================================================================================
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, 1999
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 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, 2nd Floor 80920
Colorado Springs, CO (Zip Code)
(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 ____.
7,183,688 shares of the Registrant's Common Stock, $.001
par value per share, were outstanding as of August 1, 1999
================================================================================
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 (Unaudited) 1
Condensed Consolidated Statements of Operations for the three-month
and six-month periods ended June 30, 1998 and 1999 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1998 and 1999 (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 16
Item 2 - Changes in Securities 16
Item 3 - Defaults on Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
<TABLE>
<CAPTION>
OPTIKA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, June 30,
1998 1999
---------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................................... $ 6,811 $ 3,768
Short-term investments.............................................. 1,000 3,852
Accounts receivable, net............................................ 4,571 3,460
Other current assets................................................ 511 549
---------------- ---------------
Total current assets.......................................... 12,893 11,629
---------------- ---------------
Fixed assets, net...................................................... 3,136 2,924
Deferred tax asset, net ............................................... 2,438 2,853
Other assets, net...................................................... 70 265
---------------- ---------------
$ 18,537 $ 17,671
================ ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................................... $ 710 $ 821
Accrued expenses.................................................... 1,446 1,232
Accrued compensation expense........................................ 1,206 886
Deferred revenue.................................................... 3,355 3,486
---------------- ---------------
Total current liabilities.................................... 6,717 6,425
---------------- ---------------
Commitments and contingencies
Common stockholders' equity:
Common stock; $.001 par value; 25,000,000 shares authorized;
7,114,573 and 7,178,188 shares issued and outstanding
at December 31, 1998 and June 30, 1999, respectively............. 7 7
Additional paid-in capital....................................... 17,617 17,751
Accumulated deficit.............................................. (5,804) (6,512)
---------------- ---------------
Total common stockholders' equity............................ 11,820 11,246
---------------- ---------------
$ 18,537 $ 17,671
================ ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTIKA INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Revenues:
Licenses ...................................... $ 1,843 $ 2,311 $ 4,091 $ 5,187
Maintenance and other ......................... 1,645 2,646 3,105 4,948
--------- -------- -------- --------
Total revenues ............................. 3,488 4,957 7,196 10,135
Cost of revenues:
Licenses ...................................... 84 142 210 290
Maintenance and other.......................... 772 975 1,481 1,925
--------- -------- -------- --------
Total cost revenues ........................ 856 1,117 1,691 2,215
--------- -------- -------- --------
Gross profit ..................................... 2,632 3,840 5,505 7,920
Operating expenses:
Sales and marketing ........................... 3,310 2,738 6,237 5,437
Research and development ...................... 1,287 1,302 2,413 2,659
General and administrative .................... 614 491 1,175 980
--------- -------- -------- --------
Total operating expenses ................... 5,211 4,531 9,825 9,076
--------- -------- -------- --------
Loss from operations ............................. (2,579) (691) (4,320) (1,156)
Other income (expense), net ...................... (46) 33 13 67
--------- -------- -------- --------
Loss before benefit from income taxes ............ (2,625) (658) (4,307) (1,089)
Benefit from income taxes ........................ (525) (230) (861) (381)
--------- -------- -------- --------
Net loss ......................................... $ (2,100) $ (428) $(3,446) $ (708)
========= ======== ======== ========
Net loss per common share ........................ $ (0.30) $ (0.06) $ (0.50) $ (0.10)
========= ======== ======== ========
Basic weighted average number of common shares
outstanding....................................... 6,956 7,176 6,942 7,164
========= ======== ======== ========
Diluted net loss per common share................. $ (0.30) $ (0.06) $ (0.50) $ (0.10)
========= ======== ======== ========
Diluted weighted average number of common shares
outstanding ...................................... 6,956 7,176 6,942 7,164
========= ======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTIKA INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
---------------------------------
1998 1999
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss............................................................... $ (3,446) $ (708)
Adjustments to reconcile net loss to net cash used by operating
activities: 405 467
Depreciation and amortization.......................................
