SECURITIES AND EXCHANGE COMMISSION
                    WASHINGTON, DC  20549
 
 
                          FORM 10-K
 
 
X   ANNUAL  REPORT  PURSUANT TO SECTION 13 OR  15(d)  OF  THE
                SECURITIES EXCHANGE ACT OF 1934
 
             For the fiscal year ended December 31, 1998
 
                             OR
 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
  For the transition period from _______ to __________
 
               Commission file number 0-22292
  ----------------------------------------------------------------------
 
                            INPUT SOFTWARE, INC.
     (Exact name of registrant as specified in its charter)
 
       Delaware                                   77-0104275
(State or other jurisdiction of              (I.R.S. Employer
 incorporation or organization)              Identification No)
 
       1299 Parkmoor Avenue,   San Jose, CA             95126
     (Address of principal executive offices)        (Zip Code)
 
Registrant's telephone number, including area code (408) 325-3800
 
Securities registered pursuant to Section 12 (b) of the Act:
 
   Title of each class        Name of each exchange on which registered
           None                                  None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.01 par value         Preferred Share Purchase Rights
 
        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
 
[Cover page 1 of 2 pages]
 
        Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [__]
 
        The aggregate market value of voting stock held by non-affiliates
of the Registrant as of February 28, 1999, was to the best of the
Company's knowledge approximately $14,800,000 million (based upon the
February 28, 1999 closing price for shares of the Registrant's Common
Stock as reported by the Nasdaq National Market).  Shares of Common
Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates.  This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
 
        On February 28, 1999, approximately 4,691,000 shares of the
Registrant's Common Stock, $0.01 par value, were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
1.      Portions of the Registrant's Proxy Statement for the 1999 Annual
Meeting of Stockholders to be held on May 27, 1999 are incorporated by
reference into Part III.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                  PART I
 
This Annual Report on Form 10-K 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 under the caption "Risk Factors"
as well as the following: the emergence of the document management and
image processing markets, potential fluctuations in quarterly results,
competition, new products and technological change, general economic
conditions and dependence on capital spending of customers, a lengthy
sales cycle and dependence on system sales, reliance upon third-party
resellers, and dependence upon key personnel.
 
Item 1.         Business
 
     Input Software, Inc. ("Input Software"or the "Company")  develops,
markets, and services information capture software.  The Company elected
in 1998 to focus solely on its emerging presence as a software supplier.
As a result it announced the sale of its display products division in
April, 1998 and completed such sale to the management team in September,
1998.  As part of the strategic change the name of the Company was
changed from Cornerstone Imaging, Inc. to Input Software, Inc.  The
Company's information capture software helps automate and manage the
input of external information into an organization's internal computing
systems. Information capture software is an important first step in
creating productive enterprise-wide information flow.  Functioning as a
middleware layer between external information sources and an
enterprise's IT infrastructure, Input Software's products help customers
achieve the next level of efficiency by turning unstructured, external
information into intellectual capital.
     Customers use information capture software in two ways--
transaction applications where documents such as order forms, claims
forms, or loan applications are the basis of a business transaction; and
content loading applications where external documents are captured and
uploaded to web sites, CDs, or application servers for subsequent search
and retrieval.  Growth drivers for these applications include increasing
Internet usage, widespread use of digital technology and enterprise
applications, increased demands for information in all forms, and
continued increasing paper usage.
     InputAccelr , which began shipping in November 1995, is the
Company's flagship product line.   With  InputAccel, the Company has
established itself as an open systems information capture "platform"
provider.  As a result, enterprises of various sizes and volume
requirements can now standardize on a single enterprise information
capture solution, yet customize the system to meet the needs of either a
transaction or content loading operation at any level of input volume.
Input Software has attracted such established providers as Adobe,
Documentum, IBM, and Eastman Software as partners to provide complete
solutions for internal and external information processing to global
1000 companies and government agencies.
     The Company's second product line is software tools, which allow
hardware and software developers to save both time and money by offering
stable, supported libraries of software code to drive certain computer
peripherals rather than having to develop such software themselves.
Most of these tools are based on the Company's Image & Scanner Interface
Specification ("ISISr"), an industry standard interface for scanners.
ISIS also provides a key component for InputAccel.
 
Technology and Products
 
     InputAccel is the Company's flagship software product.
InputAccel is an open, high-throughput, standard integration platform
and set of software modules that automate the conversion and indexing of
paper documents into electronically stored images.  InputAccel's
integration platform, with the ISIS interface, is a foundation linking
various technologies into an upgradeable system that provides system
management, control, and reporting functions. The integration platform
is an open NT-based server platform that can incorporate/utilize various
software modules from Input Software, as well as products from third-
parties, including application vendors, scanner manufacturers, and other
providers.
 
Sales and Marketing
 
     The Company's sales and marketing activities include
participation in industry trade shows and seminars and advertising in
trade publications.
     InputAccel software is typically used in connection with a complex
enterprise system that includes important elements supplied by other
vendors.  As a result, purchasers of such systems often rely on system
integrators and VARs to oversee the acquisition and installation of key
hardware and software components of the overall system.  Accordingly, a
significant portion of the Company's display and InputAccel sales to
end-users are made through system integrators and value-added resellers.
Software tools are generally sold or licensed to such hardware and
software suppliers as Fujitsu, Kodak, Caere, and Filenet.
 
      In 1998, international sales, principally in Europe,
represented approximately 26% of the Company's revenues and the Company
expects that international sales will continue to account for a
significant portion of its revenues in future.  The Company intends to
continue to expand its operations outside of the United States and enter
additional international markets, which will require significant
management attention and financial resources.  International sales are
subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other barriers, fluctuating exchange rates,
difficulties in staffing and managing foreign operations and the
possibility of greater difficulty in accounts receivable collection.  To
date, the Company has avoided the risk of fluctuating exchange rates
associated with international sales by generally selling its products in
United States currency, but there can be no assurance that the Company
will be able to continue to do so in the future.  There can be no
assurance that these or other factors will not have a material adverse
effect on the Company's future international sales and, consequently, on
the Company's business, operating results and financial condition.
 
Research and Development
 
      The Company believes that its future success will depend in
large part on its ability to enhance its current product line, develop
new products, maintain technological competitiveness and satisfy an
evolving range of customer requirements.  The Company's research and
development group is responsible for exploring new directions and
applications of core technologies, incorporating new technologies into
products and maintaining strong research relationships outside the
Company.  The Company seeks to leverage its direct investment in
research and development by supporting efforts by independent software
vendors to develop products complementary to its products.   During
1998, 1997, and 1996 research and development expenses were
approximately $4.2 million, $4.0 million and $3.4 million, respectively.
The Company intends to continue to make substantial investments in
product and technology research and development and to continue to
participate actively in the development of industry standards.
 
Patents and Other Proprietary Rights
 
      The Company does not currently have any patents and relies
on a combination of trade secret, copyright, and trademark laws,
nondisclosure and other contractual agreements and technical measures to
protect its proprietary rights in its products.  There can be no
assurance that it will develop proprietary products or technologies that
are patentable, that any issued patent will provide it with any
competitive advantages or will not be challenged by third-parties, or
that the patents of others will not have an adverse effect on the
Company's ability to do business.  Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate the Company's products or, if patents are issued to the
Company, design around the patents issued to the Company.  There can be
no assurance that the steps taken by the Company will prevent
misappropriation of its technology, and such protections may not
preclude competitors from developing products with features similar to
the Company's products.  In addition, effective copyright and trade
secret protection may be unavailable or limited in certain foreign
countries.  The Company believes that its products and trademarks do not
infringe upon the proprietary rights of third-parties.  There can be no
assurance, however, that third-parties will not assert infringement
claims against the Company in the future or that such claims will not
require the Company to enter into royalty arrangements or result in
costly litigation.  Because the industry is characterized by rapid
technological change, the Company believes that factors such as the
technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and
reliable product maintenance are more important to establishing and
maintaining a technology leadership position than the various legal
protections of its technology.
 
Technical Support
 
      An important element in the Company's strategy is to provide
comprehensive support of its products.  The Company believes that
responsive technical support is essential for customer requirements and
provides extensive support for its products by telephone, fax and
electronic medium.
 
