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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   Form 10-Q

(Mark one)
[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1999


                                       OR
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
        For the transition period from _______________ to ______________

                         Commission File Number 0-28672

                                  OPTIKA INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                                  95-4154552
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                   Identification No.)

        7450 Campus Drive, 2nd Floor                           80920
           Colorado Springs, CO                             (Zip Code)
  (Address of principal executive offices)

                                 (719) 548-9800
              (Registrant's telephone number, including area code)

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

            7,183,688 shares of the Registrant's Common Stock, $.001
           par value per share, were outstanding as of August 1, 1999



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<PAGE>
                                     INDEX


                                                                           PAGE

PART I - FINANCIAL INFORMATION

Item 1 -  Condensed Consolidated Financial Statements

    Condensed Consolidated Balance Sheets as of December 31, 1998 and
    June 30, 1999 (Unaudited)                                                 1

    Condensed Consolidated Statements of Operations for the three-month
    and six-month periods ended June 30, 1998 and 1999 (Unaudited)            2

    Condensed Consolidated Statements of Cash Flows for the six-month
    periods ended June 30, 1998 and 1999 (Unaudited)                          3

    Notes to Condensed Consolidated Financial Statements (Unaudited)          4

Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            5

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                                   16

Item 2 - Changes in Securities                                               16

Item 3 - Defaults on Senior Securities                                       16

Item 4 - Submission of Matters to a Vote of Security Holders                 16

Item 5 - Other Information                                                   16

Item 6 - Exhibits and Reports on Form 8-K                                    16

Signatures                                                                   17

<PAGE>
<TABLE>
<CAPTION>

                                  OPTIKA INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

                                                                             December 31,        June 30,
                                                                                 1998              1999
                                                                            ----------------  ---------------
                                                                                               (unaudited)
<S>                                                                         <C>               <C>
Assets
Current Assets:
   Cash and cash equivalents...........................................      $        6,811    $       3,768
   Short-term investments..............................................               1,000            3,852
   Accounts receivable, net............................................               4,571            3,460
   Other current assets................................................                 511              549
                                                                            ----------------  ---------------
         Total current assets..........................................              12,893           11,629
                                                                            ----------------  ---------------

Fixed assets, net......................................................               3,136            2,924
Deferred tax asset, net ...............................................               2,438            2,853
Other assets, net......................................................                  70              265
                                                                            ----------------  ---------------
                                                                             $       18,537    $      17,671
                                                                            ================  ===============
Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable....................................................      $          710    $         821
   Accrued expenses....................................................               1,446            1,232
   Accrued compensation expense........................................               1,206              886
   Deferred revenue....................................................               3,355            3,486
                                                                            ----------------  ---------------
          Total current liabilities....................................               6,717            6,425
                                                                            ----------------  ---------------

Commitments and contingencies
 Common stockholders' equity:
   Common stock; $.001 par value; 25,000,000 shares authorized;
      7,114,573 and 7,178,188 shares issued and outstanding
      at December 31, 1998 and June 30, 1999, respectively.............                   7                7
      Additional paid-in capital.......................................              17,617           17,751
      Accumulated deficit..............................................              (5,804)          (6,512)
                                                                            ----------------  ---------------
          Total common stockholders' equity............................              11,820           11,246
                                                                            ----------------  ---------------
                                                                             $       18,537    $      17,671
                                                                            ================  ===============
<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  OPTIKA INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)
                    (In thousands, except per share amounts)

                                                        Three Months Ended June 30,      Six  Months  Ended  June 30,
                                                       ----------------------------     -----------------------------
                                                               1998         1999              1998          1999
<S>                                                         <C>           <C>               <C>           <C>
Revenues:
   Licenses ......................................          $  1,843      $ 2,311           $ 4,091       $ 5,187
   Maintenance and other .........................             1,645        2,646             3,105         4,948
                                                            ---------     --------          --------      --------
      Total revenues .............................             3,488        4,957             7,196        10,135

Cost of revenues:
   Licenses ......................................                84          142               210           290
   Maintenance and other..........................               772          975             1,481         1,925
                                                            ---------     --------          --------      --------
      Total cost revenues ........................               856        1,117             1,691         2,215
                                                            ---------     --------          --------      --------

Gross profit .....................................             2,632        3,840             5,505         7,920

Operating expenses:
   Sales and marketing ...........................             3,310        2,738             6,237         5,437
   Research and development ......................             1,287        1,302             2,413         2,659
   General and administrative ....................               614          491             1,175           980
                                                            ---------     --------          --------      --------

      Total operating expenses ...................             5,211        4,531             9,825         9,076
                                                            ---------     --------          --------      --------

Loss from operations .............................            (2,579)        (691)           (4,320)       (1,156)
Other income (expense), net ......................               (46)          33                13            67
                                                            ---------     --------          --------      --------

Loss before benefit from income taxes ............            (2,625)        (658)           (4,307)       (1,089)
Benefit from income taxes ........................              (525)        (230)             (861)         (381)
                                                            ---------     --------          --------      --------
Net loss .........................................          $ (2,100)     $  (428)          $(3,446)      $  (708)
                                                            =========     ========          ========      ========

Net loss per common share ........................          $  (0.30)     $ (0.06)          $ (0.50)      $ (0.10)
                                                            =========     ========          ========      ========
Basic weighted average number of common shares
outstanding.......................................             6,956        7,176             6,942         7,164
                                                            =========     ========          ========      ========
Diluted net loss per common share.................          $  (0.30)     $ (0.06)          $ (0.50)      $ (0.10)
                                                            =========     ========          ========      ========
Diluted weighted average number of common shares
outstanding ......................................             6,956        7,176             6,942         7,164
                                                            =========     ========          ========      ========
<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  OPTIKA INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)

                                                                                Six Months Ended June 30,
                                                                             ---------------------------------
                                                                                  1998              1999
<S>                                                                          <C>               <C>
Cash Flows From Operating Activities:
Net loss...............................................................      $        (3,446)  $         (708)
Adjustments to reconcile net loss to net cash used by operating
activities:                                                                              405              467
   Depreciation and amortization.......................................
   Deferred tax benefit................................................                 (962)            (415)
   Change in assets and liabilities:
      Accounts receivable, net.........................................                2,988            1,111
      Other assets.....................................................                 (261)            (233)
      Accounts payable.................................................                  166              111
      Accrued expenses.................................................                  113             (534)
      Deferred revenue.................................................                  778              131
                                                                             ----------------  ---------------

       Net cash used by operations ....................................                 (219)             (70)
                                                                             ----------------  ---------------

Cash Flows From Investing Activities:
Capital expenditures...................................................                 (858)            (255)
Sale (purchase) of short-term investments..............................                3,412           (2,852)
                                                                             ----------------  ---------------

       Net cash provided (used) by investing activities................                2,554           (3,107)
                                                                             ----------------  ---------------

Cash Flows From Financing Activities:
Principal payments on long-term debt...................................                  (15)              --
Proceeds from issuance of common stock.................................                   54              134
                                                                             ----------------  ---------------

       Net cash provided by financing activities.......................                   39              134
                                                                             ----------------  ---------------

Net increase (decrease) in cash and cash equivalents...................                2,374           (3,043)
Cash and cash equivalents at beginning of period.......................                3,202            6,811
                                                                             ----------------  ---------------
Cash and cash equivalents at end of period.............................      $         5,576   $        3,768
                                                                             ================  ===============
<FN>
   The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>

                                  OPTIKA INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.      General

Basis of Presentation
        The  unaudited  condensed  consolidated  financial  statements  included
herein   reflect  all   adjustments,   consisting   only  of  normal   recurring
adjustments,  which  in the  opinion  of  management  are  necessary  to  fairly
present the Company's  consolidated  financial position,  results of operations,
and cash flows for the  periods  presented.  Certain  information  and  footnote
disclosures  normally  included  in audited  financial  information  prepared in
accordance  with generally  accepted  accounting  principles have been condensed
or omitted  pursuant to the Securities and Exchange  Commission's  (SEC's) rules
and  regulations.  The  consolidated  results of operations for the period ended
June 30, 1999 are not  necessarily  indicative of the results to be expected for
any  subsequent  quarter or for the  entire  fiscal  year  ending  December  31,
1999.  These  condensed  consolidated  financial  statements  should  be read in
conjunction  with the financial  statements and notes thereto for the year ended
December  31, 1998,  included in the  Company's  Annual  Report on Form 10-K for
the year ended December 31, 1998.

