<PAGE>

===============================================================================


                      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, 2001

                                      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
                                               ---     ---

           8,171,648 shares of the Registrant's Common Stock, $.001
            par value per share, were outstanding as of May 8, 2001


===============================================================================
<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                                                                             PAGE
                                                                                             ----
<S>                                                                                          <C>
PART 1 - FINANCIAL INFORMATION

     Item 1 -  Condensed Consolidated Financial Statements

               Condensed Consolidated Balance Sheets as of December 31, 2000 and
               March 31, 2001 (Unaudited)                                                       1

               Condensed Consolidated Statements of Operations for the three-month
               periods ended March 31, 2000 and 2001 (Unaudited)                                2

               Condensed Consolidated Statements of Cash Flows for the three-month
               periods ended March 31, 2000 and 2001 (Unaudited)                                3

               Notes to Condensed Consolidated Financial Statements (Unaudited)                 4

     Item 2 -  Management's Discussion and Analysis of Financial Condition
                 and Results of Operations                                                      6

     Item 3 - Quantitative and Qualitative Disclosures About Market Risk                       14


PART II - OTHER INFORMATION


     Item 5 - Other Information                                                                15

     Item 6 - Exhibits and Reports on Form 8-K                                                 15

     Signatures                                                                                16
</TABLE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       December 31,    March 31,
                                                                                                           2000          2001
                                                                                                       ------------   -----------
                                                                                                                      (unaudited)
<S>                                                                                                    <C>            <C>
Assets
Current assets:
   Cash and cash equivalents.....................................................................        $  2,192       $  4,826
   Short-term investments........................................................................           9,512          4,660
   Accounts receivable, net of allowance for doubtful accounts of $86 at December 31, 2000 and
       March 31, 2001............................................................................           2,913          2,655
   Other current assets..........................................................................             801            712
                                                                                                         --------       --------
         Total current assets....................................................................          15,418         12,853
                                                                                                         --------       --------

Property and equipment, net......................................................................           2,625          2,149
Other assets.....................................................................................             481            384
                                                                                                         --------       --------
                                                                                                         $ 18,524       $ 15,386
                                                                                                         ========       ========
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity
Current liabilities:
   Accounts payable..............................................................................        $  1,052       $    777
   Accrued expenses..............................................................................           1,043          1,677
   Accrued compensation expense..................................................................             909            845
   Deferred revenue..............................................................................           3,902          3,578
                                                                                                         --------       --------
          Total current liabilities..............................................................           6,906          6,877
                                                                                                         --------       --------

Redeemable convertible preferred stock...........................................................          10,849         11,345
                                                                                                         --------       --------

Commitments and contingencies
Stockholders' equity:
   Common stock; $.001 par value; 25,000,000 shares authorized; 8,107,149 and 8,171,648 shares
      issued and outstanding at December 31, 2000 and March 31, 2001, respectively...............               8              8
    Additional paid-in capital...................................................................          23,425         23,020
    Accumulated deficit..........................................................................         (22,689)       (25,893)
    Accumulated other comprehensive income.......................................................              25             29
                                                                                                         --------       --------

          Total stockholders' equity.............................................................             769         (2,836)
                                                                                                         --------       --------
                                                                                                         $ 18,524       $ 15,386
                                                                                                         ========       ========
</TABLE>
  The accompanying notes are an integral part of these financial statements.

                                       1
<PAGE>

                                  OPTIKA INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                            Three Months Ended March 31,
                                                                                            ----------------------------
                                                                                                2000             2001
                                                                                              --------         --------
<S>                                                                                           <C>              <C>
Revenues:
  Licenses............................................................................        $  1,190         $  1,422
  Maintenance and other...............................................................           2,637            2,423
                                                                                              --------         --------
     Total revenues...................................................................           3,827            3,845
                                                                                              --------         --------
Cost of revenues:
  Licenses............................................................................             142              149
  Maintenance and other...............................................................           1,055              979
                                                                                              --------         --------
     Total cost of revenues...........................................................           1,197            1,128
                                                                                              --------         --------

Gross profit..........................................................................           2,630            2,717
                                                                                              --------         --------
Operating expenses:
  Sales and marketing.................................................................           2,916            2,778
  Research and development............................................................           2,051            1,646
  General and administrative..........................................................             667              515
  Restructuring and other non-recurring charges.......................................               -            1,071
                                                                                              --------         --------

     Total operating expenses.........................................................           5,634            6,010
                                                                                              --------         --------

Loss from operations..................................................................          (3,004)          (3,293)
Other income, net.....................................................................             100               97
                                                                                              --------         --------

Loss before income tax expense........................................................          (2,904)          (3,196)
Income tax expense....................................................................              --                7
                                                                                              --------         --------
Net loss..............................................................................          (2,904)          (3,203)
Preferred stock dividend..............................................................            (120)            (317)
Accretion of preferred stock and beneficial conversion feature........................          (4,480)            (179)
                                                                                              --------         --------
Net loss applicable to common stockholders............................................        $ (7,504)        $ (3,699)
                                                                                              ========         ========