Competition
 
      The market for the Company's products is highly competitive.
The Company believes the principal competitive factors are product
features, support, price, and reputation. In addition support of the
Company's integration platform by independent software vendors and ease
of product implementation are important competitive factors for
InputAccel. The Company believes that it currently competes favorably
with respect to these factors.
 
      The Company has a number of current and potential
competitors many of which have significantly greater financial,
technical, marketing and other resources than does the Company.  The
Company expects additional competition from other established and
emerging companies if the market continues to develop and expand.
Increased competition could result in additional price reductions,
reduced margins and loss of market share, 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 competitive pressures faced by the Company will not
materially adversely affect its business, operating results and
financial condition.
 
Employees
       As of December 31, 1998, the Company had 123 employees. The
Company employs 26 people in finance and administrative functions, 64 in
marketing, sales, and support and 33 in engineering and product
development.  In addition, the Company hires temporary employees on an
as-needed basis to meet production requirements.  None of the employees
are represented by a labor union or is subject to a collective
bargaining agreement.  The Company believes that its employee relations
are good.
 
Executive Officers
 
The executive officers of the Company are as follows:
 
Name                            Age     Position
 
Thomas T. van Overbeek          49      Chairman of the Board of Directors
Kimra Hawley                    42      President, Chief Executive Officer
                                        and Director
Matt Albanese                   40      Vice President-Implementation and
                                        Consulting Services
Cynthia Anderson                34      Vice President-Operations
Joe Falk                        49      Vice President-Sales
John Finegan                    49      Chief Financial Officer, Secretary,
                                        and Director
Stephen Francis                 37      Vice President-General Manager of Pixel
                                        Division
Michael Parker                  40      Vice President-Engineering
Johannes Schmidt                35      Chief Technical Officer and Director
John Stetak                     40      Vice President-Marketing
 
     Thomas T. van Overbeek joined the Company in 1988 as President and
Director.  He was appointed Chief Executive Officer in July 1990 and
became Chairman of the Board of Input Software in September 1998 upon
completion of the sale of the Company's display products division. Mr.
Van Overbeek is currently CEO of Wavtrace, Inc. in Bellevue, Washington.
 
     Kimra Hawley joined the Company in 1992 as Product Marketing
Director, was promoted to Vice President in November 1994 and Senior
Vice President and General Manager for the Software Division in November
1996.  She became President and CEO and was elected a Director of Input
Software, Inc. in April 1998. Prior to joining the Company, Ms. Hawley
was a principal in MarketBound Associates, a marketing consulting firm.
Ms. Hawley holds a BS in Psychology from Pittsburg State University.
 
     Matt Albanese joined the Company as Director of Engineering for
the Software Division in 1995 and was promoted to Vice President,
Implementation and Consulting Services in December 1997.  Prior to
joining the Company, Mr. Albanese was the Director of Engineering for
Plexus Software, a Division of Banctec. Mr. Albanese holds a BS in
Computer Science from San Jose National University.
 
     Cynthia Anderson joined the Company as Director of Quality in 1992
and became Vice President of Quality and Information Systems for the
Display Division in 1997. In 1998, she was appointed Vice President of
Operations.  Prior to joining the Company, Ms Anderson held quality and
engineering positions at Tandem Computers.   Ms. Anderson holds a BS
degree in Electrical Engineering from Michigan Technical University and
an MS in Engineering Management from Santa Clara University.
 
     Joe Falk joined the Company in May 1997 as Vice President of Sales
for the Software Division, and became Vice President of Sales  in April
1998.  Prior to joining the Company, Mr. Falk was Vice President of
Sales of Constellar Software Corporation and prior to that, Director of
Worldwide Sales at Vantageware Software.  Mr. Falk holds a BS in
Marketing from California State University at Northridge.
 
     John Finegan joined the Company in 1989 as Vice President-Finance,
was elected Chief Financial Officer in 1990, Secretary in 1993, and
Director in 1997.   Prior to joining the Company he was Vice President
of Finance for the Paradise Systems Division of Western Digital
Corporation. Mr. Finegan holds an MBA from the University of
Massachusetts and a BS in Engineering from Tufts University.
 
     Stephen Francis joined the Company in 1994 as Vice President when
the company he co-founded, Pixel Translations, was acquired. Mr. Francis
became Vice President and General Manager of the Pixel Translations
Division in April 1997.   Prior to joining Pixel Translations, Mr.
Francis held engineering and marketing management roles at Calera
Recognition Systems, now part of Caere Corporation. Mr. Francis holds a
BS in Electrical Engineering/Computers from Stanford University.
 
     Michael Parker joined the Company in October 1998 as Vice
President of Engineering. Prior to joining Input Software, Mr. Parker
held the positions at Adobe Systems of Director of Engineering from
October 1997 to October 1998 and Engineering Manager from June 1993 to
October 1997.  Mr. Parker holds a BS in Electrical Engineering from the
University of Pennsylvania.
 
     Johannes Schmidt joined the Company as Vice President of Software
Engineering in 1994 when the company he founded, Pixel Translations, was
acquired by the Company.  He was appointed Chief Technology Officer in
1996 and  Director in November 1998.   Previously, Mr. Schmidt held
senior engineering positions at Calera Recognition Systems, which is now
part of Caere Corporation. Mr. Schmidt holds a BS in Engineering and
Applied Science from the California Institute of Technology.
 
     John Stetak joined the Company as Vice President of Marketing in
May 1998. From 1992 to 1998 he served as Director of Marketing for the
Data Management Market Group of Autodesk. Previously Mr. Stetak was
Manager of Product Marketing for EDS.
 
 
RISK FACTORS
 
     In addition to the other information in this Report, the following
risk factors should be considered carefully in evaluating the Company
and its business.
 
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 December 31, 1998, the Company's software operations
had cumulative pre-tax operating losses of approximately $2.7 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 1999 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, 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. In
addition, the Company achieves a significant portion of revenues from
indirect sales channels over which the Company has little 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 Data Capture and
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 Readiness Disclosure
 
     The following information constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Information and Readiness Disclosure Act.
 
     Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates.  As a result,
in less than one year, 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 the Year 2000 problem.  The Company's Year 2000
compliance effort has been led since mid-1998 by a committee headed by
its Vice Presidents of Operations and Product Strategy.  The effort has
been focused on compliance of the Company's products and the Company's
critical business systems.  Non-critical business systems will be
addressed if and when necessary, as the Company currently anticipates
minimal impact to operations and ready availability of replacement goods
or services in this category.
 
     As more fully discussed below, the Company's products make only limited
use of date algorithms and generally are user configurable and/or
dependent on third-party products for date information.  As a result, it
is impossible to make definitive statements concerning the compliance of
any particular system, but the Company believes that when properly
installed, its products can be configured in a compliant manner.
 
     As a software developer, the Company is dependent on relatively few
critical suppliers.  These tend to be infrastructure vendors rather than
component vendors, most notably including building utilities,
telecommunications and internet service as well as third-party software
suppliers whose products are used for product development, internal
business processes and operating platforms for the Company's products.
Generally these suppliers are well established enterprises which have
provided assurances that they are or will be Year 2000 compliant
sufficiently before January 1 to avoid business disruptions, and the
Company anticipates no significant disruptions from these suppliers.
 
     The Company's flagship product, InputAccel, is a modular, configurable,
enterprise software application that operates on a Microsoft Windows
platform and can export information to one or more third-party software
applications.  The product's current revision (2.X) has been subjected
to code inspection testing for Year 2000 compliance by the Company, and
the Company offers no-charge test systems to licensed end-users so that
they may perform compliance testing in their own environments.  The
Company warrants to new end-users that the product is capable of
compliant installation and that the Company will take prompt action to
address any Year 2000 defects that may be encountered.  However, due to
the product's configurable nature and its interdependence with third-
party products, its warranty is of limited scope in order to avoid
liability for externally introduced Year 2000 problems.  At the current
time, the Company has identified an anomaly in third-party code which is
incorporated in InputAccel that may create ambiguities under certain
circumstances in the interpretation of two-digit years.  The Company is
taking immediate remedial measures to eliminate the effect of this code
and plans to replace the third-party product before January 1, 2000.
Revisions prior to 2.0 have not been tested for Year 2000 compliance,
and users of earlier versions of InputAccel may encounter Year 2000
defects.
 
