Elcom International, Inc. Reports Second Quarter 2005 Operating
Results NORWOOD, Mass., July 26 /PRNewswire-FirstCall/ -- Elcom
International, Inc. (OTC Bulletin Board: ELCO; AIM: ELC and ELCS),
today announced operating results for its second quarter ended June
30, 2005. Financial Summary Table (Unaudited) (in thousands, except
per share amounts) Quarter Ended Six Months Ended June 30, June 30,
2005 2004 2005 2004 Net revenues $764 $598 $1,377 $2,307 Gross
profit 652 526 1,149 2,170 Operating loss (885) (1,020) (1,960)
(1,090) Net loss $(958) $(1,072) $(2,094) $(1,245) Basic and
diluted net loss per share $(0.01) $(0.02) $(0.03) $(0.03) Basic
and diluted weighted average common shares outstanding 61,282
56,352 61,282 43,631 The above table, the following description and
the condensed consolidated financial statements should be read in
conjunction with the Risk Factors and other information contained
in the Company's Forms 10-QSB for the periods ended March 31, and
June 30, 2005 and 2004 Annual Report on Form 10-KSB, as amended.
Net revenues for the quarter ended June 30, 2005 increased to
$764,000 from $598,000 in the same period of 2004, an increase of
$166,000, or 28%. Professional services revenue increased primarily
due to an increase in customer specific software modifications
(non-recurring) in the U.S. and U.K., and is net of a decrease in
implementation activities in the U.K. related to the contract with
Capgemini UK Plc ("Capgemini," formerly Cap Gemini Ernst and Young
UK Plc) associated with the Scottish Executive. Licenses and
associated fees increased primarily as a result of the Company's
larger customer base in the 2005 quarter, versus the 2004 period.
License and associated fees include license fees, hosting fees,
supplier fees, usage fees, and maintenance fees. Professional
services revenue includes implementation fees, integration fees and
other professional services. Gross profit for the quarter ended
June 30, 2005 increased 24% to $652,000 from $526,000 in the
comparable 2004 quarterly period, reflecting the increased revenues
recorded in the second quarter of 2005. Selling, general and
administrative expenses ("SG&A") for the quarter ended June 30,
2005 were $1,316,000 compared to $1,465,000 in the 2004 quarter, a
decrease of $149,000 or 10%. Throughout 2003, the Company
implemented cost containment measures designed to better align its
SG&A expenses with lower than anticipated revenues. Those
measures included personnel reductions throughout most functional
and corporate areas. In general, these reductions have remained in
place throughout 2004 and to-date in 2005. In March 2004, the
Company began hiring several staff in the U.K. and U.S. (support
services) in order to service the expanding demand in the municipal
market in the U.K., although the Company's headcount (full and
part- time) has decreased by one, from 38 at March 31, 2004 to 37
at June 30, 2005. Moreover, due to a change in the mix of
personnel, as well as the $140,000 increase in the second quarter
of 2005 in research and development expense and the $40,000
increase in cost of revenues (both of which are generally comprised
of personnel costs) over the 2004 quarter, the personnel expenses
in SG&A decreased approximately $220,000 from the June 2004
quarter to the June 2005 quarter. SG&A in the second quarter of
2005 also reflects increases in certain facility related costs,
reflecting the impact of inflation, and a net reduction in legal,
public company and audit expenses, as well as a reduction in
depreciation and amortization expense of $71,000 as various Company
assets have been fully depreciated/amortized. However, most of the
reductions accomplished in 2005 are offset, on a comparative basis,
by one-time credits received from two service providers in the 2004
quarter totaling $196,000 that reduced the amount of SG&A
reported in the 2004 period. Research and development expense for
the quarters ended June 30, 2005 and 2004 were $221,000 and
$81,000, respectively. The increase in expense in the second
quarter of 2005 compared to the second quarter of 2004 was due
primarily to ongoing work, begun in the latter half of 2004,
associated with various enhancements to improve the data
interchange, settlement work flow, user definable fields and
reporting system capabilities of the Company's PECOS technology.