Basic and diluted net loss per common share...........................................        $ (0.99)         $ (0.45)
                                                                                              ========         ========

Basic and diluted weighted average number of common shares outstanding................           7,548            8,150
                                                                                              ========         ========
</TABLE>

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

                                       2
<PAGE>

                                  OPTIKA INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                (In thousands)

<TABLE>
<CAPTION>
                                                                                                      Three Months Ended March 31,
                                                                                                      ----------------------------
                                                                                                          2000             2001
                                                                                                        --------         --------
<S>                                                                                                     <C>              <C>
Cash Flows From Operating Activities:
Net loss........................................................................................        $ (2,904)        $ (3,203)
Adjustments to reconcile net loss to net cash used by operating activities:
   Depreciation and amortization................................................................             290              294
   Loss on disposal of assets...................................................................               -              195
   Deferred tax benefit.........................................................................              (4)               -
   Changes in assets and liabilities:
      Accounts receivable, net..................................................................             983              258
      Other assets..............................................................................              (7)             186
      Accounts payable..........................................................................             147             (275)
      Accrued expenses and accrued compensation expense.........................................             105              570
      Deferred revenue..........................................................................             312             (324)
                                                                                                        --------         --------

          Net cash used by operating activities.................................................          (1,078)          (2,299)
                                                                                                        --------         --------

Cash Flows From Investing Activities:
Capital expenditures............................................................................            (308)             (14)
Sale (purchase) of short-term investments.......................................................          (3,298)           4,856
                                                                                                        --------         --------

          Net cash provided (used) by investing activities......................................          (3,606)           4,842
                                                                                                        --------         --------

Cash Flows From Financing Activities:
Proceeds from issuance of common stock..........................................................           1,194               91
Net proceeds from issuance of redeemable convertible preferred stock and warrants...............          14,676                -
                                                                                                        --------         --------

          Net cash provided by financing activities.............................................          15,870               91
                                                                                                        --------         --------

Net increase in cash and cash equivalents.......................................................          11,186            2,634
Cash and cash equivalents at beginning of period................................................           3,359            2,192
                                                                                                        --------         --------
Cash and cash equivalents at end of period......................................................        $ 14,545         $  4,826
                                                                                                        ========         ========
</TABLE>

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

                                       3
<PAGE>

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

1.     Basis of Presentations

     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 our 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, 2001 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 2001. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 2000, included in our Annual
Report on Form 10-K for the year ended December 31, 2000.

2.     Net Loss Per Common Share

     Basic EPS is computed by dividing net loss applicable to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS is computed using the weighted average number of common
shares outstanding plus all dilutive potential common shares outstanding. During
the first quarter of 2000, 220,500 options to purchase our common stock were
granted. During the first quarter of 2001, 1,246,600 options to purchase our
common stock were granted.

     Net loss applicable to common shareholders during the quarters ended March
31, 2000 and March 31, 2001 include certain one-time and recurring adjustments
included in the loss per share computation relating to the $15 million
convertible preferred stock private placement with Thomas Weisel Capital
Partners L.P., which closed on February 23, 2000. Net loss per share for the
quarter ended March 31, 2000 included a one-time adjustment of $4.4 million that
treats the beneficial conversion terms of the preferred stock as a one-time
additional return to the preferred shareholders. The beneficial conversion
arises from accounting pronouncement requirements to allocate a portion of the
$15 million private placement to the issuance of common stock warrants. Net loss
per share also includes a recurring adjustment of $192,000 and $496,000 for the
quarter ended March 31, 2000 and 2001, respectively, that is comprised of the
accumulating 8% dividend on the convertible preferred stock and an allocation of
the discount associated with the preferred stock issuance, prorated for the
portion of the quarter that the preferred stock was outstanding. The
accumulating dividend and the discount allocation will continue until such time
as the preferred stock is converted to common stock or redeemed.

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,
                                                         ------------------
                                                           2000      2001
                                                         ------------------
Earnings Per Share:
   Net loss applicable to common stockholders.........   $(7,504)  $(3,699)
   Weighted average common shares
     outstanding......................................     7,548     8,150
   Net loss per common share..........................   $ (0.99)  $ (0.45)
Effect of Dilutive Securities:
   Options and warrants...............................        --        --
   Diluted weighted average common shares
     outstanding......................................     7,548     8,150
   Diluted net loss per common share..................   $ (0.99)  $ (0.45)

In 2001 and 2000, all options and warrants were excluded from the dilutive stock
calculation because of their

                                       4
<PAGE>

antidilutive effect on net loss per share.

3.   Restructuring and other non-recurring charges

     On February 6, 2001, we strategically reduced our workforce by 42 employees
to align our expenses more closely with revenues. This reduction in force
resulted in approximately $1.1 million of restructuring charges to earnings in
the first quarter of 2001. This restructuring charge consisted of $652,000 of
severance costs, $240,000 of lease termination and $179,000 of asset write-offs.
As of March 31, 2001 there is approximately $582,000 of severance and lease
costs remaining to be paid. All severance costs and the majority of the lease
costs are expected to be paid in cash before the end of 2001.

