1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
[ ] 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 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in the charter:)
DELAWARE 94-2250509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 COOPER COURT, LOS GATOS, CALIFORNIA 95030
(Address of principal Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 395-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
1, 1996, as reported by NASDAQ, was approximately $111,501,827.
The number of shares of the Registrant's Common Stock outstanding as of
March 1, 1996, was 13,321,408.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement filed with the Securities and Exchange
Commission relating to the Company's 1995 Annual Meeting of
Stockholders to be held May 14, 1996 (Part III of Form 10-K).
(2) Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 (Parts II and IV of Form 10-K).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART I
ITEM 1. BUSINESS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this Item 1 and Item 7.
Caere(R) Corporation ("Caere" or the "Company") designs, develops,
manufactures, and markets optical character recognition (OCR) software and
hardware for converting scanned and faxed images into computer usable text, as
well as computer desktop information management products. For many applications,
the Company's products provide a low cost accurate alternative to manual data
entry, which is slow, tedious, and error prone.
In December 1994, Caere acquired Calera(R) Recognition Systems, Inc.
("Calera"), another provider of optical character recognition (OCR) computer
software and hardware system products. The acquisition was accounted for using
the pooling of interests method of accounting, and all financial information
included or discussed herein has been restated to reflect the combined
operations of the two companies.
TRANSITION OF BUSINESS MODEL
During 1995, Caere transitioned its business model due to the changing
dynamics of the marketplace. In the past, OCR was primarily a "niche" market
characterized by relatively high prices and low unit volumes. Driven by the
increased power of personal computers, new scanner products with lower prices,
continuing improvements in OCR accuracy, and the education of the marketplace,
scanning and OCR solutions are beginning to reach the mainstream.
In the fourth quarter of 1994, Caere began to "bundle" limited capability
versions of its OmniPage(R) and WordScan(R) software recognition products with
scanner products from various manufacturers while continuing to sell fully
featured versions in the retail channel. The Company's objective in bundling its
software products with scanners was to expand the overall market for OCR
software by providing a larger number of scanner purchasers with experience in
the advantages of optical character recognition. "Light" versions with limited
capabilities are now bundled with most scanners being sold. This aggressive
seeding of the growing base of scanner owners has greatly expanded the number of
Caere product users. The success of this business model, compared to Caere's
former model of selling its software primarily through retail distribution, will
depend upon a decision by a significant proportion of customers who first
receive OCR software in a bundled form to upgrade to a newer or more fully
featured version of the Company's software. Such an upgrade is typically sold at
a substantially lower price than the retail price of a fully featured product.
The Company shipped more than 1,000,000 bundled units in fiscal 1995,
compared to approximately 400,000 bundled units in 1994. However, because of the
lower per-unit revenue to Caere that results from the combined sale of a bundled
product plus an upgrade, compared to the retail sales of a fully featured
version of the software, the "bundle and upgrade" business model resulted in
decreased revenues and gross margins from software recognition products in
fiscal 1995 compared to fiscal 1994, despite an increase of 111% in unit sales
for the same comparison periods. The Company believes that bundles and upgrades
will become a larger portion of its combined revenues and unit sales in the
future.
There can be no assurance that Caere's transition to the "bundle and
upgrade" business model will be successful and provide sufficient increases in
unit volume in the future to offset reduced per-unit revenue and gross margin.
In addition, customers using the bundled products may defer or forego the
purchase of Caere's more fully featured versions of OmniPage and WordScan
products if they find that the bundled products satisfy their recognition needs.
1
3
PRODUCTS
The Company offers a product line designed to accommodate the diversity of
information and data entry requirements. Caere's products fall into two general
categories:
(1) SOFTWARE: Software products for the information management market that
offer a range of OCR, forms, and document management products that
provide personal computer users tools to manage, intelligently and
efficiently, the documents, images, forms and faxes that cross their
desktops.
(2) HARDWARE: Hardware products for the data capture market, which include
bar code scanners and OCR readers for transaction processing
applications such as high-volume data entry and check verification.
Customers of these products include retail establishments, government
agencies, banks, utility companies, and other organizations.
Additionally, the Millennium Series(R) provides hardware and software
solutions for high-speed commercial OCR applications.
Caere's products can be used with a range of computer systems, such as IBM,
IBM-compatible, and Apple Macintosh personal computers. Each product is designed
to accomplish the same overall goal: to improve the speed, accuracy, and
simplicity of information management.
SOFTWARE PRODUCTS
OmniPage Professional(R)
Caere's flagship product, OmniPage Professional 6.0 for Windows, is a
customizable fully featured page recognition solution for power users. OmniPage
Pro(R) is designed for the text handling professional who needs more than basic
OCR capabilities. OmniPage Pro was the first OCR product that allows the user to
recognize, edit, and save complex documents containing text and images in their
original full page formats. Using Caere's True Page(R) recognition, the user can
edit graphics contained on a recognized page simply by clicking on the image.
OmniPage Pro utilizes a combination of technologies, including neural networks,
linguistic analysis, character experts, and grayscale data to improve accuracy
on degraded documents.
OmniPage Professional for the Macintosh includes all of the features found
in OmniPage Pro for the personal computer ("PC"). It also offers many advanced
System 7 capabilities, including support of Publish, which allow users to scan a
document once and electronically publish it to subscribers on a network. The
program also supports Apple Events, which allows other software programs to
access OmniPage Pro.
OmniPage
OmniPage is Caere's mid-range offering in the information recognition
product line. It utilizes the same AnyFont(TM) recognition technology as
OmniPage Pro while lacking some of its more sophisticated features such as the
verification window, custom character feature, and graphic editing capabilities.
OmniPage includes an interactive spell checker specially designed for text
recognition.