 Net Loss Per Common Share
        Basic EPS is  computed by dividing  net income by the  weighted  average
number of shares  outstanding  during the period.  Diluted EPS is computed using
the weighted average number of shares  outstanding  plus all dilutive  potential
common shares  outstanding.  During the first half of 1998,  297,500  options to
purchase  common  stock of the Company  were  granted.  During the first half of
1999,  395,700  options to purchase  common stock of the Company  were  granted.
Additionally,  during the first  quarter of 1998,  264,500  options to  purchase
common stock of the Company were re-priced at $3.18 per share.

The following is the  reconciliation  of the numerators and  denominators of the
basic and diluted EPS computations  (unaudited,  in thousands,  except per share
data):
                                                Quarter Ended   Six Months Ended
                                                   June 30,          June 30,
                                                1998     1999     1998     1999

Loss Per Share:
  Net loss..............................     $(2,100) $  (428) $(3,446) $  (708)
  Weighted average common shares
   outstanding..........................       6,956    7,176    6,942    7,164
  Net loss per common share.............     $ (0.30) $ (0.06) $ (0.50) $ (0.10)
Effect of Dilutive Securities:
  Options and warrants..................          --       --       --       --
  Diluted weighted average common shares
   outstanding..........................       6,956    7,176    6,942    7,164
  Diluted net loss per common share.....     $ (0.30) $ (0.06) $ (0.50) $ (0.10)


2.      Contingencies

        The  Company  is,  from  time  to  time,   subject  to  certain  claims,
assertions  or  litigation  by outside  parties as part of its ongoing  business
operations.  The outcomes of any such  contingencies  are not expected to have a
material  adverse  effect on the financial  condition,  operations or cash flows
of the  Company.  The  Company is not  currently a party to any  material  legal
proceedings.

<PAGE>

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

        THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS  FORWARD-LOOKING  STATEMENTS
THAT INVOLVE RISKS AND  UNCERTAINTIES.  THE COMPANY'S  ACTUAL RESULTS MAY DIFFER
MATERIALLY  FROM  THE  RESULTS  DISCUSSED  IN  THE  FORWARD-LOOKING  STATEMENTS.
FACTORS  THAT MIGHT  CAUSE SUCH A  DIFFERENCE  INCLUDE,  BUT ARE NOT LIMITED TO,
THOSE DISCUSSED UNDER THE CAPTION "BUSINESS RISKS" CONTAINED HEREIN.

Overview

        Optika(R) Inc. is a leading provider of business-to-business  electronic
commerce  ("e-commerce")  solutions.  By leveraging  the technology of the World
Wide Web, the Company's  software  bridges the gap between paper and  electronic
commerce across the enterprise and throughout supply chains.

        The  license  of  the  Company's   software  products  is  typically  an
executive-level  decision by  prospective  end-users and generally  requires the
Company and its Advantage Partners ("APs") or Original  Equipment  Manufacturers
("OEMs") to engage in a lengthy and complex sales cycle  (typically  between six
and twelve months from the initial  contact date).  The Company  distributes its
products  through a direct sales force and  worldwide  network of  approximately
170 APs and 5 OEMs.  For fiscal year 1998,  approximately  69% of the  Company's
license  revenues  were derived from its APs,  approximately  10% of its license
revenues  were  derived from sales by OEMs and the  remaining  license fees were
derived from direct  sales.  However,  no  individual AP accounted for more than
10% of the  Company's  total  revenues.  For the years ended  December 31, 1996,
1997  and  1998,  the  Company  generated   approximately   29%,  23%  and  24%,
respectively, of its total revenues from international sales.

        The Company's revenues consist primarily of license revenues,  which are
comprised  of  one-time  fees for the  license of the  Company's  products;  and
maintenance  revenues,  which are  comprised of fees for upgrades and  technical
support.  The APs and  OEMs,  which are  responsible  for the  installation  and
integration  of the  software,  enter into sales  agreements  with the end-user,
and  purchase  software  directly  from the  Company.  The  software is licensed
directly  to the  end-user  by the  Company  through a  standard  shrink-wrapped
license agreement.  Annual maintenance  agreements are also entered into between
the APs and  OEMs  and  the  end-user,  and  the  APs  and  OEMs  then  purchase
maintenance   services   directly   from  the   Company.   For  1997  and  1998,
approximately  73% and 60%,  respectively  of the Company's  total revenues were
derived from software licenses and approximately 18% and 28%,  respectively,  of
the Company's  total revenues were derived from  maintenance  agreements.  Other
revenues,  which  are  comprised  of  training,  consulting  and  implementation
services,  and third-party hardware and software products,  accounted for 9% and
12%, respectively, of the Company's total revenues.

        The Company  adopted  the  provisions  of  Statement  of Position  97-2,
Software Revenue  Recognition  (SOP 97-2),  for transactions  entered into after
January  1, 1998.  Under SOP 97-2,  the  Company  generally  recognizes  license
revenue upon shipment when a  non-cancelable  license  agreement has been signed
or a purchase order has been received,  delivery has occurred,  the fee is fixed
and determinable and  collectibility is probable.  Where  applicable,  fees from
multiple  element  arrangements  are  unbundled  and  recorded as revenue as the
elements are  delivered to the extent that vendor  specific  objective  evidence
of  fair  value  exists.   Maintenance  revenues  are  deferred  and  recognized
ratably  over  the  maintenance  period,  which is  generally  one  year.  Other
revenues are recognized as services are performed.

        The Company  generally does not grant rights to return products,  except
for defects in the performance of the products  relative to  specifications  and
pursuant to standard industry  shrink-wrapped  license  agreements which provide
for  30-day  rights of return if an  end-user  does not  accept the terms of the
software  license,  nor does it  provide  provisions  for price  adjustments  or
rotation rights.

        Based on the Company's research and development process,  costs incurred
between the  establishment of  technological  feasibility and general release of
the  software  products  have  not been  material  and  therefore  have not been
capitalized in accordance with Statement of Financial  Accounting  Standards No.
86.  All research and development costs have been expensed as incurred.

<PAGE>

Revenues

        Total  revenues  increased  40.8% from $7.2 million,  for the six months
ended  June 30,  1998,  to $10.1  million,  for the six  months  ended  June 30,
1999.  Total revenues  increased 42.1% from $3.5 million,  for the quarter ended
June 30, 1998, to $5.0 million, for the quarter ended June 30, 1999.

