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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 March 31, 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 ____.

      7,177,896 shares of the  Registrant's  Common Stock,  $.001 par value
      per share, were outstanding as of May 1, 1999



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<PAGE>

                                      INDEX

                                                                           PAGE
PART 1 - FINANCIAL INFORMATION

Item 1 -  Condensed Consolidated Financial Statements

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

   Condensed Consolidated Statements of Operations for the three-
   month periods ended March 31, 1998 and 1999 (Unaudited)                   2

   Condensed  Consolidated  Statements of Cash Flows for the three-
   month periods ended March 31, 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 SHEET
               (In thousands, except share and per share amounts)

                                                       December 31,  March 31,
                                                          1998         1999
                                                       -----------  ----------
                                                                    (unaudited)
<S>                                                    <C>          <C>  
Assets
Current Assets:
   Cash and cash equivalents.......................    $    6,811   $   5,041
   Short-term investments..........................         1,000       2,693
   Accounts receivable, net........................         4,571       4,022
   Other current assets............................           511         679
                                                       -----------  ----------
         Total current assets......................        12,893      12,435
                                                       -----------  ----------

Fixed assets, net..................................         3,136       3,034
Deferred tax asset.................................         2,438       2,593
Other assets, net..................................            70         131
                                                       ===========  ==========
                                                       $   18,537   $  18,193
                                                       ===========  ==========

Liabilities and Stockholders' Equity 
Current liabilities:
   Accounts payable................................    $      710   $     867
   Accrued expenses................................         1,446       1,273
   Accrued compensation expense....................         1,206         853
   Deferred revenue................................         3,355       3,539
                                                       -----------  ----------
          Total current liabilities................         6,717       6,532
                                                       -----------  ----------

Commitments and contingencies

Common stockholders' equity:
   Common stock; $.001 par value; 25,000,000 shares
   authorized;  7,114,573 and 7,171,470 shares issued 
   and outstanding at December 31, 1998 and March 31,
   1999, respectively..............................             7           7
   Additional paid-in capital......................        17,617      17,738
   Accumulated deficit.............................        (5,804)     (6,084)
                                                       -----------  ----------
          Total common stockholders' equity........         11,820     11,661
                                                       ===========  ==========
                                                       $    18,537  $  18,193
                                                       ===========  ==========
<FN>
  The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                   OPTIKA INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (In thousands, except per share amounts)


                                                  Three Months Ended March 31,
                                                  ----------------------------
                                                      1998          1999
                                                      ----          ----
<S>                                               <C>           <C>    
Revenues:
  Licenses...................................     $      2,248  $       2,876
  Maintenance and other......................            1,460          2,302
                                                  ------------- --------------
     Total revenues..........................            3,708          5,178

Cost of revenues:
  Licenses...................................              126            148
  Maintenance and other......................              709            950
                                                  ------------- --------------
     Total cost of revenues..................              835          1,098
                                                  ------------- --------------

Gross profit.................................            2,873          4,080

Operating expenses:
  Sales and marketing........................            2,927          2,699
  Research and development...................            1,126          1,357
  General and administrative.................              561            489
                                                  ------------- --------------

     Total operating expenses................            4,614          4,545
                                                  ------------- --------------

Loss from operations.........................           (1,741)          (465)
Other income, net............................               59             34
                                                  ------------- --------------

Loss before benefit from income taxes........           (1,682)          (431)
Benefit from income taxes....................             (336)          (151)
                                                  ------------- --------------

Net loss ....................................     $     (1,346) $        (280)
                                                  ============= ==============

Basic net loss per common share..............     $      (0.19) $       (0.04)
                                                  ============= ==============
Basic weighted average number of common shares         
outstanding..................................            6,927          7,151
                                                  ============= ==============
Diluted net loss per common share............     $      (0.19) $       (0.04)
                                                  ============= ==============
Diluted weighted average number of common                 
shares outstanding...........................            6,927          7,151
                                                  ============= ==============
<FN>
  The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                   OPTIKA INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

                                                         Three Months Ended
                                                               March 31,
                                                       -----------------------
                                                          1998          1999
                                                       ------------  ----------
<S>                                                    <C>           <C>   
Cash Flows From Operating Activities:
Net loss...........................................    $    (1,346)  $    (280)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:                    
   Depreciation and amortization...................            186         218
   Deferred tax benefit............................           (353)       (155)
   Change in assets and liabilities:
      Accounts receivable, net.....................          1,974         549
      Other assets.................................            (36)       (229)
      Accounts payable.............................            330         157
      Accrued expenses.............................           (719)       (526)
      Deferred revenue.............................            187         184
                                                       ------------  ----------

   Net cash provided (used) by operations..........            223         (82)
                                                       ------------  ----------

Cash Flows From Investing Activities:
Capital expenditures...............................           (425)       (116)
Sale (purchase) of short-term investments..........          1,954      (1,693)
                                                       ------------  ----------

   Net cash provided (used) by investing actvities.          1,529      (1,809)
                                                       ------------  ----------

Cash Flows From Financing Activities:
Principal payments on long-term debt...............            (15)         --
Proceeds from issuance of common stock.............             40         121
                                                       ------------  ----------

   Net cash provided by financing activities.......             25         121
                                                       ------------  ----------

Net increase (decrease) in cash and cash equivalents         1,777      (1,770)
Cash and cash equivalents at beginning of period...          3,202       6,811
                                                       ------------  ----------
Cash and cash equivalents at end of period.........    $     4,979   $   5,041
                                                       ============  ==========
<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 March 31, 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 quarter of 1998, 239,000 options to
purchase  common stock of the Company were granted.  During the first quarter of
1999,  102,200  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 option share.

