Document Capture Technologies Announces Preliminary, Un-Audited Fourth Quarter and Full Year 2007 Results

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Company Reiterates Select Financial Guidance for Fiscal 2008 SAN JOSE, Calif., Feb. 27 /PRNewswire-FirstCall/ -- Document Capture Technologies, Inc. (OTC:DCMT) (BULLETIN BOARD: DCMT) , a leading provider of secure imaging solutions, today announced financial results for the fourth quarter and year ended December 31, 2007. Net sales for the fourth quarter ended December 31, 2007 were $3.9 million, an increase of 15.0 percent, compared to $3.4 million in net sales for the fourth quarter of 2006. The increase in net sales in the quarter was primarily due to a shift in product mix toward selling more high-end, feature-rich products, including the duplex scanner, which has a higher average selling price relative to the Company's older products. This was partially offset by lower sales in the quarter to a significant customer. Cost of sales for the fourth quarter of 2007 were $2.5 million, resulting in higher gross profit of $1.4 million, or 35.7 percent gross margin, compared to gross profit of $1.1 million, or 33.9 percent gross margin, based on $2.2 million cost of sales for the fourth quarter of 2006. The increased gross margin percentage experienced during the fourth quarter of 2007 as compared to the fourth quarter of 2006 was primarily a result of selling more feature-rich and higher end products, which bear higher comparative margins. The Company's newer and higher end products continue to experience broad market acceptance and sustained sales traction. Total operating expenses for the fourth quarter of 2007 were $1.2 million, a decrease of $5.0 million, or 80.7 percent, from $6.2 million in the fourth quarter of 2006. Selling and marketing expenses decreased 18.5 percent to $277,000 from $340,000; general and administrative expenses decreased 84% to $537,000 from $3.4 million; and research and development expenses were $387,000 compared to $1.6 million. The decrease in selling and marketing was a result of no display-related sales and marketing activities during fourth quarter 2007 due to the termination of that portion of the business. The decrease in general and administrative expense was a result of lower stock-based compensation costs and the one-time write off of related-party loans during the fourth quarter of 2007. The decrease in research and development expenses was primarily due to the write off of research and development-related intangible assets and the right-sizing and headcount reductions related to HD display development efforts. In addition, there was an $838,000 impairment of a certain long-term asset in the fourth quarter 2006, also related to HD initiatives that did not re-occur in the fourth quarter 2007. GAAP net income for the quarter was $164,000 compared to GAAP net loss of $(4.3) million, for the fourth quarter last year. GAAP net income available to common stockholders was $32,000 for the fourth quarter 2007 compared to a GAAP net loss of $(4.6) million for the fourth quarter of 2006. On a non-GAAP* basis, net income in the fourth quarter of 2007 was $129,000 compared to a non-GAAP net loss of $(4.8 million) in the fourth quarter of 2006. Non-GAAP net income (loss) excludes certain non cash items including stock-based compensation cost and the accounting for derivative instruments. For the year ended December 31, 2007, net sales were $15.0 million, an increase of 20.5 percent compared to $12.5 million in net sales for the same period last year. Cost of sales were $9.1 million, resulting in gross profit of $5.9 million, or 39.3 percent gross margin, compared to gross profit of $4.2 million or 34.1 percent gross margin based on $8.2 million in cost of sales for the same period last year. Revenues for the year were higher due to the shift toward selling more high-end products, including our duplex scanner, with a higher average selling price partially offset by a decline in revenues year-over-year from a single large customer. Total operating expenses for the year ended December 31, 2007 were $6.5 million, a 38.6 percent decrease, or $4.0 million, from $10.5 million in the same period last year. Selling and marketing expenses were $1.3 million compared to $1.2 million; general and administrative expenses were $2.7 million compared to $5.4 million; and research and development expenses were $2.4 million compared to $3.1 million. The decrease in general and administrative expense was a result of lower stock-based compensation costs and the one-time write off of related-party loans. The decrease in research