        Licenses.  License  revenues  increased 26.8% from $4.1 million,  during
the six months ended June 30, 1998,  to $5.2  million,  for the six months ended
June 30, 1999, and increased  25.4% from $1.8 million,  during the quarter ended
June 30,  1998,  to $2.3  million,  during  the  same  period  in 1999.  License
revenues  represented  56.9% and 51.2% of the total  revenues for the six months
ended  June 30,  1998 and  1999,  respectively  and 52.8% and 46.6% of the total
revenues  for  the  quarter   ended  June  30,  1998  and  1999,   respectively.
Management  believes  that the  increase  in license  revenues  during the first
half of 1999 is a result of the release of the Optika  eMedia  product  into the
marketplace.   License   revenues   generated   outside  of  the  United  States
accounted for approximately  23.9% of the Company's  revenues for the six months
ended June 30,  1998,  compared to 18.3% for the same period in 1999,  and 29.6%
and 23.2% for the quarter ended June 30, 1998 and 1999, respectively.

        Maintenance  and  Other.   Maintenance  revenues,   exclusive  of  other
revenue,  increased  41.2% from $2.3  million  during the six months  ended June
30, 1998,  to $3.3 million for the six months ended June 30, 1999 and  increased
38.6% from $1.2  million  during the  quarter  ended June 30,  1998  compared to
$1.7 million  during the same period in 1999.  Maintenance  revenue  represented
32.5% and 32.6% of the total  revenues  for the six months  ended June 30,  1998
and  1999,  respectively  and 35.5%  and  34.6% of the  total  revenues  for the
quarter  ended  June  30,  1998  and  1999,   respectively.   This  increase  is
primarily  a result of an  increase in the number of  installed  systems.  Other
revenue,  consisting primarily of consulting  services,  training and consulting
fees  represented  10.6% and 16.2% of total  revenues  for the six months  ended
June 30,  1998 and 1999,  respectively,  and  11.7% and 18.8% of total  revenues
for the  quarters  ended June 30, 1998 and 1999,  respectively.  The increase in
other  revenue as a percentage  of total  revenue was primarily due to increased
consulting,  project management and  implementation  services resulting from the
Company's direct sales efforts.

Cost of Revenues

        Licenses.  Cost of  licenses  consists  primarily  of  royalty  payments
to third-party  vendors and costs of product media,  duplication,  packaging and
fulfillment.  Cost of  licenses  increased  from  $210,000,  or 5.1% of  license
revenues,  to $290,000,  or 5.6% of license  revenues,  for the six months ended
June 30, 1998 and 1999,  respectively,  and increased  from $84,000,  or 4.6% of
license revenues,  to $142,000,  or 6.1% of license  revenues,  for the quarters
ended June 30, 1998 and 1999,  respectively.  The  increase  in absolute  dollar
cost of licenses was attributable to the increased license revenue.

        Maintenance  and Other.  Costs of  maintenance  and other consist of the
direct  and  indirect  costs of  providing  software  maintenance  and  support,
training and consulting  services to the Company's APs, OEMs and end-users,  and
the  cost of  third-party  software  products.  Cost of  maintenance  and  other
increased  in absolute  dollars from $1.5  million or 47.7% of  maintenance  and
other  revenues to $1.9 million or 38.9% of  maintenance  and other revenues for
the  six  months   ended  June  30,  1998  and  1999,   respectively.   Cost  of
maintenance  and other  increased in absolute  dollars from $772,000 or 46.9% of
maintenance  and other revenues to $975,000,  or 36.8% of maintenance  and other
revenues,  for the  quarters  ended June 30,  1998 and 1999,  respectively.  The
absolute  dollar  increase  in cost of  maintenance  and  other is  primarily  a
result of the direct costs  associated with the increased  number of service and
consulting contracts.

Operating Expenses

        Sales and  Marketing.  Sales and marketing  expenses  consist  primarily
of salaries,  commissions  and other  related  expenses for sales and  marketing
personnel,   marketing,   advertising  and  promotional   expenses.   Sales  and
marketing  expenses  decreased  from $6.2 million,  or 86.7% of total  revenues,
for the six  months  ended  June  30,  1998 to $5.4  million,  or 53.6% of total
revenues,  for the six months ended June 30, 1999. Sales and marketing  expenses
decreased  from $3.3 million or 94.9% of total  revenues  for the quarter  ended
June 30, 1998 to $2.7 million or 55.2% of total  revenues for the quarter  ended
June 30,  1999.  The  decrease  in sales and  marketing  expenses  is  primarily
attributable  to the closure of several  Asian sales  offices in late 1998.  The
Company   anticipates  that  sales  and  marketing  expenses  will  increase  in
absolute  dollars  in future  quarters  as it  continues  to launch  the  Optika
eMedia product.

        Research and  Development.  Research and  development  expenses  consist
primarily of salaries and other  related  expenses for research and  development
personnel,  as well as the  cost  of  facilities  and  equipment.  Research  and
development  expenses  increased from $2.4 million,  or 33.5% of total revenues,
for the six  months  ended  June  30,  1998 to $2.7  million,  or 26.2% of total
revenues,  for the six months  ended June 30, 1999,  respectively.  Research and
development  expenses  remained constant in absolute dollars at $1.3 million for
both  periods,  or 36.9% and 26.3% of total  revenues,  for the  quarters  ended
June 30, 1998 and 1999,  respectively.  The six month absolute  dollar  increase
in research  and  development  is  primarily a result of the  continued  cost to
further  enhance  the  Optika  eMedia  product.  The  Company  anticipates  that
research and  development  expenses will increase in absolute  dollars in future
quarters because of the continued enhancements of the Optika eMedia product.

        General  and   Administrative.   General  and  administrative   expenses
consist  primarily of salaries  and other  related  expenses of  administrative,
executive and financial  personnel and outside  professional  fees.  General and
administrative   expenses   decreased  from  $1.2  million  or  16.3%  of  total
revenues,  for the six months ended June 30, 1998 to $980,000,  or 9.7% of total
revenues  for the six months  ended June 30,  1999.  General and  administrative
expenses  decreased  from  $614,000,  or 17.6% of total revenues for the quarter
ended June 30,  1998,  to  $491,000,  or 9.9% of total  revenues for the quarter
ended June 30,  1999.  The  decrease  in general  and  administrative  costs was
primarily  due to the  write-off of certain  accounts  receivable in Asia during
the first six months of 1998 that were not present in 1999.

        Other  income,  net.  Other income,  net consists  primarily of interest
earned on the Company's  financing  activities offset by interest expense on the
Company's  capitalized  lease  obligations,  other debt,  and  foreign  currency
translation  adjustments.  The Company  recognized  net other  income of $13,000
during  the six months  ended  June 30,  1998  compared  to net other  income of
$67,000  during the six months ended June 30, 1999.  The Company  recognized net
other  expense of $46,000  during the quarter  ended June 30,  1998  compared to
net other  income of $33,000 for the same period in 1999,  primarily as a result
of investment  income and an increase in foreign  currency  translation  loss in
1998.

        Benefit from Income  Taxes.  The  Company's  effective  tax rate for the
periods  ending June 30, 1999 was 35%,  which  reflects the Company's  estimated
annual effective tax rate.

Liquidity and Capital Resources

        Cash and  short-term  investments  at June 30,  1999 were $7.6  million,
decreasing by  approximately  $191,000  from December 31, 1998.  The decrease in
cash and  short-term  investments  is primarily due to the 1999 first and second
quarter losses and capital  expenditures  associated  with  additional  computer
equipment.

        For the six  months  ended  June 30,  1998,  net cash used by  operating
activities  was $219,000  compared to net cash used by operating  activities  of
$70,000  for  the six  months  ended  June  30,  1999.  Cash  used by  operating
activities  for the six  months  ended  June 30,  1999 is  primarily  due to the
first and second quarter losses offset by cash receivables collections.

