<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 September 30, 1997

                                       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 IMAGING SYSTEMS, 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               80920
                  SUITE 200                  (ZIP CODE)
              COLORADO SPRINGS, CO
     (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     .
                                               -------    -----      

           6,853,524  SHARES OF  THE REGISTRANT'S COMMON STOCK, $.001
         PAR VALUE PER SHARE,  WERE OUTSTANDING AS OF NOVEMBER 7, 1997

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

                                        

                                                                            PAGE
                                                                            ----
                                                                                

PART I - FINANCIAL INFORMATION

     Item 1 -  Condensed Consolidated Financial Statements
 
               Condensed Consolidated Balance Sheets as of 
                December 31, 1996 and September 30, 1997 (Unaudited)          1
 
               Condensed Consolidated Statements of Operations for
                the three-month and nine-month
                periods ended September 30, 1996 and 1997 (Unaudited)         2
 
               Condensed Consolidated Statements of Cash Flows for
                the nine-month periods ended September 30, 1996 
                and 1997 (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                                              15
 
     Item 2 - Changes in Securities                                          15
 
     Item 3 - Defaults on Senior Securities                                  15
 
     Item 4 - Submission of Matters to a Vote of Security Holders            15
 
     Item 5 - Other Information                                              15
 
     Item 6 - Exhibits and Reports on Form 8-K                               15
 
     Signatures                                                              16
 

<PAGE>
 
                          OPTIKA IMAGING SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                      (In thousands, except share amounts)


<TABLE>
<CAPTION>
                                                                                                                  
                                                                              DECEMBER 31,         SEPTEMBER 30,
                                                                                  1996                 1997
                                                                           -----------------    -----------------
                                                                                                    (unaudited)
<S>                                                                          <C>                  <C>
ASSETS
Current Assets:
   Cash and cash equivalents......................................             $  3,474             $  1,375
   Short-term investments.........................................                8,025                7,898
   Accounts receivable, net.......................................                5,766                7,397
   Other current assets...........................................                  825                1,077
                                                                              ---------            ---------
         Total current assets.....................................               18,090               17,747
                                                                              ---------            ---------

Fixed assets, net.................................................                1,038                2,716
Other assets, net.................................................                1,130                1,028
                                                                              ---------            ---------
                                                                               $ 20,258             $ 21,491
                                                                              =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt..............................             $    280             $     92
   Accounts payable and accrued expenses..........................                2,134                2,326
   Deferred revenue...............................................                1,859                2,310
                                                                              ---------            ---------
          Total current liabilities...............................                4,273                4,728
                                                                              ---------            ---------
Long-term debt....................................................                  136                   --

Commitments and contingencies
 Common stockholders' equity:
   Common stock; $.001 par value; 25,000,000 shares authorized;
      6,670,319 and 6,844,024 shares issued and outstanding
      at December 31, 1996 and September 30, 1997, respectively...                    7                    7
      Additional paid-in capital..................................               16,701               17,161
      Retained deficit............................................                 (859)                (405)
                                                                              ---------            ---------
          Total common stockholders' equity.......................               15,849               16,763
                                                                              ---------            ---------
                                                                               $ 20,258             $ 21,491
                                                                              =========            =========
</TABLE> 
   The accompanying notes are an integral part of these financial statements.

                                       1
<PAGE>
 
                          OPTIKA IMAGING SYSTEMS, INC.
                                        
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                  (Unaudited)
                    (In thousands, except per share amounts)


                                        
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED                NINE MONTHS ENDED    
                                                                SEPTEMBER 30,                     SEPTEMBER 30,      
                                                         --------------------------         -----------------------
                                                             1996         1997                 1996         1997
                                                         -----------    -----------         ----------    ---------
<S>                                                      <C>            <C>                 <C>           <C> 
Revenues: 
   Licenses............................................ $   3,309       $   4,273            $  8,957     $ 11,213
   Maintenance and other...............................     1,002           1,533               2,315        4,285
                                                         --------       ---------             -------      -------
     Total revenues....................................     4,311           5,806              11,272       15,498

