 33.5% of total
revenues, for the six months ended June 30, 1998, respectively. Research and
development expenses decreased from $1.4 million, or 26.9% of total revenues, to
$1.3 million, or 36.9% of total revenues, for the quarters ended June 30, 1997
and 1998, respectively. Research and development costs decreased in absolute
dollars between both periods as a result of the Company's exit from the
healthcare market in late 1997. The Company expects research and development
expenses to increase in absolute dollars in future quarters to fund the
development of new products and product enhancements.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and outside professional fees. General and
administrative expenses increased from $841,000 or 8.7% of total revenues, for
the six months ended June 30, 1997 to $1.2 million, or 16.3% of total revenues
for the six months ended June 30, 1998. General and administrative expenses
increased from $438,000, or 8.5% of total revenues for the quarter ended June
30, 1997, to $614,000, or 17.6% of total revenues for the quarter ended June 30,
1998. The increase in general and administrative costs in absolute dollars was
primarily due to the write-off of certain accounts receivable in Asia during the
first six months of 1998.
Other income, net. Other income, net consists primarily of interest earned
on the Company's financing activities offset by interest expense on the
Company's capitalized lease obligations and other debt. The Company recognized
net other income of $236,000 during the six months ended June 30, 1997 compared
to net other income of $13,000 during the six months ended June 30, 1998. The
Company recognized net other income of $155,000 during the quarter ended June
30, 1997 compared to net other expense of $46,000 for the same period in 1998,
primarily as a result of decreased investment income and an increase in foreign
currency translation loss.
Provision (Benefit) for Income Taxes. The Company's effective tax rates
decreased from 38% for the quarter ended June 30, 1997 to 20% for the quarter
ended June 30, 1998 primarily due to increased research and development tax
credits.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at June 30, 1998 were $7.6 million,
decreasing by approximately $1.0 million from December 31, 1997. The decrease in
cash and short-term investments is primarily due to the 1998 first and second
quarter losses and capital expenditures offset by the collection of accounts
receivable.
For the six months ended June 30, 1997, net cash provided by operating
activities was $74,000 compared to net cash used by operating activities of
$219,000 for the six months ended June 30, 1998. The decrease in cash provided
by operating activities for the six months ended June 30, 1998 is primarily due
to the first and second quarter losses offset by improved accounts receivable
collections.
Cash used in investing activities was $2.6 million for the six months
ended June 30, 1997 compared to cash provided of $2.6 million for the six months
ended June 30, 1998. Uses of cash consisted primarily of purchases of marketable
securities and property and equipment in the first six months of 1997, while
marketable securities were sold during the first six months of 1998.
Cash provided by financing activities was $65,000 for the six months ended
June 30, 1997. Cash provided by financing activities was $39,000 for the six
months ended June 30, 1998. Cash provided by financing activities resulted
primarily from proceeds from stock option exercises and the sales of securities
under the Company's employee stock purchase plan, offset in part by repayments
of bank borrowings, capital leases and other debt.
At June 30, 1998, the Company's principal sources of liquidity included
cash and short-term investments of $7.6 million. In addition, the Company has a
secured credit facility for up to $3.0 million, bearing interest at the bank's
prime rate plus .75%. As of June 30, 1998, the Company had $2.8 million
available for borrowing and no other debt outstanding.
The Company believes that its current cash and short-term investments,
together with anticipated cash flow from operations and its bank credit
facility, will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. Thereafter, the Company may
require additional funds to support such activity through public or private
equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company and would not be
dilutive.
YEAR 2000
Many currently installed computer and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance. The
Company believes that the purchasing patterns of customers and potential
customers may be significantly affected by Year 2000 issues. Many companies are
expending significant resources to correct or patch their current software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase services such as those offered by the Company.