and development expenses was primarily due to the write off of research and development-related intangible assets and the right-sizing and headcount reductions in the HD display development efforts. In addition, there was an $838,000 impairment of a certain long-term asset in the year ended 2006, also related to HD initiatives that did not re-occur in the fourth quarter 2007. Net loss for the year ended December 31, 2007 improved to $(1.1) million compared to a net loss of $(5.2) million for the same period last year. The $4.1 million improvement in net loss was primarily due to the one-time $555,000 amortization of research and development-related intangibles, an $838,000 impairment of a long-term asset, and a $2.6 million write off of related-party loans during Fiscal 2006, which did not re-occur in Fiscal 2007. Net loss available to common stockholders was $(1.9) million, or $(0.09) per common share basic and fully diluted (based on 20.4 million weighted average basic and diluted common shares outstanding) for the year ended December 31, 2007 compared to a net loss available to common shareholders of $(5.9) million, or $(0.25) per common basic and fully diluted share (based on 24.1 million weighted average basic and diluted common shares outstanding) for the same period last year. On a non-GAAP* basis, net income available to common shareholders for the year ended December 31, 2007 was $630,000 compared to a non-GAAP* adjusted net loss available to common shareholders of $(5.4) million for the same period last year. Non-GAAP* net income (loss) excludes certain non cash items including stock-based compensation cost and the accounting for derivative instruments. The Company had cash and cash equivalents of $1.8 million, working capital of $3.0 million, and a current ratio of 2.1 to 1 at December 31, 2007 as compared to cash and cash equivalents of $1.3 million, working capital of $2 million and a current ratio of 1.7 to 1 at December 31, 2006. Carolyn Ellis, Chief Financial Officer of Document Capture Technologies, Inc., commented, "The quarter and full year results were driven by strong demand across our entire product line and we are pleased to now be reporting positive operating cash flow. Challenging decisions we have made in the past six months have enabled us to focus our efforts, pare down losses, reach GAAP net breakeven. As a reinvigorated organization we will continue to build on these financial results. Our commitment to innovation through document capture related R&D and consistently introducing new products to the market have resulted in year-over-year comparative sales growth for seven of the last eight quarters and we expect our growth at the top-lines to continue to track at current levels, while we move towards consistent profitability and cash flow growth." "We have been exclusively focused on the market for portable page-fed document scanners since mid-November when we announced the termination of our HD initiatives," commented David P. Clark, Chief Investment Officer of Document Capture Technologies. "We have experienced broad acceptance of our high-end image and document scanners that offer high performance mobility with very low power consumption. In the second half of the year we experienced an increase in orders from nine of our top ten customers and added several key new accounts. We believe that we are well-positioned for growth and expect to introduce three new products to the market place in 2008 with a roadmap for continued product innovations and introductions beyond. With our corporate identity and singular focus, we are now poised to take advantage of the many opportunities we see emerging in our market space." Mr. Clark concluded, "Our senior management team recently exercised founder stock options in the aggregate amount of over 1.0 million shares, reflecting our confidence in the strength of the Company's business, outlook, and the value that we see in our common stock at current market prices. We made this announcement in conjunction with issuing 2008 select financial guidance, which we are reiterating today." The Company expects that for full year 2008, revenues from its document capture, or mobile scanning business, will be in the range of $18 million to $19 million and that gross margin will remain steady in the 38%-40% range. Further, the Company expects that its 2008 full year reported non-GAAP* adjusted EPS (adjusted for certain non-cash items including stock-based compensation costs and the accounting for derivative financial instruments) will be in the range of $0.13 to $0.15 per diluted share. *In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, DCT uses non-GAAP measures of net income (loss) and income (loss) per share, which are adjustments from results based on GAAP to exclude non-cash stock-based compensation costs in accordance with SFAS 123R and the non-cash accounting for derivative financial instruments. DCT's management believes the non-GAAP financial information provided in this release is useful to investors' understanding and assessment of DCT's ongoing core operations and prospects for the future. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and as such deemed it important to provide all this information to investors. Conference Call on March 5, 2008, at 4:30 PM ET: Management will host a conference call to discuss the audited results March 5, 2008, at 4:30 PM ET concurrent with filing the Form 10K with the Securities and Exchange Commission. Anyone interested in participating should dial in to 800-762-8795 if calling within the United States or 480-248-5085 if calling internationally. A re-play will be available until March 12, 2008, which can be accessed by dialing 800-406-7325 if calling within the United States or 303-590-3030 if calling internationally. Please use passcode 3850254 to access the replay. The call will also be accompanied by a live webcast over the Internet and accessible at DCT's corporate website at http://www.docucap.com/. About Document Capture Technologies, Inc. Document Capture Technologies, Inc. (OTCBB: DCMT.OB), headquartered in San Jose, Calif., designs and manufactures document capture solutions for OEM customers worldwide. The company currently manufactures over 20 proprietary document capture products and has become one of the world's largest private-label manufacturers of USB-powered mobile document scanning devices. The Company's growing intellectual property portfolio in document capture includes four key patents with an additional one patent pending. Forward-Looking Statements Statements contained in this press release, which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based largely on current expectations and are subject to a number of known and unknown risks, uncertainties and other factors beyond the Company's control that could cause actual events and results to differ materially from these statements. These risks include, without limitation, that there can be no assurance that any strategic opportunities will be available to the Company and that any strategic opportunities may only be available on terms not acceptable to the Company. These statements are not guarantees of future performance, and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Document Capture undertakes no obligation to update publicly any forward-looking statements. Company Contact: Document Capture Technologies, Inc. David P. Clark (561) 835-4069 Investor Contact: Hayden Communications, Inc. Peter Seltzberg (646) 415-8972 DOCUMENT CAPTURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) Un-Audited December 31, 2007 2006 ASSETS Current assets: Cash and cash equivalents $1,770 $1,333 Trade receivables 2,464 1,813 Inventories, net 1,400 1,642 Prepaid expenses and other current assets 32 73 Total current assets 5,666 4,861 Fixed assets, net 127 108 Long-term investment - 160 Total assets $5,793 $5,129 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Bank line of credit $- $1,013 Notes payable and related warrant liability 1,239 - Trade payables to related parties 578 952 Trade payables 415 198 Other payables and accruals 243 506 Accrued dividends on Series A 5% cumulative convertible stock preferred stock 178 152 Total current liabilities 2,653 2,821 Long-term bank line of credit 2,021 - Liability under derivative contracts 255 229 Total liabilities 4,929 3,050 Commitments and contingencies Convertible preferred stock, $.001 par value, 2,000 authorized: Series A 5% cumulative convertible preferred 1,074 957 stock, 11.5 and 16 shares issued and outstanding at December 31, 2007 and December 31, 2006, respectively; liquidation value of $1,150 and $1,565 at December 31, 2007 and December 31, 2006, respectively Series B convertible preferred stock, 1.5 and 70 152 11.5 shares issued and outstanding at December 31, 2007 and December 31, 2006, respectively; liquidation value of $150 and $1,150 at December 31, 2007 and December 31, 2006, respectively Stockholders' (deficit) equity: Common stock $.001par value, 50,000 authorized, 15 24 15,904 shares issued and 15,404 outstanding at December 31, 2007 and 24,642 shares issued and 24,142 outstanding at December 31, 2006 (500 shares held in escrow) Additional paid-in capital 30,323 29,651 Accumulated deficit (30,618) (28,705) Total