Form 10-Q
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                              Washington, DC 20549
 
                             ----------------------
 
[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the Quarterly Period Ended September 30, 1998
 
[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the transition period from _______to_______
 
                            Commission File No. 0-22292
 
                            INPUT SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)
 
    A Delaware Corporation                                77-0104275
    ----------------------                                ----------
(State or other jurisdiction of                       (I. R. S. Employer
incorporation or organization)                        Identification No.)
 
                 1710 Fortune Drive,  San Jose, California  95131
                    (Address of principal executive offices)
 
Registrant's telephone number, including area code: (408) 435-8900
 
                               Cornerstone Imaging, Inc.
         ---------------------------------------------------------------
               Former name, former address and former fiscal year,
                         if changed since last report.
 
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 ninety days.  Yes [X]   No [ ]
 
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of September 30, 1998:  5,061,363
 
 
 
 
 
<PAGE>
Part 1.  Financial Information
Item 1.   Financial Statements
 
                            INPUT SOFTWARE, INC.
                       CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                 September    December 31,
                                                 1998         1997
                                                 -----------  -----------
                                                 (Unaudited)
<S>                                              <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents ....................    $10,755      $12,284
  Accounts receivable...........................      4,280        2,946
  Deferred income taxes and
     other current assets.......................      5,312        5,521
                                                 -----------  -----------
    Total current assets........................     20,347       20,751
 
Property and equipment, net.....................        765        1,056
Other assets....................................        516          424
Net assets related to the
     discontinued display division..............      3,757       15,462
                                                 -----------  -----------
                                                    $25,385      $37,693
                                                 ===========  ===========
 
       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable..............................       $308         $463
  Deferred revenue..............................      1,444          654
  Accrued liabilities...........................      2,031        2,653
                                                 -----------  -----------
    Total current liabilities...................      3,783        3,770
                                                 -----------  -----------
 
Stockholders' equity:
  Common stock..................................         51           67
  Paid in capital...............................     14,479       24,747
  Retained earnings.............................      7,072        9,109
                                                 -----------  -----------
    Stockholders' equity........................     21,602       33,923
                                                 -----------  -----------
                                                    $25,385      $37,693
                                                 ===========  ===========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
 
 
 
 
<PAGE>
                       INPUT SOFTWARE, INC.
             CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                              (UNAUDITED)
                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                    Three Months Ended   Nine Months Ended
                                         September 30,       September 30,
                                   ------------------- -------------------
                                   1998      1997      1998      1997
                                   --------- --------- --------- ---------
<S>                                <C>       <C>       <C>       <C>
Net revenues from continuing
  operations......................   $4,599    $3,158   $12,146    $8,647
Cost of revenues..................      401       240     1,217       591
                                   --------- --------- --------- ---------
Gross profit                          4,198     2,918    10,929     8,056
 
Sales and marketing...............    2,070     1,248     5,478     3,827
Research and development..........      982       958     3,101     3,012
General and administrative........      790       568     1,924     1,582
                                   --------- --------- --------- ---------
  Operating income (loss).........      356       144       426      (365)
 
Interest and other income.........      166       111       459       514
                                   --------- --------- --------- ---------
  Income before provision
     for income taxes.............      522       255       885       149
                                 0
Provision for income taxes........      168        87       277        51
                                   --------- --------- --------- ---------
  Net income from continuing
     operations........                 354       168       608        98
 
Discontinued operations:
Net Income (loss) from operations
  of Discontinued Display
  Division........................      --       (161)     (361)      795
 
Estimated net loss on sale of
  Display Division................      --        --     (2,284)       --
                                   --------- --------- --------- ---------
  Net income (loss) from
    discontinued operations.......      --       (161)   (2,645)      795
                                   --------- --------- --------- ---------
  Net income (loss)...............     $354        $7   ($2,037)     $893
                                   ========= ========= ========= =========
Basic and diluted EPS:
  Income (loss) from
     continuing operations........    $0.07     $0.02     $0.10     $0.01
  Income (loss) from
     discontinued operations......     0.00     (0.02)    (0.45)     0.11
                                   --------- --------- --------- ---------
  Net income (loss)...............    $0.07     $0.00    ($0.35)    $0.12
                                   ========= ========= ========= =========
 
Shares used in EPS calculations:
   Basic .........................    5,352     7,095     5,890     7,312
   Diluted........................    5,440     7,105     5,995     7,340
                                   ========= ========= ========= =========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
 
 
 
 
<PAGE>
 
                        INPUT SOFTWARE, INC.
            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                         (UNAUDITED - IN THOUSANDS)
 