Additionally, Year 2000 issues could cause a significant number of companies,
including current customers of the Company, to reevaluate their current system
needs, and as a result, consider switching to other systems or suppliers. This
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company currently offers products and services that are designed to be
Year 2000 compatible. Although the Company has designed its products and
services to be Year 2000 capable and tests third-party software that is
incorporated with the Company's products and services, there can be no assurance
that the Company's products and services, particularly when such products and
services incorporate third-party software, contain all necessary date code
changes. To the extent that the Company's software does not comply with Year
2000 requirements, there can be no assurance that potential system interruptions
or the cost necessary to update the software will not have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company uses third-party software and computer technology internally
which may materially impact the Company if not Year 2000 compliant. Further, the
Company's operations may be at risk if its suppliers and other third-parties
fail to adequately address the Year 2000 problem or if software conversions
result in system incompatibilities with these third-parties. This issue could
result in system failures or generation of erroneous information and could
significantly disrupt business activities. The Company is in initial discussions
with its major suppliers and is continuing to review what actions will be
required to make all software systems used internally Year 2000 compliant as
well as to mitigate its vulnerability to problems with the systems used by its
suppliers and other third parties. The total cost and time associated with the
impact of Year 2000 compliance cannot presently be determined. To the extent
that third-party software does not comply with Year 2000 requirements, there can
be no assurance that potential system interruptions for the Company and its
major suppliers or the cost necessary to update the software will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
<PAGE>
BUSINESS RISKS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISK AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW.
Significant Fluctuations in Operating Results. The Company's sales and other
operating results have varied significantly in the past and will vary
significantly in the future as a result of factors such as: the size and timing
of significant orders and their fulfillment; demand for the Company's products;
changes in pricing policies by the Company or its competitors; the number,
timing and significance of product enhancements and new product announcements by
the Company and its competitors; changes in the level of operating expenses;
customer order deferrals in anticipation of new products or otherwise; foreign
currency exchange rates; warranty and customer support expenses; changes in its
end-users' financial condition and budgetary processes; changes in the Company's
sales, marketing and distribution channels; delays or deferrals of customer
implementation; product life cycles; software bugs and other product quality
problems; discounts; the cancellation of licenses during the warranty period or
nonrenewal of maintenance agreements; customization and integration problems
with the end-user's legacy system; changes in the Company's strategy; the level
of international expansion; and seasonal trends. In addition, the commercial
introduction of Optika eMedia, the timing of revenue therefrom and any adverse
impact on the Company's sales of the Filepower Suite associated therewith could
cause the Company's sales and operating results to vary significantly over the
next several quarters. A significant portion of the Company's revenues has been,
and the Company believes will continue to be, derived from a limited number of
orders, and the timing of such orders and their fulfillment have caused, and are
expected to continue to cause, material fluctuations in the Company's operating
results. Revenues are also difficult to forecast because the markets for the
Company's products are rapidly evolving, and the sales cycle of the Company and
of its APs and OEMs, from initial evaluation to purchase, is lengthy and varies
substantially from end-user to end-user. To achieve its quarterly revenue
objectives, the Company depends upon obtaining orders in any given quarter for
shipment in that quarter. Product orders are typically shipped shortly after
receipt; consequently, order backlog at the beginning of any quarter has in the
past represented only a small portion of that quarter's revenues. Furthermore,
the Company has often recognized most of its revenues in the last month, or even
in the last weeks or days, of a quarter. Accordingly, a delay in shipment near
the end of a particular quarter may cause revenues in a particular quarter to
fall significantly below the Company's expectations and may materially adversely
affect the Company's operating results for such quarter. Conversely, to the
extent that significant revenues occur earlier than expected, operating results
for subsequent quarters may fail to keep pace with results of previous quarters
or even decline. The Company also has recorded generally lower sales in the
first quarter than in the immediately preceding quarter, as a result of, among
other factors, end-users' purchasing and budgeting practices and the Company's
sales commission practices, and the Company expects this pattern to continue in
future years. To the extent that future international operations constitute a
higher percentage of total revenues, the Company anticipates that it may also
experience relatively weaker demand in the third quarter as a result of reduced
sales in Europe during the summer months. A significant portion of the Company's
expenses are relatively fixed in the short term. Accordingly, if revenue levels
fall below expectations, operating results are likely to be disproportionately
and adversely affected. As a result of these and other factors, the Company
believes that its quarterly operating results will vary in the future, and that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.
