ScanSoft Announces Second Quarter 2000 Results

Revenue up 36% over prior year

PEABODY, Mass., - August 8, 2000 - ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of digital imaging software, today announced financial results for the second quarter ended June 30, 2000.

Second Quarter Results
ScanSoft's total revenues for the second quarter of 2000 increased 36% to $14.0 million, compared to revenues of $10.3 million in the same period of 1999. ScanSoft reported a net loss of $4.0 million, or $0.09 per share compared to net income of $1.3 million or $0.04 per share on a diluted basis, for the second quarter of 1999, before restructuring and other charges and amortization of intangible assets. Including the effects of these items, ScanSoft reported a net loss of $16.0 million, or $0.35 per share, compared to net income of $0.8 million, or $0.03 per share on a diluted basis, for the second quarter of 1999.

For the six months ended June 30, 2000, reported revenues increased 45% to $21.4 million compared to revenues of $14.8 million in the same period of 1999. ScanSoft reported a net loss (before in-process R&D, amortization of intangible assets, restructuring and other charges, and unusual items) of $7.7 million, or $0.20 per share, compared to net income of $0.8 million or $0.03 per share for the corresponding period a year ago. Including the effects of in-process R&D, amortization of intangible assets, restructuring and other charges, and unusual items, the Company reported a net loss of $40.0 million, or $1.05 per share, for the six months ended June 30, 2000, compared to a net loss of $3.2 million or $0.13 per share on a diluted basis, for the corresponding period a year ago.

Richard Palmer, ScanSoft's chief financial officer said, "The increase in second quarter revenue was driven by an expanded product offering resulting from our recent acquisition of Caere Corporation. However, revenues for the second quarter were adversely affected by a recent downturn in scanner sales in the US, which in turn reduced the Company's channel sales and OEM royalties. In addition, European revenue was lower than expected due to delays in introducing ScanSoft products into the former Caere distribution channels."

Effect of Employee Reductions; Second Quarter Restructuring Charge
The employee reductions announced in early July will be fully implemented prior to the 30th of September, with significant cost benefits realized in the fourth quarter of 2000. ScanSoft recorded $5.0 million in charges in the second quarter to reflect employee severance, costs due to the cancellations of certain contracts associated with the closure of the Los Gatos, California site and write downs of certain intangible assets associated with the acquisition of Caere. This restructuring action is expected to reduce annual operating expenses starting in the fourth quarter by $10 - $12 million.

"Although second quarter revenue was adversely impacted by the decline in scanner sales and our acquisition integration efforts, we made significant progress during the quarter in driving ScanSoft toward profitability. Revenues increased sequentially for each month of the quarter while total expenses fell to their lowest level in the final month of the quarter. Our focus in the third quarter will be to complete our cost reduction efforts. By the end of September ScanSoft will have approximately 260 employees, a reduction of 130 employees or 33% since the Caere acquisition. This should position the Company to achieve a fourth quarter operating profit, before consideration of amortization of intangible assets," said Palmer.

Comments on the Second Quarter
President and CEO Michael K. Tivnan commented on the second quarter, "Much of our energy during the first full quarter after the acquisition of Caere was focused on consolidating product lines, R&D staff, US and international facilities and administrative functions. We have also identified additional operating synergies designed to bring the Company's expenses more in line with its current revenue levels. Although we still have much to do, I am pleased with the progress we have made thus far. We were also able to expand our relationships with key OEMs including Fujitsu and Umax, as well as launching a number of new products, including TextBridge® Pro Millennium Business Edition, PaperPort® Deluxe 7.0, and Developer's Kit 2000 version 10. In July, we introduced our latest internet initiative, eOmniForm.com™, which brings significant added value to our current and future OmniForm® customers."

Strategic Partnerships

• UMAX Technologies, a worldwide leader in the manufacture of imaging and computer products selected ScanSoft's OmniPage® Limited Edition OCR software to bundle on a worldwide basis with its flatbed scanners.
• Fujitsu Computer Products of America and ScanSoft reached agreement to bundle Pagis Pro 3.0 Scanning Suite™ with the Fujitsu's new ScanPartner® 3091DC, a high-volume desktop duplex color scanner. Fujitsu is also licensing ScanSoft's OmniPage Web™ paper-to-web software with the new ScanPartner 620C.