     Released versions of PixToolsr development toolkit products and the
PixViewTM image utility application do not represent, store or process
dates, and the Company believes that the Year 2000 compliance issue is
inapplicable to these products alone.  It should be noted however, that
the toolkit algorithms are intended to be combined with other program
elements in the course of development, and toolkit users must exercise
care not to introduce Year 2000 problems with those program elements.
 
     The Company's internal information technology systems are comprised of
certain hardware, including computers and telecommunications equipment;
software applications, including sales management, accounting,
electronic mail, word processing, spreadsheets and the Windows operating
system as well as software development platforms.  Nearly all of the
above hardware and software applications are commercially available
products from major suppliers.  Many of these products have been subject
to upgrade or replacement concurrent with the Company's recent
relocation or as a result of scheduled maintenance, for which there have
been no extraordinary costs.
 
     Critical externally supplied products and services include electricity,
telecommunications, internet service, payroll and shipping.  Such
products and services are generally supplied by major providers which
currently represent that they will have no significant Year 2000
problems.  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 InputAccel customer base is comprised primarily of large public
and private enterprises which have devoted, or will devote in 1999,
significant efforts to Year 2000 compliance issues.  While InputAccel
may enhance the overall efficiency of such a customer's operations, it
is nevertheless not likely to be a material factor in any customer's
Year 2000 compliance effort.  To the extent that such customers' MIS
departments are occupied with Year 2000 issues, they may defer
enterprise software acquisitions that are not critical to the Year 2000
effort, such as InputAccel.  Such acquisition deferrals could have a
material adverse effect on the Company's business, operating results,
and financial condition.
 
     The Company is dependent on Microsoft products which serve as the
operating system for its products and as the development platform for
those same products.  In addition, the Company uses Windows-based
computers and a number of Microsoft applications in the regular conduct
of its business.  While the Company regards the possibility of a
significant Year 2000 problem in Microsoft's products to be remote, if
such a problem were to occur in any of the Microsoft products used by
the Company, it could impact the Company's operations or development
efforts negatively.
 
     To date, the Company has made no extraordinary expenditures in its
effort to achieve Year 2000 compliance other than the labor costs
associated with compliance analysis.  Replacement products have been
secured, where necessary, in conjunction with scheduled and budgeted
maintenance.  The Company does not anticipate that any significant
future expenditures will be required to achieve compliance, and it
believes that any such expenditures will have no material bearing on the
Company's financial performance.  Accordingly, the Company has not
adopted any formal contingency plan in the event its Year 2000 project
is not completed in a timely manner.
 
     The Company believes that, as a comparatively small and centralized
business operation, its Year 2000 risks are identifiable, and it
believes that it is already substantially prepared for the Year 2000.
Nevertheless there can be no assurance that all risks have been
identified and will be cured or that no business disruptions will occur
due to Year 2000 problems within the Company or from outside the
Company.  The above discussion of compliance efforts, risks and costs
contain forward-looking statements based on the Company's current best
estimates, which estimates are based on currently available information.
Such information may be subject to change, in which case compliance
efforts, risks and costs could vary materially from current estimates
which could have a material adverse affect 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.
 
Item 2.         Properties
 
     The Company's principal administrative, sales, marketing and
research and development facility is located in a building of
approximately 46,000 square feet in San Jose, California.  This facility
is leased through February 2004.  All Company functions except certain
sales activities are performed at this facility.  Input Software's
European sales activities are conducted from leased facilities near
Munich, Germany and London, England.  Certain other sales activities are
conducted from rented offices in various states in the U.S.  The Company
believes that its facilities are adequate for its current needs.
 
Item 3.         Legal Proceedings
 
                Not applicable
 
Item 4.         Submission of Matters to a Vote of Security Holders
 
                Not applicable.
 
 
 
                                    PART II
 
Item 5.    Market for Registrant's Common Equity and Related
           Stockholders Matters
 
     The following table sets forth selected unaudited financial information
for the Company for the eight quarters in the period ended December 31,
1998.  This information has been prepared on the same basis as the
audited financial statements and, in the opinion of management, contains
all adjustments necessary for a fair presentation thereof.
 
 
                        INPUT SOFTWARE, INC.
                 CONSOLIDATED FINANCIAL INFORMATION
           (unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
                                                       Quarter Ended
                                         ------------------------------------------
1998                                     March 31,  June 30,   Sept. 30,  Dec. 31,
---------------------------------------- ---------  ---------  ---------  ---------
<S>                                      <C>        <C>        <C>        <C>
Net revenues from continuing operations    $3,387     $4,160     $4,599     $5,263
Gross profit                                2,962      3,769      4,198      4,732
Operating income (loss)                       (93)       164        356        405
Net income from continuing operations          35        219        354        431
Net income (loss) from
  discontinued operations                  (2,645)       --         --       1,294
Basic and Diluted EPS:
  For continuring operations                 0.01       0.04       0.07       0.09
  For discontinued operations               (0.42)       --         --        0.26
                                         ---------  ---------  ---------  ---------
  Net income (loss)                         (0.41)      0.04       0.07       0.35
 
Stock prices:
  High                                       6.63       7.38       8.38       8.13
  Low                                        4.50       5.13       5.50       5.13
 
 
1997
----------------------------------------
Net revenues from continuing operations    $2,519     $2,970     $3,158     $3,593
Gross profit                                2,348      2,790      2,918      3,303
Operating income (loss)                      (423)       (86)       144        274
Net income (loss) from continuing
  operations                                 (156)        86        168        296
Net income (loss) from
  discontinued operations                   1,211       (217)      (161)      (146)
Basic and Diluted EPS:
  For continuring operations                (0.02)      0.01       0.02       0.04
  For discontinued operations                0.16      (0.03)     (0.02)     (0.02)
                                         ---------  ---------  ---------  ---------
  Net income (loss)                          0.14      (0.02)       --        0.02
 
Stock prices:
  High                                       9.88       9.25       8.00       7.00
  Low                                        7.00       6.50       5.00       4.50
 
</TABLE>
 
Common stock market price
 
     The Company's common stock is traded on The Nasdaq National Market under
the symbol INPT.  The Company's common stock began trading in September
1993.  There were approximately 156 stockholders of record and 2,300
beneficial shareholders of record at February 28, 1999.
 
     To date, the Company has not declared or paid any cash dividends on its
common stock.  The Company does not anticipate paying dividends on its
common stock in the foreseeable future and, under the current bank
agreement, any such payment would require prior bank approval.
 
Item 6.        Selected Consolidated Financial Data.
 
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements.
 
<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                -------------------------------------------------
                                  1998      1997      1996      1995      1994
                                --------- --------- --------- --------- ---------
<S>                             <C>       <C>       <C>       <C>       <C>
Consolidated Statements of
    Operations Data:
----------------------------
Net revenues                     $17,409   $12,240    $7,090    $3,384    $1,173
Gross profit                      15,661    11,359     6,768     3,315     1,132
Operating income (loss)              832       (91)   (2,304)   (1,037)     (131)
Net income (loss)                  1,039       394    (1,449)     (460)      248
Diluted income (loss)
   per share                       $0.18     $0.05    ($0.19)   ($0.06)    $0.03
 
For discontinued operations:
Net income (loss)                ($1,351)     $687      $286    $6,618    $4,568
Diluted income (loss) per share   ($0.24)    $0.10     $0.04     $0.87     $0.63
 
Net income (loss)                  ($312)   $1,081   ($1,163)   $6,158    $4,816
Diluted income (loss) per share   ($0.06)    $0.15    ($0.15)    $0.81     $0.66
Shares used in per share
   calculations                    5,657     7,285     7,548     7,586     7,316
 
Consolidated Balance
   Sheets Data:
----------------------------
Working capital                  $19,030   $16,981   $22,241   $15,515   $16,880
Total assets                      26,877    37,693    41,074    39,929    30,131
Stockholders' equity              21,357    33,923    39,018    39,331    29,697
</TABLE>
 
 
Item 7.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations.
 