Risks Associated with the Introduction of Optika eMedia. In March 1998, the
Company announced plans to introduce Optika eMedia, a software solution designed
to manage and automate paper-intensive business processes within an enterprise
through the Internet and across the value chain. In July 1998, Optika announced
the controlled shipment of Optika eMedia to initial user sites that included
Fortune 1000 companies and other large organizations. Optika eMedia is scheduled
to be commercially available by approximately September 1998. Because the market
for Optika eMedia is new and evolving, it is difficult to assess or predict with
any assurance the growth rate, if any, and size of this market. There also can
be no assurance that the market for Optika eMedia will develop, or that the
solution will be adopted or utilized. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, or if the
product does not achieve market acceptance, the Company's business, results of
operations and financial condition may be materially adversely affected.
Software companies that are in the process of announcing and releasing new
versions or products frequently experience an adverse effect on revenue during
the period between the date the new release is announced and when it becomes
generally available. This negative effect is a result of customer buying
patterns whereby they have a tendency to wait until the new version is generally
available to actually make a purchase. The Company has experienced and expects
that it will continue to experience this adverse effect until Optika eMedia, is
commercially available. Further, if customers purchasing current products are
granted discounts or upgrade rights to future releases, significant amounts of
revenue may be deferred from sales of currently shipped products because of the
Company's adoption of the recently released SOP 97-2 "Software Revenue
Recognition". The effect of these two potential adverse factors coupled with
anticipated significant research and development spending will likely result in
operating losses being incurred in several quarters in 1998.
Although sales of Optika eMedia are not expected to be significant until the
fourth quarter of 1998, the Company is directing a significant amount of its
product development expenditures to the ongoing development of Optika eMedia and
a significant amount of its sales and marketing resources to the full commercial
introduction of Optika eMedia and believes that its acceptance by customers is
critical to the future success of the Company. There can be no assurance that
Optika eMedia will gain significant market acceptance, if at all. Optika eMedia
has not been fully implemented in customers' environments and as a result, there
can be no assurance that Optika eMedia will not require substantial software
enhancements or modifications to satisfy performance requirements of customers
or to fix design defects or previously undetected errors. Further, it is common
for complex software programs such as Optika eMedia to contain undetected errors
when first released, which are discovered only after the product has been used
over time with different computer systems and in varying applications and
environments. While the Company is not aware of any significant technical
problems with Optika eMedia, there can be no assurance that errors will not be
discovered, or if discovered, that they will be successfully corrected on a
timely basis, if at all. The Company's future business growth is substantially
dependent on the continued development, introduction and market acceptance of
Optika eMedia. Should the Company fail to release a fully commercial version of
Optika eMedia, if the Company is unable to ship Optika eMedia on a timely basis,
if customers experience significant problems with implementation of Optika
eMedia or are otherwise dissatisfied with the functionality or performance of
Optika eMedia, or if it fails to achieve market acceptance for any other reason,
the Company's business, results of operations and financial condition may be
materially adversely affected.
Reliance on Indirect Distribution Channels; Potential for Channel Conflict.
The Company's future results of operations will depend on the success of its
marketing and distribution strategy, which has relied, to a significant degree,
upon APs and OEMs to sell and install the Company's software, and provide
post-sales support. In 1997, the Company's top 70 APs/OEMs accounted for
approximately 75% of its license revenues, and substantially all of the
Company's license revenues were derived from sales by APs and OEMs. These
relationships are usually established through formal agreements that generally
do not grant exclusivity, do not prevent the distributor from carrying competing
product lines and do not require the distributor to purchase any minimum dollar
amount of the Company's software. There can be no assurance that any APs will
continue to represent the Company or sell its products. Furthermore, there can
be no assurance that other APs, some of which have significantly greater
financial marketing and other resources than the Company, will not develop or
market software products which compete with the Company's products or will not
otherwise discontinue their relationship with, or support of, the Company. Some
of the Company's APs are small companies that have limited financial and other
resources which could impair their ability to pay the Company. To date, the
Company's inability to receive payments from such APs has not had a material
adverse effect on the Company's business, results of operations or financial
condition. The Company's OEMs occasionally compete with the Company and its APs.