4.   Contingencies

     We are, 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 upon our business, results of operations and financial condition. We are
currently not a party to any material legal proceedings.

5.   Current Accounting Pronouncement

     SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities", as amended, requires us to recognize all derivatives on the balance
sheet at fair value. The gains or losses resulting from changes in the fair
value of derivative instruments will either be recognized in current earnings or
in other comprehensive income. The adoption of SFAS No. 133, as amended, during
the first quarter of fiscal 2001 did not have a material impact on our
consolidated financial position, results or operations, or cash flows as we did
not own any derivative instruments during the period.

6.   Subsequent Event

     On May 7, 2001, Optika Inc. (the "Company"), Thomas Weisel Capital Partners
L.P., a Delaware limited partnership, certain of its affiliates and RKB Capital,
L.P. (the "Purchasers"), entered into an Exchange Agreement attached as Exhibit
10.22 (the "Exchange Agreement"). Pursuant to the Exchange Agreement, we have
issued Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred"),
having the terms and provisions set forth in the Certificate of Designation
attached as Exhibit 3.6 (the "Certificate"), on a one-for-one basis, in return
for the exchange, surrender and cancellation of the Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred"). The Series A-1 Preferred
issued in exchange for the Series A Preferred is substantially identical to the
Series A Preferred with the exception of certain changes made to the redemption,
dividend, protective and liquidation provisions thereof. In connection with this
transaction, we also purchased the warrants associated with the Series A
Preferred for an aggregate of $0.01. The Series A-1 Preferred is convertible to
common stock at the holders' option based upon the conversion formula as defined
in the Certificate.

     The Series A-1 Preferred will be recorded in stockholders' equity at its
fair value. The difference between the carrying value of the Series A Preferred
and the fair value of the Series A-1 Preferred (as determined by an independent
valuation) will be recorded as a one-time adjustment to net income (loss)
applicable to common stockholders. We are in the process of obtaining a
valuation of the Series A-1 Preferred and expect to receive the results during
the second quarter. The following represents the effects of this transaction on
the balances of total assets, total liabilities, redeemable convertible
preferred stock and total stockholders' equity as if it had taken place as of
March 31, 2001:

<TABLE>
<CAPTION>

                                               ----------------------------------------------------------------------
(in thousands)                                   As Reported                 Pro forma            Pro forma March 31,
                                                March 31, 2001              adjustments                   2001
                                               ---------------              -----------           -------------------
<S>                                            <C>                          <C>                   <C>
Total assets                                       $15,386                   $     --                   $15,386

Total liabilities                                  $ 6,877                   $     --                   $ 6,877

Redeemable convertible preferred stock             $11,345                   $(11,345)                  $    --

Total stockholders' equity (deficit)               $(2,836)                  $ 11,345                   $ 8,509
</TABLE>

                                       5
<PAGE>

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

     This management's discussion and analysis of financial condition and
results of operations includes forward looking statements which reflect our
current views with respect to future events and financial performance. These
forward looking statements are subject to certain risks and uncertainties,
including those discussed below and those under the caption "Business Risks"
below, that could cause actual results to differ materially from historical
results or those anticipated.

Overview

     Optika(R) Inc. is a leading provider of imaging, workflow and collaborative
commerce software. Optika's Acorde family of Internet software solutions,
including Acorde Context, Process and Resolve, allow companies to effectively
and cost-efficiently manage paper-intensive or complex business processes and
transactions. Acorde provides the ability to access and store multiple formats
of business content, both digital and non-digital; automate processes across the
organization and externally with partners and customers; and enable online
collaboration around these paper-intensive or complex processes in real and near
time. A three-tier, scalable and extensible solution, Acorde delivers a variety
of client desktops, including Windows, web and the ability to integrate with
line-of-business and other third-party applications. The Acorde product family
allows organizations to improve processing efficiency, reduce operating costs
and increase customer and trading partner service and satisfaction. The Acorde
product is an evolution of Optika's eMedia product.

     The license of our software products is typically an executive-level
decision by prospective end-users and generally requires us and our Advantage
Partners, or APs, to engage in a lengthy and complex sales cycle (typically
between six and twelve months from the initial contact date). We distribute our
products through a direct sales force and a network of APs. For 2000,
approximately 72% of our license revenues were derived from our APs and the
remaining license fees were derived from direct sales. However, no individual
customer accounted for more than 10% of our total revenues. For the years ended
December 31, 1998, 1999 and 2000, we generated approximately 24%, 17% and 15%,
respectively, of our total revenues from international sales. Our revenues
consist primarily of license revenues, which are comprised of one-time fees for
the license of our products, service revenues, and maintenance revenues, which
are comprised of fees for upgrades and technical support. Our APs, which are
responsible for the installation and integration of the software for their
customers, enter into sales agreements with the end-user, and license software
directly from us. We license software directly to the end-user through software
license agreements. Annual maintenance agreements are also entered into between
the APs and the end-user, and the APs then purchase maintenance services
directly from us. For 1999 and 2000, approximately 53% and 33%, respectively, of
our total revenues were derived from software licenses and approximately 33% and
47%, respectively, of our total revenues were derived from maintenance
agreements. For 1999 and 2000, other revenues, which are comprised of training,
consulting and implementation services, and third-party hardware and software
products, accounted for 14% and 20%, respectively, of our total revenues.