<TABLE>
<CAPTION>
 
                                                           Nine Months Ended
                                                              September 30,
                                                          -------------------
                                                          1998      1997
                                                          --------- ---------
<S>                                                       <C>       <C>
Cash flows from operating activities:
 Net income (loss)......................................   ($2,037)     $893
 Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
   Depreciation and amortization........................       731       632
 Discontinued operations                                    11,705    (7,427)
 (Increase) decrease in assets and liabilities:
    Accounts receivable.................................    (1,334)     (928)
    Deferred income taxes and other assets..............       117      (634)
    Accounts payable....................................      (155)      (68)
    Accrued liabilities and deferred revenue............       168       936
                                                          --------- ---------
    Net cash provided by (used in) operating activities..    9,195    (6,596)
                                                          --------- ---------
Cash flows from investing activities:
 Property and equipment additions.......................      (440)     (592)
                                                          --------- ---------
    Net cash used in investing activities...............      (440)     (592)
                                                          --------- ---------
Cash flows from financing activities:
 Repurchase of common stock.............................   (10,477)   (4,704)
                                                          --------- ---------
    Net cash used in financing activities...............   (10,477)   (4,704)
                                                          --------- ---------
Net decrease in cash and cash equivalents...............    (1,529)  (11,538)
 
Cash and cash equivalents at beginning of period........    12,284    18,486
                                                          --------- ---------
Cash and cash equivalents at end of period..............   $10,755    $6,948
                                                          ========= =========
</TABLE>
       The accompanying notes are an integral part of these consolidated
                        condensed financial statements
<PAGE>
 
 
 
 
 
 
                                INPUT SOFTWARE, INC.
                            NOTES TO FINANCIAL STATEMENTS
                                        (UNAUDITED)
 
 
1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
        Interim Unaudited Financial Information:
 
        The accompanying interim unaudited consolidated condensed financial
statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission.  The December 31, 1997 balance
sheet data was derived from audited financial statements contained in
the Company's 1997 Annual Report on Form 10-k but does not include all
disclosures required by generally accepted accounting principles.  In
addition, assets and liabilities related to the pending sale and
discontinuation of the display division has been restated from the
audited balance sheet. The unaudited financial statements for the nine
month periods ended September 30, 1998 and 1997 include, in the opinion
of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set
herein.  The results of operations for the interim periods are not
necessarily indicative of the results to be expected for an entire year
and should not be relied on as such.
 
        Recent Pronouncements:
 
        As of January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"("SFAS
130"). This statement establishes requirements for disclosure of
comprehensive income and its components; however, the adoption of SFAS
130 had no impact on the Company's net income (loss) or stockholders'
equity.
 
        In June 1997 the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about segments of an Enterprise on
Related Information"("SFAS 131"), which changes the way public companies
report information about operating segments.  SFAS No. 131, which is
based on the management approach to segment reporting, establishes
requirements to report elected segment information quarterly and to
report entity-wide disclosures about products and services, major
customers and the major countries in which the entity holds assets and
reports revenues.  The Company has not yet evaluated the effects of this
change or its reporting segment information.
 
        As of January 1, 1998 the Company has adopted the provisions of
Statement of Position 97-2, ("SOP 97-2"), "Software Revenue Recognition,
as amended by SOP 98-4 "Deferral of Effective Date of Certain Provisions
of SOP 97-2".  This statement establishes requirements for revenue
recognition for software companies. Under SOP 97-2, the Company
recognizes product revenues and license fees upon shipment if a signed
contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably
estimable. In addition, for contracts with multiple obligations (e.g.
deliverable and undeliverable products, service, and maintenance),
revenue must be allocated to each component of the contract based on
evidence of its fair value. Revenue allocated to undelivered products is
recognized when the criteria for product and license revenue set forth
above are met. Revenue allocated to maintenance fees for ongoing
customer support and updates is recognized ratably over the period of
the maintenance contract.  Payments for maintenance fees are generally
made in advance and are non-refundable.  Revenue related to other
services is recognized as the related services are performed.  Royalty
revenues that are contingent upon sale to an end user by OEMs are
recognized upon receipt of a report of sale by the Company for the OEM.
 
        In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP 98-1") "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use".
This Statement of Position (SOP) provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The
SOP applies to all nongovernmental entities and is effective for
financial statements for fiscal years beginning after December 15, 1998.
The Company has not yet determined the impact, if any, of the adoption
of this statement on the financial statements of the Company.
 
        In June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities.  It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value.  The Company has not yet evaluated the effects of this change on
its operations.  The Company will adopt SFAS 133 as required for its
first quarterly filing of the fiscal year 2000.
 