     The following table sets forth,  for the periods indicated, certain
financial data from the Company's consolidated statements of operations
as a percentage of revenues.
 
                                               Year Ended December 31,
                                         --------------------------------
                                            1998       1997       1996
                                         ---------- ---------- ----------
Net revenues                                 100.0%     100.0%     100.0%
Cost of revenues                              10.0%       7.2%       4.5%
                                         ---------- ---------- ----------
    Gross profit                              90.0%      92.8%      95.5%
                                         ---------- ---------- ----------
 
Research and development                      24.2%      32.7%      48.2%
Sales and marketing                           45.2%      43.1%      58.0%
General and administrative                    15.8%      17.7%      21.8%
                                         ---------- ---------- ----------
    Operating income (loss)                    4.8%      -0.7%     -32.5%
 
Interest and other income                      3.9%       5.6%       3.6%
                                         ---------- ---------- ----------
    Income (loss) before income taxes          8.7%       4.9%     -28.9%
Provision (benefit) for income taxes           2.7%       1.7%      -8.5%
                                         ---------- ---------- ----------
    Net income (loss)                          6.0%       3.2%     -20.4%
                                         ========== ========== ==========
 
 
Revenues
 
     The Company's revenues increased by 42% in 1998 to $17.4 million from
$12.2 million in 1997 and increased by 73% in 1997 from $7.1 million in
1996. The increase in revenue is due primarily to increased revenues
from the InputAccel product line.
 
Gross Profit
 
     Gross profit increased by 38% to $15.7 million in 1998 from $11.4
million in 1997 while increasing 68% in 1997 from $6.8 million in 1996.
Gross profit margin decreased to 90% in 1998 from 93% in 1997. The
decrease in gross margin percent 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 by 49% in 1998 to $7.9 million
from $5.3 million in 1997 and by 28% in 1997 from $4.1 million in 1996.
Sales and marketing expenses decreased as a percentage of revenue from
58% in 1996, to 43% in 1997 and increased to 45% in 1998.
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 increased by 5% in 1998 to $4.2
million from $4.0 million in 1997 and increased by 18% in 1997 from $3.4
million in 1996. Research and development expenses have decreased as a
percentage of revenue from 48% in 1996 to 33% in 1997 and  to 24% in
1998.
 
     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, to this area.  As a result, research and development expenses
are likely to increase during 1999 and beyond.
 
General and Administrative
 
     General and administrative expenses increased by 27% in 1998 to $2.8
million from $2.2 million in 1997 and by 40% in 1997 from $1.5 million
in 1996. General and administrative expenses have decreased as a
percentage of revenue from 22% in 1996 to 18% in 1997 and  to 16% in
1998.
 
     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 $1.4 million,
or 24 cents per share, in 1998.  This charge includes a loss from
display division operations in the first quarter of 1998, net of tax
benefit, of $361,000, and an estimated loss of $990,000, net of tax
benefit, on the sale of the net assets of the display division.   As a
result of the sale, the Company owns a minority interest in Cornerstone
Peripherals Technology, Inc., which is reflected as an `other asset' on
the December 31, 1998 balance sheet.
 
Interest and Other Income
 
     Interest and other income decreased in 1998 to $675,000 from $688,000 in
1997 and increased in 1997 from $254,000 in 1996.
 
Provision (benefit) for Income Taxes
 
     The provision (benefit) for income taxes as a percentage of pretax
income (loss) was 31%, 34% and (29)% for 1998, 1997 and 1996,
respectively.
 
Liquidity and Capital Resources
 
     At December 31, 1998, the Company had cash and cash equivalents of $14.4
million, an increase of $2.2 million from December 31, 1997. At December
31, 1998, the working capital totaled $19.0 million, an increase of $2.0
million from December 31, 1997.
 
     Net cash provided by operating activities was $15.2 million in 1998
compared to $253,000 in 1997.  The increase in net cash provided by
operating activities from 1997 to 1998 was due primarily to conversion
to cash of various assets from the discontinued display operation.
 
     Net cash used for investing activities, exclusively additions to
property and equipment, was $821,000 in 1998 compared to $230,000 1997.
 
     On February 14, 1997, the Company's Board of Directors authorized the
use of up to $5 million to repurchase the Company's common stock.  This
amount was increased to $15 million on Sept 17, 1997, further increased
to $20 million on August 12, 1998, and further increased to $25 million
on February 11, 1999.  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. Since inception of the plan to December 31,
1998, 2.9 million shares have been repurchased for a total of $19.1
million.  1998 repurchases totaled $12.6 million.
 
     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.
 
 
Item 8.         Financial Statements and Supplementary Data.
 
The following consolidated financial statements of the Company and
auditor's report are included in Item 8 and appear following Item 14:
 
                Report of Independent Accountants
 
                Consolidated Balance Sheets  -  At December 31, 1998 and
                1997
 
                Consolidated Statements of Operations - Years Ended December
                31, 1998, 1997, and 1996
 
                Consolidated Statements of Stockholders' Equity - Years
                Ended December 31, 1998, 1997, and 1996
 
                Consolidated Statements of Cash Flows  -  Years Ended
                December 31, 1998, 1997, and 1996
 
                Notes to Consolidated Financial Statements
 
Item 9.         Changes in and Disagreements with Accountants on
                Accounting and Financial Diclosure.
 
                Not applicable.
 
                                    PART III
 
Item 10.        Directors and Officers of the Registrant.
 
     The information required by this item relating to the
Company's directors and nominees and disclosure relating to compliance
with Section 16(a) of the Securities Exchange Act of 1934 is included
under the captions "Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.  The information required by this item
relating to the Company's executive officers and key employees is
included under the caption "Executive Officers and Key Employees" in
Part I of this Form 10-K Annual Report.
 
Item 11.        Executive Compensation.
 
     The information required by this item is included under the
caption "Executive Compensation and Related Information" in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
and is incorporated herein by reference.
 
Item 12.        Security Ownership of Certain Beneficial Owners and
Management.
 
     The information required by this item is included under the
caption "Ownership of Securities" in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders and is incorporated herein by
reference.
 
Item 13.        Certain Relationships and Related Transactions.
 
     The information required by this item is included under the
caption "Certain Transactions" in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders and is incorporated herein by
reference.
 
                                   PART IV
 
ITEM 14.    Exhibits, Financial Statements, Schedules, and Reports on Form
             8-K
 
(a)     The following documents are filed as part of this Annual Report on
         Form 10-K:
 
1.      Financial Statements
 
        Consolidated Balance Sheets as of December 31,
          1998 and 1997
 
        Consolidated Statements of Operations for each of the
          three years in the period ended December 31, 1998
 
        Consolidated Statements of Stockholders' Equity for
          each of the three years in the period ended
          December 31, 1998
 
        Consolidated Statements of Cash Flows for each of
          the three years in the period ended December 31, 1998
 
        Notes to Consolidated Financial Statements      -
 
        Report of PricewaterhouseCoopers, LLP
          Independent Accountants
 
2. Financial Data Schedule.     Form 10-K
 
        Schedule II     --      Valuation and Qualifying Accounts
 
 
        Schedules, other than those listed above, have been omitted since
they are either not required, are not applicable, or the required
information is shown in the financial statements and related notes.
 
 
3.      (a)     See Exhibit List below
        (b)     No reports on Form 8-K were filed during the last
                quarter of the
                fiscal year covered by this Form 10-K Annual Report.
 
Exhibit
Number    Description
--------- ---------------------------------------------------------
2.1++     Agreement and Plan of Reorganization April 15, 1994 among the
          Company, Pixel Translations, Inc., and Cornerstone Acquisition
          Corporation.
3.1+      Amended and Restated Certificate of Incorporation of the
          Company.
3.2+++    Bylaws of the Company
4.1+      Reference is made to Exhibits 3.1 and 3.2
4.2+      Form of Investor Rights Agreement dated August 27, 1993 by and
          among the Company and the investors identified herein.
 
4.3 xx    Rights Agreement dated September 9, 1997
10.1+     Form of Indemnity Agreement entered into between the Company
          and its directors and officer.
10.2+     Form of the Company's 1993 Stock Option/Stock Issuance Plan.
 