stockholders' (deficit) equity (280) 970 Total liabilities and stockholders' (deficit) equity $5,793 $5,129 DOCUMENT CAPTURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts Un-Audited) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net sales $3,904 $3,394 $15,023 $12,469 Cost of sales 2,511 2,245 9,120 8,221 Gross profit 1,393 1,149 5,903 4,248 Operating expenses: Selling and marketing 277 340 1,349 1,240 General and administrative 537 3,398 2,675 5,361 Research and development 387 1,635 2,439 3,084 Impairment of long-term investment - 838 - 838 Total operating expenses 1,201 6,211 6,463 10,523 Operating income (loss) 192 (5,062) (560) (6,275) Other income (expense): Change in fair value of derivative instruments 263 776 (238) 1,421 Fair value of warrants issued - - - (173) Preferred stock issuance costs - (8) - (88) Other (291) (36) (258) (81) Total other income (expense) (28) 732 (496) 1,079 Net loss before income taxes 164 (4,330) (1,056) (5,196) Provision for income taxes - 3 4 3 Net income (loss) 164 (4,333) (1,060) (5,199) Dividend on Series A and accretion of Series A and Series B preferred stock redemption value (132) (245) (853) (749) Net income (loss) available to common stockholders $32 $(4,578) $(1,913) $(5,948) Net income (loss) available to common stockholders per Common share -- basic and diluted $0.00 $(0.19) $(0.09) $(0.25) Weighted average common shares outstanding -- basic and diluted 15,271 24,142 20,420 24,105 DOCUMENT CAPTURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Un-Audited Year ended December 31, 2007 2006 Operating activities Net loss available to common shareholders $(1,913) $(5,948) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 48 597 Fair value of common stock warrants issued for services rendered 18 - Stock base compensation cost -- options 1,426 1,311 Change in fair value of derivative instruments 238 (1,421) Accretion of Series A and Series B preferred stock redemption value 773 668 Preferred stock issuance expenses paid by issuance of warrants - 173 Allowance for doubtful accounts - 2,606 Allowance for slow-moving inventory 20 - Impairment of long-term investment - 838 Interest expense attributable to amortization of debt issuance costs 88 - Loss on disposal of assets - 17 Changes in operating assets and liabilities: Trade receivables (651) (528) Inventories 222 (891) Prepaid expenses and other current assets 41 246 Trade payables 217 (61) Trade payables to related parties (374) 749 Other payables and accruals (198) 324 Accrued dividends on Series A 5% cumulative convertible stock 81 81 Cash provided (used) by operating activities 36 (1,239) Investing activities Cash proceeds from sale of long-term investment 160 - Capital expenditures (67) (4) Cash provided (used) by investing activities 93 (4) Financing activities Proceeds from the issuance of preferred stock - 1,150 Payoff of existing bank line of credit (1,013) - Advances on replacement bank line of credit 1,521 - Principal payments on notes payable (200) - Cash provided (used) by financing activities 308 1,150 Increase (decrease) in cash and cash equivalents 437 (93) Cash and cash equivalents at beginning of year 1,333 1,426 Cash and cash equivalents at end of year $1,770 $1,333 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $113 $92 Income taxes $4 $3 Non-cash investing and financing activities: Restricted common stock acquired from related party $2 $- Conversion of convertible preferred stock to common stock $1,068 $30 Issuance of common stock warrants in connection with debt financing $399 $- Purchase of restricted common stock for retirement $2,000 $- DOCUMENT CAPTURE TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands, except per share amounts) Un-Audited Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net income (loss) available to common stockholders (GAAP) $32 $(4,578) $(1,913) $(5,948) Stock-based compensation cost -- options 154 334 1,426 1,311 Fair value of warrants issued for services rendered 4 - 18 - Interest expense attributable to amortization of debt issuance costs 86 - 88 - Change in fair value of derivative instruments (263) (776) 238 (1,421) Accretion of Series A and Series B preferred stock redemption value 116 223 773 668 Net income (loss) available to common stockholders (Non-GAAP) $129 $(4,797) $630 $(5,390) DATASOURCE: Document Capture Technologies, Inc. CONTACT: David P. Clark of Document Capture Technologies, Inc., +1-561-835-4069, ; or Investors, Peter Seltzberg of Hayden Communications, Inc., +1-646-415-8972, , for Document Capture Technologies, Inc. Web site: http://www.docucap.com/

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