Cost of revenues:
   Licenses............................................       150             172                 427          470
   Maintenance and other...............................       439             764               1,306        2,066
                                                         --------       ---------             -------      -------
      Total cost of revenues...........................       589             936               1,733        2,536
                                                         --------       ---------             -------      -------

Gross profit...........................................     3,722           4,870               9,539       12,962

Operating expenses:
   Sales and marketing.................................     1,998           2,649               4,924        7,364
   Research and development............................     1,233           1,360               3,463        3,902
   General and administrative..........................       302             474                 915        1,315
                                                         --------       ---------             -------      -------
      Total operating expenses.........................     3,533           4,483               9,302       12,581
                                                         --------       ---------             -------      -------
       
Income from operations.................................       189             387                 237          381

Other income, net......................................        72             113                  69          349
                                                         --------       ---------             -------      -------
Income before provision for income taxes...............       261             500                 306          730
Provision for income taxes.............................        27             190                  27          276
                                                         --------       ---------             -------      -------
Net income.............................................  $    234        $    310            $    279      $   454
                                                         ========       =========             =======      =======

Net income per common share...........................         --        $   0.04                  --      $  0.06
                                                                        =========                          =======

Weighted average number of common shares outstanding..         --           7,623                  --        7,725
                                                                        =========                          =======

Proforma net income per common share..................   $   0.03              --            $   0.05           --
                                                         ========                             =======               

Proforma weighted average number of common shares
  outstanding.........................................      7,114              --               6,191           --
                                                         ========                             =======               
</TABLE>



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

                                       2
<PAGE>
 
                          OPTIKA IMAGING SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                 (In thousands)

                                        
<TABLE>
<CAPTION>
 
                                                                               NINE MONTHS ENDED SEPTEMBER 30,
                                                                             -----------------------------------
                                                                                  1996                1997
                                                                             ---------------     ---------------
<S>                                                                           <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................                   $   279              $   454 
Adjustments to reconcile net income to net cash provided (used) 
  by operating activities:         
   Depreciation and amortization............................                        357                  439   
   Loss on disposal of assets...............................                         --                   18
   Provision for loss on accounts receivable................                        (22)                  --
   Change in assets and liabilities:
      Accounts receivable...................................                     (1,290)              (1,631)
      Other assets, net.....................................                       (491)                (178)
      Accounts payable and accrued expenses.................                        385                  192
      Deferred revenue......................................                        168                  451
                                                                               --------              -------
          Net cash used by operations.......................                       (614)               (255)
                                                                               --------              -------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................                       (503)             (2,107)
Purchase of short-term investments, net.....................                    (10,072)                127
                                                                               --------              -------
          Net cash used by investing activities.............                    (10,575)             (1,980)
                                                                               --------              -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt........................                       (364)               (324)
Proceeds from issuance of long-term debt....................                        429                  --
Proceeds from issuance of common stock......................                     11,105                 460
                                                                               --------              -------
          Net cash provided by financing activities.........                     11,170                 136
                                                                               --------              -------
Net decrease in cash........................................                       (19)              (2,099)

Cash at beginning of period.................................                     1,415                3,474
                                                                               --------              -------
Cash at end of period.......................................                   $ 1,396              $ 1,375
                                                                               ========             ========
</TABLE>



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

                                       3
<PAGE>
 
                          OPTIKA IMAGING SYSTEMS, 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 rules and regulations. The consolidated
results of operations for the period ended September 30, 1997 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the entire fiscal year ending December 31, 1997.  These consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto for the year ended December 31, 1996, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.

Net Income Per Common Share
          Net income per common share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of Convertible Preferred Stock (using the if-
converted method) where appropriate and stock options (using the treasury stock
method).  Common equivalent shares from stock options are excluded from the
computation if their effect is antidilutive, except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin, common and common
equivalent shares issued from May 23, 1995 through the closing of the Company's
initial public offering on July 25, 1996 have been included in the computation
using the treasury stock method as if they were outstanding for all periods
prior to the initial public offering.  Furthermore, in accordance with SEC Staff
policy, common equivalent shares from Convertible Preferred Stock that converted
into Common Stock upon the closing of the initial public offering are included
for the appropriate periods using the if-converted method.