10.3+     1989 Employee Stock Option Plan.
10.4+     Key Employee Stock Purchase Plan.
10.5+     Form of Employee Stock Purchase Plan.
10.6+     Real Estate Lease between the Company and First Interstate Bank
          of California, as Corporate Trustee for Northern California
          Retail Clerks Union and Food Employers Joint Pension Trust
          Fund; Bank of America N.T. & S.A., as Corporate Trustee for
          Southern California United Food and Commercial Worker Unions
          and Food Employers Joint Pension Trust Fund; and Imperial Trust
          Company as Corporate Co-Trustee for California Butchers Pension
          Trust Fund, dated as of June 1, 1989.
 
 
10.7+*    License Agreement between the Company and Cadtrak Corporation,
          dated December 15, 1992.
10.8+*    Distribution Agreement between the Company and Micro D., Inc.,
          dated as of July 11, 1988.
10.9+*    Distributor Agreement between the Company and Law Cypress
          Distributing Company, dated as of May 2, 1990.
 
10.10+*   OEM Sales Agreement between the Company and NEC Technologies,
          Inc., dated as of December 11, 1992.
10.11+*   Systems Integrator Purchase Agreement between the Company and
          PRC, Inc., dated as of September 10, 1991.
 
10.12+*   Systems Integrator Purchase Agreement between the Company and
          DST Systems, Inc., dated as of June 14, 1990.
 
10.13+*   Display Technologies, Inc. Pricing Terms and Conditions.
 
10.14     Intentionally left blank.
10.15+    Loan and Security Agreement, between the Company and Plaza Bank
          of Commerce dated as of August 7, 1992.
10.16+    Loan and Security Agreement between the Company and Comerica
          Bank-California, dated as of August 1, 1993.
 
10.17+    Loan and Security Agreement, between the Company and LB Credit
          Corporation, dated as of October 21, 1992, as amended.
 
10.18*    Product Support and Marketing Agreement between the Company and
          IBM, dated as of February 16, 1994.
 
21.1+     Subsidiaries of the Company.
23.1      Consent of PricewaterhouseCoopers, LLP
24.1      Power of Attorney (see page 24).
27        Financial Data Schedule
 
 
 
+         Incorporated by reference to an exhibit to the Company's
          Registration Statement of Form S-1 (Registration No. 33-
          66142), as amended.
++        Incorporated by reference to an exhibit to the Company's 8-K
          filed on July 6, 1994.
+++       Incorporated by reference to an exhibit to the Company's 8-K
          filed on September 24, 1997.
xx        Incorporated by reference to an exhibit to the Company's
          Registration Statement on Form 8-A filed on September 10,
          1997.
*         Confidential Treatment has been granted for the deleted
          portions of this document.
 
 
 
 
 
 
                              SIGNATURES
                Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 1999.
 
                                        INPUT SOFTWARE, INC.
 
                                        By:     /s/ Kimra Hawley
                                                   Kimra Hawley
                                               President, Chief  Executive
                                               Officer and Director
 
POWER OF ATTORNEY
 
        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and severally,
Thomas T. van Overbeek and John Finegan and each one of them, his
attorneys-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any and all amendments (including post-
effective amendments) to this Report on Form 10-K, and to file the same,
with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do
or cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the  following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
 
        Signature                          Title                     Date
--------------------------  -----------------------------------  -------------
/s/ Kimra Hawley            President, Chief Executive           March 30, 1999
--------------------------  Officer and Director
    Kimra Hawley            (Principal Executive Officer)
 
 
/s/ John Finegan            Chief Financial Officer,             March 30, 1999
--------------------------  (Principal Financial and Accounting
    John Finegan            Officer)
 
 
/s/ Thomas T. van Overbeek  Chairman of the Board                March 30, 1999
--------------------------  of Directors
    Thomas T. van Overbeek
 
/s/ Johannes Schmidt        Director                             March 30, 1999
--------------------------
    Johannes Schmidt
 
/s/ James E. Crawford III   Director                             March 30, 1999
--------------------------
    James E. Crawford III
 
/s/ Daniel D. Tompkins      Director                             March 30, 1999
--------------------------
    Daniel D. Tompkins
 
/s/ Bruce Silver            Director                             March 30, 1999
--------------------------
    Bruce Silver
 
 
                        INPUT SOFTWARE, INC.
                     CONSOLIDATED BALANCE SHEETS
                   (in thousands, except par value)
<TABLE>
<CAPTION>
                                                              December 31,
                                                       ----------------------
                                                          1998        1997
                                                       ----------  ----------
<S>                                                    <C>         <C>
                         ASSETS
Current assets:
  Cash and cash equivalents                              $14,447     $12,284
  Accounts receivable, net of allowance for doubtful
     accounts of $559 in 1998 and $409 in 1997             4,490       2,946
  Prepaid expenses and other current
    assets                                                   934         942
  Deferred income taxes                                    4,679       4,579
                                                       ----------  ----------
      Total current assets                                24,550      20,751
 
Property and equipment, net                                1,208       1,056
Deferred income taxes and other assets                       943         424
Net assets related to the discontinued Display Division      176      15,462
                                                       ----------  ----------
                                                         $26,877     $37,693
                                                       ==========  ==========
 
          LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable                                          $652        $463
  Accrued compensation and related liabilities               969         463
  Deferred revenue                                         1,694         654
  Other accrued liabilities                                2,205       2,190
                                                       ----------  ----------
       Total current liabilities                           5,520       3,770
                                                       ----------  ----------
 
Common stock, $0.01 par value; authorized: 25,000
   shares; issued and outstanding: 4,808 shares
   and 6660 shares at December 31, 1998 and
   1997, respectively                                         48          67
Additional paid-in capital                                12,512      24,747
Retained earnings                                          8,797       9,109
                                                       ----------  ----------
     Stockholders' equity                                 21,357      33,923
                                                       ----------  ----------
                                                         $26,877     $37,693
                                                       ==========  ==========
</TABLE>
    The accompanying notes are an integral part of these
              consolidated financial statements
<PAGE>
 
 
                        INPUT SOFTWARE, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                    --------------------------------
                                                       1998       1997       1996
                                                    ---------- ---------- ----------
<S>                                                 <C>        <C>        <C>
Net revenues                                          $17,409    $12,240     $7,090
Cost of revenues                                        1,748        881        322
                                                    ---------- ---------- ----------
    Gross profit                                       15,661     11,359      6,768
                                                    ---------- ---------- ----------
 
Research and development                                4,212      4,016      3,413
Sales and marketing                                      7863       5270       4111
General and administrative                              2,754      2,164      1,548
                                                    ---------- ---------- ----------
    Operating income (loss)                               832        (91)    (2,304)
 
Interest and other income                                 675        688        254
                                                    ---------- ---------- ----------
    Income (loss) before income taxes                   1,507        597     (2,050)
Provision (benefit) for income taxes                      468        203       (601)
                                                    ---------- ---------- ----------
    Net income (loss) from continuing operations       $1,039       $394    ($1,449)
 
Discontinued operations:
    Net income (loss) from operations of
        Discontinued Display Division                   ($361)      $687       $286
 
Estimated net loss on the sale of Display Division      ($990)        $0         $0
                                                    ---------- ---------- ----------
Net income (loss) form discontinued operations        ($1,351)      $687       $286
 
Net income (loss)                                       ($312)    $1,081    ($1,163)
                                                    ========== ========== ==========
 
Basic and diluted EPS:
  For continuing operations                             $0.18      $0.05     ($0.19)
  For discontinued Display Division                    ($0.24)     $0.10      $0.04
  Net income (loss)                                    ($0.06)     $0.15     ($0.15)
                                                    ========== ========== ==========
 
Shares used in Basic EPS calculation                    5,657      7,248      7,548
Shares used in Diluted EPS calculation                  5,731      7,285      7,598
                                                    ========== ========== ==========
</TABLE>
       The accompanying notes are an integral part of these
              consolidated financial statements
<PAGE>
 