OmniPage Limited Edition(TM)
OmniPage Limited Edition is a limited feature version of OmniPage that
allows an end user to perform OCR on a scanned document and save the document to
a file. OmniPage Limited Edition is bundled with most of the scanners offered by
the Company's scanner partners. A number of scanner purchasers upgrade to the
Company's fully featured products after experiencing the advantages of optical
character recognition in OmniPage Limited Edition.
OmniPage Direct(TM)
Rounding out the OmniPage product family is OmniPage Direct, a lower-cost,
easy to use version of OmniPage that scans text directly into a word processing
or spreadsheet program. OmniPage Direct offers direct access and input
capabilities from both Windows and Macintosh software, reducing the complexity
of scanning text and numbers into other applications.
2
4
WordScan Plus
WordScan Plus, developed by Calera, is a full-featured and accurate page
recognition product that integrates with the most popular products being used in
Windows. Features like OLE 2.0 support, drag and drop recognition capability,
and a Chameleon Toolbar(TM) that automatically takes on the look and feel of the
user's office suite enable WordScan Plus to benefit from popular Windows
programs. WordScan Plus directly integrates with all leading office suites, word
processors, electronic mail systems, and facsimile applications.
WordScan
WordScan, also developed by Calera, is Caere's low-end partner to WordScan
Plus. It offers basic page recognition, integrated with many popular Windows
applications.
PageKeeper(R)
PageKeeper, Caere's entry into the text search and retrieval market,
incorporates newly developed "weighted relevance searching" and "document
similarity" technologies as it examines the content of the documents under
review. PageKeeper takes information from a local hard disk, network, or scanner
and creates a supercompressed database of both text and images. PageKeeper
incorporates the OmniPage AnyFont recognition capability to convert scanned
documents into computer-literate files automatically. Because PageKeeper stores
both text and images, users can electronically file documents in their original
format. Magazine articles with charts and graphs, datasheets with illustrations,
or letters with signatures can be stored using minimal disk space. PageKeeper
automatically indexes the database, eliminating the need to manually index or
assign keywords to the information. It presents the results of search requests
in the order of relevance to the original request using its weighted relevance
retrieval feature.
OmniForm(TM)
OmniForm converts paper forms to electronic forms with the click of a
button. Simply scan or fax documents into a computer and OmniForm creates an
electronic version using some of Caere's OCR technologies. OmniForm users also
can design their own forms, complete with fonts, graphics, and logos, using the
custom toolset and Form Assistant(TM). In addition, OmniForm allows for
efficient completion and processing of forms by accepting input, performing
calculations, validating entries and creating databases which can be searched,
sorted, imported, and exported to popular database applications.
License of Technology
In addition to the application products described above, Caere continues to
license its OCR technology to a broad range of computer equipment manufacturers,
systems integrators, and developers for inclusion as components in more complex
end user products, including document management and retrieval systems, forms
processing systems, resume screening systems, and standalone systems.
3
5
The chart below shows system requirements and suggested retail price for
the Company's significant software products.
SELECTED SOFTWARE PRODUCTS
SUGGESTED
PRODUCT SYSTEM REQUIREMENTS RETAIL PRICE*
- ------------------------------ ------------------------------------------------ -------------
OmniPage Pro -- Windows 80386 or above based personal computers, 8 MB $ 695
RAM, 20 MB disk space, Microsoft Windows 3.1 or
later
OmniPage Pro -- Mac Macintosh computer with 68020 processor or $ 695
above, 8 MB RAM, 8 MB disk space, System 7.0 or
above
OmniPage Pro -- Windows Retail 80386 or above based personal computers, 8 MB
Upgrade RAM, 20 MB disk space, Microsoft Windows 3.1 or $ 129**
later
OmniPage Pro -- Mac Retail Macintosh computer with 68020 processor or
Upgrade above, 8 MB RAM, 8 MB disk space, System 7.0 or $ 149**
above
PageKeeper -- Windows version 80386 or above based personal computers, 8 MB
2.0 RAM, 15 MB disk space, Microsoft Windows 3.1 or $ 195
later
WordScan Plus -- Windows 80386 or above based personal computers, 4 MB $ 595
RAM, 13 MB disk space, Microsoft Windows 3.1 or
later
OmniForm -- Windows 80386 or above based personal computers, 8 MB $ 349
RAM, 8 MB disk space, Microsoft Windows 3.1 or
later
- ---------------
* Suggested Retail Price as of March 1, 1996.
** Estimated Street Price as of March 1, 1996.
Note: All Caere products support a wide range of output file formats and
scanners. Output file formats include, but are not limited to: WordPerfect, Word
for Windows, Lotus 1-2-3, and Excel. Supported scanners include, but are not
limited to: Hewlett Packard, Microtek, Epson, Apple, Canon, and Fujitsu.
OMNIPAGE AND WORDSCAN PAGE RECOGNITION PROCESS
The process by which Caere's recognition products recognize text involves
converting the electronic output of a scanner into computer usable files through
a series of complex software algorithms. The electronic image produced by the
scanner is comprised of white or black picture elements (pixels), usually 90,000
pixels per square inch, each rendered to the computer as a 0 or a 1,
representing either a white or a black pixel. Before the application of
recognition products such as OmniPage, a scanner's electronic output could be
displayed and manipulated only as an image on a computer's monitor; the computer
did not recognize that image as a data file usable in an application program
such as a word processor or spreadsheet.
4
6
The graphic below illustrates the process by which scanned text or numeric
data is converted into computer usable form by the Company's OmniPage or
WordScan products.
GRAPHIC
Caere's products recognize an image in two steps. First, they analyze the
image of the page to determine which parts are text and numeric data and
determine the structure of the page layout. Tables, columns, and paragraphs are
identified and located. They then examine and identify the characters and
produce a file of the character data contained in words, including page
formatting information such as tables, columns, paragraphs, spacing, bold,
italics, and underlines that are necessary to allow manipulation of the data as
a text file.