     During February 2001, we strategically reduced our workforce by
approximately 25%. This reduction in force resulted in approximately $1.1
million of restructuring charges to earnings in the first quarter of 2001,
primarily to cover severance and severance related costs. We will realize
savings during fiscal year 2001 from the reduction in salary costs, office space
and related overhead expenses as a result of the restructuring plan. Further, we
anticipate cash outflows during fiscal year 2001 will be reduced from the
related expense reductions.

     We earn our revenue primarily from licenses and fees. Our revenue is
recognized in accordance with Statement of Position 97-2 (SOP 97-2), as amended.
We will generally recognize 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 or 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, or VSOE, of fair value exists for the
delivered and undelivered elements. Maintenance revenues are deferred and
recognized ratably over the maintenance period, which is generally one year.
Other revenues are recognized as services are performed.

                                       6
<PAGE>

     We generally do 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 shrink-wrapped
license agreements. Our software license agreements generally do not provide
price adjustments or rotation rights. We generally include a 90-day limited
warranty with the software license, which entitles the end-user to corrections
for documented program errors.

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

Revenues

     Total revenues remained constant at $3.8 million for the quarters ended
March 31, 2000 and 2001.

     Licenses. License revenues increased 19% from $1.2 million during the
quarter ended March 31, 2000 to $1.4 million for the quarter ended March 31,
2001. License revenues represented 31% and 37% of the total revenues for the
quarter ended March 31, 2000 and 2001, respectively. The increase in license
revenues during the first quarter of 2001 is primarily due to increases in sales
made by APs in North America resulting from our increased focus on our core
competencies, increased service levels to our customers and APs, and the
maturity of our Acorde product suites. License revenues generated outside of the
United States accounted for approximately 10% of our license revenues for the
quarter ended March 31, 2001, compared to 25% in the corresponding prior period.
The decrease in international revenues as a percentage of total revenue is a
result of slow first quarter sales in Brazil.

     Maintenance and Other. Maintenance revenues, exclusive of other revenue,
decreased 5% from $1.9 million during the quarter ended March 31, 2000, to $1.8
million for the quarter ended March 31, 2001. Maintenance revenue represented
50% and 47% of the total revenues for the quarter ended March 31, 2000 and 2001,
respectively. This decrease was primarily a result of the loss of revenue from
customers utilizing FilePower (predecessor product to Optika eMedia) that have
chosen not to upgrade to Acorde, partially offset by maintenance revenues
received from new customers. Other revenue, consisting primarily of consulting
services, training and consulting fees represented 19% and 16% of total revenues
for the quarter ended March 31, 2000 and 2001, respectively. The decrease in
other revenue as a percentage of total revenue was primarily due to decreased
consulting, project management and implementation services resulting from our
decreased direct sales.

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 slightly from $142,000 or 12% of license
revenues to $149,000 or 10% of license revenues for the quarter ended March 31,
2000 and 2001, 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 our APs and end-users, and the cost of third-party
software products. Cost of maintenance and other decreased in absolute dollars
from $1,055,000 or 40% of maintenance and other revenues to $979,000 or 40% of
maintenance and other revenues for the quarters ended March 31, 2000 and 2001,
respectively. The absolute dollar decrease in cost of maintenance and other is
primarily a result of the direct costs associated with the decreased 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

                                       7
<PAGE>

marketing expenses decreased from $2.9 million, or 76% of total revenues, for
the quarter ended March 31, 2000 to $2.8 million, or 72% of total revenues, for
the quarter ended March 31, 2001. The decrease in sales and marketing expenses
is primarily attributable to the February 2001 reduction in force. We anticipate
that sales and marketing expenses will continue to decrease in absolute dollars
in future quarters as we gain the full benefit of the reduction in force.

     Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, contractors, as well as the cost of facilities and equipment.
Research and development expenses decreased from $2.1 million, or 54% of total
revenues, for the quarter ended March 31, 2000 to $1.6 million, or 43% of total
revenues, for the quarter ended March 31, 2001. The decrease in research and
development expenses is primarily the result of the cost to develop the Optika
Acorde family of products in the first quarter of 2000 and the reduction in
force in the first quarter of 2001. We anticipate that research and development
expenses will continue to decrease as we gain the full benefit of the reduction
in force.

