<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


[X]    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

       FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934 FOR THE

       TRANSITION PERIOD FROM _____________ TO ___________



                        Commission File Number 000-23119

                           KOFAX IMAGE PRODUCTS, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                         33-0114967
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                          Identification No.)

      3 Jenner Street, Irvine, California                        92618
   (Address of principal executive offices)                    (Zip Code)

                                 (949) 727-1733
              (Registrant's telephone number, including area code)

                                      NONE
                     (Former name, former address and former
                   fiscal year, if changed since last report)


        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    No [ ]
                                             -----     ----

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practical date.

             Class                             Outstanding at October 30, 1998
 -----------------------------                 -------------------------------
 Common Stock, $.001 par value                        5,306,890 shares

<PAGE>   2

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

                                      INDEX

<TABLE>
<CAPTION>

 ITEM                                                                   PAGE          
NUMBER                                                                 NUMBER         
------                                                                 -----          
<S>                                                                      <C>          
PART I.      FINANCIAL INFORMATION                                                    
                                                                                      
ITEM 1.      Condensed Consolidated Financial Statements                              
                                                                                      
             Balance Sheets - September 30, 1998                                      
                 (unaudited) and June 30, 1998.........................   3 
                                                                                      
             Statements of Operations (unaudited) - Three                             
                 Months Ended September 30, 1998 and 1997..............   4
                                                                                      
             Statements of Cash Flows (unaudited) - Three                             
                 Months Ended September 30, 1998 and 1997..............   5  
                                                                                      
             Notes to Condensed Consolidated Financial                                
                 Statements (unaudited)................................   6 
                                                                                      
ITEM 2.      Management's Discussion and Analysis of Financial                        
                 Condition and Results of Operations...................   8  
                                                                                      
                                                                                      
PART II.     OTHER INFORMATION                                                        
                                                                                      
ITEM 3.      Legal Proceedings.........................................  15
                                                                                      
ITEM 6.      Exhibits and Reports on Form 8-K..........................  15 
                                                                                      
             Signatures................................................  16
</TABLE>


                                       2

<PAGE>   3

                         PART I - FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

                      Condensed Consolidated Balance Sheets
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                        September 30,   June 30,  
                                                            1998          1998    
                                                        -------------   --------  
                                                         (unaudited)              
<S>                                                       <C>           <C>       
                         ASSETS                                                   
Current assets                                                                    
      Cash and cash equivalents                           $17,229       $16,522   
      Short-term investments                                4,969         4,343   
      Accounts receivable, net                              4,833         5,261   
      Inventory (Note 2)                                    1,471         1,565   
      Prepaid expenses and other current assets             1,021           948   
                                                          -------       -------   
Total current assets                                       29,523        28,639   
Property and equipment, net                                 1,722         1,740   
Deferred income taxes                                       1,343         1,343   
Other assets                                                  323           393   
                                                          -------       -------   
Total assets                                              $32,911       $32,115   
                                                          =======       =======   
                                                                                  
                                                                                  
          LIABILITIES AND STOCKHOLDERS' EQUITY                                    
                                                                                  
Current liabilities                                                               
      Accounts payable                                    $   885       $ 1,207  
      Accrued liabilities:                                                        
         Compensation                                         982         1,237   
         Deferred revenue                                     610           588   
         Other                                              2,167         1,458   
                                                          -------       -------   
Total current liabilities                                   4,644         4,490   
Stockholders' equity                                                              
                                                                                  
      Common stock, $.001 par value, 40,000,000                                   
        shares authorized; 5,300,415 and 5,307,416                                
        shares outstanding at September 30, 1998 and                              
        June 30, 1998, respectively                        17,161        17,125   
      Retained earnings                                    11,901        11,136   
                                                                                  
      Treasury stock, 120,326 and 100,000 shares                                  
        at cost at September 30, and June 30, 1998,                               
        respectively                                         (795)         (636)  
                                                          -------       -------   
Total stockholders' equity                                 28,267        27,625   
                                                          -------        ------   
Total liabilities and stockholders' equity                $32,911       $32,115   
                                                          =======       =======   
</TABLE>

                   The accompanying notes are an integral part
                         of these condensed consolidated
                              financial statements.


