x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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Delaware
|
59-3134518
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|
(State
or other jurisdiction of
|
(I.R.S.Employer
|
|
incorporation
or organization)
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Identification
Number)
|
|
Page
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PART
I – FINANCIAL INFORMATION
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4
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|
Item
1
|
Financial
Statements
|
4
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
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Item
3
|
Quantitative
and Quantitative Disclosures about Market Risk
|
25
|
Item
4T
|
Controls
and Procedures
|
25
|
PART
II – OTHER INFORMATION
|
26
|
|
Item
1
|
Legal
Proceedings
|
26
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Item
1A
|
Risk
Factors
|
26
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
Item
3
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Defaults
Upon Senior Securities
|
26
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
26
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Item
5
|
Other
Information
|
26
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Item
6
|
Exhibits
|
26
|
Signatures
|
27
|
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
|
(Unaudited)
|
(Audited)
|
|||||
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
1,299
|
$
|
1,770
|
|||
Trade
receivables
|
1,618
|
2,464
|
|||||
Inventories,
net
|
1,194
|
1,400
|
|||||
Prepaid
expenses and other current assets
|
29
|
32
|
|||||
Total
current assets
|
4,140
|
5,666
|
|||||
Fixed
assets, net
|
111
|
127
|
|||||
Total
assets
|
$
|
4,251
|
$
|
5,793
|
|||
LIABILITIES
AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|||||||
Current
liabilities:
|
|||||||
Notes
payable and related warrant liability
|
$
|
1,123
|
$
|
1,239
|
|||
Trade
payables to related parties
|
715
|
578
|
|||||
Trade
payables and other current liabilities
|
531
|
658
|
|||||
Accrued
dividends on Series A 5% cumulative convertible preferred
stock
|
-
|
178
|
|||||
Total
current liabilities
|
2,369
|
2,653
|
|||||
Long-term
bank line of credit
|
700
|
2,021
|
|||||
Liability
under derivative contracts
|
569
|
255
|
|||||
Total
liabilities
|
3,638
|
4,929
|
|||||
Commitments
and contingencies (Note 10)
|
|||||||
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 March 31, 2008 and December 31, 2007,
respectively;
liquidation value of $0 and $1,150 at March 31, 2008
and
December 31, 2007, respectively
|
-
|
1,074
|
|||||
Series
B convertible preferred stock, 1.5 shares issued and
outstanding
at March 31, 2008 and December 31, 2007; liquidation
value
of $150 at March 31, 2008 and December 31, 2007
|
82
|
70
|
|||||
Stockholders’
equity (deficit):
|
|||||||
Common
stock $.001par value, 50,000 authorized, 18,444 shares issued
and
outstanding at March 31, 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
|
31,944
|
30,323
|
|||||
Accumulated
deficit
|
(31,431
|
)
|
(30,618
|
)
|
|||
Total
stockholders’ equity (deficit)
|
531
|
(280
|
)
|
||||
Total
liabilities and stockholders’ equity (deficit)
|
$
|
4,251
|
$
|
5,793
|
Three Months Ended March 31,
|
|||||||
2008
|
2007
|
||||||
Net
sales
|
$
|
2,538
|
$
|
4,127
|
|||
Cost
of sales
|
1,805
|
2,484
|
|||||
Gross
profit
|
733
|
1,643
|
|||||
Operating
expenses:
|
|||||||
Selling
and marketing
|
251
|
400
|
|||||
General
and administrative
|
710
|
915
|
|||||
Research
and development
|
203
|
777
|
|||||
Total
operating expenses
|
1,164
|
2,092
|
|||||
Operating
loss
|
(431
|
)
|
(449
|
)
|
|||
Other
income (expense):
|
|||||||
Change
in fair value of derivative instruments
|
(314
|
)
|
(368
|
)
|
|||
Gain
on sale of assets
|
400
|
-
|
|||||
Other
|
(133
|
)
|
9
|
||||
Total
other income (expense)
|
(47
|
)
|
(359
|
)
|
|||
Net
loss before income taxes
|
(478
|
)
|
(808
|
)
|
|||
Provision
for income taxes
|
2
|
-
|
|||||
Net
loss
|
(480
|
)
|
(808
|
)
|
|||
Dividend
on Series A and accretion of Series A and Series B preferred stock
redemption value
|
(102
|
)
|
(241
|
)
|
|||
Deemed
dividend on Series A preferred stock maturity and
conversion
|
(231
|
)
|
-
|
||||
Net
loss available to common stockholders
|
$
|
(813
|
)
|
$
|
(1,049
|
)
|
|
Net
loss per common share – basic and diluted
|
$
|
(0.05
|
)
|
$
|
(0.04
|
)
|
|
Weighted
average common shares outstanding:
Basic
and diluted
|
16,442