 
2.      DIVESTITURES:
 
        On September 8, 1998, the Company sold its display division to the
current management team led by John Noellert, General Manager of the
display division.  This business now operates as a private company named
Cornerstone Peripherals Technology, Inc. Under the terms of the sale the
Company sold certain assets and transferred certain liabilities
associated with the display division. In addition, the Company retained
certain assets, including accounts receivable and certain inventory.
The value of the inventory will be realized by the Company through the
sale, on its behalf, of that inventory by Cornerstone Peripherals
Technology, Inc. The Company estimates it will receive, subsequent to
September 30, 1998, proceeds in excess of $2.8 million for receivables
and inventory less transaction expenses and certain display division
liabilities.  The Company also holds a minority equity interest in
Cornerstone Peripherals Technology, Inc.  As a result of the
transaction, the Company recorded a loss of approximately $2.6 million
for the quarter ended March 31, 1998. All financial statements have been
restated to account for the display division as a discontinued
operation.
 
        On February 4, 1997, the Company entered into an agreement to sell
its ownership interest in Pegasus.  Under the terms of the agreement,
the Company received 35,000 shares of Cornerstone's common stock and a
note receivable totaling approximately $200,000.  The impact of this
transaction on the financial position of the Company was not
significant.
 
 
3.      INCOME TAXES:
 
        The Company's provision for income taxes reflect the Company's
estimated 1998 annualized effective tax rate of 31%.
 
 
4.      STOCK REPURCHASE:
 
        On February 14, 1997, the Company's Board of Directors authorized
the use of up to $5.0 million to repurchase the Company's common stock.
This amount was increased to $15.0 million on September 17, 1997 and
further increased to $20 million on August 12, 1998. Purchases have
been, and will continue to be made from time-to-time on the open market
or in privately negotiated transactions.  The timing and volume of
purchases will be dependent upon market conditions and other factors.
The Company intends to use cash on hand to fund it purchases.  During
the nine months ended September 30, 1998, the Company repurchased
1,642,900 shares at an average cost per share of $6.45 bringing the
cumulative repurchases since the inception of the program to 2.6 million
shares.
 
 
6.      STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
 
        On March 14, 1998, the Company's Board of Directors authorized an
increase in the number of shares reserved for issuance under the
Company's 1993 Stock Option/Stock Issuance Plan by 200,000 shares to
2,674,852 shares of common stock for issuance under the Plan.  On the
same date the Board also approved 100,000 shares for issuance under the
1998 Employee Stock Purchase Plan. The proposed increases were approved
by stockholders on June 3, 1998 at the Company's Annual Stockholder's
Meeting.
 
 
 
 
------------------------------------------------------------------------
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
 
       This Quarterly Report on Form 10-Q may contain forward-looking
statements that involve risks and uncertainties.  The Company's actual
results may differ materially from the results discussed in any such
forward-looking statements.  Factors that might cause such a difference
include, but are not limited to those discussed below and in the section
captioned RISK FACTORS in the Company's most recent Annual Report on
Form 10-K.
 
 
RESULTS OF OPERATIONS:
 
         Input Software, Inc. develops, markets, and services software
products for enterprise computing applications.  In 1994, the Company
began providing software toolkits for scanning and document image
processing ("DIP") applications.  In November 1995, the Company began
shipments of InputAccel-- a software product designed to automate the
conversion of documents into electronic images.
 
         The Company's software tools allow integrators and software
developers to save both time and money by offering stable, supported
libraries of software code to drive DIP peripherals rather than having
to develop such software themselves.  Most of these tools are based on
Input's Image & Scanner Interface Specification ("ISIS"), an industry
standard interface for scanners.  ISIS provides a key component for
InputAccel. InputAccel is a data capture system that lets organizations
integrate incoming documents-paper, fax, microfilm-with enterprise
workflow and document management systems.  InputAccel is a customizable,
open architecture software product that runs under Windows NT platform.
 
         The Company's products are used by a diverse set of customers
in a wide variety of applications, such as insurance claim processing,
loan application processing, FDA submissions, and the storage of
personnel records and technical manuals.  Most often, data capture
systems are used by large, service-oriented companies and government
agencies for which document management or transaction processing is
critical.  Data capture, which is often used in conjunction with
document image processing, document management, and other computer
applications, enables multiple users to electronically capture, file,
and retrieve documents. Hence the Company's products are often sold
through, or in conjunction with, systems integrators and value added
resellers.
 
 
Net Revenues
 
The Company's software revenues increased 46% in the third quarter of
1998 to $4.6 million from $3.2 million in the third quarter of 1997. For
the nine months ending September 30, 1998, revenues increased 40% to
$12.1 million from revenues of $8.6 in the first nine months of 1997.
The increase in revenue is due primarily to increased revenues from
InputAccel.
 