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS
128").  FAS 128 changes the computation, presentation and disclosure
requirements of earnings (loss) per share that has been previously followed by
the Company.  FAS 128 is effective for years ending after December 15, 1997 and
early adoption is not permissible.  If the provisions of FAS 128 were adopted
for the three and nine months ending September 30, 1997 and 1996,  the Company's
proforma basic net income per share would have been $0.05 and $0.07 per share
for the three and nine months ended September 30, 1997 and $0.04 and $0.06 per
share for the same periods ended September 30, 1996.



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.

3.       SUBSEQUENT EVENT

         On October 21, 1997, LanVision Systems, Inc. ("LanVision") signed a
letter of intent to acquire the majority of Optika's healthcare specific
products that were formerly included in the the FPhealthcare  suite.  The
closing of the healthcare division will result in a pre-tax restructuring charge
of $1.0 to $1.2 million to Optika in the quarter ended December 31, 1997.  This
charge will cover the costs associated with closing the Company's Boston
facility and discontinuing the Company's vertical healthcare applications.

                                       4
<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.

RESULTS OF OPERATIONS

         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 Business Solutions Partners ("BSPs") and Original Equipment
Manufacturers ("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 BSPs
and OEMs and the end-user, and the BSPs and OEMs then purchase maintenance
services directly from the Company.  For the nine months ended September 30,
1997, approximately 72.4% of the Company's total revenues were derived from
software licenses and approximately 17.0% 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 10.6% of the Company's total revenues.  License
revenues are generally recognized upon shipment when no significant vendor
obligations remain and collectibility is probable.  License revenues related to
contracts with significant post-delivery performance obligations are recognized
when the Company's obligations are no longer significant or when the customer
accepts the product, as applicable.  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.  However, if other
rights of return are granted, revenue recognition is deferred until such rights
lapse.  The Company's aggregate product returns have historically been
insignificant.  The Company's terms of payment generally range from 30 to 60
days from date of shipment for BSPs and OEMs.  Terms of payment on major
accounts are generally based on the achievement of installation milestones and
final system acceptance and terms may extend beyond 12 months. 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 37.5% from $11.3 million for the nine months
ended September 30, 1996 to $15.5 million for the nine months ended September
30, 1997.  Total revenues increased 34.7% from $4.3 million for the quarter
ended September 30, 1996 to $5.8 million for the quarter ended September 30,
1997.

         Licenses.    License revenues increased 25.2% from $9.0 million during
the nine months ended September 30, 1996 to $11.2 million for the nine months
ended September 30, 1997 and increased 29.1% from $3.3 million during the
quarter ended September 30, 1996 to $4.3 million during the same period in 1997.
License revenues represented 79.5% and 72.4% of the total revenues for the nine
months ended September 30, 1996 and 1997, respectively and 76.8% and 73.6% of
the total revenues for the quarter ended September 30, 1996 and 1997,
respectively.  The increase in license revenue was primarily the result of
increased sales of the FilePower Suite.  The increased sales during the third
quarter were driven by an increase in sales in the United States compared to the
same period a year ago.  The rate of growth for license revenue during the
quarter ended September 30, 1997 was lower than the rate of growth experienced
in previous quarters, primarily as a result of lower growth of sales in the
healthcare industry and in Europe.  Sales outside of the United States accounted
for approximately 29.4% of the Company's revenues for the nine months ended
September 30, 1996, compared to 24.1% for the same period in 1997, and 37.9% and
18.7% for the quarter ended September 30, 1996 and 1997, respectively.

                                       5
<PAGE>
 
         Maintenance and Other.     Maintenance revenues, exclusive of other
revenue, increased 61.1% from $1.6 million during the nine months ended
September 30, 1996, to $2.6 million for the nine months ended September 30, 1997
and increased 48.3% from $642,000 during the quarter ended September 30, 1996
compared to $952,000 during the same period in 1997.  Maintenance revenue
represented 14.5% and 17.0% of the total revenues for the nine months ended
September 30, 1996 and 1997, respectively and 14.9% and 16.4% of the total
revenues for the quarter ended September 30, 1996 and 1997, respectively.  This
increase was primarily a result of an increase in the number of installed
systems and the Company's continued improvements in the tracking and monitoring
of expiring maintenance contracts.  Other revenue, consisting primarily of
consulting services, training and consulting fees represented 6.0% and 10.6% of
total revenues for the nine months ended September 30, 1996 and 1997,
respectively and 8.4% and 10.0% of total revenues for the quarter ended
September 30, 1996 and 1997, respectively.