     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 $667,000, or 17% of total revenues, for
the quarter ended March 31, 2000 to $515,000, or 13% of total revenues, for the
quarter ended March 31, 2001. The decrease in general and administrative
expenses was primarily due to the reduction in force. We anticipate that general
and administrative expenses will remain relatively flat throughout the year.

     Restructuring and other non-recurring charges. On February 6, 2001, we
strategically reduced our workforce by 42 employees to align our expenses more
closely with revenues. This reduction in force resulted in approximately $1.1
million of restructuring charges to earnings in the first quarter of 2001. This
restructuring charge consisted of $652,000 of severance costs and $240,000 of
lease termination, $179,000 of asset write-offs. As of March 31, 2001 there is
approximately $582,000 of severance and lease costs remaining to be paid. All
severance costs and the majority of the lease costs are expected to be paid in
cash before the end of 2001. We anticipate our operating expenses will be
reduced by $750,000 to $1.0 million per quarter, starting in the quarter ending
June 30, 2001, as a result of this action.

     Other Income, net. Other income, net consists primarily of interest earned
on our investing activities. Net other income was $100,000 during the quarter
ended March 31, 2000 compared to net other income of $97,000 during the quarter
ended March 31, 2001, primarily as a result of interest income derived from the
proceeds of our preferred stock issuance.

     Income Tax Expense. We have recorded a full valuation allowance against our
carryforward tax benefits to the extent that we believe that it is more likely
than not all of such benefits will not be realized in the near term. Our
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular we considered both its historical
results and its projections of profitability for only reasonably foreseeable
future periods. Our realization of recorded net deferred tax assets is dependent
on future taxable income and therefore, we cannot assure you that such benefits
will be realized.

Liquidity and Capital Resources

     Cash and cash equivalents and short-term investments at March 31, 2001 were
$9.5 million, decreasing by approximately $2.2 million from December 31, 2000.
The decrease in cash and cash equivalents is primarily due to the first quarter
net loss.

     For the quarter ended March 31, 2000, net cash used by operating activities
was $1.1 million compared to net cash used by operating activities of $2.3
million for the quarter ended March 31, 2001. The cash used by operating
activities for the quarter ended March 31, 2001 was a direct result of the first
quarter net loss. Due to the reduction in force in February 2001, we will
realize reduced cash outflows for operating activities through reduced salaries
and related costs of approximately $750,000 to $1.0 million per quarter.

                                       8
<PAGE>

     Cash used by investing activities was $3.6 million for the quarter ended
March 31, 2000 compared to cash provided of $4.8 million for the quarter ended
March 31, 2001. Cash provided by or used in investing activities is primarily
due to the purchase or sale of marketable securities during the first quarter of
2000 and the first quarter of 2001.

     Cash provided by financing activities was $15.9 million for the quarter
ended March 31, 2000. Cash provided by financing activities was $91,000 for the
quarter ended March 31, 2001. Cash provided by financing activities resulted
primarily from proceeds from the private placement of preferred stock and
warrants for approximately $14.7 million of proceeds, net of issuance costs in
the first quarter of 2000.

     At March 31, 2001, our principal sources of liquidity included cash and
short-term investments of $9.5 million. In addition, we have a secured credit
facility for up to $3.0 million, bearing interest at the bank's prime rate. As
of March 31, 2001, we had $2.8 million available for borrowing and no other debt
outstanding.

     We believe that our current cash and short-term investments, together with
anticipated cash flow from operations and our bank credit facility, will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. Thereafter, we may require additional funds to
support such activity through public or private equity financing or from other
sources. Additional financing may not be available at all, or if available, such
financing may not be obtainable on terms favorable to us and may be dilutive.

Business Risks

     In evaluating our business, you should carefully consider the business
risks discussed in this section.

     Operating Result Fluctuations. Our sales and other operating results have
varied significantly in the past and will likely vary significantly in the
future as a result of factors such as:

 .    The size and timing of significant orders and their fulfillment

 .    Rate of rollout, demand and customer adoption of our product offerings

 .    Ability of third party products embedded or to be embedded in our products
     and our ability to negotiate license agreements with such third parties on
     favorable terms

 .    Changes in pricing policies by us or our competitors

 .    The number, timing and significance of product enhancements and new product
     announcements by us and our competitors

 .    Changes in the level of our operating expenses

 .    Warranty and customer support expenses

 .    Changes in our end-users' financial condition and budgetary processes

 .    Changes in our sales, marketing and distribution channels including the
     extent to which we are able to establish a direct sales force

