Achieves $0.04 in GAAP EPS for Second Quarter SAN JOSE, Calif., Aug. 13 /PRNewswire-FirstCall/ -- Document Capture Technologies, Inc. (OTC:DCMT) (BULLETIN BOARD: DCMT) , a leading provider of secure imaging solutions, today announced financial results for the second quarter ended June 30, 2008. Second Quarter Financial Highlights -- GAAP net income available to shareholders increased to $746,000, or $0.04 per basic and diluted share from an $(81,000) loss, or $0.00 loss per share in the year-ago period -- Operating income swung $479,000 to $302,000 compared to an operating loss of $(177,000) in the year-ago period -- Total operating expenses for the second quarter of 2008 decreased 60% to $681,000 from $1.7 million in the year-ago period -- Strengthened balance sheet through tight inventory control and debt reduction; shareholders' equity increased to $1.4 million for the period ended June 30, 2008 from a deficit of $(280,000) at December 31, 2007 Subsequent Highlight -- Edward M. Straw, retired US Navy Vice Admiral and senior business executive, named Chairman of the Board of Directors Net sales for the second quarter ended June 30, 2008 were $3.0 million, a 19% decrease compared to $3.7 million in net sales for the second quarter of 2007. The decrease in net sales in the quarter was primarily due to the overall slowdown of the general economic and market conditions in the U.S. economy and the related slowdown of information technology ("IT") spending as well as decreased demand from the banking, financial, and insurance sectors. David P. Clark, Chief Executive Officer, commented, "We regained profitability and continued to generate healthy cash flow in the quarter. Although our 2008 sales have thus far been affected by the general economic slowdown of the U.S. economy, we have kept a watchful eye on our operating expenses while we refocus on our core mobile scanner business. The positive effects of our expense reduction can be seen at the operating and net income level and we are pleased with the financial progress we made in the quarter. We continue to generate cash from operations and fully expect GAAP profitability for the year." Mr. Clark continued, "During the three and six months ended June 30, 2008, our European sales, to which we have paid greater attention, continue to show strong growth. We have nearly doubled our distribution network within this market during the last six months compared to the year-ago period. We expect this trend to continue as we have improved our ability to deliver all channel products from our Netherlands-based warehouse, improved our time-to-market and reduced our logistics and shipping costs. We used a good portion of the cash we generated during the quarter to pay down debt and shareholders' equity increased to $1.4 million this quarter from a deficit of $280,000 at the end of December 2007. We expect this trend to continue in the third quarter. Cost of sales for the second quarter of 2008 were $2.0 million, resulting in a gross profit of $983,000, or 33% gross margin, compared to gross profit of $1.5 million, or 42% gross margin, based on $2.2 million cost of sales for the second quarter of 2007. The decreased gross margin in the second quarter of 2008 was directly attributable to the devaluation of the U.S. dollar against the Chinese Yuan, and also negatively impacted by lower sales in the period. The gross margin increased over Q1 2008 and the Company is working to continue that trend. Bill Hawkins, DCT's President and COO commented, "In the quarter, we continued our efforts toward reducing our cost-of-goods-sold, which has helped offset the impact of the weakening dollar against the Chinese Yuan. We continue to experience some softness in orders as our larger VAR (Value Added Reseller) channel orders are often related to large capital expenditures, particularly in the healthcare, banking and financial sectors. We are encouraged by the initial success of a product pilot project with a new customer. We are confident that several unique (vertical) integrations of our technology will deliver efficiencies and a competitive advantage as they roll out in the remainder of 2008 and the early part of 2009. We continue to introduce new products that meet our customer's needs including one in early June that has drawn a very positive response. Two additional new products are expected to be introduced before the end of the year." Total operating expenses for the second quarter of 2008 were $681,000, a decrease of $1.0 million, or 60%, from $1.7 million in the second quarter of 2007. Selling, general and administrative expenses decreased 48% to $511,000 from $974,000; and research and development expenses decreased 77% to $170,000 compared to $749,000 in the year-ago period. The decrease in selling, general and administrative expenses was primarily a result of the termination of HD display-related activities in November 2007 as well as lower stock-based compensation costs (a non-cash charge), which were somewhat offset by increased personnel costs, including those related to the costs of complying with the Sarbanes-Oxley Act. 