OmniPage Pro 6.0 employs a combination of technologies, referred to as
Caere's 3D OCR(TM) and AnyFont technologies, to achieve the highest degree of
accuracy on many different types of documents. OmniPage Pro is the first OCR
product to utilize grayscale information to analyze characters the way a human
eye does. Character experts view certain character attributes like a closed loop
or crossed downward stroke to identify the unique set of features inherent in
each character. Neural networks have been developed on powerful mainframe
computers to "learn" what makes up one character versus another, a methodology
known as "feature recognition." Caere's page recognition products analyze each
character image according to proprietary algorithms. Feature recognition enables
the OmniPage products to provide the AnyFont capability that recognizes text in
almost any type style and size.
HARDWARE PRODUCTS
OCR Systems
Caere has produced high-quality handheld and slot-reader OCR systems since
1977. This line of data capture OCR systems reads single lines of characters.
These desktop systems -- consisting of an input device, such as a wand,
slot-reader or motorized slot-reader, a controller, and an interface cable --
are designed for transaction processing applications that do not require
variable font recognition technology, but demand extremely high accuracy. Common
applications involve entering customer account numbers or data from billing
documents into a computer. Caere's systems accelerate transaction processing,
while reducing operator fatigue and key entry errors.
Caere's 800 Series Combo Reader, which works with a wide variety of
computers, integrates OCR, bar code, and magnetic stripe reading capabilities in
a single unit. This provides cost-effective and versatile functionality for a
wide range of applications in remittance processing, banking, and point-of-sale
environments. The 800 Series is also widely used by government organizations,
post offices, and the public utility industry. The U.S. Government, for example,
creates military rosters by reading social security numbers, post
5
7
offices scan certified mail article numbers, and Caere's electric, gas, and
telephone utility customers use the 800 Series to accelerate payment processing.
Caere's 1500 Series Document Processor has all the capabilities of the 800
Series, but handles documents in batches while processing over 3,000 per hour.
It is the smallest desktop reader/sorter of its type, with many features only
found on high-end machines.
Approximately 25% of Caere's OCR data capture business is the result of
original equipment manufacturer (OEM) sales; that is, sales to firms that
purchase Caere's OCR data capture technology and then build it into their own
products.
Bar Code Systems
Bar code readers recognize a series of vertical bars and spaces that
represent data. They are used in high-volume transaction processing
applications, such as point-of-sale operations, where human readability of data
is not necessary. Bar code systems tolerate lower-quality media than
limited-font OCR systems, and are typically less expensive than OCR systems.
Caere's bar code product line, introduced in 1983, includes both stand-alone
decoders that can be attached externally to personal computers, and internal
board-level decoders used in personal computers for cost and space savings.
Caere bar code products cater to the higher-end of the market with
feature-rich decoders and one of the industry's first five-year warranties.
Caere's decoders are used in manufacturing, retail point of sale, inventory,
asset tracking, and a myriad applications where value added resellers need more
functionality from bar code readers than just decoding.
Caere's Easy-Scanner(TM) 1000 and 2000 Series bar code systems are
decoder/wedges that can accommodate several input devices and connect easily to
keyboard ports for simple interfacing to over 350 different types of computers
and terminals. With three input ports, these decoder/wedges can accept input
from a bar code wand, CCD, laser, badge reader, or magnetic stripe reader and/or
serial data from portable data terminals and scales. Any data received can be
filtered for acceptance then rejected, transmitted or re-formatted to fit the
host application with over 90 built-in data editing commands. The Easy-Scanner
also features multiple output ports to accommodate a variety of interfaces such
as RS-232, parallel, and over 350 keyboard wedge protocols.
The Model 1731 Integrated Laser, one of the most versatile and effective
bar code scanners on the market today, combines many of Caere's interfacing and
data editing features with a high-performance handheld laser scanner from PSC,
Inc., a leading bar code laser manufacturer.
Millennium Series Professional Card System
For production OCR applications, Caere offers the M/Series(R) Professional
Card System. This system offers PC add-in cards and Windows software in
combination for business OCR needs. All the M/Series products were developed by
Calera.
M/Series Accelerator Card
For accelerated OCR processing, Caere offers the M/Series Accelerator Card.
The Card is based on the AMD RISC architecture and offers a separate AT
coprocessor for either real-time or background processing. The Card is designed
for mid- to high-volume OCR processing needs.
M/Series Professional Software
The M/Series Professional software is a Windows-based interface for
controlling large OCR volumes in various stages of progress. It was specifically
designed to work with Caere's M/Series hardware OCR engines.
6
8
M/Series MM600, MM1200, and MM2400 OCR Systems
These RISC-based production OCR systems are designed especially for
high-volume OCR applications like document management, forms processing, resume
tracking, and full text retrieval. M/Series Pro software adds even further
enhanced throughput.
The chart below shows typical applications, features, available interfaces,
and input devices for selected Caere OCR and bar code transaction processing
products.
TYPICAL AVAILABLE INPUT
PRODUCTS APPLICATIONS FEATURES INTERFACES DEVICES
- ----------------- --------------------------- ------------------------------ ---------------- --------------
OCR
OCR/Bar Code Point of sale Reads the following fonts: Apple Macintosh Handheld wand
Combo 800 Series Remittance processing OCR-A-Full AT&T Fixed slot
and 1500 Document Document control Alphanumeric Burroughs Motorized slot
Processor Manufacturing applications OCR-A Eurobanking OCR-B DEC (AutoSlot)
Hospitals ECMA11 IBM Fixed mount
Banking OCR-B Eurobanking IBM PC and CCD scanner
Government E13B (MICR) compatibles Magnetic
Office file tracking PostNET ITT stripe
Postal All bard code symbologies Etc. (over 350) Bar code pen
Dual-track magnetic stripe Badge reader
Fully user programmable
BAR CODE Manufacturing applications Reads and autodiscriminates Apple Macintosh Wand
1000 Series Inventory control the following symbologies: AT&T Slot
1700 Series Work-in-process tracking Code 39, Code 128, DEC Handheld and
2000 Series Shop floor control Codabar, Interleaved IBM Lasers
Warehousing 2 of 5, IMB PC and Laser Diode
Point of sale UPC, EAN and MSI compatibles CCD scanner
Hospital health industry Pleassey ITT Magnetic
Video cassette rental Fully user programmable Memorex stripe
Government Dual-track NCR Badge reader
Document tracking Magnetic stripe UNISYS
Wyse
Etc. (over 300)
DISTRIBUTION AND SUPPORT
Domestically, the Company markets its software products through
distributors, including Ingram Micro, Merisel, Tech Data, and to retail dealers
and chains such as OfficeMax, Best Buy, CompUSA, Computer City, and Egghead.