 
Gross Profit
 
Gross profit increased 44% to $4.2 million for the third quarter of 1998
from $2.9 million for the third quarter of 1997. For the nine months
ending September 30, 1998, gross profit increased 36% to $10.9 million
from gross profit of $8.1 in the first nine months of 1997. The gross
margin was 91% and 92% for the third quarters of 1998 and 1997,
respectively and was 90% and 93% for the nine months ended September 30,
1998 and 1997, respectively. The slight decrease in gross margin percent
for both periods is largely due to the increased percentage of revenues
derived from software maintenance and professional services, which have
lower margins than revenues from product licensing. The Company expects
revenues from maintenance and services to continue to increase as a
percentage of overall revenues.
 
 
Sales and Marketing
 
Sales and marketing expenses increased 66% to $2.1 million in the third
quarter of 1998 from $1.2 million in the third quarter of 1997, and for
the nine month period ended September 30, 1998, increased 43% to $5.5
million from $3.8 million for the first nine months of 1997. Sales and
marketing expenses as a percentage of revenue were 46% and 40% for the
third quarter of 1998 and 1997, respectively and was 45% and 44% for the
nine months ended September 30, 1998 and 1997, respectively.
 
The Company expects that sales and marketing expenses will increase in
the future, in absolute terms, as the Company continues to expand sales
and marketing programs.
 
 
Research and Development
 
Research and development expenses remained flat at $1.0 million in the
third quarter of 1998 and 1997, respectively and for the nine month
period ended September 30, 1998, increased 3% to $3.1 million from $3.0
million for the first nine months of 1997. The first quarter of 1997
included a non-recurring purchase of technology of $240,000.
 
Current staffing levels exceed those of prior periods.  The Company
believes that continued investment in research and development is
critical to its future growth and will continue to commit substantial
resources, as a percent to sales, to this area.  As a result, quarterly
research and development expenses are likely to increase during the
remainder of 1998 and beyond.
 
 
General and Administrative
 
General and administrative expenses in the third quarter of 1998
increased by 39% to $790,000 from $568,000 in the third quarter of 1997
and for the nine month period ended September 30, 1998, increased by 22%
to $1.9 million from $1.6 million in 1997. General and administrative
expenses as a percentage of revenue were 17% and 18% for the third
quarter of 1998 and 1997, respectively and was 16% and 18% for the nine
months ended September 30, 1998 and 1997, respectively. The decreases,
as a percent to sales, are primarily attributable to increased revenue
levels. Certain general & administrative expenses have, to date, been
absorbed by the recently sold display division. Accordingly, the Company
expects general and administrative expenses to increase in succeeding
future periods.
 
 
Divestiture
 
The sale of the display division resulted in a net loss of $2.6 million,
or 45 cents per share.  This charge includes a loss from display
division operations in the first quarter of 1998, net of tax benefit, of
$361,000. In addition, it includes an estimated loss of $2.3 million,
net of tax benefit, on the sale of the net assets of the display
division.  This loss, recorded in the first quarter of 1998, includes
expenses related to the pending transaction and a reduction in value of
certain inventory, which is not strategic to the new display business.
 
 
Provision for Income Taxes
 
Provision for federal and state income taxes as a percentage of pretax
income from operations was 32% for the third quarter of 1998 and 34% for
the third quarter of 1997, and was 31% and 34% for the nine month ended
September 30, 1998 and 1997, respectively. In addition, a tax benefit
reserve of 35% has been netted against the estimated losses on the sale
of the display division.
 
 
Liquidity and Capital Resources
 
 
At September 30, 1998, the Company had cash and cash equivalents of
$10.8 million, compared to $12.3 million at December 31, 1997.
 
Net cash provided by operating activities was $9.2 million in the first
nine months of 1998 compared net cash used of $6.6 million in the first
nine months of 1997.
 
Net cash used in investing activities, exclusively additions to property
and equipment, was $440,000 for the first nine months of 1998, compared
to  $592,000 in the first nine months of 1997.
 
On February 14, 1997, the Company's Board of Directors authorized the
use of up to $5.0 million to repurchase the Company's common stock.
This amount was increased to $15.0 million on Sept 17, 1997 and further
increased to $20 million on August 12, 1998 .  The repurchased stock is
expected to be held by the Company and may be used to meet the Company's
obligations under its stock plans and for other corporate purposes.
Purchases will be made from time-to-time on the open market or in
privately negotiated transactions.  The timing and volume of purchases
will be dependent upon market conditions and other factors.  The Company
intends to use cash on hand to fund its purchases.  During the nine
month period ended September 30, 1998, the Company repurchased 1,642,900
shares at an average cost per share of $6.45.
 