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. Operating income for the second quarter of 2008 was $302,000 compared to a net operating loss of $(177,000) in the year-ago period, representing an operating margin of 10%. GAAP net income for the second quarter 2008 increased by $596,000, or 368% to $758,000 compared to GAAP net income of $162,000, for the second quarter 2007. GAAP net income available to common stockholders was $746,000, or $0.04 per basic and diluted share (based on 18.4 and 20.8 million weighted average common shares outstanding, respectively) compared to a GAAP net loss of $(81,000), or $0.00 per basic and diluted share (based on 21.8 million weighted average common shares outstanding) for the second quarter of 2007. The 2008 second quarter's net results were favorably impacted by a change in fair value of derivative instruments and the gain on sale of assets totaling $575,000, and partially offset by the increased interest expense. On a non-GAAP* basis, net income available to stockholders in the second quarter of 2008 was $537,000 compared to a non-GAAP net income of $79,000 in the second quarter of 2007. Non-GAAP net income excludes certain non cash items, including stock-based compensation cost, and the accounting for derivative instruments. Net sales for the six months ended June 30, 2008 were $5.5 million, a 29% decrease compared to $7.8 million in net sales for the same period in 2007. The decrease in net sales in the quarter was primarily due to the overall slowdown of the general economic and market conditions in the U.S. economy and the related slowdown of "IT" spending as well as decreased demand from the banking, financial, and insurance sectors. GAAP net income for the six months ended June 30, 2008 increased to $278,000 compared to a GAAP net loss of $(646,000) for the year-ago period. GAAP net loss attributed to common stockholders was $(67,000), or $0.00 per basic and diluted share (based on 17.5 million weighted average common shares outstanding) for the first six months of 2008 compared to a GAAP net loss of $(1.1) million, or $(0.05) loss per basic and diluted share (based on 22.9 million weighted average common shares outstanding) for the same period in 2007. On a non-GAAP* basis, net income available to stockholders in the six months ended June 30, 2008 was $586,000 compared to a non-GAAP net income of $436,000 in the year-ago period. Non-GAAP net income excludes certain non cash items, including stock-based compensation cost, and the accounting for derivative instruments. The Company had cash and cash equivalents of $1.2 million, working capital of $2.1 million, and a current ratio of 2.1 to 1 at June 30, 2008 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. Mr. Clark concluded, "Subsequent to the end of the quarter, there were some important changes to our Board, highlighted by the Board's unanimous consent naming Edward M. Straw as Chairman. We welcome Mr. Straw's participation on the board and his 30-year track record as a leader in global logistics and supply chain management and believe he, as well as the rest of the board, will be a valuable asset to our management team. Through Ed's extensive contact network and relationships we believe he will be a key contributor to current initiatives we're working on, as well as the development of our customer base and sales pipeline with the objective of accelerating our top-and bottom-line growth." *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 August 13, 2008, at 4:30 PM ET: Management will host a conference call today to discuss the results at 4:30 PM ET. Anyone interested in participating in the conference call should dial in to 800-762-8908 if calling within the United States or 480-248-5081 if calling internationally. A replay will be available until August 20, 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 3909116 to access the replay. The call will also be available live by webcast over the Internet and accessible at the company'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 key patents with additional 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 (408)-213-3701 Investor Contact: Hayden Communications, Inc. Peter Seltzberg (212) 946-2849 tables follow DOCUMENT CAPTURE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2008 2007 ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $1,150 $1,770 Trade receivables 1,838 2,464 Inventories, net 989 1,400 Prepaid expenses and other current assets 56 32 Total current assets 4,033 5,666 Fixed assets, net 101 127 Total assets $4,134 $5,793 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable and related warrant liability $806 $1,239 Trade payables to related parties 668 578 Trade payables and other current liabilities 276 658 Deferred revenue 213 - Accrued dividends on Series A 5% cumulative convertible preferred stock - 178 Total current