SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1995 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 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in its 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 executive offices)
(408) 395-7000
(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
Class : Common Stock
$.001 par value
Outstanding March 31, 1995: 13,103,312
This is page 1 of 12 pages
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<CAPTION>
CAERE CORPORATION
INDEX
PART I. Financial Information
Page
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Condensed Consolidated Statements of Earnings -- Three Months
Ended March 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Exhibit 11 Statement Regarding Computation of Net Earnings
Per Share 10
PART II. Other Information
ITEM 1. Legal Proceedings
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<CAPTION>
CAERE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31, December 31,
1995 1994
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,524 3,995
Short-term investments 44,467 47,104
Receivables 5,939 6,040
Inventories (Note B) 2,309 2,555
Other current assets 3,626 3,459
----- -----
Total current assets 58,865 63,153
Property and equipment, net 4,287 3,614
Other assets 1,364 1,134
------- -------
Total assets $ 64,516 $ 67,902
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other payables $ 4,889 $ 7,882
Accrued merger related costs 1,129 2,267
Preferred stock, $.001 par value: authorized 2,000,000
shares; none issued or outstanding - -
Common stock, $.001 par value: authorized 30,000,000
shares; issued and outstanding 13,103,312 and 13,046,419
shares 13 13
Additional paid-in capital 60,843 60,597
Notes receivable from stockholders (400) (400)
Accumulated deficit (1,958) (2,457)
------- -------
Total stockholders' equity 58,498 57,753
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Total liabilities and stockholders' equity $ 64,516 $ 67,902
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net revenues $ 12,224 $ 11,753
Cost of revenues 3,542 3,443
----- -----
8,682 8,310
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Operating expenses:
Research and development 2,324 2,449
Selling, general and administrative 6,231 6,381
----- -----
8,555 8,830
----- -----
Operating earnings (loss) 127 (520)
Interest income, net 538 287
Earnings (loss) before income taxes 665 (233)
Income tax expense (benefit) 166 (74)
Net earnings (loss) $ 499 $ (159)
==== ======
Net earnings (loss) per common and
common equivalent share $ .04 $ (.01)
==== ======
Shares used in per share calculation 13,688 12,552
====== ======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CAERE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net earnings (loss) $ 499 $ (159)
Adjustments to reconcile net earnings to net cash provided
by (used for) operating activities:
Depreciation and amortization 444 506
Merger related costs (1,138) --
Amortization of capitalized software development costs 152 109
Changes in operating assets and liabilities:
Receivables 101 2,425
Inventories 246 (554)
Other current assets (167) (57)
Accrued expenses and other payables (2,993) 376
------- ---
Net cash provided by (used for) operating activities (2,856) 2,646
------- -----
Cash flows from investing activities:
Short-term investments, net 2,637 (2,554)
Capital expenditures (1,074) (162)
Capitalized software development costs (120) (120)
Other assets (304) 63
----- --
Net cash provided by (used for) investing activities 1,139 (2,773)
----- -------
Cash flows from financing activities:
Proceeds from issuances of common stock 246 84
--- --
Net increase (decrease) in cash and cash equivalents (1,471) (43)
Cash and cash equivalents at beginning of period 3,995 20,671
----- ------
Cash and cash equivalents at end of period $ 2,524 $ 20,629
===== ======
Supplemental disclosures:
Cash paid for income taxes $ 1,011 $ 23
===== ==
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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CAERE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A) Basis of Presentation
The accompanying unaudited condensed consolidated balance sheets,
statements of earnings, and statements of cash flows reflect all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion of
management, necessary to present the financial position of the Company as of
March 31, 1995, and its results of operations and cash flows for the periods
indicated.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q, and, therefore,
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company filed audited financial statements
with the Securities and Exchange Commission which included all information and
footnotes necessary for a complete presentation of the Company's financial
position, results of operations and cash flows for the years ended December 31,
1994, 1993 and 1992, in its report on Form 10-K for the year ended December 31,
1994 (the "Form 10-K"). These condensed financial statements should be read in
conjunction with the financial statements contained in the Company's Form 10-K.
The results of operations for the interim period ended March 31, 1995, are not
necessarily indicative of the results to be expected for the full year.