Selling through indirect channels may also hinder the Company's ability to
forecast sales accurately, evaluate customer satisfaction, provide quality
service and support or recognize emerging customer requirements.
The Company recently altered its sales strategy with the introduction of a
direct sales team. The Company's strategy of marketing its products directly and
indirectly (through APs and OEMs) may result in distribution channel conflicts.
To the extent that the Company, APs and OEMs target the same customers, they may
come into conflict with each other. Although the Company has attempted to
allocate certain territories for its products among its distribution channels in
a manner to avoid potential conflicts, there can be no assurance that channel
conflict will not materially and adversely affect its relationship with existing
APs and OEMs, or adversely affect its ability to attract new APs and OEMs. The
loss by the Company of a number of its more significant APs or OEMs, the
inability of the Company to obtain qualified new APs or OEMs, or to obtain
access to the channels of distribution offering software products to the
Company's targeted markets, or the failure of APs or OEMs to pay the Company for
its software, could have a material adverse effect on the Company's business,
results of operations, or financial condition.
Rapid Technological Change: Dependence on New Product Development. The
market for imaging software is characterized by rapid technological change,
changes in customer requirements, frequent new product introductions and
enhancements, and emerging industry standards. The Company's future performance
will depend in significant part upon its ability to respond effectively to these
developments. The introduction of product embodying new technologies and the
emergence of new industry standards can render existing products obsolete,
unmarketable or noncompetitive. For example, new operating systems being
introduced by Microsoft this year, such as Microsoft Windows NT 5.0 and Windows
98, could alter generally accepted conventions for document creation,
distribution and management. However, a new product architecture that leverages
these operating systems and the structure of the World Wide Web are presently in
the developmental stage, and the Company is unable to predict the future impact
of such technology changes on the Company's products. Moreover, the life cycles
of the Company's products are difficult to estimate. The Company's future
performance will depend in significant part upon its ability to enhance current
products, and to develop and introduce new products and enhancements that
respond to evolving customer requirements. The Company has in the recent past
experienced delays in the development and commencement of commercial shipments
of new products and enhancements, resulting in customer frustration and delay or
loss of revenues. The inability of the Company, for technological or other
reasons, to develop and introduce new products or enhancements in a timely
manner in response to changing customer requirements, technological change or
emerging industry standards, or maintain compatibility with heterogeneous
computing environments, would have a material adverse effect on the Company's
business, results of operations and financial condition.
Product Concentration; Dependence on Emerging Market for Integrated Imaging
Systems. To date, substantially all of the Company's revenues have been
attributable to sales of the FilePower Suite and individual software modules
which comprise the FilePower Suite. Although Optika eMedia is not currently in
commercial production, the Company expects Optika eMedia, in the event it is
successfully introduced in the marketplace and produces future revenues, and the
FilePower Suite to account for substantially all of its future revenues. Optika
eMedia is not generally available. As a result, factors adversely affecting the
pricing of, or demand for, such products, such as competition or technological
change, could have a material adverse effect on the Company's business, results
of operations, and financial condition. The Company's future financial
performance will depend in general on growth in the relatively small and
emerging market for imaging software products, and in particular on the
successful development, introduction and customer acceptance of new and enhanced
versions of its existing software products such as Optika eMedia. There can be
no assurance that such market will grow or that the Company will be successful
in developing and marketing these or any other products, or that any of these
products will achieve widespread customer acceptance. If the document imaging
software market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, results of operations, and financial
condition would be materially and adversely affected.