 .    Product life cycles

 .    Software bugs and other product quality problems

 .    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 our business strategy

 .    Changes in accounting pronouncements

 .    The level of international expansion and foreign currency exchange rates

 .    Seasonal trends

                                       9
<PAGE>

     A significant portion of our revenues have been, and we believe 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 our operating results. Revenues are also difficult to
forecast because the markets for our products are rapidly evolving, and our
sales cycle and the sales cycle of our APs is lengthy and varies substantially
from end-user to end-user. To achieve our quarterly revenue objectives, we
depend 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, we have often recognized most
of our 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 our
expectations and may materially adversely affect our 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. We also have recorded generally
lower sales in the first quarter than in the immediately preceding fourth
quarter, as a result of, among other factors, end-users' purchasing and
budgeting practices and our sales commission practices. To the extent that
future international operations constitute a higher percentage of total
revenues, we anticipate that we may also experience relatively weaker demand in
the third quarter as a result of reduced sales in Europe during the summer
months. Significant portions of our 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, we believe that our quarterly operating results will vary in
the future, and that period-to-period comparisons of our 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 our operating results will be below the
expectations of public market analysts and investors. In such event, the price
of our common stock would likely decline and such decline could be significant.

     Blended Sales Model. During 1998, we altered our sales strategy with the
introduction of a direct sales team, but we had limited experience in marketing
and selling our products on a direct sales basis. Consequently, we may not be
successful in achieving a significant level of direct sales on a timely basis,
or at all. During 2000, our direct sales team had to adapt to selling our
collaborative commerce product, Acorde Resolve, which presented a different
series of sales challenges than our historical software products. If we are
unable to execute our direct sales strategy, it could have a material adverse
effect on our business and results of operations.

     Product Offerings. The Optika Acorde family of products (which included
Optika eMedia) account for substantially all of our current license revenue. Our
future financial performance will depend in general on the acceptance of our
product offerings, and in particular on the successful development, introduction
and customer acceptance of new and enhanced versions of our products. Such
markets, primarily the market for our collaborative commerce product, may not
grow and we may not be successful in developing and marketing these or any other
products, and these products may not achieve widespread customer acceptance. To
date, we have not recognized any direct revenue from the sale of our
collaborative commerce product, Acorde Resolve, which was first released June
30, 2000. We may not be successful in selling the Optika Acorde family of
products, and we may encounter unexpected delays or costs in such rollout, and
any such failures could have a material adverse effect on our business and
results or operations.

     Capital Requirements. We believe that our existing cash balances and liquid
resources will be sufficient to fund our operating activities, capital
expenditures and other obligations through at least the next twelve months.
Recently capital market conditions have materially and adversely affected the
ability of many Internet companies to raise additional capital in both private
and public markets. If market conditions do not improve and we are not
successful in generating sufficient cash flow from operations or in raising
additional capital when required in sufficient amounts and on terms acceptable
to us, we may be required to reduce our planned expenditures and scale back the
scope of our business plan, either of which could have a material adverse effect
on our business. On February 6, 2001, we had a strategic reduction in force to
more closely align our operating expenses with our current revenues. We reduced
our workforce by approximately 25%, primarily in the areas of administration and
finance, research and development, and sales and marketing.

                                      10
<PAGE>

     Key Employees. Most of our senior management team has joined us within the
last five years. These individuals may not be able to achieve and manage growth,
if any, or build an infrastructure necessary for us to operate. Our ability to
compete effectively and to manage any future growth will require that we
continue to assimilate new personnel and to train and manage our work force. Our
future performance depends to a significant degree upon the continuing
contributions of our key management, sales, marketing, customer support, and
product development personnel. We have at times experienced, and continue to
experience, difficulty in recruiting qualified personnel, particularly in sales,
software development and customer support. We believe 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 our
employees. We have from time to time experienced turnover of key management,
sales and technical personnel. The loss of key management, sales or technical
personnel, or the failure to attract and retain key personnel, could harm our
business.

     Advantage Partners. Our future results of operations will depend on the
success of our marketing and distribution strategy, which has relied, to a
significant degree, upon APs to sell and install our 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 our software. Some APs may
not continue to represent Optika or sell our products. Other APs, some of which
have significantly greater financial marketing and other resources than us, may
develop or market software products that compete with our products or may
otherwise discontinue their relationship with, or support of, us. Some of our
APs are small companies that have limited financial and other resources that
could impair their ability to pay us. Our strategy may not be successful and our
strategy may adversely impact sales through our APs. Selling through indirect
channels may also hinder our ability to forecast sales accurately, evaluate
customer satisfaction or recognize emerging customer requirements.

     Product Updates and Releases. The markets for our products are
characterized by rapid technological change, changes in customer requirements,
frequent new product introductions and enhancements, and emerging industry
standards. Our future performance will depend in significant part upon our
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. We are
unable to predict the future impact of such technology changes on our products.
Moreover, the life cycles of our products are difficult to estimate. Our future
performance will depend in significant part upon our ability to enhance current
products, and to develop and introduce new products and enhancements that
respond to evolving customer requirements. We have 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, 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 our business and results of operations.

     Third Party Software. We license software from third parties, which is
incorporated into our products. These licenses expire from time to time. These
third-party software licenses may not continue to be available to us on
commercially reasonable terms. 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 our business and financial condition. In
addition, we generally do 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, we 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 our business and results of operations.