        Cash  provided  by  investing  activities  was $2.6  million for the six
months  ended June 30, 1998  compared  to cash used of $3.1  million for the six
months ended June 30,  1999.  Proceeds of cash  consisted  primarily of sales of
marketable  securities  offset by  purchases  of property  and  equipment in the
first six months of 1998,  while  marketable  securities  were purchased  during
the first six months of 1999.

        Cash  provided by  financing  activities  was $39,000 for the six months
ended June 30,  1998.  Cash  provided by financing  activities  was $134,000 for
the six months  ended June 30,  1999.  Cash  provided  by  financing  activities
resulted  primarily  from proceeds from stock option  exercises and the sales of
securities under the Company's  employee stock purchase plan,  offset in part by
repayments of bank borrowings, capital leases and other debt in 1998.

        At June 30, 1999, the Company's  principal sources of liquidity included
cash and short-term  investments of $7.6 million.  In addition,  the Company has
a secured  credit  facility  for up to $3.0  million,  bearing  interest  at the
bank's prime rate. As of June 30, 1999,  the Company had $2.8 million  available
for borrowing and no other debt outstanding.

        The Company  believes that its current cash and short-term  investments,
together  with  anticipated  cash  flow  from  operations  and its  bank  credit
facility,   will  be  sufficient  to  meet  its  working   capital  and  capital
expenditure  requirements  for at least  the  next 12  months.  Thereafter,  the
Company may require  additional  funds to support such activity  through  public
or private  equity  financing or from other  sources.  There can be no assurance
that additional  financing will be available at all or that, if available,  such
financing  will be  obtainable  on terms  favorable to the Company and would not
be dilutive.


Year 2000

        The Company is aware of the issues  associated with the programming code
in  existing  computer  systems  as the Year  2000  approaches.  Many  currently
installed  computer  and  software  products  are coded to accept only two digit
entries  in the date code  field.  These  date code  fields  will need to accept
four digit entries to  distinguish  21st century dates from 20th century  dates.
As a result,  in less than one year,  computer  systems and/or  software used by
many  companies  may  need to be  upgraded  to  comply  with  such  "Year  2000"
requirements.   Significant   uncertainty   exists  in  the  software   industry
concerning the potential  effects  associated with such compliance.  The Company
believes that the purchasing  patterns of customers and potential  customers may
be significantly  affected by Year 2000 issues.  Moreover,  the Company believes
some companies may delay software  purchasing  decisions  until after January 1,
2000,  in hopes that Year 2000 issues will have been  identified  and  corrected
prior to their  purchase.  Many  companies are expending  significant  resources
to correct or patch their  current  software  systems for Year 2000  compliance.
These  expenditures  may result in reduced funds available to purchase  products
or  services  such as those  offered  by the  Company.  Additionally,  Year 2000
issues  could  cause  a  significant  number  of  companies,  including  current
customers of the Company to  reevaluate  their current  system  needs,  and as a
result,  consider  switching to other  systems or  suppliers.  This could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

        The  Company  is  currently  taking  steps  to  address  its  Year  2000
readiness issues in the following areas:

1.      The Company's products (including embedded software technology)
2.      Internal systems (includes information  technologies and non-information
        technologies)
3.      Readiness   of  third   parties  with  whom  the  Company  has  business
        relationships

        The Company has assigned two dedicated Year 2000 cross  functional teams
(CFT's),  one CFT to  address  the  Company's  products  and one CFT to  address
internal  systems  and third  parties.  Each CFT has an  executive  sponsor  and
meets  regularly  to carry out the process of  identifying  potential  Year 2000
issues,  assessing their impact on the Company,  putting in place an action plan
to address the problem (which will include  contingency  planning) and following
through to ensure the plan was carried out and tested.

The Company's Products

        The  Company   designs  its  products  and  services  to  be  Year  2000
compatible.   Nevertheless  the  Company  has  performed  Year  2000  compliance
testing  on  both  Optika  eMedia  and  FilePower  product  suites.  During  the
testing of the FilePower  product suite, a few minor  deficiencies were found in
the  product.  The Company  addressed  these known  deficiencies  with a product
release  which was made  available  during the first  quarter of 1999.  Costs to
address these  deficiencies  are expected to include only  internal  development
staff time,  which has not been separately  tracked,  and is expected to have no
effect  on the  Company's  operating  results.  No  current  projects  have been
delayed  or are  expected  to be  delayed  due to using  internal  staff on this
issue.

        The Company has developed the eMedia  product with Year 2000  compliance
in mind.  Testing of the product has been performed  throughout the  development
cycle for Year  2000  compliance.  The  Company  worked  with a  third-party  to
extensively  test the Year 2000  compliance of the product.  The testing did not
discover any material Year 2000 compliancy  deficiencies  in the product.  While
the Company is not aware of any current  deficiencies  that would  result in the
product  not  being  compliant,   it  is  possible  that   deficiencies  may  be
discovered   subsequent  to  the  testing   process.   Costs  to  address  these
deficiencies  are  expected to include  only  internal  development  staff time,
which  will not be  separately  tracked,  and is  expected  to have no  material
effect on the Company's operating results.

        Although  the Company has  designed its products and services to be Year
2000  capable  and  tests  its  products  and  services,  including  third-party
software that is incorporated  into its products and services,  specifically for
Year 2000  compliance,  there can be no assurance  that the  Company's  products
and  services,   particularly  when  such  products  and  services   incorporate
third-party   software,   contain  all  necessary  date  code  changes.  To  the
extent   that  the   Company's   software   does  not  comply   with  Year  2000
requirements,  it will be  necessary  for the  Company to commit  the  necessary
resources  to correct the  software.  Although  the costs  cannot be  reasonably
estimated,  there can be no assurance that  potential  system  interruptions  or
the cost  necessary  to update the  software  will not have a  material  adverse
effect  on  the  Company's   business,   financial   condition  and  results  of
operations.

Internal Systems

        The Company's  internal systems include both its information  technology
("IT") and non-IT systems.  The Company  conducted an assessment of its internal
IT systems  including  third-party  software  and  hardware  technology  and its
non-IT  systems  (such as its security  system,  building  equipment,  and phone
systems).  The  Company has  identified  its  Mission  Critical  Systems and has
reviewed  them  for  Year  2000   compliance  by  contacting   each  vendor  and
requesting  documentation on Year 2000 readiness.  Those contacted include,  but
are not limited to, Microsoft,  financial software,  customer database and phone
system  vendors.  Based  on the  results  of  these  queries,  the  Company  has
performed  upgrades on numerous systems to bring them into compliance  according
to their Year 2000  compliance  statements.  The Company  will do testing of its
Mission  Critical  Systems in the third  quarter of 1999.  It is estimated  that
the testing of the Mission  Critical  Systems will cost  approximately  $121,000
during  1999.  The  bringing  of the  Mission  Critical  Systems  to  Year  2000
readiness  will  be  covered  under  software/hardware   maintenance  agreements
and/or  normal  product  upgrades.  However,  any  failure of one or more of the
Company's  mission  critical  IT systems to become  Year 2000  compliant  due to
unanticipated   problems   could   limit   access  of   employees   to  critical
information,  require the Company to process  information  manually or result in
other  inconveniences or  inefficiencies  for the Company and its customers that
may divert  management's time and attention,  as well as financial and personnel
resources  from normal  business  activities.  The majority of the  Company's IT
software  applications  are produced by  Microsoft.  Any failure by Microsoft to
address  the Year 2000  issue  will  have a  material  impact  on the  Company's
operations.  All  non-Mission  Critical  Systems are deemed to be  non-essential
to the  business  and will be upgraded or replaced if a Year 2000 issue  exists.
Year 2000  compliance  issues relating to non-Mission  Critical  Systems are not
expected to have a material  financial  impact on  operations  or the  Company's
ability to carry out its operations.