Deferred tax benefit................................................ (962) (415)
Change in assets and liabilities:
Accounts receivable, net......................................... 2,988 1,111
Other assets..................................................... (261) (233)
Accounts payable................................................. 166 111
Accrued expenses................................................. 113 (534)
Deferred revenue................................................. 778 131
---------------- ---------------
Net cash used by operations .................................... (219) (70)
---------------- ---------------
Cash Flows From Investing Activities:
Capital expenditures................................................... (858) (255)
Sale (purchase) of short-term investments.............................. 3,412 (2,852)
---------------- ---------------
Net cash provided (used) by investing activities................ 2,554 (3,107)
---------------- ---------------
Cash Flows From Financing Activities:
Principal payments on long-term debt................................... (15) --
Proceeds from issuance of common stock................................. 54 134
---------------- ---------------
Net cash provided by financing activities....................... 39 134
---------------- ---------------
Net increase (decrease) in cash and cash equivalents................... 2,374 (3,043)
Cash and cash equivalents at beginning of period....................... 3,202 6,811
---------------- ---------------
Cash and cash equivalents at end of period............................. $ 5,576 $ 3,768
================ ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
OPTIKA 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, 1999 are not necessarily indicative of the results to be expected for
any subsequent quarter or for the entire fiscal year ending December 31,
1999. These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1998, included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
Net Loss Per Common Share
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, 297,500 options to
purchase common stock of the Company were granted. During the first half of
1999, 395,700 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 share.
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations (unaudited, in thousands, except per share
data):
Quarter Ended Six Months Ended
June 30, June 30,
1998 1999 1998 1999
Loss Per Share:
Net loss.............................. $(2,100) $ (428) $(3,446) $ (708)
Weighted average common shares
outstanding.......................... 6,956 7,176 6,942 7,164
Net loss per common share............. $ (0.30) $ (0.06) $ (0.50) $ (0.10)
Effect of Dilutive Securities:
Options and warrants.................. -- -- -- --
Diluted weighted average common shares
outstanding.......................... 6,956 7,176 6,942 7,164
Diluted net loss per common share..... $ (0.30) $ (0.06) $ (0.50) $ (0.10)
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 outcomes 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.
Overview
Optika(R) Inc. is a leading provider of business-to-business electronic
commerce ("e-commerce") solutions. By leveraging the technology of the World
Wide Web, the Company's software bridges the gap between paper and electronic
commerce across the enterprise and throughout supply chains.
The license of the Company's software products is typically an
executive-level decision by prospective end-users and generally requires the
Company and its Advantage Partners ("APs") or Original Equipment Manufacturers
("OEMs") to engage in a lengthy and complex sales cycle (typically between six
and twelve months from the initial contact date). The Company distributes its
products through a direct sales force and worldwide network of approximately
170 APs and 5 OEMs. For fiscal year 1998, approximately 69% of the Company's
license revenues were derived from its APs, approximately 10% of its license
revenues were derived from sales by OEMs and the remaining license fees were
derived from direct sales. However, no individual AP accounted for more than
10% of the Company's total revenues. For the years ended December 31, 1996,
1997 and 1998, the Company generated approximately 29%, 23% and 24%,
respectively, of its total revenues from international sales.
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 APs and 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 1997 and 1998,
approximately 73% and 60%, respectively of the Company's total revenues were
derived from software licenses and approximately 18% and 28%, respectively, 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 9% and
12%, respectively, 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.
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.
<PAGE>
Revenues
Total revenues increased 40.8% from $7.2 million, for the six months
ended June 30, 1998, to $10.1 million, for the six months ended June 30,
1999. Total revenues increased 42.1% from $3.5 million, for the quarter ended
June 30, 1998, to $5.0 million, for the quarter ended June 30, 1999.
Licenses. License revenues increased 26.8% from $4.1 million, during
the six months ended June 30, 1998, to $5.2 million, for the six months ended
June 30, 1999, and increased 25.4% from $1.8 million, during the quarter ended
June 30, 1998, to $2.3 million, during the same period in 1999. License
revenues represented 56.9% and 51.2% of the total revenues for the six months
ended June 30, 1998 and 1999, respectively and 52.8% and 46.6% of the total
revenues for the quarter ended June 30, 1998 and 1999, respectively.
Management believes that the increase in license revenues during the first
half of 1999 is a result of the release of the Optika eMedia product into the
marketplace. License revenues generated outside of the United States
accounted for approximately 23.9% of the Company's revenues for the six months
ended June 30, 1998, compared to 18.3% for the same period in 1999, and 29.6%
and 23.2% for the quarter ended June 30, 1998 and 1999, respectively.
Maintenance and Other. Maintenance revenues, exclusive of other
revenue, increased 41.2% from $2.3 million during the six months ended June
30, 1998, to $3.3 million for the six months ended June 30, 1999 and increased
38.6% from $1.2 million during the quarter ended June 30, 1998 compared to
$1.7 million during the same period in 1999. Maintenance revenue represented
32.5% and 32.6% of the total revenues for the six months ended June 30, 1998
and 1999, respectively and 35.5% and 34.6% of the total revenues for the
quarter ended June 30, 1998 and 1999, respectively. This increase is
primarily a result of an increase in the number of installed systems. Other
revenue, consisting primarily of consulting services, training and consulting
fees represented 10.6% and 16.2% of total revenues for the six months ended
June 30, 1998 and 1999, respectively, and 11.7% and 18.8% of total revenues
for the quarters ended June 30, 1998 and 1999, respectively. The increase in
other revenue as a percentage of total revenue was primarily due to increased
consulting, project management and implementation services resulting from the
Company's direct sales efforts.