 
                        INPUT SOFTWARE, INC.
                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                     (in thousands)
<TABLE>
<CAPTION>
                                                                   Unrealized
                                                                     Loss on                Total
                                     Common Stock      Additional  Marketable               Stock-
                                   ------------------   Paid-in    Securities,  Retained   holders'
                                    Shares    Amount    Capital        Net      Earnings    Equity
                                   --------- -------- ------------ ----------- ---------- ----------
<S>                                <C>       <C>      <C>          <C>         <C>        <C>
Balances, December 31, 1995           7,333       73       30,097         (30)     9,191     39,331
  Common stock issued under:
    Stock option plan                   127        2          171         --         --         173
    Employee Stock Purchase Plan         98        1          600         --         --         601
  Unrealized holding gain
    on marketable securities, net        --       --           --          30        --          30
  Tax benefit from disqualifying
    dispositions of common stock         --       --           46         --         --          46
  Net loss                               --       --           --         --      (1,163)    (1,163)
                                   --------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1996           7,558       76       30,914         --       8,028     39,018
  Common stock issued under:
    Stock option plan                    53       --          116         --         --         116
    Employee Stock Purchase Plan         91        1          447         --         --         448
  Common stock repurchased           (1,007)     (10)      (6,447)                           (6,457)
  Common stock received for Pegasus     (35)      --         (332)        --         --        (332)
  Tax benefit from disqualifying
    dispositions of common stock         --       --           49         --         --          49
  Net income                             --       --       --             --       1,081      1,081
                                   --------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1997           6,660      $67      $24,747       $ --      $9,109    $33,923
  Common stock issued under:
    Stock option plan                     2       --           12         --         --          12
    Employee Stock Purchase Plan         78        1          357         --         --         358
  Common stock repurchased           (1,932)     (20)     (12,604)                          (12,624)
  Net loss                               --       --           --         --        (312)      (312)
                                   --------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1998          $4,808      $48      $12,512          $0     $8,797    $21,357
                                   ========= ======== ============ =========== ========== ==========
</TABLE>
    The accompanying notes are an integral part of these
              consolidated financial statements
<PAGE>
 
 
                        INPUT SOFTWARE, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (in thousands)
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                               --------------------------------
                                                  1998       1997       1996
                                               ---------- ---------- ----------
<S>                                            <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss)                                ($312)    $1,081    ($1,163)
  Adjustments to reconcile net income
  (loss) to net cash used in operating
  activities:
     Depreciation and amortization                   669        383        259
     Discontinued operations                      15,286       (988)     7,366
     Deferred income taxes                           (28)      (353)      (389)
  (Increase) decrease in assets and
   liabilities:
     Accounts receivable                          (1,544)    (1,318)    (1,013)
     Other assets                                   (583)      (315)     1,581
     Accounts payable                                189        160        161
     Accrued compensation and related
      liabilities                                    506        171        218
     Accrued liabilities and deferred
      revenue                                      1,055      1,432      1,319
                                               ---------- ---------- ----------
         Net cash provided by (used
           in) operating activities               15,238        253      8,339
                                               ---------- ---------- ----------
Cash flows from investing activities:
  Purchase of marketable securities                 --         --       (4,595)
  Maturities of marketable securities               --         --       10,365
  Property and equipment additions                  (821)      (230)    (1,068)
                                               ---------- ---------- ----------
         Net cash provided by (used in)
           investing activities                     (821)      (230)     4,702
                                               ---------- ---------- ----------
Cash flows from financing activities:
  Common stock received from Pegasus sale           --         (332)      --
  Repurchase of common stock                     (12,624)    (6,457)      --
  Net proceeds from issuance of common stock         370        564        774
                                               ---------- ---------- ----------
         Net cash provided by (used
           in) financing activities              (12,254)    (6,225)       774
                                               ---------- ---------- ----------
Net increase (decrease) in cash and
   cash equivalents                                2,163     (6,202)    13,815
Cash and cash equivalents at beginning of year    12,284     18,486      4,671
                                               ---------- ---------- ----------
Cash and cash equivalents at end of year         $14,447    $12,284    $18,486
                                               ========== ========== ==========
Supplemental cash flow disclosures:
Cash paid during the year for taxes                ($997)    $1,203       $287
Tax benefit from disqualifying dispositions         --          $49        $46
Unrealized holding gain (loss) on marketable
   securities, net                               $   --     $   --         $30
</TABLE>
    The accompanying notes are an integral part of these
             consolidated financial statements.
<PAGE>
 
 
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.      Business of the Company:
 
         Input Software, Inc. and subsidiaries (the "Company") develops,
markets, and services information capture software that helps automate
and manage the input of external information into an organization's
internal computing systems.  On September 8, 1998 the Company sold its
display division to its management (see note 3).  Accordingly, the
operating results and net assets of the display division have been
segregated from continuing operations and reported as separate line
items on the statements of operations and balance sheets.
 
2.      Summary of Significant Accounting Policies:
 
        Principles of Consolidation:
        The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Input Software GmbH, Input
Software (UK) Ltd, and Cornerstone Technology International, Inc.  All
significant intercompany accounts and transactions have been eliminated.
 
Restatement and Reclassifications:
        The financial statements have been restated for the effects of the
discontinued operations of the display division (see note 3).  Certain
reclassifications have been made to prior years financial statements to
conform with the 1998 presentation.
 
        Use of Estimates:
        The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period.  Actual results could differ from those
estimates.
 
        Certain Risks and Concentrations:
        The Company's products are concentrated in the data capture and
document management industry which is highly competitive and rapidly
changing.   Significant technological changes in the industry, including
changes in computing platforms, changes in customer requirements, the
infringement of proprietary patent, or the emergence of a major direct
competitor could affect operating results adversely.  In addition, a
significant portion of the Company's revenue derives from international
sales.  Fluctuations of the U.S. dollar against foreign currencies or
local economic conditions could adversely affect operating results.
 
        Property and Equipment:
        Property and equipment are stated at cost and depreciated on a
straight-line basis over estimated useful lives of three years.
Leasehold improvements are recorded at cost and depreciated on a
straight-line basis over the lesser of their useful lives or the related
lease term.
 
        Revenue Recognition:
 
        Revenue is generated from four primary sources: licensing of
product, royalties, software maintenance, and professional services.
Product licensing and royalty revenue is recognized upon shipment if a
signed agreement exists, the fee is fixed and determinable, collection
of invoice amounts are probable, and product returns are reasonably
estimable. Maintenance revenue for ongoing customer support and product
updates is recognized ratably over the period of the maintenance
contract.  Payments for such are generally made in advance and are non-
refundable.  Professional service revenue is recognized as services are
provided.
 
        Advertising:
        The Company expenses the costs of advertising as the expenses are
incurred.  The costs of advertising consist primarily of magazine
advertisements, brochures, other direct production costs.  Costs
associated with trade shows are charged to expense upon completion of
the trade show.  The advertising and related promotional expense for the
years ended December 31, 1998, 1997, and 1996 was $722,000, $634,000,
and $479,000 respectively.
 
        Income Taxes:
        Income taxes are accounted for under the liability method.  Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
 
        Computation of Net Income (Loss) Per Common Share:
        The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earning Per Share (SFAS 128), which
requires the presentation of basic and diluted EPS.  Basic EPS is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for that period.
Diluted EPS is computed giving effect to all dilutive potential common
shares that were outstanding during the period.  Dilutive potential
common shares consist of incremental common shares issuable upon
exercise of stock options, warrants and convertible securities for all
periods.
 
        In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows:
 
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                    --------------------------------
                                                       1998       1997       1996
                                                    ---------- ---------- ----------
<S>                                                 <C>        <C>        <C>
Net income (loss)                                       ($312)    $1,081    ($1,163)
  (numerator)
 
Shares used in basic EPS calculations
  (denominator)                                         5,657      7,248      7,548
 
Dilutive effect of stock options                          --          37        --
 
Shares used in diluted EPS calculations                 5,657      7,285      7,548
 
Basic EPS                                              ($0.06)     $0.15     ($0.15)
 
Diluted EPS                                            ($0.06)     $0.15     ($0.15)
</TABLE>
 
        Concentration of Credit Risk:
        The Company sells its products primarily in North America and
Europe.  The Company performs ongoing credit evaluations of its
customers and generally does not require collateral.  The Company
maintains reserves for potential credit losses which have been within
management's expectations.    Substantially all cash and cash
equivalents are held by one bank.
 