Third Parties

        The  Company  has  obtained  documentation  on the Year  2000-compliance
status of its key  vendors.  Key  vendors  to which  the  Company  is  concerned
include its  investing,  banking,  and payroll  relationships.  If the Company's
current or future vendors,  including investing and banking relationships,  fail
to  achieve  Year  2000  compliance  or if they  divert  substantial  technology
expenditures  to address the Year 2000 issue,  thus  impacting  their ability to
serve the Company,  the Company will move its  relationships  to another  vendor
that is Year 2000  compliant.  Management  believes  there  will be no  material
adverse effect on the Company of this potential action.

Disclaimer

        The discussion of the Company's efforts, and management's  expectations,
relating  to  Year  2000   compliance  are   forward-looking   statements.   The
Company's  ability to achieve Year 2000  compliance and the level of incremental
costs associated  therewith could be adversely  impacted by, among other things,
the  availability  and  cost of  programming  and  testing  resources,  vendors'
abilities  to  modify  proprietary  software,   unanticipated  problems  in  the
ongoing  compliance  review and  failure by the  Company to  identify a critical
Year 2000 compliance problem.

<PAGE>

BUSINESS RISKS

     THIS  QUARTERLY  REPORT ON FORM 10-Q  CONTAINS  FORWARD-LOOKING  STATEMENTS
THAT INVOLVE RISK AND  UNCERTAINTIES.  THE COMPANY'S  ACTUAL  RESULTS MAY DIFFER
MATERIALLY  FROM  THE  RESULTS  DISCUSSED  IN  THE  FORWARD-LOOKING  STATEMENTS.
FACTORS  THAT MIGHT  CAUSE SUCH A  DIFFERENCE  INCLUDE,  BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW.

     Significant  Fluctuations  in Operating  Results.  The Company's  sales and
other  operating  results  have varied  significantly  in the past and will vary
significantly  in the  future  as a result  of  factors  such  as:  the size and
timing of  significant  orders and their  fulfillment;  demand for the Company's
products;  changes in pricing  policies by the Company or its  competitors;  the
number,  timing  and  significance  of  product  enhancements  and  new  product
announcements  by the  Company  and its  competitors;  changes  in the  level of
operating  expenses;  customer order  deferrals in  anticipation of new products
or otherwise;  foreign  currency  exchange rates;  warranty and customer support
expenses;   changes  in  its  end-users'   financial   condition  and  budgetary
processes;   changes  in  the  Company's   sales,   marketing  and  distribution
channels;  delays or deferrals of customer implementation;  product life cycles;
software bugs and other product quality  problems;  discounts;  the cancellation
of  licenses   during  the  warranty   period  or  nonrenewal   of   maintenance
agreements;  customization  and integration  problems with the end-user's legacy
system;   changes   in   the   Company's   strategy;   changes   in   accounting
pronouncements;  potential acquisitions;  changes in customer buying patterns as
a result  of Year  2000  concerns;  the level of  international  expansion;  and
seasonal trends. A significant  portion of the Company's  revenues has been, and
the Company  believes  will  continue to be,  derived  from a limited  number of
orders,  and the timing of such orders and their  fulfillment  have caused,  and
are  expected to  continue  to cause,  material  fluctuations  in the  Company's
operating  results.   Revenues  are  also  difficult  to  forecast  because  the
markets for the  Company's  products are rapidly  evolving,  and the sales cycle
of the Company and of its APs and OEMs,  from  initial  evaluation  to purchase,
is lengthy and varies  substantially  from end-user to end-user.  To achieve its
quarterly revenue  objectives,  the Company depends upon obtaining orders in any
given  quarter  for  shipment  in that  quarter.  Product  orders are  typically
shipped shortly after receipt;  consequently,  order backlog at the beginning of
any quarter has in the past  represented  only a small portion of that quarter's
revenues.  Furthermore,  the Company has often  recognized  most of its revenues
in  the  last  month,  or  even  in  the  last  weeks  or  days,  of a  quarter.
Accordingly,  a delay in  shipment  near  the end of a  particular  quarter  may
cause  revenues  in  a  particular  quarter  to  fall  significantly  below  the
Company's  expectations  and  may  materially  adversely  affect  the  Company's
operating   results   for  such   quarter.   Conversely,   to  the  extent  that
significant  revenues  occur  earlier  than  expected,   operating  results  for
subsequent  quarters may fail to keep pace with results of previous  quarters or
even  decline.  The  Company  also has  recorded  generally  lower  sales in the
first quarter than in the immediately  preceding quarter,  as a result of, among
other factors,  end-users'  purchasing and budgeting practices and the Company's
sales  commission  practices,  and the Company  expects this pattern to continue
in  future   years.   To  the  extent  that  future   international   operations
constitute a higher percentage of total revenues,  the Company  anticipates that
it may also  experience  relatively  weaker  demand  in the third  quarter  as a
result of  reduced  sales in Europe  during  the summer  months.  A  significant
portion  of the  Company's  expenses  are  relatively  fixed in the short  term.
Accordingly,  if revenue levels fall below  expectations,  operating results are
likely to be  disproportionately  and adversely  affected.  As a result of these
and other factors,  the Company  believes that its quarterly  operating  results
will vary in the future,  and that  period-to-period  comparisons of its results
of operations  are not  necessarily  meaningful and should not be relied upon as
indications  of future  performance.  Furthermore,  due to all of the  foregoing
factors,  it is likely  that in some  future  quarter  the  Company's  operating
results  will  be  below  the   expectations   of  public  market  analysts  and
investors.  In such  event,  the  price  of the  Company's  Common  Stock  would
likely be materially adversely affected.

     Reliance  on  Indirect   Distribution   Channels;   Potential  for  Channel
Conflict.  The  Company's  future  results  of  operations  will  depend  on the
success of its  marketing  and  distribution  strategy,  which has relied,  to a
significant  degree,  upon  APs and  OEMs  to sell  and  install  the  Company's
software,  and  provide  post-sales  support.  These  relationships  are usually
established  through formal agreements that generally do not grant  exclusivity,
do not prevent the  distributor  from  carrying  competing  product lines and do
not  require  the  distributor  to purchase  any  minimum  dollar  amount of the
Company's  software.  There can be no  assurance  that any APs will  continue to
represent  the  Company  or sell  its  products.  Furthermore,  there  can be no
assurance  that other APs, some of which have  significantly  greater  financial
marketing  and other  resources  than the  Company,  will not  develop or market
software  products  which  compete  with  the  Company's  products  or will  not
otherwise  discontinue  their  relationship  with,  or support of, the  Company.
Some of the Company's APs are small  companies  that have limited  financial and
other  resources  which could impair their ability to pay the Company.  To date,
the  Company's  inability  to  receive  payments  from  such  APs  has not had a
material  adverse  effect on the  Company's  business,  results of operations or
financial  condition.  The Company's OEMs occasionally  compete with the Company
and its APs.  Selling  through  indirect  channels may also hinder the Company's
ability to forecast sales accurately,  evaluate customer  satisfaction,  provide
quality service and support or recognize emerging customer requirements.