Cost of Revenues
Licenses. Cost of licenses consists primarily of royalty payments
to third-party vendors and costs of product media, duplication, packaging and
fulfillment. Cost of licenses increased from $210,000, or 5.1% of license
revenues, to $290,000, or 5.6% of license revenues, for the six months ended
June 30, 1998 and 1999, respectively, and increased from $84,000, or 4.6% of
license revenues, to $142,000, or 6.1% of license revenues, for the quarters
ended June 30, 1998 and 1999, respectively. The increase in absolute dollar
cost of licenses was attributable to the increased license revenue.
Maintenance and Other. Costs of maintenance and other consist of the
direct and indirect costs of providing software maintenance and support,
training and consulting services to the Company's APs, OEMs and end-users, and
the cost of third-party software products. Cost of maintenance and other
increased in absolute dollars from $1.5 million or 47.7% of maintenance and
other revenues to $1.9 million or 38.9% of maintenance and other revenues for
the six months ended June 30, 1998 and 1999, respectively. Cost of
maintenance and other increased in absolute dollars from $772,000 or 46.9% of
maintenance and other revenues to $975,000, or 36.8% of maintenance and other
revenues, for the quarters ended June 30, 1998 and 1999, respectively. The
absolute dollar increase in cost of maintenance and other is primarily a
result of the direct costs associated with the increased number of service and
consulting contracts.
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 decreased from $6.2 million, or 86.7% of total revenues,
for the six months ended June 30, 1998 to $5.4 million, or 53.6% of total
revenues, for the six months ended June 30, 1999. Sales and marketing expenses
decreased from $3.3 million or 94.9% of total revenues for the quarter ended
June 30, 1998 to $2.7 million or 55.2% of total revenues for the quarter ended
June 30, 1999. The decrease in sales and marketing expenses is primarily
attributable to the closure of several Asian sales offices in late 1998. The
Company anticipates that sales and marketing expenses will increase in
absolute dollars in future quarters as it continues to launch 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 increased from $2.4 million, or 33.5% of total revenues,
for the six months ended June 30, 1998 to $2.7 million, or 26.2% of total
revenues, for the six months ended June 30, 1999, respectively. Research and
development expenses remained constant in absolute dollars at $1.3 million for
both periods, or 36.9% and 26.3% of total revenues, for the quarters ended
June 30, 1998 and 1999, respectively. The six month absolute dollar increase
in research and development is primarily a result of the continued cost to
further enhance the Optika eMedia product. The Company anticipates that
research and development expenses will increase in absolute dollars in future
quarters because of the continued enhancements of the Optika eMedia product.
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 decreased from $1.2 million or 16.3% of total
revenues, for the six months ended June 30, 1998 to $980,000, or 9.7% of total
revenues for the six months ended June 30, 1999. General and administrative
expenses decreased from $614,000, or 17.6% of total revenues for the quarter
ended June 30, 1998, to $491,000, or 9.9% of total revenues for the quarter
ended June 30, 1999. The decrease in general and administrative costs was
primarily due to the write-off of certain accounts receivable in Asia during
the first six months of 1998 that were not present in 1999.
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, other debt, and foreign currency
translation adjustments. The Company recognized net other income of $13,000
during the six months ended June 30, 1998 compared to net other income of
$67,000 during the six months ended June 30, 1999. The Company recognized net
other expense of $46,000 during the quarter ended June 30, 1998 compared to
net other income of $33,000 for the same period in 1999, primarily as a result
of investment income and an increase in foreign currency translation loss in
1998.
Benefit from Income Taxes. The Company's effective tax rate for the
periods ending June 30, 1999 was 35%, which reflects the Company's estimated
annual effective tax rate.
Liquidity and Capital Resources
Cash and short-term investments at June 30, 1999 were $7.6 million,
decreasing by approximately $191,000 from December 31, 1998. The decrease in
cash and short-term investments is primarily due to the 1999 first and second
quarter losses and capital expenditures associated with additional computer
equipment.
For the six months ended June 30, 1998, net cash used by operating
activities was $219,000 compared to net cash used by operating activities of
$70,000 for the six months ended June 30, 1999. Cash used by operating
activities for the six months ended June 30, 1999 is primarily due to the
first and second quarter losses offset by cash receivables collections.