        Concentration of Credit Risk:
        In accordance with Statement of Financial Accounting Standard No.
52, "Foreign Currency Translation", the assets and liabilities
denominated in foreign currency are translated into U.S. dollars at the
current rate of exchange existing at period end.  Gains and losses
resulting from foreign exchange transactions are included in results of
operations.
 
        Statement of Cash Flows:
        The Company considers all highly liquid investments with an
original maturity from date of purchase of three months or less to be
cash equivalents.
 
        Recent Pronouncement:
        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.
 
     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 does not expect that the adoption of this statement will
have a material impact.
 
        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.
 
3.      Discontinued Operations
 
        On September 8, 1998 the Company sold its display division to its
current management team.  The business now operates as a private company
named Cornerstone Peripherals Technology, Inc. ("CPT")  Under the terms
of the sale the Company sold certain assets and transferred certain
liabilities associated with the display division.  The Company retained
certain assets, primarily accounts receivable and some inventory, which
were substantially converted to cash by December 31, 1998.  The Company
holds a minority equity interest in CPT.  Accordingly, the operating
results and net assets of the display division have been segregated from
continuing operations and reported separately on the financial
statements (see note 6).
 
4.   Balance Sheet Components (in thousands):
 
 
 
        Property and equipment:           1998      1997
                                        --------- ---------
     Office equipment and machinery       $1,832    $1,541
     Software                                188        70
     Leasehold improvements                  444     1,710
                                        --------- ---------
                                           2,464     3,321
     Less accumulated depreciation
        and amortization                  (1,256)   (2,265)
                                        --------- ---------
                                          $1,208    $1,056
                                        ========= =========
 
        Depreciation expense was approximately $669,000, $383,000, and
$259,000 in 1998, 1997, and 1996 respectively
 
5.      Commitments and Contingency:
 
        Commitments
 
        The Company has entered into various operating leases for their
facilities and sales offices.  Future rental commitments under these
operating leases are as follows (in thousands):
 
Year ended December 31,
 
     1999                                 $1,103
     2000                                    988
     2001                                  1,028
     2002                                  1,069
     2003                                  1,112
     Subsequent years                        192
                                        ---------
      Total                               $5,492
                                        =========
 
        Rent expense was approximately $409,000, $204,000, and $209,000 in
1998, 1997, and 1996, respectively.
 
 
6.  Financial Information for the Display Division
 
 
Operating results of the discontinued display division are as follows:
 
<TABLE>
<CAPTION>
                                     Year Ended December 31,
                               -------------------------------
                                 1998       1997       1996
                               ---------  ---------  ---------
<S>                            <C>        <C>        <C>
Revenue                         $16,510    $79,614    $89,757
Net income (loss)                  (361)       687        286
 
 
Assets and liabilities:
                                 1998       1997
                               ---------  ---------
Accounts receivable                  --    $12,941
Inventory                            --    $10,933
Equipment                            --     $1,460
Other Assets                     $1,138       $195
                               ---------  ---------
Total assets                     $1,138    $25,529
 
Accounts payable                     --     $6,146
Accrued Warranty                     --     $1,931
Deferred revenue                     --       $360
Accrued Liabilities                $962     $1,630
                               ---------  ---------
Total liabilities                  $962    $10,067
 
Net Assets                         $176    $15,462
                               =========  =========
</TABLE>
 
 
7.      Stockholders' Equity:
 
        Preferred Stock:  The Board of Directors is authorized to
determine the price, rights, preferences, privileges and restrictions
(including voting rights) of preferred stock without any further vote or
action by the stockholders.  The Board is also authorized to increase or
decrease the number of shares of any series.  At December 31, 1998,
there were 2,000,000 shares of $.01 par value preferred stock
authorized.  No preferred shares were issued and outstanding at December
31, 1998, 1997, or 1996.
 
        Employee-Stock Purchase Plan:  The Board of Directors has reserved
330,000 shares of common stock for issuance under the 1993 Employee
Stock Purchase Plan and 100,000 shares for issuance under the 1998
Employee Stock Purchase Plan .  Employees may elect to have the Company
withhold up to 10% of their compensation for the purchase of the
Company's common stock.  The amounts withheld are used to purchase the
Company's common stock at a price equal to 85% of the fair market value
of the stock on the first day of a two-year offering or the last day of
a six-month purchase period, whichever is lower.  The number of shares
employees may purchase is subject to certain limitations.
 
        Stock-Option Plan:  The Company has established the 1993 Stock
Option/Stock Issuance Plan.  As amended, the Plan authorizes the
issuance of up to 2,674,852 shares of common stock over the term of the
Plan, pursuant to the grant of incentive stock and non-qualified stock
options and the direct issuance of shares to eligible employees,
independent consultants and non-employee directors.
 
        Under the Plan, the exercise price per share is determined by the
Compensation Committee.  The exercise price of an incentive option
cannot be less than 100% of the fair market value of the common stock on
the grant date and the exercise price of a non-qualified option cannot
be less than 85% of such fair market value.  Options generally vest over
four years and are exercisable for a term of ten years.   In May 1996,
the Company's Board of Directors approved the grant of new options in
cancellation of previously granted options with exercise prices greater
than the current fair value of the Company's common stock.  The newly
granted options are exercisable at the fair value of the Company's
common stock at the date of the grant and will vest over periods up to
four years based in part on the original vesting commencement date.
 
      Activity  during  the years ended December 31, 1998, 1997, and
1996 is as follows (in thousands except the per share amounts):
<TABLE>
<CAPTION>
                                                      Options Outstanding
                                       -------------------------------------------
                             Shares                                       Weighted-
                            Available  Number                             average
                              for        of                               Exercise
                             Grant     Shares    Price Per Share Amount    Price
                            --------   ------- ---------------- --------- --------
<S>                         <C>        <C>     <C>              <C>       <C>
Balance, December 31, 1995       24     1,278   $0.40 - $25.25    16,591    12.99
 
   Plan Amendment               500
   Options granted           (1,396)    1,396   $5.50 - $18.00    12,300     8.81
   Options canceled             978      (978)  $1.60 - $25.20   (14,476)   14.80
   Options exercised                     (127)  $0.40 -  $8.63      (173)    1.37
   Options expired              174      (174)  $1.60 - $20.25    (2,642)   15.14
                            --------   -------                  ---------
Balance, December 31, 1996      280     1,395   $0.40 - $18.50    11,600     8.32
 
   Plan Amendment               400
   Options granted           (1,068)    1,068   $4.63 -  $9.25     7,325     6.86
   Options canceled             427      (427)  $5.60 - $15.25    (3,554)    8.31
   Options exercised                      (53)  $0.40 -  $8.63      (115)    2.18
   Options expired               88       (88)  $3.00 - $15.25      (759)    8.66
                            --------   -------                  ---------
Balance, December 31, 1997      127     1,895   $0.40 - $16.25   $14,497     7.65
 
   Plan Amendment               200
   Options granted             (523)      523   $4.69 -  $7.75     3,471     6.64
   Options canceled             540      (540)  $1.60 - $15.25    (4,096)    7.59
   Options exercised                       (2)  $1.39 -  $5.94       (12)    5.42
                            --------   -------                  ---------
Balance, December 31, 1998      344     1,876   $1.39 - $15.75   $13,860     7.39
                            ========   =======                  =========
</TABLE>
 
        During 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation (SFAS No.
123).  This standard, which establishes a fair value-based method for
stock-based compensation plans, also permits an election to continue
following the requirements of APB Opinion No. 25, Accounting for Stock
Issued to Employees, with disclosures of pro-forma net income and
earnings per share under the new method.  The Company continues to
follow the requirements of APB Opinion No. 25, with disclosure of pro-
forma information concerning its stock option and employee stock
purchase plans in accordance with SFAS No. 123 .
 