The Company reported an operating loss from continuing operations
of $885,000 for the quarter ended June 30, 2005 compared to a loss
of $1,020,000 reported in the comparable quarter of 2004, a
decrease of $ 135,000, or 13%. This smaller operating loss from
continuing operations in the second quarter of 2005 compared to the
2004 quarter was primarily due to the increase in net revenues. Net
revenues for the six months ended June 30, 2005 decreased to
$1,377,000 from $2,307,000 in the same period of 2004, a decrease
of $930,000. Licenses and associated fees decreased primarily due
to recording the fourth and final lump sum license payment from
Capgemini, related to the contract between Capgemini with the
Scottish Executive of $1,142,000, which was earned upon signing the
thirteenth customer of the eProcurement Scotland program in the
first quarter of 2004 (this license fee is non-recurring). License
and associated fees include license fees, hosting fees, supplier
fees, usage fees, and maintenance fees. Professional services fees
increased by $35,000, from $363,000 in 2004 to $398,000 in 2005,
reflecting more professional services activities than were recorded
in the first six months of 2004. Professional services revenue
includes implementation fees, integration fees and other
professional services. Gross profit for the six months ended June
30, 2005 decreased to $1,149,000 from $2,170,000 in the comparable
2004 six month period, a decrease of $1,021,000. This decrease is a
result of the much higher level of one-time license and associated
fees revenue recorded in the first six months of 2004 versus
revenues recorded in the first six months of 2005. Selling, general
and administrative expenses ("SG&A") for the six months ended
June 30, 2005 was $2,768,000 compared to $3,138,000 in the first
half of 2004, a decrease of $370,000 or 12%. Throughout the first
three quarters of 2003, the Company implemented cost containment
measures designed to better align its SG&A expenses with lower
than anticipated revenues. Those measures included personnel
reductions throughout most functional and corporate areas. In
general, these reductions have remained in place throughout 2004
and to- date in 2005. In March 2004, the Company began hiring
several staff in the U.K. and U.S. (support services) in order to
service the expanding demand in the municipal market in the U.K.
Overall, the Company's headcount has remained relatively stable
between 2004 and 2005, however, due to a change in the mix of
personnel, as well as the $219,000 increase in research and
development expense and the $91,000 increase in cost of revenues
(both of which are generally comprised of personnel costs) in the
first half of 2005 over the first half of 2004, the personnel
expenses in SG&A decreased approximately $449,000 from the
first half of 2004 compared to the same period of 2005. SG&A in
the first half of 2005 also reflects a $155,000 reduction in
depreciation and amortization expense versus the first half of
2004, as various Company assets have been fully
depreciated/amortized. However, most of the reductions accomplished
in 2005 are offset, on a comparative basis, by one-time credits
received from two service providers in the 2004 period totaling
$196,000 that reduced the amount of SG&A reported in the first
half of 2004. Research and development expense for the six months
ended June 30, 2005 and 2004 were $341,000 and $122,000,
respectively. The increase in expense in the first half of 2005
compared to the first half of 2004 was due primarily to ongoing
work, begun in the latter half of 2004, associated with various
enhancements to improve the data interchange, settlement work flow,
user definable fields and reporting system capabilities of the
Company's PECOS technology. The Company reported an operating loss
from continuing operations of $1,960,000 for the six months ended
June 30, 2005 compared to a loss of $1,090,000 reported in the
comparable six months of 2004, an increase of $870,000 in the
reported loss. This larger operating loss from continuing
operations in the first six months of 2005 compared to the first
half of 2004 was primarily due to the one-time increase in license
and associated fees revenue recorded in the first quarter of 2004,
as described above. The Company further announced that it has not
yet achieved documented subscriptions for 3.0 million sterling for
its proposed offering on the AIM exchange, which is the currently
negotiated minimum for this proposed placement of shares. The
Company anticipates achieving this level in the near term. The
Company's strategic financing, if consummated and as per previous
press announcements and filings with the SEC, would be at a
substantial discount to the market price and create substantial
dilution to stockholders. Further, if the Company is unable to
secure its strategic financing via the issuance of shares on the
AIM exchange as discussed herein, or is unable to secure short-term
"bridge-loan" financing during August, the Company would be forced
to curtail operations, sell assets, or file for protection under
U.S. bankruptcy laws. Robert J. Crowell, the Company's Chairman and
CEO said, "The second quarter was a quarter of solid progress,
which underscores the potential of the Company when it achieves its
strategic funding, which I expect in the near term." Mr. Crowell
continued, "The documentation for one large potential investor in
the proposed AIM placement is not yet complete; however, we have no
reason to believe the documentation will not be completed in the
near term. In addition, assuming the finalization of negotiations
for Elcom to be a major sub-contractor for a large U.K. government
contract (as previously announced), is successfully completed, then
Elcom, while assuming a leadership role in government and public
sector eProcurement and eMarketplace systems, will also be in a
position to expand its various initiatives in the U.S." Factors
Affecting Future Performance A significant portion of the Company's
revenues are from license and associated fees received from
Capgemini under a back-to-back contract between Elcom and Capgemini
which essentially mirrors the primary agreement between Capgemini
and the Scottish Executive, executed in November 2001. Future
revenue under this arrangement is contingent on the following
significant factors: the rate of adoption of the Company's
ePurchasing solution by the entities within the Scottish Executive,
renewal by the entities within the Scottish Executive of their
rights to use the ePurchasing solution, the procurement of
additional services from the Company by Public Entities within the
Scottish Executive, and their compliance with the terms and
conditions of their agreement with the Scottish Executive and the
ability of the Company to perform under its agreement with
Capgemini. In addition, assuming the Company secures its strategic
funding, the Company intends to commit significant resources to
provide the eProcurement and eMarketplace components of the
previously announced eMarketplace for public sector organizations
in the U.K. under its anticipated back-to-back contract with PA
Shared Services Ltd., a subsidiary of PA Consulting Group UK Plc
("PASSL"). Future revenue under this anticipated contract is
contingent on final contracts being negotiated and executed, and on
the timing and rate of adoption of the overall system by U.K.
public sector entities, as well as the timing and level of costs
incurred to develop the required infrastructure to support the
architecture required under this contract, and the ability of the
Company, and the consortium as a whole, to perform and operate
profitably under this contract. If further business fails to
develop under the Capgemini agreement or if the contract with PASSL
is not executed, or if the Company is unable to perform under
either of these agreements, each would have a material adverse
affect on the Company's future prospects and financial results.