High-speed and integrator products are primarily sold through Law Cypress
Distributing Company, which works with the Company to serve value-added
resellers and systems integrators of imaging products. Accordingly, the Company
will be dependent upon the continued viability and financial stability of such
distributors and resellers, which are not under the direct control of the
Company.
Sales of software products to Ingram Micro represented approximately 22%,
23%, and 12% of the Company's net revenues during 1995, 1994, and 1993,
respectively. Sales of software products to Merisel represented approximately
6%, 7%, and 11% of the Company's net revenues during 1995, 1994, and 1993,
respectively. Should either of these distributors have a significant change in
its quarterly buying pattern or its financial condition, the Company could
experience a material adverse impact on its business and financial results. In
addition, there are increasing numbers of companies competing for access to
distribution channels. Distributors and retailers often carry competing
products. Retailers of Caere's products typically have a limited amount of shelf
space and promotional resources for which there is intense competition. There
can be no assurance that distributors and retailers will continue to provide the
Company's products with adequate levels of shelf space and promotional support.
Failure to do so would have a material adverse effect on the Company's results
of operations.
The Company markets its transaction processing OCR and bar code products
primarily through independent distributors, value-added resellers ("VARs"), and
hardware OEMs. The Company's agreements with OEMs typically grant an OEM the
right to distribute the Company's products with the OEMs'
7
9
microcomputers and other data collection equipment. VARs purchase the Company's
products and incorporate them into systems integrated with the products of other
manufacturers.
Internationally, the Company's products are sold through distributors. At
December 31, 1995, the Company had distributors servicing Western Europe,
Canada, Australia, New Zealand, South Korea, Mexico, and Japan. The Company will
be dependent upon the continued viability and financial stability of such
distributors, which are not under the direct control of the Company.
International revenues in 1995, 1994, and 1993 were approximately $15,154,000,
$18,125,000, and $15,725,000, respectively. The Company bills its international
customers in U.S. dollars; therefore, such revenues are not subject to foreign
currency fluctuations. However, fluctuations in exchange rates could affect
demand for the Company's products by causing their prices to be out of line with
products priced in the local currency. The Company's international revenues are
subject to certain risks, such as export controls, import restrictions, longer
payment cycles, greater difficulties in accounts receivable collections and the
requirement of complying with a wide variety of foreign laws. Although Caere has
not previously experienced any difficulties under foreign law in exporting its
products to other countries, there can be no assurance that the Company will not
experience such difficulties in foreign countries in the future. Any such
difficulties would have a material adverse effect on the Company's international
sales. The Company is not currently affected adversely by such controls or
regulations and is not aware of pending changes in export regulations that would
adversely affect its international business or its ability to collect foreign
receivables.
The Company's agreements with its distributors generally provide for a
limited right of return, with the distributor receiving full credit of the
product's purchase price, less any discounts, against a purchase order of equal
or greater value. The Company monitors its returns and records provisions for
estimated returns as shipments are made. During 1995, 1994, and 1993, returns
have represented 3.7%, 4.3%, and 7.0% of revenues, respectively. Although Caere
believes that it provides adequate allowances for returns, there can be no
assurance that actual returns will not exceed the Company's allowances. Any
product returns in excess of recorded allowances could result in a material
adverse effect on operating results of the Company.
The Company has a domestic sales and support staff of 59 employees located
throughout the United States. During 1992, the Company established a European
sales office, Caere GmbH, in Munich, Germany. Domestically, information
management customers who register with the Company currently receive limited
hotline technical support and product information at no cost. Additional
technical support services are available on a "fee for support" basis
thereafter. Outside of the U.S., information management customers currently
receive technical support from a variety of Caere partners on a non-fee basis.
The Company warrants to end users that software disks are free from media
defects for three months. OCR and bar code hardware customers receive free
telephone support, including assistance with installation, programming, and
trouble shooting. OCR hardware products are warranted for one year, while bar
code hardware products are warranted for between one and five years. In
addition, the Company provides hardware customers with spare parts and repair
services. OCR and bar code hardware customers also may purchase annual service
contracts under which the Company performs service work as needed for the
duration of the service contract.
COMPETITION
The information management market is highly competitive and subject to
rapid change along with constant pressure to reduce prices. The Company believes
that the principal competitive factors in the software products market include
accuracy, ease of understanding and use, product reliability, tolerance for poor
media, product features and functions, price/performance characteristics, brand
recognition, and quality of product support. Caere's competition within the
microcomputer software industry ranges from large corporations to small
independent software vendors. Caere also expects to encounter continued
competition both from established companies and from new companies that are now
developing, or may develop, competing products. Competition in the software
products market can be grouped into the following categories:
The OmniPage family of recognition products contends with competition in
two markets. First, several companies offer packaged OCR application programs
through the retail distribution channel. These include
8
10
Xerox Imaging Systems and several small independent software vendors. The
Company faces significant price competition in the retail channel. The second
competitive market for the OmniPage family of recognition products is the OEM
and reseller market in which companies license OCR technology to incorporate
into different application software products or to "bundle" the technology with
related hardware products such as scanners or fax modems. Competitors include
Xerox Imaging Systems and several small independent software vendors. Adobe
Systems Incorporated is also a potential major competitor in this market. The
Company experiences significant price competition in the OEM market and expects
this to continue. In addition, the "bundled" products themselves present
competition to the Company's retail shrinkwrap product.