                                       3
<PAGE>   4

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

                 Condensed Consolidated Statement of Operations
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                            September 30,
                                                          ------------------
                                                           1998        1997
                                                          ------      ------
                                                       (unaudited)  (unaudited)
<S>                                                       <C>         <C>   
     Net sales                                            $8,653      $7,851
     Cost of sales                                         1,956       1,861
                                                          ------      ------
     Gross profit                                          6,697       5,990
     Operating expenses:
        Sales and marketing                                2,732       2,491
        Research and development                           2,097       1,879
        General and administrative                           749         602
                                                          ------      ------
           Total operating expenses                        5,578       4,972
                                                          ------      ------
     Income from operations                                1,119       1,018
     Other income, net                                       290          50
                                                          ------      ------
     Income before provision for income taxes              1,409       1,068
     Provision for income taxes                              543         411
                                                          ------      ------
     Net income                                           $  866      $  657
                                                          ======      ======

     Basic net income per share (Note 3)                  $ 0.16      $ 0.43
                                                          ======      ======

     Basic weighted average common shares (Note 3)         5,296       1,332
                                                          ======      ======

     Diluted net income per share (Note 3)                $ 0.16      $ 0.16
                                                          ======      ======

     Diluted weighted average common shares (Note 3)       5,416       4,103
                                                          ======      ======
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       4
<PAGE>   5

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             Three Months Ended 
                                                                September 30,
                                                             --------------------
                                                               1998        1997    
                                                             --------    --------  
                                                           (unaudited)  (unaudited)
<S>                                                          <C>         <C>       
Cash flows from operating activities:                                              
   Net income                                                $    866    $    657  
   Adjustments to reconcile net income to net cash                                 
      provided by operating activities:                                            
         Depreciation and amortization                            358         379  
         Changes in operating assets and liabilities:                              
           Accounts receivable                                    428        (342) 
           Inventory                                               94        (135) 
           Other current assets                                   (73)       (191) 
           Accounts payable                                      (322)        156  
           Other current liabilities                              476          35  
                                                             --------    --------  
              Net cash provided by operating activities         1,827         559  
                                                             --------    --------  
                                                                                   
Cash flows from investing activities:                                              
   Purchases of property and equipment                           (281)       (210) 
   Decrease in other assets                                        11          42  
   Increase in short-term investments                            (626)       (105) 
                                                             --------    --------  
              Net cash used in investing activities              (896)       (273) 
                                                             --------    --------  
                                                                                   
Cash flows from financing activities:                                              
   Principal payments on notes payable                             --         (98) 
   Net proceeds from issuance of common stock                     120          39  
   Repurchase of common stock                                    (344)          0  
                                                             --------    --------  
              Net cash used in financing activities              (224)        (59) 
                                                             --------    --------  
                                                                                   
Net increase in cash and cash equivalents                         707         227  
Cash and cash equivalents, beginning of period                 16,522         801  
                                                             --------    --------  
Cash and cash equivalents, end of period                     $ 17,229    $  1,028  
                                                             ========    ========  
Supplemental disclosure of cash flow information:                                  
   Interest paid                                             $     --    $     19  
                                                             ========    ========  
   Income taxes paid                                         $     --    $     14  
                                                             ========    ========  
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       5
<PAGE>   6

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Kofax Image Products, Inc.
and subsidiary (the "Company") presented herein have been prepared pursuant to
the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1998, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1998.

The condensed consolidated financial statements and notes herein are unaudited,
but in the opinion of management, include all the adjustments (consisting only
of normal, recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company and its
subsidiary. The results of operations for the interim periods shown herein are
not necessarily indicative of the results to be expected for any future interim
period or for the entire year.

2. INVENTORIES

Inventories, which include material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:

                          SEPTEMBER 30, 1998      JUNE 30, 1998 
                          ------------------      ------------- 
   Raw materials                 $  727                $  827   
   Work-in-process                  491                   511   
   Finished goods                   253                   227   
                                 ------                ------   
                                 $1,471                $1,565   
                                 ======                ======   

3. NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE

Effective December 27, 1997, the Company adopted SFAS No. 128, "Earnings per
Share," which changes the method used to calculate earnings per share and to
restate all prior periods. The new requirements include a calculation of basic
earnings per share, from which the dilutive effect of stock options is excluded,
and a calculation of diluted earnings per share.