Lengthy and Complex Sales and Implementation Cycles; Dependence on Capital
Spending. The license of the Company's software products is typically an
executive-level decision by prospective end-users, and generally requires for
the Company and its APs and OEMs to engage in a lengthy and complex sales cycle
(typically between six and twelve months from the initial contact date). In
addition, the implementation by customers of the imaging products offered by the
Company may involve a significant commitment of resources by such customers over
an extended period of time. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
the Company has little or no control. The Company's future performance also
depends upon the capital expenditure budgets of its customers and the demand by
such customers for the Company's products. Certain industries to which the
Company sells its products, such as the financial services industry, are highly
cyclical. The Company's operations may in the future be subject to substantial
period-to-period fluctuations as a consequence of such industry patterns,
domestic and foreign economic and other conditions, and other factors affecting
capital spending. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, results of operations, and
financial condition.
Intense Competition. The market for the Company's products is intensely
competitive and can be significantly affected by new product introductions and
other market activities of industry participants. The Company's competitors
offer a variety of products and services to address the emerging market for
imaging software solutions. The Company's principal direct competitors include
FileNet Corporation, International Business Machines Corporation, Unisys
Corporation, Mosaix, Inc. and Eastman Kodak Company. Numerous other software
vendors also compete in each product area. Potential competitors include
providers of document management software, providers of document archiving
products and relational database management systems vendors. The Company also
faces competition from VARs, OEMs, distributors and systems integrators, some of
which are APs or OEMs for the Company. In addition, the Company may face
competition from other established and emerging companies in new market segments
following the introduction of Optika eMedia.
Many of the Company's current and potential competitors are substantially
larger than the Company, have significantly greater financial, technical and
marketing resources and have established more extensive channels of
distribution. As a result, such competitors may be able to respond more rapidly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than the Company. Because the Company's products are designed to
operate in non-proprietary computing environments and because of low barriers to
entry in the imaging software market, the Company expects additional competition
from established and emerging companies, as the market for integrated imaging
products continues to evolve. The Company expects its competitors to continue to
improve the performance of their current products and to introduce new products
or new technologies that provide added functionality and other features.
Successful new product introductions or enhancements by the Company's
competitors could cause a significant decline in sales or loss of market
acceptance of the Company's products and services, result in continued intense
price competition, or make the Company's products and services or technologies
obsolete or noncompetitive. To be competitive, the Company will be required to
continue to invest significant resources in research and development, and in
sales and marketing. There can be no assurance that the Company will have
sufficient resources to make such investments or that the Company will be able
to make the technological advances necessary to be competitive. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties, to increase the ability of
their products to address the needs of the Company's prospective customers. In
addition, several competitors have recently made, or attempted to make,
acquisitions to enter the market or increase their market presence. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which would have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors, or that competitive pressures will not have a material adverse
effect on the Company's business, results of operations, and financial
condition.
Management Changes; No Assurance of Successful Expansion of Operations. Most
of the Company's senior management team have joined the Company within the last
three years. There can be no assurance that these individuals will be able to
achieve and manage growth, if any, or build an infrastructure necessary to
operate the Company. The Company's ability to compete effectively and to manage
any future growth will require that the Company continue to assimilate new
personnel and to expand, train and manage its work force. The Company intends to
continue to increase the scale of its operations significantly to support
anticipated increases in revenues, and to address critical infrastructure and
other requirements. These increases have included and will include the leasing
of new space, the opening of additional foreign offices, and potential
acquisitions, significant increases in research and development to support
product development, and the hiring of additional personnel in sales and
marketing. The increased scale of operations has resulted in significantly
higher operating expenses, which are expected to continue to increase
significantly in the future. If the Company's revenues do not correspondingly
increase, the Company's results of operations would be materially and adversely
affected. Expansion of the Company's operations has caused, and is continuing to
impose, a significant strain on the Company's management, financial and other
resources. The Company's ability to manage its recent, and any future growth
(should it occur) will depend upon a significant expansion of its internal
management systems and the implementation and subsequent improvement of a
variety of systems, procedures and controls. Any failure to expand these areas
and implement and improve such systems, procedures and controls in an efficient
manner at a pace consistent with the Company's business, could have a material
adverse effect on the Company's business, financial condition, and results of
operations. In this regard, any significant revenue growth will be dependent in
significant part upon the Company's expansion of its marketing, sales and AP
support capabilities. This expansion will continue to require significant
expenditures to build the necessary infrastructure. There can be no assurance
that the Company's efforts to expand its marketing, sales and customer support
efforts will be successful or will result in additional revenues or
profitability in any future period.