     During 1998, the Company  altered its sales strategy with the  introduction
of a direct  sales  team.  Although  the Company  has  recruited a direct  sales
staff,  the  Company  has  limited  experience  in  marketing  and  selling  its
products on a direct sales basis.  Consequently,  there can be no assurance  the
Company will be successful  in achieving a significant  level of direct sales on
a timely  basis,  or at all. The  Company's  strategy of marketing  its products
directly  and  indirectly  (through  APs and  OEMs) may  result in  distribution
channel  conflicts.  To the extent  that the  Company,  APs and OEMs  target the
same  customers,  they may come into  conflict  with each  other.  Although  the
Company has attempted to avoid  potential  conflicts,  there can be no assurance
that  channel   conflict  will  not   materially   and   adversely   affect  its
relationship  with  existing APs and OEMs,  or  adversely  affect its ability to
attract  new APs and  OEMs.  The loss by the  Company  of a  number  of its more
significant  APs or OEMs,  the inability of the Company to obtain  qualified new
APs or OEMs,  or to  obtain  access to the  channels  of  distribution  offering
software products to the Company's  targeted  markets,  or the failure of APs or
OEMs to pay the Company for its software,  could have a material  adverse effect
on the Company's business, results of operations, or financial condition.

     Rapid  Technological  Change:  Dependence on New Product  Development.  The
market  for the  Company's  products  is  characterized  by rapid  technological
change,  changes in customer  requirements,  frequent new product  introductions
and  enhancements,   and  emerging  industry  standards.  The  Company's  future
performance  will  depend  in  significant  part  upon its  ability  to  respond
effectively to these  developments.  The introduction of products  embodying new
technologies  and the emergence of new industry  standards  can render  existing
products  obsolete,  unmarketable  or  noncompetitive.  The Company is unable to
predict  the  future  impact  of  such  technology   changes  on  the  Company's
products.  Moreover,  the life cycles of the  Company's  products are  difficult
to estimate.  The Company's  future  performance will depend in significant part
upon its ability to enhance current  products,  and to develop and introduce new
products and enhancements  that respond to evolving customer  requirements.  The
Company  has in the  recent  past  experienced  delays  in the  development  and
commencement  of  commercial   shipments  of  new  products  and   enhancements,
resulting  in  customer   frustration  and  delay  or  loss  of  revenues.   The
inability of the Company,  for  technological  or other reasons,  to develop and
introduce  new  products  or  enhancements  in a timely  manner in  response  to
changing  customer  requirements,  technological  change  or  emerging  industry
standards,    or   maintain    compatibility   with   heterogeneous    computing
environments,  would have a material  adverse effect on the Company's  business,
results of operations and financial condition.

     Product  Concentration.  The Company  expects  Optika eMedia to account for
substantially  all  of its  future  revenues.  The  Company's  future  financial
performance  will depend in general on the  continued  transition  from  imaging
software  to  e-commerce,  and  in  particular  on the  successful  development,
introduction  and  customer  acceptance  of new  and  enhanced  versions  of its
existing  software  products  such as Optika  eMedia.  There can be no assurance
that such market will  continue to grow or that the Company  will be  successful
in developing and marketing  these or any other  products,  or that any of these
products  will  achieve  widespread  customer  acceptance.   If  the  e-commerce
software market grows more slowly than the Company  currently  anticipates,  the
Company's  business,  results of operations,  and financial  condition  would be
materially and adversely affected.

     Lengthy  and  Complex  Sales  and  Implementation  Cycles;   Dependence  on
Capital  Spending.  The license of the Company's  software products is typically
an  executive-level  decision by prospective  end-users,  and generally requires
for the Company  and its APs and OEMs to engage in a lengthy  and complex  sales
cycle  (typically  between  six and  twelve  months  from  the  initial  contact
date).  In addition,  the  implementation  by customers of the products  offered
by the  Company  may  involve a  significant  commitment  of  resources  by such
customers  over an extended  period of time.  For these and other  reasons,  the
sales  and   customer   implementation   cycles  are  subject  to  a  number  of
significant  delays  over  which  the  Company  has  little or no  control.  The
Company's future performance also depends upon the capital  expenditure  budgets
of its  customers and the demand by such  customers for the Company's  products.
Certain  industries  to  which  the  Company  sells  its  products,  such as the
financial  services  industry,  are highly  cyclical.  The Company's  operations
may in the future be subject to substantial  period-to-period  fluctuations as a
consequence of such industry  patterns,  domestic and foreign economic and other
conditions,  and  other  factors  affecting  capital  spending.  There can be no
assurance  that such  factors  will not have a  material  adverse  effect on the
Company's business, results of operations, and financial condition.

     Intense  Competition.  The market for the  Company's  products is intensely
competitive and can be significantly  affected by new product  introductions and
other market  activities of industry  participants.  The  Company's  competitors
offer a variety of products  and  services to address  the  emerging  market for
e-commerce  solutions.  The  Company's  principal  direct  competitors  for  its
product   include   FileNet   Corporation,   International   Business   Machines
Corporation   and  Eastman  Kodak  Company.   The  Company  also  competes  with
industry-specific  application  vendors.  Numerous other  software  vendors also
compete  in each  product  area.  Potential  competitors  include  providers  of
document  management  software,  providers of document archiving  products,  and
RDBMS  ("Relational  Database  Management  Systems") vendors.  In addition,  the
Company may face  competition from other  established and emerging  companies in
new market segments created by the release of Optika eMedia.

     Many of the Company's  current and potential  competitors are substantially
larger than the Company,  have significantly  greater  financial,  technical and
marketing   resources  and  have   established   more   extensive   channels  of
distribution.  As a  result,  such  competitors  may be  able  to  respond  more
rapidly to new or emerging  technologies  and changes in customer  requirements,
or to devote greater  resources to the development,  promotion and sale of their
products  than the  Company.  Because the  Company's  products  are  designed to
operate in  non-proprietary  computing  environments and because of low barriers
to entry in the e-commerce market,  the Company expects  additional  competition
from  established  and  emerging   companies,   as  the  market  for  e-commerce
continues  to evolve.  The  Company  expects  its  competitors  to  continue  to
improve  the  performance  of  their  current  products  and  to  introduce  new
products  or  new  technologies  that  provide  added  functionality  and  other
features.   Successful  new  product   introductions   or  enhancements  by  the
Company's  competitors  could  cause a  significant  decline in sales or loss of
market  acceptance of the Company's  products and services,  result in continued
intense  price  competition,  or make the  Company's  products  and  services or
technologies  obsolete or  noncompetitive.  To be competitive,  the Company will
be  required  to  continue  to invest  significant  resources  in  research  and
development,  and in sales and  marketing.  There can be no  assurance  that the
Company  will have  sufficient  resources to make such  investments  or that the
Company  will be  able  to  make  the  technological  advances  necessary  to be
competitive.  In addition,  current and potential  competitors  have established
or may  establish  cooperative  relationships  among  themselves  or with  third
parties,  to increase the ability of their  products to address the needs of the
Company's  prospective   customers.   In  addition,   several  competitors  have
recently  made,  or  attempted  to make,  acquisitions  to enter  the  market or
increase  their  market   presence.   Accordingly,   it  is  possible  that  new
competitors  or  alliances  among  competitors  may emerge and  rapidly  acquire
significant  market share.  Increased  competition  is likely to result in price
reductions,  reduced gross margins and loss of market share,  any of which would
have  a  material  adverse  effect  on  the  Company's   business,   results  of
operations  and  financial  condition.  There  can  be  no  assurance  that  the
Company  will  be  able  to  compete  successfully  against  current  or  future
competitors,  or that  competitive  pressures  will not have a material  adverse
effect  on  the  Company's  business,   results  of  operations,  and  financial
condition.