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT Except
for the historical information contained herein, the matters
discussed in this press release could include forward-looking
statements or information. All statements, other than statements of
historical fact, including, without limitation, those with respect
to the Company's objectives, plans and strategies set forth herein
and those preceded by or that include the words "believes,"
"expects," "targets," "intends," "anticipates," "plans," or similar
expressions, are forward-looking statements. Although the Company
believes that such forward-looking statements are reasonable, it
can give no assurance that the Company's expectations are, or will
be, correct. These forward-looking statements involve a number of
risks and uncertainties which could cause the Company's future
results to differ materially from those anticipated, including: (i)
the necessity of the Company to raise additional short-term working
capital to fund operations during August 2005 and longer- term
strategic funding and the availability of any such funding to the
Company, particularly in light of the audit opinion from the
Company's independent accountants in the Company's 2004 Annual
Report on Form 10-KSB, as amended; and the Company's $255,000
balance of cash and cash equivalents at June 30, 2005 and its
history of ongoing operating losses; (ii) the execution of the U.K.
government eMarketplace sub-contract as previously announced and/or
the timing thereof (iii) the overall marketplace and client's
acceptance and usage of eCommerce software systems, eProcurement
and eMarketplace solutions including demand therefore, the impact
of competitive technologies, products and pricing, particularly
given the substantially larger size and scale of certain
competitors and potential competitors, control of expenses and
revenue growth; and (iv) the consequent results of operations given
the aforementioned factors; and (v) other risks detailed from time
to time in the Company's Annual Reports on Form 10-KSB, Quarterly
Reports on Form 10-QSB and in its other SEC reports and statements.
In the event the Company is unable to raise additional short-term
working capital from loans or by the sale of assets or by other
means, including the possible sale of common stock on the AIM
exchange (in London), during August, the Company will be forced to
curtail or cease operations and/or seek protection under U.S.
bankruptcy laws. The Company assumes no obligation to update any of
the information contained or referenced in this press release. The
financial data set forth below should be read in conjunction with
the Consolidated Financial Statements and other disclosures
contained in the Company's 2004 Annual Report on Form 10-K, as
amended and Forms 10-QSB for the periods ended March 31, and June
30, 2005 (which the Company plans to file by August 15, 2005).
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in
thousands, except per share data) Three Months Ended Six Months
Ended June 30, June 30, 2005 2004 2005 2004 Net revenues $764 $598
$1,377 $2,307 Cost of revenues 112 72 228 137 Gross profit 652 526
1,149 2,170 Operating Expenses: Selling, general and administrative
1,316 1,465 2,768 3,138 Research and development 221 81 341 122
Total operating expenses 1,537 1,546 3,109 3,260 Operating loss
(885) (1,020) (1,960) (1,090) Interest and other income (expense),
net 1 9 -- (25) Interest expense (74) (61) (134) (130) Net loss
before taxes (958) (1,072) (2,094) (1,245) Income taxes -- -- -- --
Net loss $(958) $(1,072) $(2,094) $(1,245) Basic and diluted net
loss per share $(0.01) $(0.02) $(0.03) $(0.03) Weighted average
number of basic and diluted shares outstanding 61,282 56,352 61,282
43,631 CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in
thousands) June 30, December 31, 2005 2004 ASSETS CURRENT ASSETS:
Cash and cash equivalents $255 $390 Accounts receivable, net 124
307 Prepaids and other current assets 159 53 Total current assets
538 750 PROPERTY, EQUIPMENT AND SOFTWARE, NET 826 1,019 OTHER
ASSETS 26 10 NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 48 48
$1,438 $1,827 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILITIES: Loans payable $200 $-- Other current liabilities 4,922
3,429 Current liabilities of discontinued operations 311 303 Total
current liabilities $5,433 $3,732 Long term liabilities 497 573
Convertible debentures, net of discount 417 362 Total liabilities
6,347 4,667 TOTAL STOCKHOLDERS' DEFICIT (4,909) (2,840) $1,438
$1,827 AT THE COMPANY: Investor Relations E-mail: DATASOURCE: Elcom
International, Inc. CONTACT: Investor Relations of Elcom
International, Inc., Web site: http://www.elcom.com/
Copyright