Dependence on Key Personnel. The Company's future performance depends to a
significant degree upon the continuing contributions of its key management,
sales, marketing, customer support, and product development personnel. The
Company has at times experienced, and continues to experience, difficulty in
recruiting qualified personnel, particularly in software development and
customer support. The Company believes that there may be only a limited number
of persons with the requisite skills to serve in those positions, and that it
may become increasingly difficult to hire such persons. Competitors and others
have in the past, and may in the future, attempt to recruit the Company's
employees. The loss of key management or technical personnel, or the failure to
attract and retain key personnel, could have a material adverse effect on the
Company's business, results of operations, and financial condition.
Dependence on Proprietary Technologies; Risk of Infringement. The Company's
performance depends in part on its ability to protect its proprietary rights to
the technologies used in its principal products. The Company relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions to protect its proprietary rights,
which are measures that afford only limited protection. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products, or to obtain and use information that
the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate, or that competitors will not independently develop similar
technologies. The Company is not aware that it is infringing any proprietary
rights of third parties. However, there can be no assurance that third parties
will not claim infringement by the Company's products of their intellectual
property rights. The Company expects that software product developers will
increasingly be subject to infringement claims if the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, and regardless of the outcome of any litigation, will be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays, or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of infringement against the Company's products
and the failure or inability of the Company to license the infringed or similar
technology, the Company's business, results of operations, and financial
condition would be materially and adversely affected.
The Company also licenses software from third parties, which is incorporated
into its products, including software incorporated into its viewer, image
decompression software and optical character recognition, and full-text engines.
These licenses expire from time to time. There can be no assurance that these
third-party software licenses will continue to be available to the Company on
commercially reasonable terms. While the Company believes that all of such
third-party software is available from alternate vendors, and the Company
maintains standard software escrow agreements with each of such parties,
agreements which provide the Company with access to the source code in the event
of their bankruptcy or insolvency, the loss of, or inability to maintain, any
such software licenses could result in shipment delays or reductions until
equivalent software could be developed, identified, licensed and integrated,
which in turn could materially and adversely affect the Company's business,
results of operations, and financial condition. In addition, the Company
generally does not have access to source code for the software supplied by these
third parties. Certain of these third parties are small companies that do not
have extensive financial and technical resources. If any of these relationships
were terminated or if any of these third parties were to cease doing business,
the Company may be forced to expend significant time and development resources
to replace the licensed software. Such an event would have a material adverse
effect upon the Company's business, results of operations, and financial
condition. The Company has entered into source code escrow agreements with a
limited number of its customers and resellers, requiring release of source code
in certain circumstances. Such agreements generally provide that such parties
will have a limited, non-exclusive right to use such code in the event that
there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business, or if the Company fails to provide timely responses to
identified product defects.
International Operations. Sales outside the United States accounted for
approximately 15%, 29% and 23% of the Company's revenues in 1995, 1996 and 1997,
respectively. An important element of the Company's strategy is to expand its
international operations, including the development of certain third-party
distributor relationships and the hiring of additional sales representatives,
each of which involves a significant investment of time and resources. There can
be no assurance that the Company will be successful in expanding its
international operations. In addition, the Company has only limited experience
in developing localized versions of its products and marketing and distributing
its products internationally. There can be no assurance that the Company will be
able to successfully localize, market, sell and deliver its products
internationally. The inability of the Company to successfully expand its
international operations in a timely manner could materially and adversely
affect the Company's business, results of operations, and financial condition.