The Company believes that its cash and cash equivalents, together with
cash flows from operations will be sufficient to meet the Company's
liquidity and capital requirements for the next 12 months.  The Company
may, however, seek additional equity or debt financing to fund further
expansion.  The timing and amount of such capital requirements cannot be
precisely determined at this time and will depend on a number of
factors, including demand for the Company's products, product mix and
competitive factors.  Accordingly, the Company may require additional
funds to support its working capital requirements or for other purposes
and may seek to raise such additional funds through public or private
equity or other sources.  There can be no assurance that additional
financing will be available at all or that it, if available, will be
obtainable on terms favorable to the Company and would not be dilutive.
 
 
RISK FACTORS:
 
Limited Software Operating History; History of Losses; Future Operating
Results Uncertain
 
The Company has operated its Software Division since June 1994.
Accordingly, the Company's prospects must be considered in light of the
risks and difficulties frequently encountered by companies in the early
stage of development, particularly companies in new and rapidly evolving
markets.  To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain and
motivate qualified personnel and continue to improve its products.  For
the past several years, the Company has been investing in its software
business and as a result, on a stand-alone basis, the Software Division
has not achieved operating profitability and has incurred operating
losses in each quarter from inception through the quarter ending June
30, 1997.  As of September 30, 1998, the Company's had cumulative pre-
tax operating losses of approximately $3.0 million.  The Company's
operating losses have been due in part to the commitment of significant
resources to the Company's research and development and sales and
marketing departments.  The Company expects to continue to devote
substantial resources to these areas and as a result will need to
achieve significant quarterly revenues to achieve profitability.  In
particular, the Company intends to continue to hire additional sales and
research and development personnel in 1998 and beyond, which the Company
believes is required if the Company is to achieve significant revenue
growth in the future.  Although the Company's software related revenues
generally have increased in recent periods, there can be no assurance
that the Company's revenues will grow in future periods, that they will
grow at past rates or that the Company will remain profitable on a
quarterly or annual basis in the future.
 
 
Operating Results Subject to Significant Fluctuations; Seasonality
 
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly in
the future due to a variety of factors, such as demand for the Company's
products, the size and timing of significant orders and their
fulfillment, the number, timing and significance of product enhancements
and new product announcements by the Company and its competitors,
changes in pricing policies by the Company or its competitors, customer
order deferrals in anticipation of enhancements or new products offered
by the Company or its competitors, the ability of the Company to
develop, introduce and market new and enhanced versions of its products
on a timely basis, changes in the Company's level of operating expenses,
budgeting cycles of its customers, product life cycles, software defects
and other product quality problems, the Company's ability to attract and
retain qualified personnel, changes in the Company's sales incentive
plans, changes in the mix of domestic and international revenues, the
level of international expansion, foreign currency exchange rate
fluctuations, performance of indirect channel partners, changes in the
mix of indirect channels through which the Company's products are
offered, the impact of acquisitions of competitors and indirect channel
partners, the Company's ability to control costs and general domestic
and international economic and political conditions.  The Company
operates with virtually no order backlog because its software products
are shipped shortly after orders are received, which makes product
revenues in any quarter substantially dependent on orders booked and
shipped throughout that quarter.  As a result, if orders in the first
month or two of a quarter fall short of expectations, it is unlikely
that the Company will be able to meet its revenue targets for that
quarter.  In addition, the Company achieves a significant portion of
revenues from indirect sales channels over which the Company has little
or no control.  Moreover, the Company's expense levels are based to a
significant extent on the Company's expectations of future revenues and
therefore are relatively fixed in the short term.  If revenue levels are
below expectations, operating results are likely to be adversely and
disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
 
The Company's business has experienced and is expected to continue to
experience seasonality, largely due to customer buying patterns.  In
recent years, the Company has had relatively stronger demand for its
products during the quarter ending December 31 and demand has been
relatively weaker in the quarter ending March 31.  The Company believes
that this pattern will continue. Based upon all of the factors described
above, the Company believes that its quarterly revenues, expenses and
operating results are likely to vary significantly in the future, that
period-to-period comparisons of its operating results are not
necessarily meaningful and that, in any event, such comparisons should
not be relied upon as indications of future performance.  The Company
has limited ability to forecast future revenues, and it is likely that
in some future quarter the Company's operating results will be below the
expectations of public securities analysts and investors.  In the event
that operating results are below expectations, or in the event that
adverse conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the price of the Company's Common
Stock would likely be materially adversely affected.
 
