Business News

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

Monday 03. March 2008 - Company Reiterates Select Financial Guidance for Fiscal 2008

Highlights:

– Full year 2007 revenues increase 20.5 percent over year-ago period

– Full year 2007 gross margin increased over 500 basis points to 39.3 percent

– Posted fourth quarter 2007 net income of $164,000 compared to $(4.3) million net loss in the fourth quarter 2006

– Terminated all R&D related to HD display business to reduce operating expenses and refocus on core scanner business

– Company completes name change to Document Capture Technologies, Inc. and refocuses solely on expanding secure image and document capture market

– Successfully launched four new products in 2007

Subsequent to the end of the quarter

– Management exercised over one million founders options reflecting confidence in the strength of the Company’s business, outlook, and the value that they see in its shares at current market prices

Document Capture Technologies, Inc. (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.