|
23,850
|
Three Months Ended
March 31,
|
|||||||
|
2008
|
2007
|
|||||
Operating
activities:
|
|||||||
Net
loss available to common stockholders
|
$
|
(813
|
)
|
$
|
(1,049
|
)
|
|
Adjustments
to reconcile net loss to net cash provided (used) by operating
activities:
|
|||||||
Depreciation
expense
|
16
|
9
|
|||||
Stock-based
compensation cost – options
|
110
|
814
|
|||||
Fair
value of common stock warrants issued for services
rendered
|
34
|
4
|
|||||
Interest
expense attributable to amortization of debt issuance
costs
|
84
|
-
|
|||||
Change
in fair value of derivative instruments
|
314
|
368
|
|||||
Accretion
of Series A and Series B preferred stock redemption value
|
88
|
220
|
|||||
Deemed
dividend on Series A preferred stock
|
231
|
-
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Trade
receivables
|
846
|
(689
|
)
|
||||
Inventories
|
206
|
332
|
|||||
Prepaid
expenses and other current assets
|
3
|
(78
|
)
|
||||
Accrued
dividends on Series A 5% cumulative convertible stock
|
13
|
21
|
|||||
Trade
payables to related parties
|
137
|
(780
|
)
|
||||
Trade
payables and other current liabilities
|
(127
|
)
|
(109
|
)
|
|||
Cash
provided (used) by operating activities
|
1,142
|
(937
|
)
|
||||
Investing
activities:
|
|||||||
Capital
expenditures
|
-
|
(32
|
)
|
||||
Cash
used by investing activities
|
-
|
(32
|
)
|
||||
Financing
activities:
|
|||||||
Net
(payments)
advances on bank line of credit
|
(1,321
|
)
|
500
|
||||
Payments
on notes payable
|
(300
|
)
|
-
|
||||
Proceeds
from exercise of employee stock options
|
8
|
-
|
|||||
Cash
(used) provided by financing activities
|
(1,613
|
)
|
500
|
||||
Net
decrease in cash and cash equivalents
|
(471
|
)
|
(469
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
1,770
|
1,333
|
|||||
Cash
and cash equivalents at end of period
|
$
|
1,299
|
$
|
864
|
|||
Non-cash
investing and financing activities:
|
|||||||
Restricted
common stock acquired from related party
|
$
|
-
|
$
|
2
|
|||
Conversion
of convertible preferred stock to common stock
|
$
|
1,339
|
$
|
-
|
|||
Increase
in the warrant liability of common stock warrants in connection with
debt
financing
|
$
|
100
|
$
|
-
|
· |
Document
and information management;
|
· |
Identification
card scanners;
|
· |
Passport
security scanners;
|
· |
Bank
note and check verification;
|
· |
Business
card readers;
|
· |
Barcode
scanning; and
|
· |
Optical
mark readers used in lottery
terminals.
|
Three
months Ended
March
31,
|
|||||||
2008
|
2007
|
||||||
Customer
A
|
28
|
%
|
32
|
%
|
|||
Customer
B
|
25
|
15
|
|||||
Customer
C
|
21
|
21
|
|||||
Customer
D
|
10
|
*
|
Three months Ended
March 31,
|
|||||||
2008
|
2007
|
||||||
Selling
and marketing
|
$
|
15
|
$
|
73
|
|||
General
and administrative
|
71
|
508
|
|||||
Research
and development
|
24
|
233
|
Options
|
Weighted-
Average
Exercise
Price
|
||||||
Outstanding
at December 31, 2007
|
6,847,550
|
$
|
0.18
|
||||
Granted
|
-
|
-
|
|||||
Exercised
|
(1,446,000
|
)
|
(0.01
|
)
|
|||
Cancelled
|
(434,385
|
)
|
(0.87
|
)
|
|||
Outstanding
at March 31, 2008
|
4,967,165
|
$
|
0.39
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||
Range of
Exercise
Prices
|
Number
Outstanding
|
Weighted-
Average
Remaining
Contractual
Life (Years)
|
Weighted-
Average
Exercise
Price
|
Number
Exercisable
|
Weighted-
Average
Exercise
Price
|
|||||||||||
$0.01
|
2,241,165
|
4.07
|
$
|
0.01
|
2,241,165
|
$
|
0.01
|
|||||||||
$0.60
- $0.70
|
2,726,000
|
8.86
|
$
|
0.70
|
1,717,333
|
$
|
0.70
|
March 31,
|
|||||||
2008
|
2007
|
||||||
Weighted
average estimated values per share
|
$
|
0.29
|
$
|
0.27
|
|||
Expected
remaining life in years
|
2
|
3
|
|||||
Expected
volatility
|
108
|
%
|
51
|
%
|
|||
Expected
dividend yield
|
0
|
%
|
0
|
%
|
|||
Risk
free interest rate
|
4
|
%
|
5.3
|
%
|
Year Ending
March 31,
|
Future
Minimum
Lease
Payments
|
|||
2009
|
$
|
189
|
||
2010
|
151
|
|||
2011
|
39
|
|||
Total
|
$
|
379
|
Principal
payments due less than 12 months
|
$
|
1,000
|
||
Loan
Warrants redemption value
|
350
|
|||
Total
obligations
|
1,350
|
|||
Less
unamortized debt discount
|
(227
|
)
|
||
Total
notes payable and related warrant liability
|
$
|
1,123
|
Three Months Ended
March 31,
|
|||||||
2008
|
2007
|
||||||
U.S.
|
$
|
2,351
|
$
|
4,001
|
|||
Europe
and other
|
187
|
126
|
|||||
$
|
2,538
|
$
|
4,127
|
March 31, 2008
|
December 31, 2007
|
||||||
U.S.
|
$
|
4,110
|
$
|
5,574
|
|||
Asia
|
100
|
110
|
|||||
Europe
|
41
|
109
|
|||||
$
|
4,251
|
$
|
5,793
|
·
|
Overview.