COST OF REVENUES

         Licenses. Cost of licenses consist primarily of royalty payments to
third-party vendors, product author commissions, whereby certain of the
Company's software developers are entitled to receive a specified percentage of
product sales, and costs of product media, duplication, packaging and
fulfillment.  Cost of licenses increased from $427,000 or 4.8% of license
revenues to $470,000 or 4.2% of license revenues for the nine months ended
September 30, 1996 and 1997, respectively.   Cost of licenses increased from
$150,000 or 4.5% of license revenues to $172,000 or 4.0% of license revenues for
the quarter ended September 30, 1996 and 1997, respectively.  The increase in
cost of licenses for the three and nine month periods ended September 30, 1997
compared to the same period a year ago was primarily due to increased license
revenues.

         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 BSPs, OEMs and end-users. Cost
of maintenance and other increased from $1.3 million or 56.4% of maintenance and
other revenues to $2.1 million or 48.2%  of maintenance and other revenues for
the nine months ended September 30, 1996 and 1997, respectively.  The decrease
in cost of maintenance and other as a percentage of maintenance and other
revenues is primarily a result of the leverage received from utilizing existing
resources to service the Company's increased maintenance base.  Cost of
maintenance and other increased from $439,000 or 43.8% of maintenance and other
revenues to $764,000 or 49.8% of maintenance and other revenues for the quarter
ended September 30, 1996 and 1997, respectively.  The increase in cost of
maintenance and other as a percentage of maintenance and other revenues is
primarily a result of increased consulting, project management and training
services being provided to customers.


OPERATING EXPENSES

         Sales and Marketing.    Sales and marketing expenses consist primarily
of salaries, commissions and other related expenses for sales and marketing
personnel as well as marketing, advertising and promotional expenses.  Sales and
marketing expenses increased from $4.9 million, or 43.7% of total revenues, for
the nine months ended September 30, 1996 to $7.4 million, or  47.5% of total
revenues, for the nine months ended September 30, 1997. Sales and marketing
expenses increased from $2.0 million or 46.3% for the quarter ended September
30, 1996 to $2.6 million or 45.6% for the quarter ended September 30, 1997.  The
increase in sales and marketing expenditures for the nine months ended September
30, 1997 is primarily attributable to additional costs resulting from the
establishment of sales offices in Australia, Brazil, Germany, and the expansion
of the North American sales staff.  The Company anticipates that sales and
marketing expenses will continue to increase in absolute dollars in future
quarters as the Company continues to build and expand its network of BSPs and
OEMs and opening additional sales offices abroad.

         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 $3.5 million, or 30.7% of total revenues,
for the nine months ended September 30, 1996 to $3.9 million, or 25.2% of total
revenues, for the nine months ended September 30, 1997, respectively.   Research
and development expenses increased from $1.2 million or 28.6% of total revenues
to $1.4 million or 23.4% of total revenues for the quarter ended September 30,
1996 and 1997, respectively.   The Company expects research and development
expenses to decrease in the fourth quarter due to the closing of the healthcare
division but will continue to increase in absolute dollars in subsequent future
quarters to fund the development of new products and product enhancements.

                                       6
<PAGE>
 
         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 increased from $915,000 or 8.1% of total revenues, for
the nine months ended September 30, 1996 to $1.3 million, or 8.5% of total
revenues for the nine months ended September 30, 1997. General and
administrative expenses increased from $302,000, or 7.0% of total revenues for
the quarter ended September 30, 1996, to $474,000, or 8.2% of total revenues for
the quarter ended September 30, 1997.  The increase in general and
administrative expenses was primarily due to the Company incurring additional
administrative costs as a public company and costs to support expanding
worldwide operations.  General and administrative expenses are expected to
increase in absolute dollars in future quarters as the Company expands its
staffing to support expanded operations.