     Management  Changes;  No Assurance of Successful  Expansion of  Operations.
Most of the  Company's  senior  management  team have joined the Company  within
the last five years.  There can be no assurance that these  individuals  will be
able  to  achieve  and  manage  growth,  if  any,  or  build  an  infrastructure
necessary   to  operate  the   Company.   The   Company's   ability  to  compete
effectively  and to manage any  future  growth  will  require  that the  Company
continue to assimilate  new  personnel and to expand,  train and manage its work
force.   The  Company   intends  to  continue  to  increase  the  scale  of  its
operations  significantly to support anticipated  increases in revenues,  and to
address critical  infrastructure  and other  requirements.  These increases have
included  and will include the leasing of new space,  the opening of  additional
foreign offices,  potential acquisitions,  increases in research and development
to support  product  development,  and the  hiring of  additional  personnel  in
sales  and  marketing.  The  increased  scale  of  operations  has  resulted  in
significantly  higher  operating  expenses,  which are  expected  to continue to
increase  significantly  in  the  future.  If  the  Company's  revenues  do  not
correspondingly   increase,   the  Company's  results  of  operations  would  be
materially  and adversely  affected.  Expansion of the Company's  operations may
impose a  significant  strain on the Company's  management,  financial and other
resources.  In this regard,  any  significant  revenue  growth will be dependent
in significant  part upon the Company's  expansion of its  marketing,  sales and
AP support  capabilities.  This expansion  will continue to require  significant
expenditures  to build the necessary  infrastructure.  There can be no assurance
that the Company's  efforts to expand its marketing,  sales and customer support
efforts  will  be  successful   or  will  result  in   additional   revenues  or
profitability in any future period.

     Dependence on Key Personnel.  The Company's future  performance  depends to
a significant  degree upon the continuing  contributions  of its key management,
sales,  marketing,  customer support,  and product  development  personnel.  The
Company has at times  experienced,  and continues to  experience,  difficulty in
recruiting  qualified  personnel,   particularly  in  software  development  and
customer  support.  The  Company  believes  that  there  may be  only a  limited
number of persons with the  requisite  skills to serve in those  positions,  and
that it may become  increasingly  difficult  to hire such  persons.  Competitors
and others  have in the past,  and may in the  future,  attempt  to recruit  the
Company's  employees.  The  Company has from time to time  experienced  turnover
of key  management  and  technical  personnel.  The  loss of key  management  or
technical personnel,  or the failure to attract and retain key personnel,  could
have  a  material  adverse  effect  on  the  Company's   business,   results  of
operations, and financial condition.

     Dependence  on  Proprietary   Technologies;   Risk  of  Infringement.   The
Company's  performance depends in part on its ability to protect its proprietary
rights to the technologies  used in its principal  products.  The Company relies
on  a   combination   of  copyright   and   trademark   laws,   trade   secrets,
confidentiality  provisions  and other  contractual  provisions  to protect  its
proprietary  rights,  which are measures  that afford only  limited  protection.
Despite the Company's  efforts to protect its proprietary  rights,  unauthorized
parties  may attempt to copy  aspects of the  Company's  products,  or to obtain
and use information  that the Company regards as proprietary.  In addition,  the
laws of some foreign countries do not protect the Company's  proprietary  rights
as fully as do the laws of the United  States.  There can be no  assurance  that
the Company's  means of protecting its  proprietary  rights in the United States
or abroad will be adequate,  or that competitors will not independently  develop
similar  technologies.  There can be no  assurance  that third  parties will not
claim  infringement  by the Company's  products of their  intellectual  property
rights.   The  Company   expects   that   software   product   developers   will
increasingly  be subject to  infringement  claims if the number of products  and
competitors in the Company's  industry  segment grows and the  functionality  of
products in different  industry  segments  overlaps.  Any such  claims,  with or
without  merit,  and regardless of the outcome of any  litigation,  will be time
consuming  to  defend,   result  in  costly  litigation,   divert   management's
attention and resources,  cause product shipment delays,  or require the Company
to enter into  royalty  or  licensing  agreements.  Such  royalty  or  licensing
agreements,  if  required,  may not be  available  on  terms  acceptable  to the
Company,  if at  all.  In  the  event  of a  successful  claim  of  infringement
against the  Company's  products  and the failure or inability of the Company to
license the infringed or similar  technology,  the Company's  business,  results
of  operations,  and  financial  condition  would be  materially  and  adversely
affected.

     The  Company  also  licenses   software  from  third   parties,   which  is
incorporated  into  its  products,  including  software  incorporated  into  its
viewer,  image  decompression  software and optical character  recognition,  and
full-text  engines.  These  licenses  expire from time to time.  There can be no
assurance  that  these  third-party   software  licenses  will  continue  to  be
available to the Company on  commercially  reasonable  terms.  While the Company
believes  that all of such  third-party  software is  available  from  alternate
vendors,  and the Company  maintains  standard  software escrow  agreements with
each of such  parties,  agreements  which provide the Company with access to the
source  code in the event of their  bankruptcy  or  insolvency,  the loss of, or
inability  to  maintain,  any such  software  licenses  could result in shipment
delays or reductions until equivalent  software could be developed,  identified,
licensed and  integrated,  which in turn could  materially and adversely  affect
the Company's  business,  results of  operations,  and financial  condition.  In
addition,  the  Company  generally  does not have  access to source code for the
software  supplied by these third  parties.  Certain of these third  parties are
small  companies that do not have extensive  financial and technical  resources.
If any of these  relationships  were terminated or if any of these third parties
were to cease doing  business,  the Company may be forced to expend  significant
time and  development  resources  to  replace  the  licensed  software.  Such an
event  would  have a  material  adverse  effect  upon  the  Company's  business,
results of  operations,  and financial  condition.  The Company has entered into
source  code  escrow  agreements  with a  limited  number of its  customers  and
resellers,  requiring  release  of source  code in certain  circumstances.  Such
agreements   generally   provide   that  such   parties  will  have  a  limited,
non-exclusive  right to use such code in the event  that  there is a  bankruptcy
proceeding by or against the Company,  if the Company ceases to do business,  or
if the Company fails to provide timely responses to identified product defects.

     International  Operations.  Sales outside the United  States  accounted for
approximately  29%,  23% and 24% of the  Company's  revenues  in 1996,  1997 and
1998,  respectively.  An  element  of the  Company's  strategy  is to expand its
international  operations,  including  the  development  of certain  third-party
distributor  relationships  and the hiring of additional sales  representatives,
each of which  involves a significant  investment of time and  resources.  There
can be no  assurance  that the  Company  will be  successful  in  expanding  its
international   operations.   In   addition,   the  Company  has  only   limited
experience in  developing  localized  versions of its products.  There can be no
assurance that the Company will be able to successfully  localize,  market, sell
and  deliver  its  products  internationally.  The  inability  of the Company to
successfully  expand  its  international  operations  in a timely  manner  could
materially and adversely affect the Company's  business,  results of operations,
and  financial   condition.   The  Company's   international   revenues  may  be
denominated  in  foreign  or the U.S.  dollar  currency.  The  Company  does not
currently  engage in  foreign  currency  hedging  transactions;  as a result,  a
decrease in the value of foreign  currencies  relative to the U.S.  dollar could
result in losses from  transactions  denominated  in foreign  currencies,  could
make the Company's  software less  price-competitive,  and could have a material
adverse  effect  upon  the  Company's  business,   results  of  operations,  and
financial  condition.  In addition,  the  Company's  international  business is,
and will  continue to be,  subject to a variety of risks,  including:  delays in
establishing  international  distribution  channels;  difficulties in collecting
international  accounts receivable;  increased costs associated with maintaining
international  marketing  and sales  efforts;  unexpected  changes in regulatory
requirements,   tariffs  and  other  trade  barriers;   political  and  economic
instability;  limited  protection for  intellectual  property  rights in certain
countries;  lack of  acceptance  of  localized  products  in foreign  countries;
difficulties  in  managing  international  operations,  potentially  adverse tax
consequences  including,  restrictions on the repatriation of earnings;  and the
burdens  of  complying  with a wide  variety of  foreign  laws.  There can be no
assurance  that such  factors  will not have a  material  adverse  effect on the
Company's  future  international  revenues  and,  consequently,   the  Company's
results of  operations.  Although the  Company's  products are subject to export
controls  under  United  States laws,  the Company  believes it has obtained all
necessary  export  approvals.  However,  the  inability of the Company to obtain
required  approvals under any applicable  regulations could adversely affect the
ability of the Company to make international sales.