     Sales Cycle. The license of our software products is typically an
executive-level decision by prospective end-users, and generally requires us and
our APs 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 our products

                                      11
<PAGE>

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
we have little or no control. Our future performance also depends upon the
capital expenditure budgets of our customers and the demand by such customers
for our products. Certain industries to which we sell our products, such as the
financial services industry, are highly cyclical. Our 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. Such factors may have a material
adverse effect on our business and results of operations.

     Competition. The market for our product offerings is intensely competitive
and can be significantly affected by new product introductions and other market
activities of industry participants. We anticipate that the collaborative
commerce market will also be highly competitive and subject to competitive
forces that do not currently exist. Our competitors offer a variety of products
and services to address the document management market and the emerging market
for e-business solutions. Because our products are designed to operate in non-
proprietary computing environments and because of low barriers to entry in the
marketplace, we expect additional competition from established and emerging
companies, as the market for e-business continues to evolve. 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 our prospective customers. In addition,
several competitors have recently made, or attempted to make, acquisitions to
enter the market or increase their market presence. Accordingly, new competitors
or alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which would have a material adverse
effect on our business and results of operations. We may not be able to compete
successfully against current or future competitors.

     Competitor Resources. Many of our current and potential competitors are
substantially larger than we are, 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 we can. We expect our 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. Our failure to
keep pace with our competitors through new product introductions or enhancements
could cause a significant decline in our sales or loss of market acceptance of
our products and services, result in continued intense price competition, or
make our products and services or technologies obsolete or noncompetitive. To be
competitive, we will be required to continue to invest significant resources in
research and development, and in sales and marketing.

     Intellectual Property. Our performance depends in part on our ability to
protect our proprietary rights to the technologies used in our principal
products. We rely on a combination of copyright and trademark laws, trade
secrets, confidentiality provisions and other contractual provisions to protect
our proprietary rights, which are measures that afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products, or to obtain and use information that
we regard as proprietary. In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the United States. Our
means of protecting our proprietary rights in the United States or abroad may
not be adequate, and competitors may independently develop similar technologies.
Third parties may claim infringement by our products of their intellectual
property rights. We expect that software product developers will increasingly be
subject to infringement claims if the number of products and competitors in our
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 us to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. A successful claim of infringement against our
products and failure or inability to license the infringed or similar technology
may adversely affect our business and results of operations.

                                      12
<PAGE>

     International Operations. Sales outside the United States accounted for
approximately 24%, 17% and 15% of our revenues in 1998, 1999 and 2000,
respectively. We have only limited experience in developing localized versions
of our products and cannot assure you that we will be able to successfully
localize, market, sell and deliver our products internationally. Our inability
to successfully expand our international operations in a timely manner, or at
all, could materially and adversely affect our business and results of
operations. Our international revenues may be denominated in foreign currencies
or the U.S. dollar. We do 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 our software less price-competitive, and could
have a material adverse effect upon our business, results of operations, and
financial condition.

     Product Liability. Our license agreements typically contain provisions
designed to limit our exposure to potential product liability claims. These
limitations of liability provisions may not be effective under the laws of
certain jurisdictions. The sale and support of our products may entail the risk
of such claims, and we cannot assure you that we will not be subject to such
claims in the future. A successful product liability claim against us could have
a material adverse effect upon our business and results of operations. Software
products such as those we offer frequently contain errors or failures,
especially when first introduced or when new versions are released. We have in
the past released products that contained defects, and have discovered software
errors in certain of our new products and enhancements after introduction. We
could in the future lose or delay recognition of revenues as a result of
software errors or defects, the failure of our products to meet customer
specifications or otherwise. Our products are typically intended for use in
applications that may be critical to a customer's business. As a result, we
expect that our customers and potential customers have a greater sensitivity to
product defects than the market for general software products. Despite our
testing and testing by current and potential customers, errors or defects may be
found in new products or releases after commencement of commercial shipments,
and our products may not meet customer specifications, resulting in loss or
deferral of revenues, diversion of resources, damage to our reputation, or
increased service and warranty and other costs, any of which could have a
material adverse effect upon our business and operating results.

     Common Stock Price Volatility. The market price of our shares of common
stock has been, and is likely to continue to be, highly volatile and may be
significantly affected by factors such as:

 .    Actual or anticipated fluctuations in our operating results

 .    Announcements of technological innovations

 .    New products or new contracts by us or our 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

 .    Other factors that may be unrelated to us or our 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 our 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. Such litigation may be brought against us in the future. Such
litigation, regardless of its

                                      13
<PAGE>

outcome, would result in substantial costs and a diversion of management's
attention and resources that could have a material adverse effect upon our
business and results of operations.

     Beneficial Ownership. Holders of our Preferred Stock and members of our
Board of Directors and our executive officers, 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 May 8, 2001, approximately 24% of
the outstanding shares of our voting stock. Accordingly, these stockholders
could, if acting in concert, be able to substantially influence the election of
all members of our Board of Directors and determine the outcome of corporate
actions requiring stockholder approval, such as mergers and acquisitions. The
interests of these stockholders could conflict with the interests of other
stockholders.