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<CAPTION>
B) Inventories March 31, 1995 December 31, 1994
----------- -------------- -----------------
<S> <C> <C> <C>
(In thousands)
A summary of inventories follows:
Raw materials $ 1,142 $ 1,235
Work in process 227 520
Finished goods 940 800
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$ 2,309 $ 2,555
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C) Net Earnings Per Share
Net earnings per common and common equivalent share are computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of options to
purchase common stock calculated using the treasury stock method. Fully diluted
earnings per share for all periods presented were not materially different from
primary earnings per share.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues
Net revenues increased to approximately $12.2 million during the
first quarter of 1995 from $11.8 million in the first quarter of 1994. The
increase was due to increased upgrade revenues and increased OEM revenues
related to bundled versions of OmniPage and WordScan. The overall increase was
offset by a decrease in revenues of retail software recognition products
compared to the first quarter of 1994.
New versions of products that shipped during the quarter include
upgrade versions of WordScan Plus and PageKeeper. OmniForm, the first product
brought to market through Caere's affiliated label program, also shipped during
the quarter. In addition, the first upgrade versions of OmniPage Professional
and WordScan Plus were sold through the retail distribution channel. Total
desktop products' net revenues for the first quarter were $10.6 million compared
to $10.0 million in the first quarter of 1994.
Business products' net revenues for the transaction processing
OCR/bar code products were fairly consistent at approximately $1.6 million for
the first quarter of 1995 compared to $1.8 million for the first quarter of
1994. The Company has not experienced any uniform seasonality patterns with
these products, and quarterly revenues fluctuate throughout the year.
Overall, international sales accounted for approximately 30% of total
net revenues for the first quarter. This compares to approximately 29% in the
first quarter of 1994.
Gross Margins
Gross margins of 71% were consistent with the first quarter of 1994.
The primary factor affecting gross margins in the future is likely to be shifts
in product mix between software and hardware products. The microcomputer
software market has been subject to rapid changes, including significant price
competition, which can be expected to continue. Future technology or market
changes may cause certain products to rapidly become obsolete, necessitating
increased inventory write-offs or reserves and a corresponding decrease in gross
margins.
Operating Expenses
Research and development (R&D) expenses decreased 5% to $2.3 million
for the first quarter of 1995 compared to $2.5 million for the first quarter in
1994. As a percentage of sales, R&D was relatively consistent with the first
quarter of 1994. R&D expense included approximately $100,000 of merger-related
costs for transitional employees. The Company expects to continue significant
investment in R&D during 1995.
Selling, general and administrative (SG&A) expenses decreased
approximately 2% to $6.2 million for the first quarter of 1995 compared to $6.4
million for the comparable quarter of 1994. Included in SG&A for the first
quarter of 1995 was approximately $225,000 of merger-related costs for
transitional employees.
Adjusting for merger-related costs, overall operating expenses were
down approximately $675,000 due to synergies resulting from the merger.
Interest Income
The increase in interest income resulted from higher average cash
balances and higher interest rates earned on the Company's short-term
investments.
Income Taxes
The income tax rate for the first quarter of 1994 was 25% due to
utilization of net operating loss carryforwards, the tax exempt nature of
interest income, and the Company's Foreign Sales Corporation.
Net Earnings
Net earnings increased to $499,000 for the first quarter of 1995
compared to a loss of $159,000 for the first quarter of 1994, due to the
combination of factors outlined above.
Certain Trends
The Company's future operating results may be affected by various
uncertain trends and factors beyond the Company's control. These include adverse
changes in general economic conditions, rapid or unexpected changes in the
technologies affecting optical character recognition, rising costs, or the
unavailability of needed components. The industry has become increasingly
competitive, and accordingly, the Company's results may also be adversely
affected by the actions of existing or future competitors, including the
development of new technologies, the introduction of new products, and the
reduction of prices by such competitors to gain or retain market share.
During 1994, the Company began to bundle versions of its OmniPage and
WordScan software recognition products with various scanner manufacturers. These
bundled products began shipping in quantities during the fourth quarter of 1994.
While the company expects to aggressively market upgrade products to these
customers, and believes that these bundles will provide a greater number of
scanner purchasers with experience in the advantages of optical character
recognition, there is no assurance that the Company will be successful in this
new business model. In addition, use of the bundled products may cause deferral
of the purchase of the Company's fully priced retail version of OmniPage and
WordScan products for a period of time or may adversely impact the Company's
results of operations.