 
Significant Competition
 
The market for the Company's products is intensely competitive and
subject to rapid change.  In addition, because there are relatively low
barriers to entry in the software market, the Company may encounter
additional competition from other established and emerging companies.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other
resources than the Company, significantly greater name recognition and a
large installed base of customers.  As a result, the Company's
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of competitive
products, than can the Company.  There is also a substantial risk that
announcements of competing products by large competitors could result in
the cancellation of customer orders in anticipation of the introduction
of such new products.  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 customer needs and which may limit the Company's
ability to sell its products through particular reseller partners.
Accordingly, new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share.  The
Company also expects that competition will increase as a result of
software industry consolidation.  Increased competition is likely to
result in price reductions, fewer customer orders, reduced margins and
loss of market share, any of which could materially adversely affect the
Company.  There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially adversely
affect its business, operating results and financial condition.
 
 
Product Concentration
 
The Company currently expects the sale and license of its InputAccel
products and software tools to account for substantially all of the
Company's revenues for the foreseeable future.  The Company's future
operating results are, therefore, heavily dependent upon continued
market acceptance of its InputAccel products and enhancements to these
products.  Consequently, a decline in the demand for, or market
acceptance of, the Company's InputAccel products as a result of
competition, technological change or other factors, would have a
material adverse effect on the Company's business, operating results and
financial condition.
 
 
Dependence on Continued Growth of the Market for Document Management
Applications
 
Although demand for document capture software for document management
applications has grown in recent years, this market is still emerging
and there can be no assurance that it will continue to grow or that
organizations will continue to adopt the Company's products.  The
Company has spent, and intends to continue to spend, considerable
resources educating potential customers about the Company's software
products and the document processing market generally.  However, there
can be no assurance that such expenditures will enable the Company's
products to achieve any additional degree of market acceptance.  The
rate at which organizations have adopted the Company's products has
varied significantly and the Company expects to continue to experience
such variations in the future.  There can be no assurance that the
markets for the Company's products will continue to develop or that the
Company's products will be accepted within such markets.  If the markets
for the Company's products fail to develop, or develop more slowly than
the Company currently anticipates, the Company's business, operating
results and financial condition would be materially adversely affected.
 
 
Rapid Technological Change and New Products
 
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and
enhancements, uncertain product life cycles, changes in customer demands
and evolving industry standards.  The introduction of products embodying
new technologies and the emergence of new industry standards can render
existing products obsolete and unmarketable.  The Company's future
success will depend upon its ability to continue to enhance its current
products and to develop and introduce new products on a timely basis
that keep pace with technological developments and satisfy increasingly
sophisticated customer requirements.  As a result of the complexities
inherent in document image processing software, new products and product
enhancements can require long development and testing periods.  As a
result, significant delays in the general availability of such new
releases or significant problems in the installation or implementation
of such new releases could have a material adverse effect on the
Company's business, operating results and financial condition.  The
Company has experienced delays in the past in the release of new
products and new product enhancements. There can be no assurance that
the Company will be successful in developing and marketing, on a timely
and cost effective basis, new products or new product enhancements that
respond to technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction or
marketing of these products or that the Company's new products and
product enhancements will achieve market acceptance.
 
 
Risk of Software Defects
 
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced or when new
versions or enhancements are released.  The Company has in the past
discovered software errors in certain of its new products after their
introduction.  There can be no assurance that, despite testing by the
Company, defects and errors will not be found in current versions, new
versions or enhancements of its products after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition.
 
 
Year 2000 Compliance
 
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates.  As a result,
in less than two years, computer systems and/or software used by many
companies in a very wide variety of applications will experience
operating difficulties unless they are modified or upgraded to
adequately process information involving, related to or dependent upon
the century change.  Significant uncertainty exists concerning the scope
and magnitude of problems associated with the century change.
 
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software. Accordingly the Company
has identified and will coordinate the implementation of changes to
computer hardware and software applications that will attempt to ensure
availability and integrity of the Company's information systems and the
reliability of its operational systems. The Company is also assessing
the potential overall impact of the impending century change on its
business, results of operations and financial position.
 
The Company has reviewed its development systems, business operations
systems and computing infrastructure in order to identify those
products, services or systems that are not Year 2000 compliant.
Several of these key systems are scheduled for replacement in early 1999
with new, compliant systems. Others will undergo final testing in mid-
1999. These modifications and replacements are being, and will continue
to be, made in conjunction with the Company's overall systems
initiatives.  The total cost of these Year 2000 compliance activities,
has not been, and is not anticipated to be, material to the Company's
financial position or its results of operations.  Based on available
information, the Company does not believe any material exposure to
significant business interruption exist as a result of Year 2000
compliance issues.  Accordingly, the Company has not adopted any formal
contingency plan in the event its Year 2000 project is not completed in
a timely manner.  These costs and the timing in which the Company plans
to complete its Year 2000 modification and testing processes are based
on management's best estimates.  However, there can be no assurance that
the Company will timely identify and remediate all significant Year 2000
problems, that remedial efforts will not involve significant time and
expense, or that such problems will not have a material adverse effect
on the Company's business, results of operations or financial position.
 