The Company believes that diluted net income per share provides the most
meaningful comparison between periods.


                                       6
<PAGE>   7

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

4. CHANGES IN ACCOUNTING PRINCIPLES

Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. The only item of
comprehensive income for the quarter ended September 30, 1998 is a loss of
$101,300 on reissuance of treasury stock. The Company had no material items of 
other comprehensive earnings for the quarter ended September 30, 1997.

Effective July 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition". In prior periods the Company recognized software
revenue in accordance with AICPA Statement of Position 91-1. Statement of
Position 97-2 has not had a material effect on the Company's revenue recognition
policies.

5. RECENT ACCOUNTING PRONOUNCEMENT

For the years beginning after July 1, 1998, the Company will adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company is reviewing the impact of this statement on its financial statements,
and does not believe this statement will have a material adverse effect on its
financial statements.


                                       7
<PAGE>   8

                    KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The discussion in this Form 10-Q contains trend analysis and other
forward-looking statements regarding the Company, its business, prospects and
results of operations that are subject to certain risks and uncertainties posed
by many factors and events that could cause the Company's actual business,
prospects and results of operations to differ materially from those that may be
anticipated by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, (i) uncertainty
of future operating results, (ii) fluctuations in quarterly operating results,
(iii) dependence on a limited number of products for current and future
operating results, (iv) dependence on imaging, workflow and document management
market and component software strategy, (v) rapid technological change, (vi) the
impact of competition, (vii) dependence on intellectual property and proprietary
rights, (viii) risks associated with international sales, (ix) dependence on
scanner manufacturers, and (x) risks associated with acquisitions, as well as
those discussed under the caption "Factors That May Affect Future Operating
Results" in the Company's Annual Report on Form 10-K for the year ended June 30,
1998. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
factors that may affect the Company's business.

OVERVIEW

Kofax Image Products was founded in 1985 to develop image processing accelerator
boards that could be added to PCs and other desktop workstations to facilitate
high-speed scanning, compression, manipulation and printing of document images.
The products were targeted at the emerging market of document image processing.

Today Kofax develops, markets and supports three product lines for imaging,
workflow and document management applications. The fastest growing products are
software applications that manage the capture and long-term storage of documents
for production level workflow and document management systems. Substantially all
of the Company's revenue growth in fiscal years 1998 and 1997 was generated from
the Company's Ascent software business. During fiscal 1998 the Company signed
and trained over 150 new Ascent resellers focused on workflow and document
management solutions. The original image processing hardware and development
tools business, which is in its fourth generation, currently generates gross
margins of 


                                        8
<PAGE>   9

approximately 70% and continues to generate a significant portion of the
Company's profits. Revenue from the Company's family of image processing boards
and development tools has grown modestly over the past two years, and the
Company expects that to continue for the foreseeable future. The Company
believes that the accelerator board and development tools business will continue
to account for a majority of the Company's net sales for the next two to three
years. The Company also expects that its Ascent software products, together with
other products under development, will contribute an increasing share of the
Company's net sales in the future.

The Company sells its products primarily through a two-tier channel of stocking
distributors and solution providers, such as system integrators and value-added
resellers (VARs). The Company typically ships its products within a short period
after acceptance of purchase orders from distributors and other customers.
Accordingly, the Company typically does not have a material backlog of unfilled
orders at the end of any quarter. Revenues from hardware and software sales are
currently recognized at the time of shipment in accordance with AICPA Statement
of Position 97-2, Software Revenue Recognition. Distributors have certain rights
of return and exchange privileges. The Company's distributors generally do not
stock significant amounts of inventory of the Company's products, as these
products are typically incorporated by resellers into complete imaging and
document management systems which are configured shortly before scheduled
delivery to end-user customers. The Company records estimates for such rights of
return and exchange privileges based on historical experience. The Company
provides a warranty for its products against defects in materials and
workmanship. A provision for estimated warranty costs is recorded at the time of
sale. Payments under maintenance contracts are due at the beginning of the
contract; however, revenue is recognized ratably over the term of the contract
which is typically twelve months.


                                       9
<PAGE>   10

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

The following table sets forth certain income and expense items as a percentage
of net sales for the periods indicated.