This section provides a general description of the Company's business,
as
well as recent developments that we believe are important in understanding
the results of operations and to anticipate future trends in those
operations.
|
·
|
Critical
accounting policies.
This section provides an analysis of the significant estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets
and
liabilities.
|
·
|
Results
of operations.
This section provides an analysis of our results of operations for
the
three months ended March 31, 2008 compared to the three months ended
March
31, 2007. A brief description of certain aspects, transactions and
events
is provided, including related-party transactions that impact the
comparability of the results being
analyzed.
|
·
|
Liquidity
and capital resources.
This section provides an analysis of our financial condition and
cash
flows as of and for the three months ended March 31, 2008 as compared
to
the three months ended March 31,
2007.
|
Three Months
Ended March 31.
|
|||||||||||||
2008
|
2007
|
$
Change
|
%
Change
|
||||||||||
Net
sales
|
$
|
2,538
|
$
|
4,127
|
$
|
(1,589
|
)
|
(39
|
)%
|
||||
Cost
of sales
|
1,805
|
2,484
|
(679
|
)
|
(27
|
)
|
|||||||
As
a percentage of sales
|
71
|
%
|
60
|
%
|
|||||||||
Selling
and marketing expense
|
251
|
400
|
(149
|
)
|
(37
|
)
|
|||||||
General
and administrative expense
|
710
|
915
|
(205
|
)
|
(22
|
)
|
|||||||
Research
and development expense
|
203
|
777
|
(574
|
)
|
(74
|
)
|
|||||||
Total
other income (expense)
|
(47
|
)
|
(359
|
)
|
NM
|
NM
|
|||||||
Dividend
and deemed dividend on 5% convertible preferred stock and accretion
of
preferred stock redemption value
|
(333
|
)
|
(241
|
)
|
NM
|
NM
|
|||||||
NM
= Not Meaningful
|
·
|
The
timing and rescheduling of significant customer orders, which resulted
in
unusually high number of scanners shipped during the three months
ended
March 31, 2007 and an unusually low number of scanners shipped during
the
three months ended March 31, 2008.
|
·
|
The
overall slowdown of the general economic and market conditions in
the U.S.
economy and the related slowdown of information technology (“IT”)
spending.
|
·
|
The
$90,000 non-recurring severance expense associated with changes to
our
executive management;
|
·
|
Increased
personnel costs to support our expanding business and related
infrastructure; and
|
·
|
Increased
expenses associated with maintaining our public company status, including
the costs of complying with the Sarbanes-Oxley Act.
|
Less Than
|
One – Three
|
Three – Five
|
|||||||||||
Total
|
One
Year
|
Years
|
Years
|
||||||||||
Long-term
bank line of credit (1)
|
$
|
700
|
$
|
-
|
$
|
700
|
$
|
-
|
|||||
Term
loan principal payments (2)
|
1,000
|
1,000
|
-
|
-
|
|||||||||
Term
loan warrant liabilities(3)
|
350
|
350
|
-
|
-
|
|||||||||
Series
B Stock principal(4)
|
150
|
-
|
150
|
-
|
|||||||||
Operating
lease obligations
|
379
|
189
|
190
|
-
|
|||||||||
Consulting
agreement
|
45
|
45
|
-
|
-
|
|||||||||
Total
contractual cash obligations
|
$
|
2,624
|
$
|
1,584
|
$
|
1,040
|
$
|
-
|
Exhibit
Number
|
Description
of Exhibit
|
Method
of Filing
|
||
10.1
|
Lease
Agreement by and between DCT and Airport II Property Management,
LLC dated
March 7, 2008
|
Filed
herewith
|
||
10.2
|
Asset
purchase agreement by and between DCT and Sky Glory Enterprise Investment
Co., LTD. Dated December 20, 2007
|
Filed
herewith
|
||
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act – David P.
Clark
|
Filed
herewith
|
||
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act – M. Carolyn Ellis
|
Filed
herewith
|
||
32.1
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act – David P.
Clark
|
Filed
herewith
|
||
32.2
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act – M. Carolyn
Ellis
|
Filed
herewith
|
Document
Capture Technologies, Inc.
|
||
Date:
May 15, 2008
|
||
/s/ David
P. Clark
|
||
David
P. Clark, Chief Executive Officer
|
||
Date:
May 15, 2008
|
||
/s/
M. Carolyn Ellis
|
||
M.
Carolyn Ellis
|
||
Chief
Financial Officer
|