        The following table summarizes information about the Company's stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                          Options Oustanding             Options Exercisable
                  ----------------------------------  -----------------------
                               Weighted
                    Number      Average    Weighted      Number     Weighted
                  Outstanding  Remaining   Average    Exercisable   Average
    Range of         as of    Contractual  Exercise      as of      Exercise
 Exercise Prices   12/31/98   Life (Years)  Price       12/31/98     Price
----------------  ----------- ----------- ----------  ------------ ----------
<S>               <C>         <C>         <C>         <C>          <C>
                    (000s)                               (000s)
 $1.39 -  $5.00          309         8.8      $4.97           108      $4.91
 $5.06 -  $6.00          171         8.5       5.66            34       5.65
 $6.13 -  $7.00          176         9.4       6.59             9       6.80
 $7.06 -  $8.00          474         8.8       7.55            94       7.84
 $8.25 -  $9.50          711         7.5       8.61           449       8.61
$13.50 - $15.75           35         5.5      14.14            27      14.11
                  -----------                         ------------
                       1,876         8.3      $7.39           721      $8.01
                  ===========                         ============
</TABLE>
 
        Fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1998, 1997, and 1996:
 
 
                                             1998       1997         1996
                                           ---------  ---------  ---------
   Risk-free interest rates                    5.17%      6.12%      6.15%
   Expected life                           3.5 years  3.8 years  3.6 years
   Volatility                                    66%        66%        66%
   Dividend yield                              --         --         --
 
 
      The weighted average fair value of those options granted in 1998, 1997,
1996 was $3.36, $3.53 and $2.80, respectively. The Company has also estimated
the fair value for the purchase rights issued under the Company's Employee Sto
Plan, under the Black-Scholes valustion model using the following assumptions
1997, and 1996:
 
 
                                             1998       1997       1996
                                           ---------  ---------  ---------
   Risk-free interest rates                    5.17%      5.32%      5.46%
   Expected life                            0.50 years 0.50 years 0.50 years
   Volatility                                    66%        66%        66%
   Dividend yield                              --         --         --
 
      The weighted average fair value of those purchase rights
granted in 1998, 1997 and 1996 was $2.51, $6.11 and $2.58, respectively.
 
      The  following pro forma income information  has  been prepared
following  the provisions of SFAS No. 123 (in thousands except per
share data):
                                             1998       1997       1996
                                           ---------  ---------  ---------
   Net income (loss)- proforma              ($1,864)   ($1,238)   ($4,036)
   Basic EPS - proforma                      ($0.33)    ($0.17)    ($0.53)
   Diluted EPS - proforma                    ($0.33)    ($0.17)    ($0.53)
 
      The  above  pro  forma effects on income  may  not  be
representative of the effects on net income for future years as  option
grants  typically vest over  several  years  and additional options are
generally granted each year.
 
8.      Significant Customers and Export Revenues:
 
     The Company has adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information, " effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", SFAS No.
131 changes current practice under SFAS No. 14 by establishing a new
framework on which to base segment reporting and introduces requirements
for interim reporting of segment information.
 
     The Company has determined that it has a single reportable segment
consisting of the development, marketing and servicing of information
capture software. Management uses one measurement of profitability and
does not disaggregate its business for internal reporting. Operations
outside the United States primarily consist of sales offices in United
Kingdom and Germany, responsible for the sales activities to foreign
customers,  invoiced by the Company's headquarters in the United
States. The foreign  subsidiaries do not carry any significant
long-live assets, and income  and assets of the Company's foreign
subsidiaries were not significant. Revenue from external customers by
geographic area for each of the three fiscal periods:
 
<TABLE>
<CAPTION>
                                   1998       1997       1996
                               ---------  ---------  ---------
<S>                            <C>        <C>        <C>
US                              $12,866     $9,768     $6,077
   % of total                      74%      80%      86%
International                     4,543      2,472      1,013
   % of total                      26%      20%      14%
</TABLE>
 
        For the years ended December 31 1998, 1997, and 1996 no customer
accounted for more than 10% of the Company's revenues.
 
 
9.   Divestitures:
 
On February 4, 1997, the Company entered into an agreement to sell its
ownership interest in the Pegasus product line.  Under the terms of the
agreement the Company received 35,000 shares of the Input Software'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.
 
 
10.     Income Taxes:
 
     Income tax expense(benefit) consists of (in thousands):
 
                                     1998      1997      1996
                                   --------- --------- ---------
Current:
  Federal                               --       $444     ($247)
  State and local                         2       414       --
  Foreign                               --         47       152
                                   --------- --------- ---------
                                         $2      $905      ($95)
                                   --------- --------- ---------
Deferred:
  Federal                              $160     ($193)    ($185)
  State and local                        58      (143)     (204)
                                   --------- --------- ---------
                                       $218     ($336)    ($389)
                                   --------- --------- ---------
Total:
  Federal                              $160      $251     ($432)
  State and local                        60       271      (204)
  Foreign                               --         47       152
                                   --------- --------- ---------
                                       $220      $569     ($484)
                                   ========= ========= =========
 
      The Company's effective tax rate differs from the statutory
federal income tax rate as shown in the following schedule:
 
                                     1998      1997      1996
                                   --------- --------- ---------
Statutory federal income tax rate      34.0%     34.0%    -34.0%
State taxes                             5.7%      5.8%     -6.1%
Foreign taxes                           --        --        9.2%
Research and development credits       -3.7%      --        --
Foreign sales corporation               --        --        --
Tax exempt interest                     --       -1.0%     -2.2%
Change in valuation allowance           --        --        --
Other, net                             -4.9%     -4.2%      3.7%
                                   --------- --------- ---------
                                       31.1%     34.6%    -29.4%
                                   ========= ========= =========
 
       The components of the deferred tax asset (in thousands):
 
                                               1998      1997
                                             --------- ---------
Deferred tax assets:
  Provision for doubtful accounts                $223      $362
  Inventory reserves                              --      1,144
  State taxes                                     --        104
  Accrued liabilities                             483     1,354
  Depreciation and basis differences              949       950
  Net operating loss carryforwards              2,344       --
  Research & development tax
   credit carryforwards                           770     1,073
                                             --------- ---------
       Total deferred tax asset                $4,769    $4,987
                                             ========= =========
 
     At December 31, 1998, the Company had $653,521 of research and
development tax credits available to offset future U.S. federal income
tax.  These carryforwards expire in 2013.  For California franchise tax
purposes, the Company has research and development credit carryforwards
for $384,232.
 
11.     Employee Benefit Plan
 
        The Company provides a 401(K) Plan to its employees providing tax
deferred salary deductions for eligible employees.  Participants may
make voluntary contributions between 1% and 20% of their compensation
subject to certain annual maximums.  The Company matches 50% of employee
contributions with a maximum of $1,000 per employee.  The Plan provides
for additional Company contributions at its discretion.  Total
contributions made by the Company were  $157,000, $168,000, and $156,000
during 1998, 1997, and 1996, respectively.
 
 
12.       Stock Repurchases
 
        Since February  1997 through February, 1999, the Company's Board
of Directors has authorized the use of up to $25 million to repurchase
the Company's common stock.  Through December 31, 1998 the Company has
repurchased 2.9 million shares for a total of $19.1 million.  The
repurchased stock is expected to be held by the Company as treasury
stock to be used to meet the Company's obligations under its stock plans
and for other corporate purposes.  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 its purchases.
 
 
<PAGE>
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                REPORT OF INDEPENDENT ACCOUNTANTS
 
 To the Board of Directors and Stockholders of Input Software Inc.
 
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14 (a)(1) present fairly, in all material
respects, the financial position of Input Software Inc. and its
subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.  In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14 (a) (2)
present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.  These financial statements and financial statement
schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.  We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for the opinion expressed above.
 
PricewaterhouseCoopers LLP
San Jose, Calfornia
 
February 11, 1999
 
<PAGE>
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                        INPUT SOFTWARE, INC.
 
      SCHEDULE II  -  VALUATION AND QUALIFYING ACCOUNTS
                             (in thousands)
 
                                          Additions
                              Balance at  Charged to               Balance
                              beginning   costs and                 at end
Description                    of year     expenses   Write-Offs   of year
----------------------------  ----------  ----------  ----------  ----------
Year ended December 31, 1998
   Allowance for bad debt          $409        $207        ($57)       $559
 
Year ended December 31, 1997
   Allowance for bad debt          $175        $249        ($15)       $409
 
 
Year ended December 31, 1996
   Allowance for bad debt           $50        $135        ($10)       $175
 
 
<PAGE>