Captaris Reports Solid Second Quarter 2006 Financial Results

Q2 Revenue of $22.6 Million up 6.7% Year-Over-Year
Net Income of $28,000 or Breakeven Per Share
Company Announces Additional Spending Reductions of $2.0 Million Annually

Bellevue, Wash., August 3, 2006 — Captaris, Inc. (NASDAQ: CAPA), a leading provider of software products that automate document-centric business processes, today reported financial results for its second quarter ended June 30, 2006.

Total revenue for the second quarter was $22.6 million, a 6.7% increase over the second quarter of 2005 and a 15.6% increase over the preceding quarter. Revenue by category compared to the second quarter of 2005 is as follows:

• Software revenue was $8.2 million, an increase of $130,000
  
• Hardware revenue was $5.4 million, an increase of $100,000
• Maintenance, support and service revenue was $9.0 million, an increase of $1.2 million

Gross profit was $15.9 million, up $1.4 million or 9.5%, compared to the same quarter last year, and gross margin was 70.1%, compared to 68.3% in the same quarter last year.

Total operating expenses were $16.1 million for the second quarter of 2006, a decrease of approximately $800,000, or 4.7%, compared to total operating expenses of $16.9 million for the second quarter of 2005. The decline in operating expenses was a result of effective cost control in the quarter and actions the Company took in the fourth quarter of 2005 to reduce its operating cost structure.

“Our solid second quarter results reflect a significant increase in the number of larger billing transactions including notable enterprise deals,” said David P. Anastasi, President and CEO of Captaris, Inc. “Our continued product development efforts and channel enhancements are driving increased multiple product sales and enterprise-wide deployments, as well as growth in deferred revenue through larger maintenance and support contracts. We also continue to make substantial progress in streamlining our business and improving operating leverage, enabling us to execute our planned further reduction of $2.0 million annually in cash spending. Looking ahead, we believe our ongoing initiatives to build a more stable and predictable business will enable greater opportunity for top line growth and increasing profitability.”

The Company recognized stock based compensation expense of $151,000 in the second quarter of 2006, compared to $15,000 in the second quarter of 2005. Amortization of intangible assets for the second quarter of 2006 was $835,000, including $481,000 in cost of revenue and $354,000 in operating expenses, compared to $935,000 in the second quarter of 2005, including $481,000 in cost of revenue and $454,000 in operating expenses.

Operating loss in the second quarter of 2006 was $252,000, an improvement of $2.2 million compared to a loss of $2.4 million in the second quarter of 2005.

The Company reported net income for the second quarter of 2006 of $28,000, or breakeven per diluted share, compared to a net loss of $1.4 million, or $0.05 per diluted share in the same quarter last year and compared to net income of $81,000, or break even per diluted share in the first quarter of 2006.

On a year-to-date basis, revenue of $42.2 million was up $2.2 million or 5.6%, operating expenses of $30.2 million were down $2.3 million or 6.9% and net income of $109,000 was up $3.4 million or 103%, all compared to the same period in 2005.

Cash flow from operations was $1.9 million in the second quarter of 2006, an increase of $1.5 million from the second quarter in 2005. On a year-to-date basis, cash flow from operations was $6.4 million, up $7.1 million compared to cash used of $700,000 in 2005.

Consolidated cash, cash equivalents and investment balances as of June 30, 2006 totaled $56.4 million, an increase of $700,000 from March 31, 2006. Deferred revenue at June 30, 2006 was $23.4 million, an increase of $760,000 or 3.4% over the preceding quarter.

Spending Reductions
The Company commenced actions in July 2006 intended to reduce annual spending by $2.0 million. The Company expects to realize benefits from these actions beginning in the fourth quarter of 2006 and carrying into 2007. Mr. Anastasi stated, “We are on track to meet the $5.0 million annual reduction in spending we announced on our third quarter 2005 earnings conference call. We believe the continuing refinement of our business model allows us to execute further reductions while driving attractive revenue growth.”

Stock Repurchase
During the quarter, the Company repurchased approximately 337,000 shares of its outstanding common stock at a cost of approximately $1.5 million with an average purchase price of $4.45 per share. As of June 30, 2006, approximately $13.5 million is available under its repurchase program. Captaris may repurchase shares under its stock repurchase program subject to overall market conditions, stock prices and its cash position and requirements. As of June 30, 2006, the total number of outstanding common shares was 28.1 million.

As previously announced on June 8, 2006, the Board of Directors authorized the Company to enter into a Rule 10b5-1 plan to facilitate its stock buyback activity. A Rule 10b5-1 repurchase plan will allow the Company to purchase its shares at times when it ordinarily would not be in the market because of self-imposed trading blackout periods. Captaris anticipates that transactions under the Rule 10b5-1 repurchase plan would begin, subject to the parameters of the plan, on September 18, 2006, the first trading day after the open trading window closes in the third quarter.

Web Cast Information
The Company will discuss its second quarter results and business outlook for 2006 on its regularly scheduled conference call today at 1:45 pm PT/ 4:45 p.m. ET. The live web cast of the conference call can be accessed from the Investor Relations section of the Captaris Web site at www.captaris.com or at www.mkr-group.com (under featured events). To access the live conference call, dial 800-240-2134 and give the Company name “Captaris.” An audio replay of the conference call can be accessed at 800-405-2236. The replay will be available starting two hours after the call and remain in effect until Thursday, August 10th at 11:59 PT. The required pass code is 11065266#.

About Captaris, Inc.
Captaris, Inc. is a leading provider of software products that automate business processes, manage documents electronically and provide efficient information delivery. Our product suite of Captaris RightFax, Captaris Workflow and Captaris Alchemy Document Management is distributed through a global network of leading technology partners. We have customers in financial services, healthcare, government and many other industries, and our products are installed in all of the Fortune 100 and many Global 2000 companies. Headquartered in Bellevue, Washington, Captaris was founded in 1982 and is publicly traded on the NASDAQ National Market under the symbol CAPA. For more information please visit www.captaris.com.

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding our belief that our ongoing initiatives to build a more stable and predictable business will enable greater opportunity for top line growth and increasing profitability and that our business model allows us to execute further cost reductions while driving attractive revenue growth and our plan to repurchase shares under our stock repurchase plan. Forward-looking statements include all passages containing verbs such as "aims," "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects" or "targets" or nouns corresponding to such verbs. Forward-looking statements also include any other passages that are primarily relevant to expected future events or that can only be evaluated by events that will occur in the future. Forward-looking statements are based on the opinions and estimates of the management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect Captaris’ actual results include, among others, the impact, if any, of stock-based compensation charges, the potential failure to maintain and expand Captaris’ network of dealers and resellers or to establish and maintain strategic relationships, inability to integrate recent and future acquisitions, inability to develop new products or product enhancements on a timely basis, inability to protect our proprietary rights or to operate without infringing the patents and proprietary rights of others, and quarterly and seasonal fluctuations in operating results. More information about factors that potentially could affect Captaris’ financial results is included in Captaris’ most recent quarterly report on Form 10-Q and annual report on Form 10-K filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance upon these forward-looking statements that speak only as to the date of this release. Except as required by law, Captaris undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.

The following are registered trademarks and trademarks of Captaris: Captaris, Alchemy, RightFax, Captaris Document Management, Captaris Interchange and Captaris Workflow. All other brand names and trademarks are the property of their respective owners.