PageKeeper has few direct competitors as it represents a fairly new product
category of document entry and management for personal computer users and small
work groups. However, there are document management type products being offered
for high end applications by FileNet, IBM, and Verity. For personal computer
users, competitive product offerings include Imara by Imara, FileMagic by
Westbrook, and Watermark Discovery Edition by Watermark (a wholly owned
subsidiary of FileNet). Caere expects to face increasing competition in this
product category from a variety of software developers in the future.
The Company believes that the principal competitive factors in the hardware
products market include accuracy, tolerance for poor media, product features and
functions, and reliability. Price is also an important factor in the bar code
market. The major competition in the OCR segment of the Company's hardware
business is Siemens CGK. In the bar code segment of the hardware business there
are numerous competitors, including Symbol Technologies.
Many of the Company's competitors have substantially greater financial,
marketing, recruiting and training resources than the Company. There can be no
assurance that the Company will be successful in competing in the information
management market.
PRODUCT DEVELOPMENT
The development and enhancement of the Company's OCR and desktop document
management products have recently absorbed and are expected to continue to
consume the greatest part of the Company's development effort. The Company
believes that it must continue to upgrade and enhance its existing products to
ensure that its products remain competitive. The introduction of new or enhanced
products requires Caere to manage the transition from older products. Caere must
manage new product introductions so as to minimize disruption in customer
ordering patterns, avoid excessive levels of older product inventories and
ensure that adequate supplies of new products can be delivered to meet customer
demands. There can be no assurance that future product transitions will be
managed successfully by the Company.
Certain products sold by the Company through its Caere Affiliate Publishing
(CAP) program are developed by and remain the property of third parties. Caere
maintains exclusive rights to market those products for the term of the license
agreement in exchange for a royalty. Currently, OmniForm is the only Caere
product begin sold through the CAP program.
During 1995, 1994, and 1993, research and product development expenses were
approximately $7,915,000, $9,072,000, and $8,667,000, respectively. In addition
to internal product development, the Company incorporates software produced by
other companies into its products. All such incorporation or use is pursuant to
licensing agreements. See also "Product Protection". There can be no assurance
that the research and development expenses incurred will not exceed development
budgets or that new products will achieve market acceptance and generate sales
sufficient to offset development costs. Furthermore, Caere will be subject to
the risk that significant portions of the functionality provided by its OCR
products could be incorporated into computer operating systems such as those
developed and marketed by Microsoft Corp., Apple Computer, Inc., IBM and Novell,
Inc., which could have a material adverse effect on the Company's revenues and
results of operations.
From time to time, the Company has experienced delays in product
development and "debugging" efforts, and could experience such delays in the
future. Significant delays in developing, completing, or shipping new or
enhanced products could adversely affect the Company's financial results. In
addition,
9
11
programs as complex as those offered by Caere may contain a number of undetected
errors or bugs when they are first introduced or as new versions are released.
There can be no assurance that, despite testing by Caere and third party test
sites, errors will not be found in future releases of the Company products which
would negatively affect market acceptance of these products. Furthermore, as the
Company's products become more complex, development cycles become longer and
more expensive. There can be no assurance that the Company will be able to
respond effectively to technological changes or new product announcements by
others, or that the Company's product development efforts will be successful.
INVESTMENT IN ZYLAB INTERNATIONAL, INC.
In November, 1995, Caere invested $2.4 million for a 19.9% ownership stake
in ZyLab International, Inc. ("ZyLab") and was granted an option to purchase the
remaining 81.1%. ZyLab is a developer of full text indexing and retrieval
software that simplifies the process of searching large volumes of information
from a variety of sources. Working together, Caere and ZyLab plan to incorporate
Caere's OCR and PageKeeper technology with ZyLab's full text retrieval
technology to develop solutions for document intensive applications. There can
be no assurances that such product development efforts will be successful.
BACKLOG
The majority of the Company's net revenues in a particular quarter has
typically resulted from orders booked in that quarter. The Company considers
backlog to be orders received and due to be filled within six months. Orders
included in backlog typically may be canceled or rescheduled by customers
without significant penalty. The Company's backlog at December 31, 1995, was
approximately $449,000 as compared to backlog at December 31, 1994, of
approximately $573,000. Backlog primarily represents orders for the Company's
hardware products, which represented approximately 16% of net revenues during
1995. There is typically little or no backlog for the Company's software
products, as these products ship as soon as orders are received. Backlog as of
any particular date should not be relied upon as indicative of the Company's net
revenues for any future period.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations for its OCR and bar code business
products and its M/Series Professional Card Systems consist of final assembly,
test, burn in, and quality control for its systems, subassemblies, and
components. Components for products are procured by the Company and then
supplied to third party contractors. Many of these components are tested and
burned in prior to delivery to contractors to reduce failure rates. Major
subassemblies such as printed circuit boards are contracted to third parties for
assembly and initial testing.
Most of the components used in the manufacture of the Company's products
are available from multiple sources of supply. Certain components used in the
manufacture of the Company's OCR products are currently available only from a
single source. Although the Company generally maintains a several-month
inventory level of these components, failure of a single-source supplier to
deliver required quantities of such materials could materially and adversely
affect the Company's operating results. The Company believes that, if necessary,
it could develop alternative sources of supply for these components and parts,
or re-engineer the products. However, any delays in developing such alternative
sources of supply or in the re-engineering of the products could have a material
adverse effect on the Company's results of operations.