     Product  Liability;   Risk  of  Product  Defects.   The  Company's  license
agreements with its customers  typically  contain  provisions  designed to limit
the Company's  exposure to potential product liability  claims.  However,  it is
possible  that  the  limitation  of  liability   provisions   contained  in  the
Company's  license  agreements  may not be  effective  under the laws of certain
jurisdictions.  Although the Company has not experienced  any product  liability
claims to date,  the sale and  support of products by the Company may entail the
risk of such  claims,  and there can be no  assurance  that the Company will not
be subject to such claims in the future.  A successful  product  liability claim
brought  against  the  Company  could have a material  adverse  effect  upon the
Company's business,  results of operations,  and financial  condition.  Software
products  such as those  offered by the  Company  frequently  contain  errors or
failures,  especially  when first  introduced or when new versions are released.
Although the Company  conducts  extensive  product  testing,  the Company has in
the past released products that contained defects,  and has discovered  software
errors in certain  of its new  products  and  enhancements  after  introduction.
The  Company  could in the future  lose or delay  recognition  of  revenues as a
result of  software  errors or  defects,  the  failure of its  products  to meet
customer  specifications  or  otherwise.  The  Company's  products are typically
intended  for  use  in  applications  that  may  be  critical  to  a  customer's
business.  As a result,  the Company  expects that its  customers  and potential
customers  have a greater  sensitivity  to product  defects  than the market for
general  software  products.  Although  the  Company's  business  has  not  been
materially and adversely  affected by any such errors,  or by defects or failure
to meet  specifications,  to  date,  there  can be no  assurance  that,  despite
testing  by the  Company  and by  current  and  potential  customers,  errors or
defects  will not be found in new  products or releases  after  commencement  of
commercial shipments,  or that such products will meet customer  specifications,
resulting in loss or deferral of revenues,  diversion  of  resources,  damage to
the  Company's  reputation,  or increased  service and warranty and other costs,
any of which could have a material  adverse effect upon the Company's  business,
operating results, and financial condition.

      Year 2000.  The Company is also subject to the risks  associated  with the
Year 2000  compatibility  of it's  products.  See  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000".

     Potential  Volatility  of  Stock  Price.  The  market  price of  shares  of
Common Stock is likely to be highly volatile and may be  significantly  affected
by  factors  such  as:  actual  or  anticipated  fluctuations  in the  Company's
operating results;  announcements of technological innovations;  new products or
new  contracts  by the  Company  or its  competitors;  sales of Common  Stock by
management;  sales of  significant  amounts  of Common  Stock  into the  market;
developments  with respect to proprietary  rights;  conditions and trends in the
software and other technology  industries;  adoption of new accounting standards
affecting the software  industry;  changes in financial  estimates by securities
analysts and others;  general market  conditions;  and other factors that may be
unrelated  to the Company or its  performance.  In  addition,  the stock  market
has from time to time  experienced  significant  price and  volume  fluctuations
that have  particularly  affected  the market  prices  for the  common  stock of
technology  companies.  These broad market  fluctuations  may  adversely  affect
the  market  price  of  the  Company's  Common  Stock.  In the  past,  following
periods  of   volatility   in  the  market  price  of  a  particular   company's
securities,  securities  class action  litigation has often been brought against
such  company.  There can be no assurance  that such  litigation  will not occur
in the future with respect to the Company.  Such  litigation,  regardless of its
outcome,  would  result in  substantial  costs and a diversion  of  management's
attention  and  resources  which could have a material  adverse  effect upon the
Company's business, results of operations, and financial condition.

     Control  by  Existing   Stockholders;   Effects  of  Certain  Anti-Takeover
Provisions.  Members of the Board of Directors,  and the  executive  officers of
the Company,  together  with members of their  families and entities that may be
deemed  affiliates  of, or related to, such  persons or  entities,  beneficially
own,  as of August  1,  1999,  approximately  29% of the  outstanding  shares of
Common Stock of the Company.  Accordingly,  these stockholders  could, if acting
in concert,  be able to elect all members of the  Company's  Board of  Directors
and determine the outcome of corporate actions requiring  stockholder  approval,
such  as  mergers  and  acquisitions.   Certain   provisions  of  the  Company's
Certificate of Incorporation,  equity incentive plans,  Bylaws, and Delaware law
may also discourage  certain  transactions  involving a change in control of the
Company.  This level of ownership by such persons and  entities,  when  combined
with the  Company's  classified  Board of Directors and the ability of the Board
of  Directors  to  issue  "blank  check"   preferred   stock   without   further
stockholder approval,  may have the effect of delaying,  deferring or preventing
a change in  control  of the  Company  and may  adversely  affect the voting and
other rights of other holders of Common Stock.

<PAGE>

                          PART II - OTHER INFORMATION

Item 1 - Legal Proceedings.

        None.

Item 2 - Changes in Securities

        None.

Item 3 - Defaults upon Senior Securities.

        None.

Item 4 - Submission of Matters to a Vote of Security Holders.

        The Company held its annual meeting of shareholders on May 20, 1999.
At such meeting the following actions were voted upon:

a.      Election of Directors
    NOMINEE                    NUMBER OF VOTES FOR            WITHHOLD AUTHORITY
    -------                    -------------------            ------------------
Harry S. Gruner                      5,582,009                     485,480
Graham O. King                       5,582,009                     485,480
James T. Rothe                       5,581,909                     485,580

b.      Ratification of KPMG LLP as the Company's independent accountants for
the fiscal year ending December 31, 1999.

 AFFIRMATIVE VOTES                  NEGATIVE VOTES                   ABSTENTIONS
 -----------------                  --------------                   -----------
     6,040,744                          21,650                          5,095


c.      Approval of a series of Amendments to the 1997 Stock Option/ Stock
Issuance Plan

 AFFIRMATIVE VOTES                  NEGATIVE VOTES                   ABSTENTIONS
 -----------------                  --------------                   -----------
     3,374,235                         550,138                         66,295
There were 2,076,021 broker non-votes for this proposal.

Item 5 - Other Information.

        None.

Item 6 - Exhibits and Reports on Form 8-K
        (a)     Exhibits
                27-Financial Data Schedule for the six months ended June 30,1999

        (b)     Reports on Form 8-K
                No reports on Form 8-K have been filed during the quarter
                ended June 30, 1999
<PAGE>

SIGNATURES


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

                                                            OPTIKA INC.
                                                           (Registrant)




               8/9/99                              /s/   Mark K. Ruport
               ------                       ----------------------------------
               (Date)                                  Mark K. Ruport
                                             President, Chief Executive Officer
                                                  and Chairman of the Board



               8/9/99                              /s/ Steven M. Johnson
               ------                       ----------------------------------
               (Date)                                  Steven M. Johnson
                                                Chief Financial Officer, Vice
                                           President Finance and Administration,
                                          Secretary and Chief Accounting Officer