Cash provided by investing activities was $2.6 million for the six
months ended June 30, 1998 compared to cash used of $3.1 million for the six
months ended June 30, 1999. Proceeds of cash consisted primarily of sales of
marketable securities offset by purchases of property and equipment in the
first six months of 1998, while marketable securities were purchased during
the first six months of 1999.
Cash provided by financing activities was $39,000 for the six months
ended June 30, 1998. Cash provided by financing activities was $134,000 for
the six months ended June 30, 1999. 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 in 1998.
At June 30, 1999, 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. As of June 30, 1999, 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
The Company is aware of the issues associated with the programming code
in existing computer systems as the Year 2000 approaches. 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 one year, 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. Moreover, the Company believes
some companies may delay software purchasing decisions until after January 1,
2000, in hopes that Year 2000 issues will have been identified and corrected
prior to their purchase. 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 products
or 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 is currently taking steps to address its Year 2000
readiness issues in the following areas:
1. The Company's products (including embedded software technology)
2. Internal systems (includes information technologies and non-information
technologies)
3. Readiness of third parties with whom the Company has business
relationships
The Company has assigned two dedicated Year 2000 cross functional teams
(CFT's), one CFT to address the Company's products and one CFT to address
internal systems and third parties. Each CFT has an executive sponsor and
meets regularly to carry out the process of identifying potential Year 2000
issues, assessing their impact on the Company, putting in place an action plan
to address the problem (which will include contingency planning) and following
through to ensure the plan was carried out and tested.
The Company's Products
The Company designs its products and services to be Year 2000
compatible. Nevertheless the Company has performed Year 2000 compliance
testing on both Optika eMedia and FilePower product suites. During the
testing of the FilePower product suite, a few minor deficiencies were found in
the product. The Company addressed these known deficiencies with a product
release which was made available during the first quarter of 1999. Costs to
address these deficiencies are expected to include only internal development
staff time, which has not been separately tracked, and is expected to have no
effect on the Company's operating results. No current projects have been
delayed or are expected to be delayed due to using internal staff on this
issue.
The Company has developed the eMedia product with Year 2000 compliance
in mind. Testing of the product has been performed throughout the development
cycle for Year 2000 compliance. The Company worked with a third-party to
extensively test the Year 2000 compliance of the product. The testing did not
discover any material Year 2000 compliancy deficiencies in the product. While
the Company is not aware of any current deficiencies that would result in the
product not being compliant, it is possible that deficiencies may be
discovered subsequent to the testing process. Costs to address these
deficiencies are expected to include only internal development staff time,
which will not be separately tracked, and is expected to have no material
effect on the Company's operating results.
Although the Company has designed its products and services to be Year
2000 capable and tests its products and services, including third-party
software that is incorporated into its products and services, specifically for
Year 2000 compliance, 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, it will be necessary for the Company to commit the necessary
resources to correct the software. Although the costs cannot be reasonably
estimated, 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.
Internal Systems
The Company's internal systems include both its information technology
("IT") and non-IT systems. The Company conducted an assessment of its internal
IT systems including third-party software and hardware technology and its
non-IT systems (such as its security system, building equipment, and phone
systems). The Company has identified its Mission Critical Systems and has
reviewed them for Year 2000 compliance by contacting each vendor and
requesting documentation on Year 2000 readiness. Those contacted include, but
are not limited to, Microsoft, financial software, customer database and phone
system vendors. Based on the results of these queries, the Company has
performed upgrades on numerous systems to bring them into compliance according
to their Year 2000 compliance statements. The Company will do testing of its
Mission Critical Systems in the third quarter of 1999. It is estimated that
the testing of the Mission Critical Systems will cost approximately $121,000
during 1999. The bringing of the Mission Critical Systems to Year 2000
readiness will be covered under software/hardware maintenance agreements
and/or normal product upgrades. However, any failure of one or more of the
Company's mission critical IT systems to become Year 2000 compliant due to
unanticipated problems could limit access of employees to critical
information, require the Company to process information manually or result in
other inconveniences or inefficiencies for the Company and its customers that
may divert management's time and attention, as well as financial and personnel
resources from normal business activities. The majority of the Company's IT
software applications are produced by Microsoft. Any failure by Microsoft to
address the Year 2000 issue will have a material impact on the Company's
operations. All non-Mission Critical Systems are deemed to be non-essential
to the business and will be upgraded or replaced if a Year 2000 issue exists.