         Other income, net.  Other income, net consists primarily of interest
earned on the Company's financing activities offset by interest expense on the
Company's capitalized lease obligations and other debt.  The Company attained a
net other income of $69,000 during the nine months ended September 30, 1996
compared to net other income of $349,000 during the nine months ended September
30, 1997.  Other income increased from $72,000 during the quarter ended
September 30, 1996 to $113,000 for the same period in 1997. The increase in
other income for both the three and nine months ended September 30, 1997
compared to the same periods in 1996 were primarily a result of interest income
derived from the investment of the Company's initial public offering proceeds.

         Provision for Income Taxes.    Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109.  Due to the
Company's history of pre-tax losses and uncertainty surrounding the timing of
realizing the benefits of its favorable tax attributes, the Company had recorded
a valuation allowance against all of its net deferred tax assets as of September
30, 1996.  In reaching the Company's determination of the need to provide a
deferred tax valuation allowance, the Company considered all available evidence,
both positive and negative, as well as the weight and importance given to such
evidence.  As required by Statement of Financial Accounting Standards No. 109,
management concluded that a valuation allowance against deferred tax assets was
no longer appropriate as of December 31, 1996.  Specifically, during 1996, the
Company generated four straight quarters of profitability and pre-tax income of
$1.1 million.

         Subsequent Event. On October 21, 1997, LanVision Systems, Inc.
("LanVision") signed a letter of intent to acquire the majority of Optika's
healthcare specific products that were formerly included in the the FPhealthcare
suite.  The closing of the healthcare division will result in a pre-tax
restructuring charge of $1.0 to $1.2 million to Optika in the quarter ended
December 31, 1997.  This charge will cover the costs associated with closing the
Company's Boston facility and discontinuing the Company's vertical healthcare
applications.


LIQUIDITY AND CAPITAL RESOURCES

         Cash and short-term investments at September 30, 1997 were
approximately $9.3 million, decreasing by approximately $2.2 million from
December 31, 1996.  The decrease in cash and short-term investments is primarily
due to capital expenditures associated with equipment and furnishings for the
Company's new leased corporate headquarters, the company's investment in a
centralized lead tracking and customer service database, and an investment in a
new financial accounting system.

         For the nine months ended September 30, 1996, net cash used in
operating activities was $614,000 compared to net cash used of $255,000 for the
nine months ended September 30, 1997. This was primarily attributable to
improved earnings and an increase in deferred maintenance revenues due to an
increase in the Company's installed base .

         Cash used in investing activities was $10.6 million for the nine months
ended September 30, 1996 compared to $2.0 million for the nine months ended
September 30, 1997.  For the nine months ended, September 30, 1997 uses of cash
consisted primarily of capital expenditures associated with furnishing the
Company's new leased corporate headquarters, an investment in a centralized lead
tracking and customer service database, and an investment in a new financial
accounting system.  For the nine months ended September 30, 1996, uses of cash
consisted primarily of purchases of marketable securities.

                                       7
<PAGE>
 
         Cash provided by financing activities was $11.2 million for the nine
months ended September 30, 1996 and $136,000 for the nine months ended September
30, 1997.   Cash provided from financing activities for the nine months ended
September 30, 1997 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.
Cash provided from financing activities for the nine months ended September 30,
1996 consisted primarily of the proceeds from the Company's initial public
offering.

         At September 30, 1997, the Company's principal sources of liquidity
included cash and short-term investments of approximately $9.3 million.  In
addition, the Company has a secured credit facility for up to $3.0 million,
bearing interest at the bank's prime rate plus .75%.  As of September 30, 1997,
the Company had $2.8 million available for borrowing with a $220,000 outstanding
letter of credit to secure the company's new leased corporate headquarters.

         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 financings 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.


BUSINESS RISKS

   This Quarterly Report on Form 10-Q contains forward looking statements that
include 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 below.