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                       September 30,
                                                     -----------------
                                                      1998        1997
                                                     -----       -----
<S>                                                  <C>         <C>   
     Net sales                                       100.0%      100.0%
     Cost of sales                                    22.6        23.7
                                                     -----       -----
     Gross profit                                     77.4        76.3
     Operating expenses:
        Sales and marketing                           31.5        31.7
        Research and development                      24.2        23.9
        General and administrative                     8.7         7.7
                                                     -----       -----
           Total operating expenses                   64.4        63.3
                                                     -----       -----
     Income from operations                           13.0        13.0
     Other income, net                                 3.3         0.6
                                                     -----       -----
     Income before provision for income taxes         16.3        13.6
     Provision for income taxes                        6.3         5.2
                                                     -----       -----
     Net income                                       10.0%        8.4%
                                                     =====       =====
</TABLE>

        NET SALES. Net sales represent gross sales less discounts, returns and
adjustments. Net sales were $8.7 million and $7.9 million in the quarters ended
September 30, 1998 and 1997, respectively, an increase of 10.2%. This revenue
increase was primarily attributable to increased sales of the Company's Ascent
component application software products and the conversion to the company's new
family of image processing accelerator boards. Revenues from the Ascent software
business increased 26% in the September quarter over the same period last year.
As a result, total software revenue in the first quarter grew 26% and increased
to 30% of total revenues compared to 26% in the same period last year.

        International sales (primarily to Western European countries) accounted
for 31.3% and 32.4% of net sales in the quarters ended September 30, 1998 and
1997, respectively. International sales increased 6.3%, in absolute dollars,
over the same period last year. Management expects that the Company's
international operations will continue to provide a significant portion of total
net sales; however, international sales could be adversely affected if the U.S.
dollar continues to strengthen against international currencies. To date the
Company has not had any exposure to foreign currency fluctuations. The adoption
of the "Euro" by the European community in 1999 may lead the Company to transact
its European sales in "Euros", which may result in the realization of foreign
exchange gains or losses in the future.

        GROSS PROFIT. Cost of sales primarily consist of the costs of components
and subassemblies, labor and manufacturing overhead and, with respect to the
Company's software products, software 


                                       10
<PAGE>   11

duplication and royalty expenses. The Company believes that its gross margins
reflect the high content of proprietary firmware in the Company's hardware
accelerator boards as well as the increasing percentage of total software
revenue in the Company's product mix. Gross profit was 77.4% and 76.3% of net
sales in the quarters ended September 30, 1998 and 1997, respectively.
Substantially all of the increase in gross profit percentage in the September
quarter was attributable to the Company's increased software revenues and the
declining costs of components used in the Company's accelerator boards.

        SALES AND MARKETING. Sales and marketing expenses, which consist
primarily of salaries and commissions, customer support, trade shows,
advertising and other promotional expenses, were $2.7 million and $2.5 million,
and 31.5% and 31.7% of net sales, in the quarters ended September 30, 1998 and
1997, respectively. The increases in absolute dollar amounts in the first
quarter of fiscal 1999 was primarily attributable to increased marketing
personnel, and increased marketing expenses related to the launch of the Version
4 release of Ascent Storage. The Company expects that sales and marketing
expenses will continue to increase in absolute dollar amounts and will fluctuate
as a percentage of net sales.

        RESEARCH AND DEVELOPMENT. Research and development expenses, which
consist primarily of personnel costs and related occupancy expenses, were $2.1
million and $1.9 million, and 24.2% and 23.9% of net sales, in the quarters
ended September 30, 1998 and 1997, respectively. The increase in the first
quarter of fiscal 1999 was primarily attributable to increased engineering
staffing and compensation expenses. The Company expects that research and
development expenses will continue to increase in absolute dollar amounts and
will fluctuate as a percentage of net sales, depending upon the timing of
material research and product development projects.

        Despite the fact that the Company's net sales have increased, research
and development expenses as a percentage of net sales have continued to increase
because of ongoing research and development and the continued development of its
Ascent application software products.

        GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
of personnel costs for administration, finance, information systems, human
resources and general management, as well as professional services. General and
administrative expenses were $0.8 million and $0.6 million, and 8.7% and 7.7% of
net sales, in the quarters ended September 30, 1998 and 1997, respectively. The
increase in the first quarter of fiscal 1999 was primarily attributable to the
increased expenses related to the administrative requirements of being a public
company. The Company anticipates that it will incur increased general and
administrative costs in the future related to the additional insurance and
administrative requirements of a public company.

                                       11
<PAGE>   12

        OTHER INCOME, NET. Other Income, net consists primarily of interest
income earned on the Company's cash and cash equivalents and short-term
investments less interest expense on the Company's note payable. As a result of
the initial public offering of the Company's stock, interest expense on bank
borrowing was eliminated due to repayment of the previously outstanding bank
term loan. Interest income was also higher as a result of investing the proceeds
from the offering.

        PROVISION FOR INCOME TAXES. The Company's effective tax rate was 38.5%
for the periods ended September 30, 1998 and 1997. The Company expects the
effective tax rate to decline to approximately 35% for the remainder of fiscal
year 1999, as a result of the recent extension of the federal R&D tax credit
through June 30, 1999.

        YEAR 2000 ISSUES. It is possible that the currently installed computer
systems, software products or other business systems of the Company's
distributors, resellers, suppliers, manufacturers or customers, working either
alone or in conjunction with other software systems, will not accept input of,
store, manipulate and output dates in the Year 2000 or thereafter without error
or interruption (the "Year 2000 Problem"). The Company's software products do
not have any material Year 2000 Problems. In addition, the Company has completed
a review of its business systems, including its computer systems, and based on
information gathered to date, has determined that such systems are also not
subject to any material Year 2000 Problems. The Company's expenditures for Year
2000 review and testing have not been significant to date, and the Company does
not believe it will incur any material expenses related to future review,
testing, or remediation of Year 2000 problems. The Company is querying its
distributors, resellers, suppliers, manufacturers and customers as to their
progress in identifying and addressing Year 2000 Problems. The failure of the
Company or its distributors, resellers, suppliers, manufacturers and customers
to complete the conversions or upgrades necessary to fully address the Year 2000
Problem in a timely manner could have material adverse effect on the Company's
business, results of operations, cash flows and financial condition.

        The Company's past operating results have been, and its future operating
results will be, subject to fluctuations due to a number of factors, including
the timing of orders from, and shipments to, major customers; the timing of new
product introductions by the Company or its competitors; variations in the mix
of products sold by the Company; changes in pricing policies by the Company, its
competitors or suppliers, including possible decreases in average selling prices
of the Company's products in response to competitive pressures; product returns
or price protection charges from 


                                       12
<PAGE>   13

customers; market acceptance of new and enhanced versions of the Company's
products; the availability and cost of key components; the availability of
manufacturing capacity; delays in the introduction of new products or product
enhancements by the Company, the Company's competitors or other providers of
hardware, software and components for the imaging, workflow and document
management market; dependence upon capital spending budgets; and fluctuations in
general economic conditions. As a result, the Company believes that
period-to-period comparisons of its results of operations should not be relied
upon as indications of future performance.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1998, combined cash, cash equivalents, and short-term
investments totaled $22.2 million, an increase of $1.3 million from June 30,
1998. Net cash provided by operating activities was $1.8 million, and was
generated primarily from net income, depreciation and amortization, and a
reduction in accounts receivable. Net cash used in investing activities was $0.9
million for capital expenditures and additions to short term investments. Net
cash used in financing activities was $0.2 million, primarily as a result of the
repurchase of 50,000 shares of the Company's common stock.

The Company financed its operations and capital requirements from 1986 through
1989 from the sale of approximately $4.0 million of preferred stock and,
thereafter, through cash flow from operations. In October 1997, the Company
completed its initial public offering selling 1,300,000 shares of its common
stock, and received net proceeds, after subtracting expenses incurred in the
offering, of approximately $12.6 million, $0.7 million of which was used to
repay outstanding indebtedness.