PRODUCT PROTECTION
The Company relies upon proprietary technology, trade secrets, know-how,
continuing technological innovations and licensing opportunities to maintain its
competitive position. The Company attempts to protect its technology and trade
secrets with patents, copyrights, trade secret laws, technical measures and non-
disclosure agreements. The Company's policy is to file patent and copyright
applications to protect technology,
10
12
inventions and improvements that are important to the development of its
business. The Company has been issued a series of patents which directly relate
to its products. Assurance cannot be given, however, that any patents issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted by the patents will provide competitive advantages to the
Company.
In order to protect its ownership rights in its software products, the
Company licenses such products to OEMs and resellers on a non-exclusive basis
with contractual restrictions on reproduction, distribution and transferability.
In addition, the Company generally licenses it software in object code form
only. The Company licenses its software products to end users by use of a
"shrink-wrap" customer license that restricts the end user to internal use of
the product. Despite these contractual restrictions, it may be possible for
competitors or users to illegally copy the software or obtain information which
the Company regards as proprietary.
The Company also relies on trade secrets and proprietary know-how. The
Company has been and will continue to be required to disclose its trade secrets
and proprietary know-how to employees and consultants. Although the Company
seeks to protect its trade secrets and proprietary know how, in part by entering
into confidentiality agreements with such persons, there can be no assurance
that these agreements will not be breached, that the Company would have an
adequate remedy for any breach, or that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors.
Because of technological developments in the industry in which the Company
markets its products, it is possible that certain of the Company's products may
infringe third party patents rights. From time to time the Company has received,
and in the future may receive, notices of claims of infringement. In response to
these claims, the Company may have to obtain licenses for an allegedly
infringing product or stop selling such product and be liable for damages in
addition to defending such actions in costly litigation. However, there can be
no assurances that such licenses or rights could in fact be obtained on
commercially reasonable terms.
In addition, Caere has developed products in the past that incorporate
technology based on licenses received from third parties. The Company's ability
to continue to develop and commercialize its products will be affected by its
ability to renew existing technology licenses and to obtain technology licenses
from third parties in the future. There can be no assurance that the Company
will be able to renew its current licenses or obtain any necessary licenses in
the future. The failure to renew existing licenses or to obtain any licenses
that may be required in the future could have a material adverse effect on the
Company.
Policing unauthorized use of technology is difficult, especially in the
software industry. Software piracy can be expected to be a persistent problem
for the software industry for the foreseeable future. Such piracy can be
particularly egregious in international markets in which the Company distributes
its products. The Company believes that, due to the rapid pace of technological
change in the industry, factors such as knowledge, ability, frequent product
enhancements, timeliness and quality of product support and the experience of
the Company's employees are more significant as a means to protect the Company's
competitiveness than patent, copyright and trade secret protection.
EMPLOYEES
As of December 31, 1995, Caere employed 223 people. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good. The Company has
utilized the services of consultants, third-party developers, and other vendors
extensively in its sales, development, and manufacturing activities
Competition in the recruiting of personnel in the computer and data
recognition industry is intense. The Company believes that its future success
will depend in part on its continued ability to hire and retain qualified
management, marketing, and technical employees, and independent contractors.
There can be no assurance that the Company will be able to attract and retain
enough qualified employees. Caere does not carry any key person life insurance
with respect to any of its personnel.
11
13
ADDITIONAL RISK FACTORS
Caere's business is subject to the following risks and uncertainties in
addition to those described above.
Fluctuating Revenues and Operating Results
Caere's revenues and operating results have fluctuated in the past and the
Company's future revenues and operating results are likely to do so in the
future, particularly on a quarterly basis. Caere's experience has been that a
disproportionately large percentage of shipments has occurred in the third month
of each fiscal quarter and that shipments tend to be concentrated in the latter
half of the month. Backlogs early in a quarter are not generally large enough to
assure that Caere will meet its revenue target for any particular quarter. A
shortfall in shipments at the end of any particular quarter may cause the
results of operations for that quarter to fall significantly short of
anticipated levels.
The Company's quarterly operating results may continue to fluctuate due to
numerous other factors. Some of these factors include the demand for the
Company's products, seasonality, customer order deferrals in anticipation of new
versions of the Company's products, the introduction of new products and product
enhancements by the Company or its competitors, including the effects of filling
the distribution channels following such introductions and of potential delays
in availability of announced or anticipated products, price changes by the
Company or its competitors, product sales mix, timing of acquisitions and
associated costs, and timing of significant marketing and sales promotions.
Termination of ViewStar Merger Agreement
On October 9, 1995, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Agreement") with ViewStar Corporation
("ViewStar") under the terms of which ViewStar would become a wholly owned
subsidiary of Caere. On January 20, 1996, the Company notified ViewStar of the
Company's termination of the Agreement. The Company received a response from
ViewStar denying the Company's right to terminate and notifying the Company of
ViewStar's intent to terminate the Agreement. Both Caere and ViewStar have
demanded payment from each other of the breakup fee provided for in the
Agreement as well as expenses incurred in connection with the transaction.
Neither Caere nor, as far as Caere is currently aware, ViewStar has commenced
any legal proceedings to date regarding this matter.
Lack of Product Revenue Diversification
Caere derived approximately 69% of sales in 1995 from the OmniPage and
WordScan line of products. Caere expects that these software products will
continue to account for a majority of the Company's sales in the future. A
decline in demand for these products as a result of competition, technological
change or other factors would have a material adverse effect on the Company's
results of operations.
Mature Markets for Certain OCR Products
For fiscal years ended December 31, 1993 and 1994 and 1995, Caere derived
approximately 22%, 15% and 23%, respectively, of its net revenues from sales of
its transaction processing OCR and bar code products. The market for both of
these sets of products is relatively mature and may not be subject to growth or
expansion by the Company in the future. There can be no assurance that Caere's
hardware-based transaction processing products will continue to be a significant
source of net revenues for the Company.