   History of Losses; Accumulated Deficit;  Future Results of Operations
Uncertain.  The Company was founded in January 1988 and did not ship an
integrated version of the FilePower Suite until the third quarter of 1995.
Since its inception, the Company has incurred substantial costs to develop and
improve its software products; to establish sales, marketing and distribution
channels; and to recruit and train its employees.  As a consequence, the Company
has incurred net losses in three of its past nine fiscal years.  In addition,
the Company experienced virtually no revenue growth between 1993 and 1995.  As
of September 30, 1997, the Company had an accumulated deficit of approximately
$405,000.  There can be no assurance that the Company will continue to achieve
revenue growth or will be profitable on a quarterly or annual basis in the
future.

   Restructuring Associated with the Sale of FPhealthcare Suite.  The Company
has entered into a letter of intent with LanVision for the sale of the majority
of the software products that previously comprised the FPhealthcare suite of
products.   The FPhealthcare  suite was being developed in response to an order
by St. Elizabeth Medical Center and there has been a limited number of customers
who have also licensed the software.  The Company intends to close its
healthcare division, which is currently located in Boston, Massachusetts.  The
Company anticipates a restructuring charge of $1.0 to $1.2 million associated
with the closing of the Boston facility and charges related to the
discontinuation of the FPhealthcare suite.  There can be no assurance that the
Company will not incur additional expenses as a result of the sale of the
healthcare division.  The sale of a division of a business also involves special
risks and uncertainties, some of which may not be foreseeable or within the
Company's control, such as unforeseen severance costs, disputes with terminated
employees, disputes with customers who have purchased the FPhealthcare suite or
disputes with the buyer of the division.  There can be no assurance that the
Company will not experience unforeseen costs associated with the sale of the
healthcare division, and such unforeseen costs could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, revenues from the healthcare division accounted for 10.4% and 7.3%
of the Company's total revenues in the nine months ending September 30, 1996 and
1997, respectively, and 12.4% of total revenues in the twelve month period
ending December 31, 1996.  There can be no assurance that the Company will be
able to achieve additional sales of its other software products or services to
offset lost revenues from the healthcare division.

   Dependence on Windows NT.  The Company is largely dependent on the
development and growth in the market for Windows NT operating systems and the
migration of imaging and workflow server software to such operating systems.
There can be no assurance that this market will grow or that the Company will be
able to respond effectively to the evolving requirements of this market.  UNIX-
based operating systems currently account for most client/server-based
production 

                                       8
<PAGE>
 
imaging operating systems, and the Company's software inter-operates with UNIX-
based operating systems to only a very limited extent. There can be no assurance
that UNIX will not continue to be the dominant operating platform in the future
or that the introduction of other operating systems will not adversely affect
the deployment of Windows NT. The failure of Windows NT operating systems to
achieve market acceptance over the next several years would have a material
adverse effect on the Company's business, results of operations, and financial
condition. In addition, certain performance characteristics of the Company's
products are currently limited by the Windows NT architecture, including the
ability to be deployed throughout the largest enterprises.

   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; the ability of the Company to
achieve revenue growth in its target markets, 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
non-renewal of maintenance agreements; customization and integration problems
with the end-user's legacy system; changes in the Company's strategy; 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 BSPs and OEMs, from initial
evaluation to purchase, is lengthy and varies substantially from end-user to
end-user.  To achieve its quarterly revenue objectives, the Company depends upon
obtaining orders in any given quarter for shipment in that quarter.  Product
orders are typically shipped shortly after receipt; consequently, order backlog
at the beginning of any quarter has in the past represented only a small portion
of that quarter's revenues.  Furthermore, the Company has often recognized most
of its revenues in the last month, or even in the last weeks or days, of a
quarter.  Accordingly, a delay in shipment near the end of a particular quarter
may cause revenues in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter.  Conversely, to the extent that significant
revenues occur earlier than expected, operating results for subsequent quarters
may fail to keep pace with results of previous quarters or even decline.  The
Company also has recorded generally lower sales in the first quarter than in the
immediately preceding quarter, as a result of, among other factors, end-users'
purchasing and budgeting practices and the Company's sales commission practices,
and the Company expects this pattern to continue in future years.  To the extent
that future international operations constitute a higher percentage of total
revenues, the Company anticipates that it may also experience relatively weaker
demand in the third quarter as a result of reduced sales in Europe during the
summer months.  A significant portion of the Company's expenses are relatively
fixed in the short term.  Accordingly, if revenue levels fall below
expectations, operating results are likely to be disproportionately and
adversely affected.  As a result of these and other factors, the Company
believes that its quarterly operating results will vary in the future, and that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors.  In such event, the price of the Company's
Common Stock would likely be materially adversely affected.