The Company's international revenues may be denominated in foreign or the U.S.
dollar currency. The Company does not currently engage in foreign currency
hedging transactions; as a result, a decrease in the value of foreign currencies
relative to the U.S. dollar could result in losses from transactions denominated
in foreign currencies, could make the Company's software less price-competitive,
and could have a material adverse effect upon the Company's business, results of
operations, and financial condition. In addition, the Company's international
business is, and will continue to be, subject to a variety of risks, including:
delays in establishing international distribution channels; difficulties in
collecting international accounts receivable; increased costs associated with
maintaining international marketing and sales efforts; unexpected changes in
regulatory requirements, tariffs and other trade barriers; political and
economic instability; limited protection for intellectual property rights in
certain countries; lack of acceptance of localized products in foreign
countries; difficulties in managing international operations, potentially
adverse tax consequences including, restrictions on the repatriation of
earnings; and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international revenues and, consequently, the
Company's results of operations. Although the Company's products are subject to
export controls under United States laws, the Company believes it has obtained
all necessary export approvals. However, the inability of the Company to obtain
required approvals under any applicable regulations could adversely affect the
ability of the Company to make international sales.
Product Liability; Risk of Product Defects. The Company's license agreements
with its customers typically contain provisions designed to limit the Company's
exposure to potential product liability claims. However, it is possible that the
limitation of liability provisions contained in the Company's license agreements
may not be effective under the laws of certain jurisdictions. Although the
Company has not experienced any product liability claims to date, the sale and
support of products by the Company may entail the risk of such claims, and there
can be no assurance that the Company will not be subject to such claims in the
future. A successful product liability claim brought against the Company could
have a material adverse effect upon the Company's business, results of
operations, and financial condition. Software products such as those offered by
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Although the Company conducts
extensive product testing, the Company has in the past released products that
contained defects, and has discovered software errors in certain of its new
products and enhancements after introduction. The Company could in the future
lose or delay recognition of revenues as a result of software errors or defects,
the failure of its products to meet customer specifications or otherwise. The
Company's products are typically intended for use in applications that may be
critical to a customer's business. As a result, the Company expects that its
customers and potential customers have a greater sensitivity to product defects
than the market for general software products. Although the Company's business
has not been materially and adversely affected by any such errors, or by defects
or failure to meet specifications, to date, there can be no assurance that,
despite testing by the Company and by current and potential customers, errors or
defects will not be found in new products or releases after commencement of
commercial shipments, or that such products will meet customer specifications,
resulting in loss or deferral of revenues, diversion of resources, damage to the
Company's reputation, or increased service and warranty and other costs, any of
which could have a material adverse effect upon the Company's business,
operating results, and financial condition.
Potential Volatility of Stock Price. The market price of shares of Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as: actual or anticipated fluctuations in the Company's operating
results; announcements of technological innovations; new products or new
contracts by the Company or its competitors; sales of Common Stock by
management; sales of significant amounts of Common Stock into the market;
developments with respect to proprietary rights; conditions and trends in the
software and other technology industries; adoption of new accounting standards
affecting the software industry; changes in financial estimates by securities
analysts and others; general market conditions; and other factors that may be
unrelated to the Company or its performance. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stock of technology
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock. In the past, following periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against such company. There can be no
assurance that such litigation will not occur in the future with respect to the
Company. Such litigation, regardless of its outcome, would result in substantial
costs and a diversion of management's attention and resources which could have a
material adverse effect upon the Company's business, results of operations, and
financial condition.
Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions. Members of the Board of Directors, and the executive officers of the
Company, together with members of their families and entities that may be deemed
affiliates of, or related to, such persons or entities, beneficially own
approximately 39% of the outstanding shares of Common Stock of the Company.
Accordingly, these stockholders could, if acting in concert, be able to elect
all members of the Company's Board of Directors and determine the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. Certain provisions of the Company's Certificate of Incorporation,
equity incentive plans, Bylaws, and Delaware law may also discourage certain
transactions involving a change in control of the Company. This level of
ownership by such persons and entities, when combined with the Company's
classified Board of Directors and the ability of the Board of Directors to issue
"blank check" preferred stock without further stockholder approval, may have the
effect of delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders of Common
Stock.