The Company also faces risk to the extent that suppliers of products,
services and systems purchased by the Company and others with whom the
Company transacts business on a worldwide basis do not comply with Year
2000 requirements.  In the event any such third parties cannot provide
the Company with products, services or systems that meet the Year 2000
requirements on a timely basis, or in the event Year 2000 issues prevent
such third parties from timely delivery of products or services required
by the Company, the Company's results of operations could be materially
adversely affected.
 
The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of
ways. 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 software
products such as those offered by the Company. Potential customers may
also choose to defer purchasing Year 2000 compliant products until they
believe it is absolutely necessary, thus resulting in potentially
stalled market sales within the industry.  Conversely, Year 2000 issues
may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term
demand for software products.  Additionally, Year 2000 issues could
cause a significant number of companies, including current Company
customers, to reevaluate their current software needs, and as a result
switch to other systems or suppliers.  Any of the foregoing could result
in a material adverse effect on the Company's business, operating
results and financial condition.
 
 
Risks Associated with International Sales and Operations
 
The Company anticipates that for the foreseeable future a significant
portion of its revenues will be derived from sources outside North
America and the Company intends to continue to expand its sales and
support operations internationally.  In order to successfully expand
international sales, the Company must establish additional foreign
operations, expand its international sales channel management and
support organizations, hire additional personnel, customize its products
for local markets, recruit additional international resellers and
increase the productivity of existing international resellers.  To the
extent that the Company is unable to do so in a timely and cost-
effective manner, the Company's sales growth internationally, if any,
will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected.  Even if the
Company is able to successfully expand its international operations
there can be no assurance that the Company will be able to maintain or
increase international market demand for its products.
 
The Company's international operations are generally subject to a number
of risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition,
dependence on local vendors, compliance with multiple, conflicting and
changing government laws and regulations, longer sales cycles, greater
difficulty or delay in accounts receivable collection, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, foreign currency exchange rate fluctuations, multiple and
conflicting tax laws and regulations and political and economic
instability.  To date, a majority of the Company's revenues and costs
have been denominated in U.S. dollars.  However, the Company believes
that in the future, an increasing portion of the Company's revenues and
costs will be denominated in foreign currencies.  Although the Company
may from time to time undertake foreign exchange hedging transactions to
reduce its foreign currency transaction exposure, the Company does not
currently attempt to eliminate all foreign currency transaction
exposure.
 
 
Dependence on Key Personnel
 
The Company's success depends to a significant extent upon the efforts
of its key management, sales and marketing, technical support and
research and development personnel, none of whom are bound by an
employment contract.  The loss of key management or technical personnel
could adversely affect the Company.  The Company believes that its
future success will depend in large part upon its continuing ability to
attract and retain highly skilled managerial, sales and marketing,
technical support and research and development personnel.  Like other
software companies, the Company faces intense competition for such
personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel.  There can be
no assurance that the Company will be successful in attracting,
assimilating and retaining additional qualified personnel in the future.
The loss of the services of one or more of the Company's key
individuals, or the failure to attract and retain additional qualified
personnel, could have a material adverse effect on the Company's
business, operating results and financial condition.
 
 
Limited Protection of Proprietary Technology; Risks of Infringement; Use
of Licensed Technology
 
The Company relies primarily on a combination of copyright, trademark
and trade secret laws, confidentiality procedures and contractual
provisions to protect its proprietary rights.  The Company licenses its
software products primarily under license agreements.  There can be no
assurance that others will not develop technologies that are similar or
superior to the Company's technology or design around the copyrights and
trade secrets owned by the Company.  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. Policing unauthorized use of the
Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem.  In
addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the U.S.
 
The Company is not aware that it is infringing any proprietary rights of
third parties.  There can be no assurance, however, that third parties
will not claim infringement by the Company of their intellectual
property rights.  The Company expects that software product developers
increasingly will be subject to infringement claims as 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, could 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 product
infringement against the Company and failure or inability of the Company
to either license the infringed or similar technology or develop
alternative technology on a timely basis, the Company's business,
operating results and financial condition could be materially adversely
affected.
 
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's
internally developed software and used in its products to perform key
functions.  There can be no assurance that these third-party software
licenses will continue to be available to the Company on commercially
reasonable terms, if at all.  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 such delays would materially adversely affect the Company's
business, operating results and financial condition.
 