The following is the  reconciliation  of the numerators and  denominators of the
basic and diluted EPS computations (in thousands except per share data):
                                                       
                                                       Three Months Ended
                                                            March 31,
                                                         1998       1999
                                                       ------------------
Earning Per Share:
       Net loss.....................................   $(1,346)  $  (280)
       Basic weighted average common shares
        outstanding.................................     6,927     7,151
       Basic net loss per common share..............   $ (0.19)  $ (0.04)
Effect of Dilutive Securities:
       Options and warrants.........................        --        --
       Diluted weighted average common shares
        outstanding.................................     6,927     7,151
       Diluted net loss per common share............   $ (0.19)  $ (0.04)

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
outcome 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.

Revenues

      Total  revenues  increased  39.6% from $3.7 million for the quarter  ended
March 31, 1998 to $5.2 million for the quarter ended March 31, 1999.

      Licenses.  License  revenues  increased 27.9% from $2.2 million during the
quarter  ended  March 31, 1998 to $2.9  million for the quarter  ended March 31,
1999. License revenues represented 60.6% and 55.5% of the total revenues for the
quarter  ended  March  31,  1998 and 1999,  respectively.  The  absolute  dollar
increase in license  revenues  during the first  quarter of 1999 is  primarily a
result of the release of the Optika eMedia product into the marketplace. License
revenues  generated  outside of the United States  accounted  for  approximately
11.3% of the Company's  revenues for the quarter ended March 31, 1999,  compared
to 18.3% in the  corresponding  prior  period.  The  decrease  in  international
revenue is a result of the weak economies in Latin America and Asia.

      Maintenance and Other.  Maintenance revenues,  exclusive of other revenue,
increased  44.2% from $1.1 million  during the quarter  ended March 31, 1998, to
$1.6  million  for  the  quarter  ended  March  31,  1999.  Maintenance  revenue
represented  29.7% and 30.7% of the total  revenues for the quarter  ended March
31, 1998 and 1999,  respectively.  This  increase  was  primarily a result of an
increase in the number of installed systems. Other revenue, consisting primarily
of consulting services,  training and consulting fees represented 9.7% and 13.8%
of total  revenues for the quarter ended March 31, 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  consist  primarily  of royalty  payments  to
third-party  vendors  and costs of product  media,  duplication,  packaging  and
fulfillment.  Cost of  licenses  increased  from  $126,000  or  5.6% of  license
revenues to $148,000 or 5.1% of license revenues for the quarter ended March 31,
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 from $709,000 or 48.6% of  maintenance  and other revenues to $950,000
or 41.3% of maintenance and other revenues for the quarters ended March 31, 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  $2.9  million,  or 78.9% of total  revenues,  for the
quarter ended March 31, 1998 to $2.7 million,  or 52.1% of total  revenues,  for
the quarter ended March 31, 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 $1.1 million,  or 30.4% of total revenues,
for the  quarter  ended  March  31,  1998 to $1.4  million,  or  26.2%  of total
revenues,  for the quarter ended March 31, 1999. The absolute dollar increase in
research  and  development  is  primarily  the result of the  continued  cost to
develop the Optika eMedia  product.  The Company  anticipates  that research and
development  expenses  will  increase  slightly  in  absolute  dollars in future
quarters.

      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 $561,000, or 15.1% of total revenues, for
the quarter ended March 31, 1998 to $489,000, or 9.4% of total revenues, for the
quarter  ended  March 31,  1999.  The  decrease  in general  and  administrative
expenses was primarily due to the  write-off of certain  accounts  receivable in
Asia during the first quarter of 1998 that were not present in 1999.

      Other Income, net. Other income, net consists primarily of interest earned
on  the  Company's  investing  activities  offset  by  interest  expense  on the
Company's  capitalized  lease  obligations,  other debt,  and  foreign  currency
translation  adjustments.  The  Company  incurred a net other  income of $59,000
during the quarter  ended March 31, 1998 compared to net other income of $34,000
during the  quarter  ended  March 31,  1999,  primarily  as a result of interest
income  derived from the  investment of the Company's  initial  public  offering
proceeds.

      Benefit  from  Income  Taxes.  The  Company's  effective  tax rate for the
quarter ended March 31, 1999 was 35%,  which  reflects the  Company's  estimated
annual effective tax rate.

Liquidity and Capital Resources

      Cash and  short-term  investments  at March 31,  1999  were $7.7  million,
decreasing by approximately $77,000 from December 31, 1998. The decrease in cash
and  short-term  investments is primarily due to the 1999 first quarter loss and
capital expenditures associated with additional computer equipment.