Future operating results of the Company are dependent upon the
ability of the combined company to realize the synergies expected to result from
the merger with Calera Recognition Systems, Inc., consummated in the fourth
quarter of 1994. The Company intends to seek to reduce operating costs over time
by eliminating duplicative facilities, repositioning competitive product lines,
and reducing overall the number of employees that would have otherwise been
required by each of the two companies operating separately. There can be no
assurance that these steps will reduce costs to the extent, or as quickly, as
planned. The Company anticipates that the combined revenues of the two companies
after the merger may be less than the sum of their respective revenues before
the merger, at least in the short term, as a result of potential disruption in
the market place and competitive responses to the merger.
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings are unpredictable due to the Company's shipment patterns.
As is common in the software industry, the Company's experience has been that a
disproportionately large percentage of shipments occur in the third month of
each fiscal quarter, and shipments tend to be concentrated in the latter half of
that month. Because the Company's backlog early in a quarter is not generally
large enough to assure that it will meet its revenue targets for any particular
quarter, quarterly results are difficult to predict until the end of the
quarter. A shortfall in shipments at the end of any particular quarter may cause
operating results for that quarter to fall significantly short of anticipated
levels. Due to analysts' expectations of continued growth, any such shortfall in
operating results could have a very significant effect on the trading price of
the Company's common stock in any given period.
As a result of the foregoing factors and other factors arising in the
future, the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These fluctuations may be
due to factors specific to the Company, to changes in analysts' earnings
estimates, or to factors affecting the computer industry or the securities
markets in general.
Liquidity and Capital Resources
The Company's financial position remains strong, with working capital
of $52.8 million and no long-term debt. Cash and short-term investments
aggregated approximately $47.0 million at March 31, 1995. The Company believes
that existing cash balances will be sufficient to meet its cash requirements for
the foreseeable future.
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EXHIBIT 11
CAERE CORPORATION
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net earnings (loss) $ 499,000 $ (159,000)
======= =========
Weighted average shares outstanding during the period 13,091,631 10,570,123
Common equivalent shares using the treasury
stock method 596,365 1,982,321
---------- ---------
Common and common equivalent shares outstanding
for purposes of calculating net earnings per share 13,687,996 12,552,444
========== ==========
Net earnings per common and common
equivalent share $ .04 $ (.01)
=== =====
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<PAGE>
PART II. OTHER INFORMATION
Item 1
Legal Proceedings
On April 7, 1993, a class action lawsuit alleging securities law
violations was filed against the Company and certain of its executive officers.
On November 17, 1993, the U.S. District Court for the Northern District of
California dismissed with prejudice certain of the claims and dismissed with
leave to amend other claims. The plaintiffs elected not to amend, but appealed
the decision to the U.S. Court of Appeals for the Ninth Circuit. In December
1994, the parties reached an agreement to settle the lawsuit for $400,000, a
substantial portion of which will be paid by Caere's Directors and Officers
insurance carrier. The settlement is subject to approval by the District Court.
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 Company was informed on December 19, 1994,
by the Antitrust Division of the U.S. Department of Justice (DOJ) that it
intended to investigate the merger of the Company with Calera. The Company
intends to fully cooperate with the investigation. To date, the Company has not
received any further notice with respect to the DOJ investigation.
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Net Earnings
Per Share - page 10.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAERE CORPORATION
Date: May 12, 1995
/S/ Blanche M. Sutter
Blanche M. Sutter, Vice President Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
IN THOUSANDS (EXCEPT EPS)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2524
<SECURITIES> 44467
<RECEIVABLES> 7626
<ALLOWANCES> 1687
<INVENTORY> 2309
<CURRENT-ASSETS> 3626
<PP&E> 13983
<DEPRECIATION> 9696
<TOTAL-ASSETS> 64516
<CURRENT-LIABILITIES> 6018
<BONDS> 0
<COMMON> 60856
0
0
<OTHER-SE> (400)
<TOTAL-LIABILITY-AND-EQUITY> 64516
<SALES> 12224
<TOTAL-REVENUES> 12224
<CGS> 3542
<TOTAL-COSTS> 3542
<OTHER-EXPENSES> 8555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (538)
<INCOME-PRETAX> 665
<INCOME-TAX> 166
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