Restructuring Charges and Sale of FPhealthcare Suite. During the fourth
quarter of 1997, the Company made the decision to exit the vertical healthcare
market and sold the rights to the majority of the software products that
previously comprised the FPhealthcare suite of products. The FPhealthcare suite
was being developed to offer a product tailored to the healthcare industry;
however, there have been a limited number of customers who have licensed the
software. The restructuring plan involved the FPhealthcare suite product sale,
closure of the Company's Boston facility, and the termination of approximately
14 employees. There can be no assurance that the Company will not incur
additional expenses as a result of the decision to exit the vertical healthcare
market and the sale of the healthcare division. The decision to exit a business
also involves special risks and uncertainties, some of which may not be
foreseeable or within the Company's control, such as unforeseen severance costs,
disputes with terminated employees, disputes with customers who have purchased
the FPhealthcare suite or disputes with the buyer of the division. There can be
no assurance that the Company will not experience unforeseen costs associated
with the decision to exit the healthcare division, and such unforeseen costs
could have a material adverse effect on the Company's business, financial
condition and results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
None.
Item 2 - Changes in Securities and Use of Proceeds.
None.
Item 3 - Defaults upon Senior Securities.
None.
Item 4 - Submission of Matters to a Vote of Security Holders.
None.
Item 5 - Other Information.
None.
Item 6 - Exhibits and Reports on Form 8-K
.
(a) Exhibits
27.1 Financial Data Schedule for the six months ended June 30, 1998
27.2 Restated Financial Data Schedule for the six months ended
June 30, 1997
27.3 Restated Financial Data Schedule for the three months ended
March 31, 1997
27.4 Restated Financial Data Schedule for the years ended December 31,
1996 and 1995.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
June 30, 1998.
<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)
8/14/98 /s/ Mark K. Ruport
(Date) Mark K. Ruport
President, Chief Executive Officer
and Chairman of the Board
8/14/98 /s/ Steven M. Johnson
(Date) Steven M. Johnson
Chief Financial Officer, Vice President Finance
and Administration, Secretary and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1998 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<SECURITIES> 1,986
<RECEIVABLES> 5,567
<ALLOWANCES> 0
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<TOTAL-ASSETS> 19,536
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0
0
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<TABLE> <S> <C>
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<LEGEND>
THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE JUNE 30, 1997 FORM
10-Q AND HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1997 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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0
0
<COMMON> 7
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE MARCH 31, 1997 FORM
10-Q AND HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1997 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<BONDS> 0
0
0
<COMMON> 7
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<TOTAL-LIABILITY-AND-EQUITY> 20,656
<SALES> 3,195
<TOTAL-REVENUES> 4,522
<CGS> 160
<TOTAL-COSTS> 781
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<INTEREST-EXPENSE> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE ATTACHED SCHEDULE WAS ORIGINALLY FILED WITH THE 1996 FORM 10-K AND
HAS BEEN REVISED TO REFLECT THE IMPACT OF SFAS 128.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1995 AND 1996 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 3,474 1,415
<SECURITIES> 8,025 0
<RECEIVABLES> 5,766 3,199
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<INVENTORY> 0 0
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<PP&E> 2,166 1,582
<DEPRECIATION> 1,128 820
<TOTAL-ASSETS> 20,258 6,182
<CURRENT-LIABILITIES> 4,273 3,079
<BONDS> 0 0
0 4,804
0 0
<COMMON> 7 799
<OTHER-SE> 15,842 (2,766)
<TOTAL-LIABILITY-AND-EQUITY> 20,258 6,182
<SALES> 13,406 8,333
<TOTAL-REVENUES> 16,703 10,468
<CGS> 585 316
<TOTAL-COSTS> 2,515 2,139
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<LOSS-PROVISION> 0 0
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<INCOME-PRETAX> 1,094 (933)
<INCOME-TAX> (813) 29
<INCOME-CONTINUING> 1,907 (962)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,907 (962)
<EPS-PRIMARY> 0.45 (0.37)
<EPS-DILUTED> 0.30 (0.37)
</TABLE>