      For the  quarter  ended March 31,  1998,  net cash  provided by  operating
activities  was $223,000  compared to net cash used in operating  activities  of
$82,000  for the  quarter  ended  March 31,  1999.  The cash  used in  operating
activities for the quarter ended March 31, 1999 was a direct result of the first
quarter net loss.

      Cash  provided by  investing  activities  was $1.5 million for the quarter
ended March 31, 1998 compared to cash used of $1.8 million for the quarter ended
March 31,  1999.  Sources of cash  consisted  primarily  of sales of  marketable
securities  in the first  quarter  of 1998,  while  marketable  securities  were
purchased during the first quarter of 1999.

      Cash  provided by financing  activities  was $25,000 for the quarter ended
March 31,  1998.  Cash  provided by  financing  activities  was $121,000 for the
quarter  ended March 31, 1999.  Cash provided by financing  activities  resulted
primarily from proceeds from the sale of securities under the Company's employee
stock option plan and employee stock purchase plan, offset in part by repayments
of bank borrowings, capital leases and other debt in 1998.

      At March 31, 1999, the Company's  principal sources of liquidity  included
cash and short-term  investments of $7.7 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 March 31, 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.  In addition,  the Company is currently working with a
third-party to extensively  test the Year 2000  compliance of the product.  This
testing is currently expected to be completed during the second quarter of 1999.
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 during the testing process or even 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 reviewed them for
Year 2000 compliance by contacting each vendor and requesting  documentation  on
Year 2000 readiness. The Company will do testing of its Mission Critical Systems
in the second  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  documentation on the Year  2000-compliance  status of its
key vendors.  The key third  parties to which the Company is  concerned  are its
investing, banking, and payroll vendors. The Company will attempt to obtain Year
2000-compliance status from certain other third parties by the end of the second
quarter of 1999. 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  affect 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.

    Risks Associated with the Introduction of Optika eMedia.  In March 1998, the
Company  announced  plans to  introduce  Optika  eMedia,  its  32-bit  Web-based
software solution that enables  organizations  with high transaction  volumes to
efficiently  and  inexpensively   manage  the  high-volume  flow  of  paper  and
electronic data associated with running today's businesses. In July 1998, Optika
announced  the  controlled  shipment of Optika eMedia to initial user sites that
included  Fortune 1000  companies and other large  organizations.  Optika eMedia
became  commercially  available in late September  1998.  Because the market for
Optika eMedia is new and evolving, it is difficult to assess or predict with any
assurance  the  growth  rate  and  size of this  market.  There  also  can be no
assurance  that the market for Optika  eMedia will  continue to develop.  If the
market continues to develop more slowly than expected or becomes  saturated with
competitors, or if the product does not achieve market acceptance, the Company's
business,  results of  operations  and  financial  condition  may be  materially
adversely affected.

    In  1999,  Optika  eMedia  was  fully  implemented  in  several   customers'
environments.  However,  there can be no assurance  that Optika  eMedia will not
require   substantial   software   enhancements  or   modifications  to  satisfy
performance  requirements  of customers or to fix design  defects of  previously
undetected errors.  Further,  it is common for complex software programs such as
Optika  eMedia to  contain  undetected  errors  when first  released,  which are
discovered  only  after the  product  has been  used  over  time with  different
computer systems and in varying applications and environments. While the Company
is not aware of any significant technical problems with Optika eMedia, there can
be no assurance that errors will not be discovered, or if discovered,  that they
will be  successfully  corrected on a timely  basis,  if at all.  The  Company's
future business growth is substantially  dependent on the continued development,
introduction  and market  acceptance of Optika eMedia.  If customers  experience
significant  problems  with  implementation  of Optika  eMedia or are  otherwise
dissatisfied  with the  functionality or performance of Optika eMedia,  or if it
fails to achieve market acceptance for any other reason, the Company's business,
results of  operations  and  financial  condition  may 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.  To date, the majority of the Company's revenues have
been  attributable  to sales of the  FilePower  Suite  and  individual  software
modules which  comprise the  FilePower  Suite.  Optika  eMedia became  generally
available in September 1998. The Company expects Optika eMedia and the FilePower
Suite 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. (See Year 2000 discussion).

    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
approximately  38% 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.

      None.

Item 5 - Other Information.

      None.

Item 6 - Exhibits and Reports on Form 8-K
 .
(a)   Exhibits

           27   Financial data schedule.

(b)   Reports on Form 8-K

           On March 30 and April 2, 1999 the Company  filed reports on Form 8-K,
           Item 4, Change in Registrant's Certifying Accountants.

<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)




          5/13/99                    /s/   Mark K. Ruport   
          -------              ----------------------------------
          (Date)                        Mark K. Ruport
                               President, Chief Executive Officer
                               and Chairman of the Board



          5/13/99                    /s/ Steven M. Johnson    
          -------              ----------------------------------
          (Date)                       Steven M. Johnson
                               Chief Financial Officer, Vice President 
                               Finance and Administration, Secretary 
                               and Chief Accounting Officer