Year 2000 compliance issues relating to non-Mission Critical Systems are not
expected to have a material financial impact on operations or the Company's
ability to carry out its operations.
Third Parties
The Company has obtained documentation on the Year 2000-compliance
status of its key vendors. Key vendors to which the Company is concerned
include its investing, banking, and payroll relationships. If the Company's
current or future vendors, including investing and banking relationships, fail
to achieve Year 2000 compliance or if they divert substantial technology
expenditures to address the Year 2000 issue, thus impacting their ability to
serve the Company, the Company will move its relationships to another vendor
that is Year 2000 compliant. Management believes there will be no material
adverse effect on the Company of this potential action.
Disclaimer
The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance are forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith could be adversely impacted by, among other things,
the availability and cost of programming and testing resources, vendors'
abilities to modify proprietary software, unanticipated problems in the
ongoing compliance review and failure by the Company to identify a critical
Year 2000 compliance problem.
<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; changes in accounting
pronouncements; potential acquisitions; changes in customer buying patterns as
a result of Year 2000 concerns; 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 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.
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. 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.
During 1998, the Company altered its sales strategy with the introduction
of a direct sales team. Although the Company has recruited a direct sales
staff, the Company has limited experience in marketing and selling its
products on a direct sales basis. Consequently, there can be no assurance the
Company will be successful in achieving a significant level of direct sales on
a timely basis, or at all. 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 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 the Company's products 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. 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. The Company expects Optika eMedia to account for
substantially all of its future revenues. The Company's future financial
performance will depend in general on the continued transition from imaging
software to e-commerce, 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 continue to 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 e-commerce
software market 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 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
e-commerce solutions. The Company's principal direct competitors for its
product include FileNet Corporation, International Business Machines
Corporation and Eastman Kodak Company. The Company also competes with
industry-specific application vendors. Numerous other software vendors also
compete in each product area. Potential competitors include providers of
document management software, providers of document archiving products, and
RDBMS ("Relational Database Management Systems") vendors. In addition, the
Company may face competition from other established and emerging companies in
new market segments created by the release 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 e-commerce market, the Company expects additional competition
from established and emerging companies, as the market for e-commerce
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 five 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, potential acquisitions, 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 may
impose a significant strain on the Company's management, financial and other
resources. 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 Company has from time to time experienced turnover
of key management and technical personnel. 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. 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 29%, 23% and 24% of the Company's revenues in 1996, 1997 and
1998, respectively. An 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. 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.
Year 2000. The Company is also subject to the risks associated with the
Year 2000 compatibility of it's products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000".
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, as of August 1, 1999, approximately 29% 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.
<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.
The Company held its annual meeting of shareholders on May 20, 1999.
At such meeting the following actions were voted upon:
a. Election of Directors
NOMINEE NUMBER OF VOTES FOR WITHHOLD AUTHORITY
------- ------------------- ------------------
Harry S. Gruner 5,582,009 485,480
Graham O. King 5,582,009 485,480
James T. Rothe 5,581,909 485,580
b. Ratification of KPMG LLP as the Company's independent accountants for
the fiscal year ending December 31, 1999.
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTENTIONS
----------------- -------------- -----------
6,040,744 21,650 5,095
c. Approval of a series of Amendments to the 1997 Stock Option/ Stock
Issuance Plan
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTENTIONS
----------------- -------------- -----------
3,374,235 550,138 66,295
There were 2,076,021 broker non-votes for this proposal.
Item 5 - Other Information.
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27-Financial Data Schedule for the six months ended June 30,1999
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 30, 1999
<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 INC.
(Registrant)
8/9/99 /s/ Mark K. Ruport
------ ----------------------------------
(Date) Mark K. Ruport
President, Chief Executive Officer
and Chairman of the Board
8/9/99 /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, 1999 YEAR-TO-DATE FINANCIAL STATEMENTS AS REPORTED ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<CIK> 0001014920
<NAME> OPTIKA INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,768
<SECURITIES> 3,852
<RECEIVABLES> 3,903
<ALLOWANCES> 443
<INVENTORY> 0
<CURRENT-ASSETS> 11,629
<PP&E> 5,574
<DEPRECIATION> 2,650
<TOTAL-ASSETS> 17,671
<CURRENT-LIABILITIES> 6,425
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 11,246
<TOTAL-LIABILITY-AND-EQUITY> 17,671
<SALES> 5,187
<TOTAL-REVENUES> 10,135
<CGS> 290
<TOTAL-COSTS> 2,215
<OTHER-EXPENSES> 9,076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,089)
<INCOME-TAX> (381)
<INCOME-CONTINUING> (708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (708)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