liabilities 1,963 2,653 Long-term bank line of credit 534 2,021 Liability under derivative contracts 144 255 Total liabilities 2,641 4,929 Convertible preferred stock, $.001 par value, 2,000 authorized: Series A 5% cumulative convertible preferred stock, 0 and 11.5 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively; liquidation value of $0 and $1,150 at June 30, 2008 and December 31, 2007, respectively - 1,074 Series B convertible preferred stock, 1.5 shares issued and outstanding at June 30, 2008 and December 31, 2007; liquidation value of $150 at June 30, 2008 and December 31, 2007 95 70 Stockholders' equity (deficit): Common stock $.001 par value, 50,000 authorized, 18,444 shares issued and outstanding at June 30, 2008 and 15,904 shares issued and 15,404 outstanding at December 31, 2007 (500 shares held in escrow) 18 15 Additional paid-in capital 32,065 30,323 Accumulated deficit (30,685) (30,618) Total stockholders' equity (deficit) 1,398 (280) Total liabilities and stockholders' equity (deficit) $4,134 $5,793 DOCUMENT CAPTURE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 Net sales $3,003 $3,696 $5,541 $7,823 Cost of sales 2,020 2,150 3,825 4,634 Gross profit 983 1,546 1,716 3,189 Operating expenses: Selling, general and administrative 511 974 1,472 2,289 Research and development 170 749 373 1,526 Total operating expenses 681 1,723 1,845 3,815 Operating income (loss) 302 (177) (129) (626) Other income (expense) Change in fair value of derivative instruments 425 330 111 (38) Gain on sale of assets 150 - 550 - Other (119) 11 (252) 20 Total other income (expense) 456 341 409 (18) Net income (loss) before income taxes 758 164 280 (644) Provision for income taxes - 2 2 2 Net income (loss) 758 162 278 (646) Dividend on Series A and accretion of Series A and Series B preferred stock redemption value (12) (243) (114) (484) Deemed dividend on Series A preferred stock maturity and Conversion - - (231) - Net income (loss) available to common stockholders $746 $(81) $(67) $(1,130) Basic income (loss) per common share $0.04 $0.00 $0.00 $(0.05) Diluted income (loss) per common share $0.04 $0.00 $0.00 $(0.05) Weighted average common shares outstanding 18,444 21,805 17,488 22,815 Weighted average common shares outstanding, assuming dilution 20,784 21,805 17,488 22,815 DOCUMENT CAPTURE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended June 30, 2008 2007 Operating activities Net loss available to common stockholders $(67) $(1,130) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 26 21 Stock-based compensation cost - options 214 1,080 Fair value of warrants issued for services rendered 51 8 Interest expense attributable to amortization of debt issuance costs 167 - Change in fair value of derivative instruments (111) 38 Accretion of Series A and Series B preferred stock redemption value 101 440 Deemed dividend on Series A preferred stock 231 - Changes in operating assets and liabilities: Trade receivables 626 (1,099) Inventories 411 165 Prepaid expenses and other current assets (24) (44) Accrued dividends on Series A 5% cumulative convertible stock 13 44 Trade payables to related parties 90 (588) Deferred revenue 213 - Trade payables and other current liabilities (382) 71 Cash provided (used) by operating activities 1,559 (994) Investing activities Capital expenditures - (67) Cash used by investing activities - (67) Financing activities Net (payments) advances on bank line of credit (1,487) 500 Payments on notes payable (700) - Proceeds from exercise of employee stock options 8 - Cash (used) provided by financing activities (2,179) 500 Net decrease in cash and cash equivalents (620) (561) Cash and cash equivalents at beginning of period 1,770 1,333 Cash and cash equivalents at end of period $1,150 $772 Non-cash investing and financing activities: Restricted common stock acquired from related party $- $2 Conversion of convertible preferred stock to common stock $1,339 $26 Increase to the warrant liability of common stock warrants in connection with debt financing $100 $- DOCUMENT CAPTURE TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 Net income (loss) available to common stockholders (GAAP) $746 $(81) $(67) $(1,130) Stock-based compensation cost - options 104 266 214 1,080 Fair value of warrants issued for services rendered 17 4 51 8 Interest expense attributable to amortization of debt issuance costs 83 - 167 - Change in fair value of derivative instruments (425) (330) (111) 38 Accretion of Series A and Series B preferred stock redemption value 12 220 101 440 Deemed dividend on Series A preferred stock - - 231 - Net income available to common stockholders (Non-GAAP) $537 $79 $586 $436 DATASOURCE: Document Capture Technologies, Inc. CONTACT: David P. Clark of Document Capture Technologies, Inc., +1-408-213-3701, ; or Investors, Peter Seltzberg of Hayden Communications, Inc., +1-212-946-2849, , for Document Capture Technologies, Inc. Web site: http://www.docucap.com/

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