   Reliance on Indirect Distribution Channels; Potential for Channel Conflict.
The Company's future results of operations will depend on the success of its
marketing and distribution strategy, which relies, to a significant degree, upon
BSPs and OEMs to sell and install the Company's software, and provide post-sales
support.  In 1996, the Company's top 53 BSPs/OEMs accounted for approximately
80% of its revenues, and substantially all of the Company's total revenues were
derived from sales by BSPs and OEMs. 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 BSPs will continue to represent the Company
or sell its products.  Furthermore, there can be no assurance that other BSPs,
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 BSPs are
small companies that have limited financial and other 

                                       9
<PAGE>
 
resources which could impair their ability to pay the Company. To date, the
Company's inability to receive payments from such BSPs has not had a material
adverse effect on the Company's business, results of operations or financial
condition. The Company's OEMs currently compete with the Company and its BSPs.
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. The Company's
strategy of marketing its products indirectly through BSPs and OEMs may result
in distribution channel conflicts. To the extent that different BSPs and OEMs
target the same customers, they may come into conflict with each other. Although
the Company has attempted to allocate certain territories for its products among
its distribution channels in a manner to avoid potential conflicts, there can be
no assurance that channel conflict will not materially and adversely affect its
relationship with existing BSPs and OEMs, or adversely affect its ability to
attract new BSPs and OEMs. The loss by the Company of a number of its more
significant BSPs or OEMs, the inability of the Company to obtain qualified new
BSPs or OEMs, or to obtain access to the channels of distribution offering
software products to the Company's targeted markets, or the failure of BSPs 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 imaging software 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.  For example, new technologies based on the
Internet, such as Java, could alter generally accepted conventions for document
creation, distribution and management.  However, the use of Internet protocols
for imaging applications is presently in the developmental stage, and the
Company is unable to predict the future impact of such protocols 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 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; Dependence on Emerging Market for Integrated Imaging
Systems.  To date, substantially all of the Company's revenues have been
attributable to sales of the FilePower Suite and individual software modules
which comprise the FilePower Suite .  The Company currently expects the
FilePower Suite to account for substantially all of its future revenues.  As a
result, factors adversely affecting the pricing of, or demand for, such
products, such as competition or technological change, could have a material
adverse effect on the Company's business, results of operations, and financial
condition.  The Company's future financial performance will depend in general on
growth in the relatively small and emerging market for imaging software
products, and in particular on the successful development, introduction and
customer acceptance of new and enhanced versions of its existing software
products such as the FilePower Suite,.  There can be no assurance that such
market will 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 document imaging software market
fails to grow or 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 BSPs and OEMs to engage in a lengthy and complex sales cycle
(typically between nine and twelve months from the initial contact date).  In
addition, the implementation by customers of the imaging 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 

                                       10
<PAGE>
 
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
imaging software solutions.  The Company's principal direct competitors include
BancTec, Inc., FileNet Corporation, International Business Machines Corporation,
Unisys Corporation, Mosaix, Inc. (formerly Viewstar Corporation) and Eastman
Kodak Company. Numerous other software vendors also compete in each product
area.  Potential competitors include providers of document management software,
providers of document archiving products and relational database management
systems vendors.  The Company also faces competition from VARs, OEMs,
distributors and systems integrators, some of which are BSPs or OEMs for the
Company.

   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 imaging software market, the Company expects additional competition
from established and emerging companies, as the market for integrated imaging
products 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.

