Business News

Document Capture Technologies Reports First Quarter 2008 Financial Results

Friday 16. May 2008 - Document Capture Technologies, Inc. (BULLETIN BOARD: DCMT) , a leading provider of secure imaging solutions, today announced financial results for the first quarter ended March 31, 2008.

Net sales for the first quarter ended March 31, 2008 were $2.5 million, a decrease of 39%, compared to $4.1 million in net sales for the first quarter of 2007. The decrease in net sales in the quarter was primarily due to the timing and rescheduling of significant customer orders that resulted in a lower number of scanners shipped in the quarter and less favorable market conditions in the U.S. First quarter revenue comparisons were also impacted by pushed out orders from the fourth quarter of 2006 worth approximately $700,000 that were recognized in the first quarter of 2007.

David P. Clark, Chief Executive Officer, commented, “Though the domestic spending environment remains challenged for growth, and we have seen some of this impact on our customers’ quarterly order patterns, we remain optimistic in our ability to grow our business and look forward to being able to report additional progress in dialogs with strategic partners, new product launches, and new initiatives in the coming months. The strength of our balance sheet continues to work to our advantage and our business generated over one million dollars in cash for the quarter, a positive swing of approximately two million dollars compared to last year’s first quarter.”

Cost of sales for the first quarter of 2008 were $1.8 million, resulting in lower gross profit of $733,000, or 29% gross margin, compared to gross profit of $1.6 million, or 40% gross margin, based on $2.5 million cost of sales for the first quarter of 2007. The decreased gross margin percentage in the first quarter of 2008 as compared to the first quarter of 2007 was directly attributable to the devaluation of the U.S. dollar against the Chinese Yuan and certain product mix factors.

William Hawkins, Chief Operating Officer commented, “While we did experience some softness in orders, particularly due to the general slow down in consumer IT spending, we expect to book many of these orders in the second quarter. Operational improvements and decreases in overhead due to the absence of HD expenses were a partial net offset to financial effects of the lower revenue. There is no shortage of opportunities in the marketplace for applications and integration of products like ours and we believe that our state-of-the-art products, product pipeline, and financial stability will enable us to meet our internal budgeting goals and resume growth throughout this year.”

Total operating expenses for the first quarter of 2008 were $1.2 million, a decrease of $0.9 million, or 44%, from $2.1 million in the first quarter of 2007. Selling and marketing expenses decreased 37% to $251,000 from $400,000; general and administrative expenses decreased 22% to $710,000 from $915,000; and research and development expenses decreased 74% to $203,000 compared to $777,000 in the year-ago period. The decrease in selling and marketing expenses was primarily a result of the termination of HD display-related activities as a result of terminating that portion of the business in November 2007. The decrease in general and administrative expense was a result of lower stock-based compensation costs (a non-cash charge). The decrease in research and development expenses was primarily due to the termination of all R&D activities related to the HD display development efforts.

GAAP net loss for the quarter decreased by $328,000, or 41% to $(480,000) compared to GAAP net loss of $(808,000), for the first quarter 2007. GAAP net loss available to common stockholders was $(813,000) for the first quarter 2008 compared to a GAAP net loss of $(1.0) million for the first quarter of 2007. On a non-GAAP* basis, net income available to stockholders in the first quarter of 2008 was $48,000 compared to a non-GAAP net income of $357,000 in the first quarter of 2007. Non-GAAP net income excludes certain non cash items, including stock-based compensation cost, and the accounting for derivative instruments.

In the quarter the Company sold its remaining HD-related assets for a total of $600,000 and received an initial cash payment of $400,000 which was recorded as a gain on sale of assets in the first quarter ended March 31, 2008. A second cash payment of $150,000 was received on May 2, 2008 and will be recorded as a gain on sale of assets in the quarter ended June 30, 2008. The final $50,000 payment will be reflected in DCT’s financial statements as a gain on sale of assets when the cash is received.

The Company had cash and cash equivalents of $1.3 million, working capital of $1.8 million, and a current ratio of 1.7 to 1 at March 31, 2008 as compared to 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. Additionally, the Company converted all the outstanding Series A Preferred Stock, which eliminates any future cash obligations related to the Series A Preferred A Stock.

Mr. Clark concluded, “We expect that the majority of our growth in 2008 will come in the third and fourth quarters driven in large part by new products we are scheduled to introduce to the marketplace in that timeframe. However, because of the mixed effect of general economic conditions and lack of visibility in the markets we serve, the Company has concluded that it is prudent to refrain from offering financial guidance at this time.”

*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.