The Company has an unsecured $2.0 million revolving credit line with Silicon
Valley Bank (the "Bank") and as of September 30, 1998 had no outstanding balance
under the revolving line of credit. The revolving line of credit expires in
January, 1999, and the Company intends to enter into negotiations with the Bank
for the renewal of the line of credit. The line of credit agreement requires the
Company to maintain its primary banking relationship with the Bank while any
obligations to the Bank remain outstanding, prohibits the incurrence of
additional debt from sources other than the Bank, except for purchases or leases
of equipment up to $700,000, requires the Company to maintain certain tangible
net worth levels, and profitability levels, and restricts the payment of
dividends without the Bank's prior approval.

On April 24, 1998, the Company's board of directors authorized a program for
repurchase of up to 500,000 shares, or approximately 9.5%, of Kofax's
outstanding common stock, to be used to fund stock option exercises, employer
equity compensation plans, and an 


                                       13
<PAGE>   14

employee stock purchase plan. The Company has repurchased 150,000 shares of its
common stock to date, for approximately $1.0 million. Aside from this program,
the Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities leases.

The Company believes that its existing cash balances, its available bank
financing and the cash flows generated from operations, if any, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. A portion of the Company's cash
could be used to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. The Company is currently
evaluating, in the ordinary course of business, potential investments such as
businesses, products or technologies.

Quantitative and Qualitative Disclosures about Market Risk

At September 30, 1998, the Company had an investment portfolio of fixed income
securities, including those classified as cash equivalents, of approximately
$21.2 million. These securities are subject to interest rate fluctuations. An
increase in interest rates could adversely affect the market value of the
Company's fixed income securities.

As of September 30, 1998, the weighted average maturity of the Company's
portfolio was 98 days. The market value changes for increases in short-term
treasury security yields are not material due to the overall short-term maturity
of the Company's portfolio.

The Company limits its exposure to interest rate and credit risk by establishing
and strictly monitoring clear policies and guidelines for its fixed income
portfolios. At the present time, the maximum average maturity of the Company's
overall investment portfolio is limited by policy to 36 months. The guidelines
also establish credit quality standards, limits on exposure to one issue,
issuer, as well as the type of instrument. Due to the limited duration and
credit risk criteria established in the Company's guidelines, the exposure to
market and credit risk is not expected to be material. The Company does not use
derivative financial instruments in its investment portfolio to manage interest
rate risk.


                                       14
<PAGE>   15

                           PART II - OTHER INFORMATION

ITEM 3. LEGAL PROCEEDINGS

On September 26, 1997, VisionShape, Inc. ("VisionShape") filed suit against the
Company in the Superior Court of Orange County, California. VisionShape claims
that the Company's Adrenaline accelerator boards prevent the use of software
other than the Company's software, which, the complaint alleges, creates a
monopoly or otherwise constitutes a tying arrangement in violation of state and
federal antitrust laws. VisionShape seeks unspecified monetary damages and costs
as well as equitable remedies, including an order enjoining the Company from
selling its Adrenaline accelerator boards. VisionShape also seeks treble damages
and attorneys' fees. On May 27, 1998, the Superior Court held that VisionShape
failed to state a cause of action against the Company and ordered the suit
dismissed on July 15, 1998. VisionShape filed a notice of appeal on September
11, 1998. Based upon information currently available to the Company, the Company
believes VisionShape's claims are without merit and intends to contest
vigorously any action against the Company. However, it is too early to determine
the outcome of such appeal and there can be no assurance as to the eventual
outcome of such actions. Any determination against the Company in the litigation
or the settlement of such claims could have a material adverse effect on the
Company's business, results of operation, cash flows and financial condition.
The Company is not a party to any other material legal proceedings.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

                11.1 -- Computation of diluted net income per share

                27.1 -- Financial Data Schedule

    (b)  Reports on Form 8-K

                None.

Items 1, 2, 4, and 5 are not applicable and have been omitted.


                                       15
<PAGE>   16

                                   SIGNATURES

        Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                       KOFAX IMAGE PRODUCTS, INC.


Dated:   November 13, 1998             /s/ RONALD J. FIKERT
                                       -----------------------------------
                                       Ronald J. Fikert
                                       Chief Financial Officer
                                       (principal financial and accounting
                                       officer and duly authorized officer)


                                       16
<PAGE>   17

                                 EXHIBIT INDEX

Exhibit Number                          Description
--------------                          -----------

     11.1           Computation of diluted net income per share

     27.1           Financial Data Schedule