   Risks Associated with Acquisitions.  Optika has consummated several
acquisitions, including the acquisitions of TEAMWorks Technologies, Inc.
("TEAMWorks") in 1994 (the "TEAMWorks Acquisition"); and IPRS Asia (S) Pte Ltd.,
a Singapore company ("IPRS"), and Intuit Development Limited, a Hong Kong
company ("Intuit"), in 1995 (the "IPRS/Intuit Acquisition") (collectively, the
"Acquisitions"); and continues to evaluate potential acquisitions of businesses,
products and technologies.  In 1995, the Company terminated all of the
operations of TEAMWorks due to the failure of the TEAMWorks products to achieve
market acceptance and the Company's lack of experience in selling such products.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies,
potentially dilutive issuances of equity securities, accounting charges, debt
assumptions, operating companies in different  geographic locations with
different cultures, the potential loss of key employees of the acquired company,
the diversion of management's attention from other business concerns and the
risks of entering markets in which the Company has no or limited direct prior
experience.  There can be no assurance that suitable acquisition candidates will
be identified, that any acquisitions can be consummated or that any acquired
businesses or products can be successfully integrated into the Company's
operations.  In addition, there can be no assurance that the Acquisitions or any
future acquisitions will not have a material adverse effect upon the Company's
business, results of operations or financial condition, particularly in the
quarters immediately following the consummation of such transactions, due to
operational disruptions, severance expenses, unexpected expenses and accounting
charges which may be associated with the integration of such acquisitions.

   Management Changes; No Assurance of Successful Expansion of Operations.  Most
of the Company's senior management team have joined the Company within the last
three  years.  There can be no assurance that these individuals 

                                       11
<PAGE>
 
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, the Acquisitions and other potential acquisitions, significant
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 has caused, and is continuing to impose, a significant strain on the
Company's management, financial and other resources. The Company's ability to
manage its recent, and any future, growth (should it occur) will depend upon a
significant expansion of its internal management systems and the implementation
and subsequent improvement of a variety of systems, procedures and controls. Any
failure to expand these areas and implement and improve such systems, procedures
and controls in an efficient manner at a pace consistent with the Company's
business, could have a material adverse effect on the Company's business,
financial condition, and results of operations. In this regard, any significant
revenue growth will be dependent in significant part upon the Company's
expansion of its marketing, sales and BSP 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 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.  The Company is not aware that it is infringing any proprietary
rights of third parties.  In August 1994, a third party notified the Company
that it believes that one of the Company's products is infringing a patent held
by such third party.  The Company subsequently notified such third party that it
does not believe that such product infringed such patent.  Neither party has
communicated with the other since January 1995.  If the third party should file
suit against the Company, and should it be determined that its patent is valid
and infringed by the Company's product, the Company may redesign the allegedly
infringing product or seek to obtain a license from such third party.  Any
redesign may be costly and time consuming, may not avoid litigation, and would
materially and adversely affect the Company's business, results of operations,
and financial condition.  If it becomes necessary to seek a license from such
third party, there can be no assurance that the Company will be able to obtain
such a license on acceptable terms.  Moreover, there can be no assurance that
additional 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 

                                       12
<PAGE>
 
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, software 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
24.1% of the Company's revenues for the nine months ended September 30, 1997.
An important 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 and marketing and distributing its products
internationally.  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 United States 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 United States
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 

                                       13
<PAGE>
 
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.

   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 51% of the outstanding shares of Common Stock of the Company.
Accordingly, these stockholders would, 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.

                                       14
<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

                 No reports on Form 8-K have been filed during the quarter ended
                 September 30, 1997.

                                       15
<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 IMAGING SYSTEMS, INC.
                                              (Registrant)



        November 13, 1997                        /s/ Mark K. Ruport
        -----------------                -------------------------------------
            (Date)                                  Mark K. Ruport
                                            Chairman of the Board, President
                                              and Chief Executive Officer
                                              (Principal Executive Officer)



        November 13, 1997                       /s/ Steven M. Johnson
        -----------------                -------------------------------------
            (Date)                                Steven M. Johnson
                                               Chief Financial Officer
                                           (Principal Financial Officer and
                                              Principal Accounting Officer)

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