Product Enhancements

• ScanSoft introduced TextBridge Pro Millennium Business Edition, the latest version of its Optical Character Recognition (OCR) software, which offers a 27% improvement in PDF file compression as well as improved memory management and enables businesses to convert paper documents into electronic files that can be edited.
• ScanSoft also announced the release of PaperPort Deluxe 7.0, the best-selling paper management software for home and business, integrating paper management, photo editing, forms fill-in and OCR.
• ScanSoft also introduced Developer's Kit 2000 version 10.0, which offers increased accuracy and improved flexibility for integration of OCR, ICR, Bar Code, MICR and OMR to developers.

Internet Initiative
Recently, ScanSoft introduced eOmniForm.com, an Internet forms hosting service which features leading-edge technology that publishes forms on the web with a click of a button without any HTML, DHTML or CGI programming required. The simple eOmniForm.com forms hosting solution completely eliminates the expensive, time-consuming work necessary to develop and maintain a data collection web site.

ScanSoft Product Reviews
During the second quarter, top trade and business press applauded both ScanSoft's new product releases and old favorites. The newly released Paper Converter™ received high praise from PC Magazine, which describes the software as "a great way to go". The Washington Times raves that PaperPort Deluxe 7.0 is "a real winner of a program", with ease of use, a multitude of features, and compatibility with a wide range of scanners, while PC World credits the software with "helping to bring order to the chaos". Small Business Computing commended TextBridge Pro, noting that the software "offers excellent accuracy and is easy to use". And lastly, OmniPage Pro® 10 was one of PC Computing's prestigious Editor's Picks for Business Applications A-List.

Tivnan concluded, "We are proud of the recognition ScanSoft's products are receiving and we remain committed to robust product development, channel expansion and are optimistic about our opportunities in the coming quarters."

About ScanSoft, Inc.
Headquartered in Peabody, MA, ScanSoft, Inc. (Nasdaq: SSFT) is a leading developer of digital imaging software that enables users to leverage the power of their scanners, digital cameras and other electronic devices. ScanSoft's award-winning product line Pagis Pro, TextBridge Pro, PaperPort Deluxe, Paper Converter, OmniPage Pro, OmniForm, eOmniForm, OmniPage Pro Scan Suite Plus, OmniPage Web, Developer's Kit 2000, Kai's PhotoSoap2, Kai's SuperGoo, Kai's PowerShow, and PhotoFactory - enables users to capture, recognize, edit, manage and share documents and photos electronically by taking advantage of ScanSoft's cutting-edge technology.

ScanSoft software is sold and marketed worldwide through retail, dealer and OEM channels and the Internet, capturing the consumer, small office/home office (SOHO) and corporate markets. For additional information, visit www.nuance.com.

Except for the historical information contained herein, this press release includes forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. These statements include the Company's expectation that the restructuring action is expected to reduce annual operating expenses starting in the fourth quarter by $10 - $12 million and that the Company will achieve a fourth quarter operating profit, before consideration of amortization of intangible assets. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances which may or may not be in ScanSoft's control and as to which there can be no firm assurances given. These forward-looking statements are subject to risks and uncertainties and there can be no assurance that any of these forward-looking statements may prove to be correct and actual results may differ materially. These risks and uncertainties include, but are not limited to, our ability to effectively manage diverse and geographically dispersed operations, difficulties with integrating product plans, schedules and resources, difficulties in implementing the planned cost reductions, potential that the information and estimates used to predict the cost savings were not accurate, market acceptance of ScanSoft's products, competitive products, pricing pressures, maintenance of distribution channels, and other risks detailed from time to time in ScanSoft's SEC reports. ScanSoft disclaims any intent or obligation to update these forward-looking statements.

TextBridge, Pagis Pro, PaperPort Deluxe, Paper Converter, OmniPage, OmniForm, eOmniForm, Developer's Kit 2000,PageKeeper, PhotoFactory, Kai's PhotoSoap2. Kai's Power Show, and Kai's SuperGoo are registered trademarks or trademarks of ScanSoft, Inc. All other trademarks and trade names are hereby recognized and may be registered to their respective holders.

ScanSoft's consolidated statements of operations and balance sheets follow.

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