Possible Volatility of Caere Stock Price
The prices for Caere Common Stock have fluctuated widely in the past. The
management of Caere believes that such fluctuations may have been caused by
announcements of new products, quarterly fluctuations in the results of
operations and other factors, including changes in conditions of the personal
computer industry in general. Stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities issued by Caere and other high technology companies,
often for reasons unrelated to the operating performance of the specific
companies.
12
14
Caere anticipates that prices for Caere Common Stock may continue to be
volatile. Such future stock price volatility for Caere Common Stock may provoke
the initiation of securities litigation, which may divert substantial management
resources and have an adverse effect on the Company and its results of
operations.
Effect of Antitakeover Provisions of Delaware Law and Caere's Charter
Documents
Caere is a corporation organized under the laws of the state of Delaware.
Certain provisions of the Delaware Law and the charter documents of Caere may
have the effect of delaying, deferring or preventing changes in control or
management of Caere. Caere is subject to the provisions of Section 203 of the
Delaware Law, which has the effect of restricting changes in control of a
company. In addition, Caere's Board of Directors is divided into three separate
classes. Caere's Board has authority to issue up to 2,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of such shares without any further vote or action by
its stockholders. Caere also has a Preferred Share Rights Plan (the "Caere
Rights Plan"). The effect of the antitakeover protections of the Delaware Law,
the Caere charter documents and the Caere Rights Plan could be to make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, a majority of the outstanding stock of Caere.
ITEM 2. PROPERTIES.
The Company's principal administrative, marketing, manufacturing, and
product development facilities consist of approximately 56,000 square feet in
two buildings in Los Gatos, California. The Company occupies this space under a
lease agreement that expires in 1997. In addition, the Company leases office and
storage space in four locations in the United States for use by its regional
field sales and support staff. The Company believes that its existing facilities
are adequate for its needs for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in certain claims arising in the normal course of
business. The extent to which these matters will be pursued by the claimants or
the eventual outcome is not presently determinable. However, Company management,
after review and consultation with the Company's counsel, believes that the
ultimate resolution of these matters will not have a material adverse effect on
its consolidated financial position or results of operations.
As previously reported, the Department of Justice (DOJ) advised the Company
on December 19, 1994 that it had commenced an investigation of the acquisition
of Calera for possible violation of Federal Anti-trust Laws. No proceedings have
been instituted to date and the Company has not received any further notice with
respect to the DOJ investigation since January, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Quarterly Results of Operations," page 30.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Financial Highlights," page 1.
13
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 12
through 16.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference to the sections of the Company's 1995 Annual
Report to Stockholders entitled "Financial Statements," pages 17 through 29.
Supplementary data for the year ending December 31, 1994, is as follows:
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
1994, QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR 31 JUN 30 SEP 30 DEC 31 DEC 31
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues............................. $11,753 $13,540 $17,575 $16,262 $59,130
Earnings (loss) before income taxes...... (233) 905 3,731 (419) 3,984
Net earnings (loss)...................... (159) 618 2,548 (623) 2,384
Net earnings (loss) per share............ $ (.01) $ .05 $ .20 $ (.05) $ .18
Shares used in per share calculations.... 12,552 12,851 12,917 12,878 13,136
Common stock price per share:
High................................... $ 10.87 $ 9.00 $ 9.50 $ 18.75 $ 18.75
Low.................................... 7.75 6.62 6.62 9.12 6.62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders to be held May 14, 1996,
entitled "Election of Directors" and "Management."
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Executive
Compensation" and "Compensation of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Security
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Executive
Compensation," "Compensation of Directors," and "Stock Option Grants and
Exercises."
14
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following documents are incorporated in Part II of this Annual Report
by reference to the 1995 Annual Report to Stockholders:
ANNUAL REPORT TO
STOCKHOLDERS
----------------
Independent Auditors' Report.................................................. Page 17
Consolidated Balance Sheets as of December 31, 1995 and 1994.................. Page 18
Consolidated Statements of Earnings for each of the years in the three-year
period ended December 31, 1995.............................................. Page 19
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1995................................... Page 20
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1995.............................................. Page 21
Notes to Consolidated Financial Statements.................................... Pages 22-29
With the exception of the information expressly incorporated by reference
into Items 5, 6, 7, and 8 of this Annual Report, the 1995 Annual Report to
Stockholders, attached as Exhibit 13.1, is not deemed filed as part of this
report.
The Independent Auditors' Report of Coopers & Lybrand L.L.P., independent
auditors to Calera Recognition System, Inc., dated March 4, 1994, appears on
pages IV-1 and IV-2.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this
Annual Report and should be read in conjunction with the Financial Statements:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, or not
applicable, or because the required information is included in the 1995 Annual
Report to Stockholders, filed as Exhibit 13.1.
15
17
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated as of October 14, 1994, between the
Company and Calera Recognition Systems, Inc. (5)
3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1)
3.1 (i) Certificate of Amendment filed with the Delaware Secretary of State October 13,
1994 (6)
3.1 (ii) Agreement of Merger between the Caere Acquisition Corporation and Calera
Recognition Systems, Inc. as filed with the California Secretary of State
December 20, 1994 (1) (Exhibit 3.5) (6)
3.2 By-laws of the Company (exhibit 3.5)(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
*10.1 1981 Incentive Stock Option Plan, as amended, and related form of incentive stock
option agreement (exhibit 10.1)(4)
*10.2 1981 Supplemental Stock Option Plan, as amended, and related form of supplemental
stock option agreement (exhibit 10.2)(4)
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park
10.5 Form of Indemnity Agreement between the Company and its officers and directors
(exhibit 10.12)(1)
*10.7 Employee Stock Purchase Plan (exhibit 10.15)(2)
*10.8 1992 Officer Bonus Plan (exhibit 10.9)(4)
*10.9 1992 Non-Employee Directors' Stock Option Plan (exhibit 10.10)(4)
10.10 Preferred Share Purchase Rights Plan (exhibit 1)(3)
*10.11 Executive Compensation and Benefits Continuation Agreement, Robert G. Teresi,
dated December 28, 1994. (6)
11.1 Statement regarding computation of net earnings (loss) per share
13.1 1995 Annual Report to Stockholders
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand LLP
24.1 Power of Attorney. Reference is made to the signature page
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the corresponding exhibit in the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(4) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
16
18
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.