 
Product Liability
 
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims, it is possible that such limitation of
liability provisions may not be effective as a result of existing or
future laws or unfavorable judicial decisions.  The Company has not
experienced any material product liability claims to date; however, the
sale and support of the Company's products may entail the risks of such
claims, which may be substantial in light of the use of the Company's
products in business-critical applications.  A successful product
liability claim brought against the Company could have a material
adverse effect on the Company's business, operating results and
financial condition.
 
 
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings - Not Applicable
 
Item 2. Changes in Securities  -  Not Applicable
 
Item 3. Defaults Upon Senior Securities  -  Not Applicable
 
Item 4.         Submission of Matters to a Vote of Security Holders
 
        On June 3, 1998, the Company held its Annual Meeting of
Stockholders at the Company's headquarters in San Jose, California.  At
the meeting, the stockholders were asked to: (1) elect Thomas T. van
Overbeek, James Crawford III, E. David Crockett, Stephen J. Sheafor,
Bruce Silver, Daniel D. Tompkins, and John Finegan as members of the
Board of Directors for 1998; (2) approve an amendment to the company's
Stock Option/Stock Issuance Plan to increase the number of shares of
Common Stock for issuance thereunder by 200,000 shares; (3) approve the
Company's 1998 Employee Stock Purchase Plan; and (4) ratify the
selection of PricewaterhouseCoopers as the Company's independent
auditors for fiscal year 1998.
 
        As of the April 14, 1998 record date established for the annual
meeting, there were 7,666,676 shares of common stock issued and
outstanding, all of which were entitled to vote.  Present in person or
by proxy at the meeting were stockholders representing 6,819,153 shares.
Such shares represented 88%, a quorum, of the total number of shares
outstanding and entitled to vote.  All of the proposals, and all of the
nominees to the board of directors, were approved by the stockholders.
6,338,202 shares voted for the approval of the nominees to the board of
directors, 475,738 withheld, and 5,213 instructed.  5,962,274 shares
voted for the approval of the amendment to the company's 1993 Stock
Option/Stock Issuance Plan, 832,079 voted against, and 24,800 shares
abstained.  6,629,265 shares voted for the approval of the 1998 Employee
Stock Purchase Plan, 172,960 shares voted against, and 16,928 shares
abstained.  6,792,949 shares voted for ratification of the selection of
Cooper & Lybrand as the Company's independent auditors, 15,394 shares
voted against, and 10,810 shares abstained.
 
Item 5. Other Information
 
         The company is pleased to report the addition of Johannes Schmidt
to the company's board of directors. Mr. Schmidt is a vice president and
Chief Technology Officer and joined the company in connection with the
company's acquisition of Pixel Transactions, Inc. in 1994. The Company
also reported that David Crockett and Stephen Sheafor have retired from
the board. Mr. Crockett was one of the original investors in the company
and had been a member of the board since 1989.  Mr Sheafor is one of the
founders of the company and had been a member of the board since 1986.
 
         Proposals of stockholders intended to be presented at the Company's
1999 annual meeting of stockholders must be received at the Company's
principal executive offices not later than December 21, 1998 in order to
be included in the Company's proxy statement and form of proxy relating
to the 1999 annual meeting. Pursuant to new amendments to Rule 14a-4(c)
of the Securities Exchange Act of 1934,as amended, if a stockholder who
intends to present a proposal at the 1999 annual meeting of stockholders
does not notify the Company of such proposal on or prior to March 5,
1999 then management proxies would be allowed to use their discretionary
voting authority to vote on the proposal when the proposal is raised at
the annual meeting, even though there is no discussion of the proposal
in the 1999 proxy statement. The Company currently believes that the
1999 annual meeting of stockholders will be held during the first week
of June 1999.
 
 
Item 6. Exhibits and Reports on Form 8-K
 
                (a) Exhibits
11.1  Statement of Computation of Earnings Per Share
27   Financial Data Schedule
 
(b)  Reports on Form 8-K - Not Applicable
 
 
 
 
<PAGE>
 
                                  SIGNATURES
 
        Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                                INPUT SOFTWARE, INC.
                                                 ------------------------------
                                                 Registrant
 
 
Date: November 13, 1998                            /s/ John Finegan
                                                 ------------------------------
                                                 John Finegan
                                                 Chief Financial Officer
                                                 and Secretary
                                                 (Principal Financial and
                                                 Accounting Officer)
 
 
 
 
 
                               EXHIBIT INDEX
 
 
Exhibit          Description
---------       ------------------------------------------------------------
 
11.1            Statement of Computation of Earnings per Share
 
27              Financial Data Schedule