     Change In Company Control. Certain provisions of our Certificate of
Incorporation, equity incentive plans, Bylaws, and Delaware law may discourage
certain transactions involving a change in control of our company. Our
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 our control and may also
affect the market price of our stock.

ITEM 3.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As of March 31, 2001 we had $4.7 million in short-term investments that are
sensitive to market risks. Our investment portfolio is used to preserve our
capital until it is required to fund operations. We do not own any derivative
financial instruments. Due to the nature of our investment portfolio we are
primarily subject to interest rate risk.

     Our investment portfolio includes fixed rate debt instruments that are
primarily United States government and agency bonds of durations ranging from
one to four years. The market value of these bonds is subject to interest rate
risk, and could decline in value if interest rates increase A hypothetical
increase or decrease in market interest rates by 10% from March 31, 2001 would
cause the fair market value of these short-term investments to change by an
insignificant amount.

                                      14
<PAGE>

PART II - OTHER INFORMATION

Item 5 - Other Information

     On May 7, 2001, Optika Inc. (the "Company"), Thomas Weisel Capital Partners
L.P., a Delaware limited partnership, certain of its affiliates and RKB Capital,
L.P. (the "Purchasers"), entered into an Exchange Agreement attached as Exhibit
10.22 (the "Exchange Agreement"). Pursuant to the Exchange Agreement, we have
issued Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred"),
having the terms and provisions set forth in the Certificate of Designation
attached as Exhibit 3.6 (the "Certificate"), on a one-for-one basis, in return
for the exchange, surrender and cancellation of the Series A Redeemable
Convertible Preferred Stock (the "Series A Preferred"). The Series A-1 Preferred
issued in exchange for the Series A Preferred is substantially identical to the
Series A Preferred with the exception of certain changes made to the redemption,
dividend, protective and liquidation provisions thereof. In connection with this
transaction, we also purchased the warrants associated with the Series A
Preferred for an aggregate of $0.01. The Series A-1 Preferred is convertible to
common stock at the holders' option based upon the conversion formula as defined
in the Certificate.

     The Series A-1 Preferred will be recorded in stockholders' equity at its
fair value. The difference between the carrying value of the Series A Preferred
and the fair value of the Series A-1 Preferred (as determined by an independent
valuation) will be recorded as a one-time adjustment to net income (loss)
applicable to common stockholders. We are in the process of obtaining a
valuation of the Series A-1 Preferred and expect to receive the results during
the second quarter. The following represents the effects of this transaction on
the balances of total assets, total liabilities, redeemable convertible
preferred stock and total stockholders' equity as if it had taken place as of
March 31, 2001:

<TABLE>
<CAPTION>
                                                ---------------------------------------------------------------------
(in thousands)                                   As Reported                 Pro forma            Pro forma March 31,
                                                March 31, 2001              adjustments                   2001
                                                ---------------             ------------          -------------------
<S>                                             <C>                         <C>                   <C>
Total assets                                        $15,386                   $     --                  $15,386

Total liabilities                                   $ 6,877                   $     --                  $ 6,877

Redeemable convertible preferred stock              $11,345                   $(11,345)                 $    --

Total stockholders' equity (deficit)                $(2,836)                  $ 11,345                  $ 8,509
</TABLE>

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

          (a)  Exhibits

                 3.6     Certificate of Designation, designating the Series A-1
                         Convertible Preferred Stock

                 10.22   Exchange Agreement dated as of May 7, 2001, by and
                         between the Registrant, Thomas Weisel Capital Partners
                         L.P. and certain of its affiliates and RKB Capital,
                         L.P..

                 10.23   First Amendment to Registration Rights Agreement dated
                         May 7, 2001 by and between the Registrant, Thomas
                         Weisel Capital Partners L.P. and certain of its
                         affiliates and RKB Capital, L.P.

                 10.24   Mutual Agreement regarding future treatment of Series
                         A-1 Preferred Stock dated as of May 7, 2001 by and
                         between the Registrant, Thomas Weisel Capital Partners
                         L.P. and certain of its affiliates and RKB Capital,
                         L.P.

          (b)  Reports on Form 8-K

                 No reports on Form 8-K have been filed during the quarter ended
                 March 31, 2001.

                                      15
<PAGE>

                                  SIGNATURES


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

                                                  OPTIKA INC.
                                                 (Registrant)



             5/12/01                          /s/ Mark K. Ruport
     -----------------------     -----------------------------------------------
             (Date)                              Mark K. Ruport
                                       President, Chief Executive Officer
                                            and Chairman of the Board



             5/12/01                          /s/ Steven M. Johnson
     -----------------------     -----------------------------------------------
            (Date)                              Steven M. Johnson
                                 Chief Financial Officer, Vice President Finance
                                        and Administration, Secretary and
                                            Chief Accounting Officer

                                       16