(B) REPORTS ON FORM 8-K.
None.
17
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAERE CORPORATION
Dated: March 25, 1996 By: /s/ BLANCHE M. SUTTER
------------------------------------
Blanche M. Sutter
Senior Vice President, Chief
Financial Officer
and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert G. Teresi and Blanche M. Sutter, or either
of them, his attorney-in-fact, each with the power of substitution, for him or
her, in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
/s/ ROBERT G. TERESI Chairman of the Board, Chief March 25, 1996
- ------------------------------------------ Executive Officer (Principal
Robert G. Teresi Executive Officer)
/s/ JAMES K. DUTTON Director March 25, 1996
- ------------------------------------------
James K. Dutton
/s/ WAYNE E. ROSING Director March 25, 1996
- ------------------------------------------
Wayne E. Rosing
/s/ FREDERICK W. ZUCKERMAN Director March 25, 1996
- ------------------------------------------
Frederick W. Zuckerman
/s/ BLANCHE M. SUTTER Senior Vice President, Chief March 25, 1996
- ------------------------------------------ Financial Officer and
Blanche M. Sutter Secretary (Principal
Financial Officer and
Accounting Officer)
18
20
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Calera Recognition Systems, Inc.
Sunnyvale, California
We have audited the balance sheet of Calera Recognition Systems, Inc. (the
Company) as of December 31, 1993 and the related statements of operations,
shareholders' equity and cash flows for the year then ended, before the
restatement of the cumulative effect of the change in accounting for income
taxes to $960,000, as reported in the consolidated statement of earnings and in
Note 1 to the consolidated financial statements of Caere Corporation and
subsidiaries. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An wait includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements, before the restatement, referred
to above present fairly, in all material respects, the financial position of
Calera Recognition Systems, Inc. as of December 31, 1993, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes.
/s/ COOPERS & LYBRAND L.L.P.
March 4, 1994
San Jose, California
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
IV-1
21
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Calera Recognition Systems, Inc.
Sunnyvale, California
In connection with our audit of the financial statements of Calera
Recognition Systems, Inc. as of December 31, 1993 and for the year then ended,
we have also audited the related financial statement schedule.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
March 4, 1994
San Jose, California
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
IV-2
22
SCHEDULE II
CAERE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995
(IN THOUSANDS)
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------------------- ---------- ---------- -------- --------- ---------
YEAR ENDED DECEMBER 31, 1993
Allowance for returns, coop advertising and
other customer credits....................... $1,667 $2,821 $ -- $ 2,725 $ 1,763
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $1,133 $ 935 $ -- $ -- $ 2,068
====== ====== ==== ====== ======
YEAR ENDED DECEMBER 31, 1994
Allowance for returns, coop advertising and
other customer credits....................... $1,763 $2,831 $ -- $ 2,321 $ 2,273
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $2,068 $ 662 $ -- $ -- $ 2,730
====== ====== ==== ====== ======
YEAR ENDED DECEMBER 31, 1995
Allowance for returns, coop advertising and
other customer credits....................... $2,273 $1,828 $ -- $ 2,399 $ 1,702
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $2,730 $ 683 $ -- $ -- $ 3,413
====== ====== ==== ====== ======
23
CAERE CORPORATION
INDEX OF EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- --------------------------------------------------------- ------------------
2.1 -- Agreement and Plan of Reorganization dated as of October
14, 1994, between the Company and Calera Recognition
Systems, Inc. (5)(exhibit 2.01)
3.1 -- Certificate of Incorporation of the Company (1)(exhibit 3.4)
3.1(i) -- Certificate of Amendment filed with the Delaware
Secretary of State October 13, 1994. (6)
3.1(ii) -- Agreement of Merger between the Caere Acquisition
Corporation and Calera Recognition Systems, Inc. as filed
with the California Secretary of State December 20, 1994. (6)
3.2 -- By-laws of the Company (1)(exhibit 3.5)
4.1 -- Reference is made to Exhibits 3.1 and 3.2
*10.1 -- 1981 Incentive Stock Option Plan, as amended, and related
form of incentive stock option agreement (4)(exhibit 10.1)
*10.2 -- 1981 Supplemental Stock Option Plan, as amended, and
related form of supplemental stock option agreement (4)(exhibit 10.2)
10.3 -- Lease Agreement for 100 Cooper Court, dated November 27,
1991 between the Company and Vasona Business Park
10.4 -- Lease Agreement for 104 Cooper Court, dated November 27,
1991 between the Company and Vasona Business Park
10.5 -- Form of Indemnity Agreement between the Company and its
officers and directors (1)(exhibit 10.12)
*10.7 -- Employee Stock Purchase Plan (2)(exhibit 10.15)
*10.8 -- 1992 Officer Bonus Plan (4)(exhibit 10.9)
*10.9 -- 1992 Non-Employee Directors' Stock Option Plan (4)(exhibit 10.10)
10.10 -- Preferred Share Purchase Rights Plan (3)(exhibit 1)
10.11 -- Executive Compensation and Benefits Continuation
Agreement, Robert G. Teresi, dated December 28, 1994. (6)
11.1 -- Statement regarding computation of net earnings (loss)
per share
13.1 -- 1995 Annual Report to Stockholders
21.1 -- Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Coopers & Lybrand LLP
24.1 -- Power of Attorney. Reference is made to the signature
page
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the corresponding exhibit in the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(4) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.